November 18th, 2009

A Tale of Two Software Worlds: Old ERP vs. SaaS

Posted by Brian Sommer @ 11:20 am

Categories: Current Affairs, ERP, Financial Software, Future of Application Software, HR, Implementing Technology, Selling & Marketing Software, Software Development, Software Marketing, Software Vendors, The Application Software Buyer, The Applications Market, Think About IT, software

Tags: Software, Software-as-a-service, Solution, Customer, ERP, Survivors, Software As A Service (SaaS), Managed Hosting, Cloud Computing, Emerging Technologies

Watching the train wreck as SaaS continues its assault on the on-premise software world

Charles Dickens began his famous book “A Tale of Two Cities” with this opening statement:

“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going to direct to heaven, we were all going direct the other way, “

This week, I’m in Silicon Valley. Yesterday, a colleague, Dr. Katherine Jones, and I visited with executives from WorkDay, Taleo, Ariba and Financial Force (the Salesforce.com and Unit4/Agresso joint venture). Today, I’m at Salesforce.com’s Dreamforce event. These visits have confirmed for me what CIOs have already indicated to me: SaaS (software as a service) has really moved mainstream. Big ERP (enterprise resource planning) vendors that cannot, will not or are unable to offer these solutions are in trouble. Yet, to hear it from the old school crowd, these firms are:

- still vetting the SaaS space as they aren’t sure it’s for real
- saying that their customers aren’t asking for SaaS
- having trouble retro-fitting their old-premise solution to a SaaS environment
- do not know how to make a solution multi-tenant despite spending hundreds of millions of dollars in research and development
- etc.

LET THEM EAT CAKE

Or in this case “let them pay 25% maintenance that generates 90+% margin for us”. The arrogance, indifference or lack of empathy old school vendors have for their customers is appalling. They behave with the imperious attitude of the royalists of yore. But, like the old royalists, they did not recognize that the world around them was changing. Instead, the royalists found themselves increasingly on the other end of a pitchfork, ax or guillotine. The end of an era is coming and vendors can choose to embrace or fight it. But will the fighters win?

In the executive meetings yesterday, Katherine and I heard, consistently, these sentiments:

- Interest in SaaS products is growing rapidly. Vendors find they are challenged by internal concerns (e.g., how to accommodate their sales professionals’ commission problems as these companies are shifting from on-premise to SaaS sales) not market acceptance. Nonetheless, the smart firms don’t let their internal issues impede what their customers want. These vendors are sorting out the issues and moving forward.

- Marketing SaaS products is not a problem for SaaS vendors but successfully implementing the customers they are winning is. SaaS vendors are almost universally focused on building solid customer references as they know that reputation really matters in a space where a few minutes of service disruption could kill one’s brand.
- Market interest in SaaS products is expanding. Once, where customers would entertain some HR or CRM apps running on the cloud, Finance applications are now being seen as very viable solutions to use.

Katherine and I asked these vendors about the software products they are replacing. No surprise here: they are uninstalling old school products – many of the products being replaced were implemented to alleviate Y2K (year 2000) issues. Those aging products, many of which were implemented in the mid-to-late 1990s, are the ones being booted to the curb. More on this in a subsequent post.

Why are the old products falling away? Vendors told us that their customers and prospects are looking to SaaS as:

- The TCO of existing solutions is out of whack. Ever higher maintenance costs were frequently identified as major customer pain point and a driver of SaaS sales.

- Customers don’t like being stuck on older releases because they can’t justify the commitment of funds, time, third parties, etc. to implement upgrades.

- They have run out of time waiting for their old ERP, HR, or Finance software vendor to get on the SaaS bandwagon or deliver long-promised SaaS products.

One SaaS vendor executive described the ‘transition points’ that trigger the initial contact with their firm. These include, but are not limited to:

- The prior old school vendor requires a re-implementation of the product to utilize a new release.
- The old school vendor requires its customers to re-license an application as it is being re-platformed or re-badged.
- The customer is experiencing declining fortunes yet the old school vendor’s license fees and maintenance amounts will not change to reflect the new economic reality.
- The customer is outgrowing the old solution. The number of customers that are now global is huge and growing yet some solutions do not scale in size, functionality or global reach.
- Etc.

CIOs are adding to the market interest as they are choosing to use SaaS applications whenever some of their servers are due for retirement/replacement. CIOs realize that they would like to avoid new capital expenditures, want to have software that always remains current, use software that doesn’t cost them anything to upgrade, use software that frees up their IT staff to work on more strategic matters, etc.

Vendor after vendor reaffirmed for Katherine and me that customers are realizing 50% TCO savings over older on-premise products. (Salesforce did so this morning, too).

Now look at what’s going on at Salesforce.com’s Dreamforce event. 19,000 people registered for this event. The main auditorium of 10,000 was filled and an overflow room of 3,000 people was filled, too. In this economy, such a large number of people don’t go to a show, miss work and incur travel costs unless they’re serious about the subject.

A crowd of 19,000 people is a lot. Maybe only two or three application software vendors could deliver that kind of crowd. And some of those are struggling to do so as the lack of innovation, the lack of timely delivery of product, the high cost of these passé solutions, etc. makes market interest in these products fade.

Will SaaS displace on-premise solutions? Not entirely. But significant market share losses could start showing up in the next 24 months. Latecomers to SaaS will find their existing customers and new prospects to be especially leery of their solutions. Why? It’s taken Salesforce.com a decade to perfect their platform, their reliability, their sandboxes, etc. Untested SaaS environments will be viewed as risky propositions. CFOs, Controllers, CEOs, etc. will prefer to go with solutions from vendors with a solid track record and credentials in SaaS and the cloud. Newbies will have a really tough time.

Dickens opened his book with the best/worst dichotomies not just to get a reader’s attention but to point out that everyone in France at that time, royalists and peasant, had starkly different opinions of the current situation. Some royalists thought good times were still ahead while others correctly saw the sea change coming. Ditto for the peasants.

Survivors are the ones who correctly assess the market situation. Casualties are the ones who live in denial or in some unrealistic but idealized view of the world. Old school, on-premise vendors are in trouble. Of that I have no doubt. What amazes me is the level of denial still present in some of those firms. Pain is coming to those firms soon.

October 20th, 2009

Demand this from software vendors

Posted by Brian Sommer @ 4:49 pm

Categories: Analytics - Performance Management, ERP, Financial Software, Future of Application Software, Notable Research, SaaS and Beyond, Selling & Marketing Software, Software Vendors, The Applications Market, software. applications

Tags: Vendor, Customer, Sales Strategy, Tools & Techniques, Software As A Service (SaaS), Sales Force Management, Enterprise Software, Sales, Management, Emerging Technologies

I was getting a briefing last week from a software executive. We got to a point in the conversation where the discussion was focusing on existing products. I moved the conversation to a different space, though. If you’re getting a pitch from a vendor, you should move the conversation, too!

Still Market Relevant - When the vendor dialogue is all about existing customers buying more of the old product line, it’s not all that intriguing. Yes, it tells me that the vendor is still relevant to its customer base but these sales are mostly in-fill sales. You remember these sales, don’t you? They’re like those customers who had previously bought most of the ERP suite but now need the CRM (customer relationship management) modules.

Gaining Market Share - When a vendor is getting all-new customers for its existing products, then that’s a bit more newsworthy. This means that the products are appealing to new buyers and these just aren’t the existing customers. That means the products are still fresh and delivering competitive advantage. Alternatively, this market momentum could also signal that the software vendor has a great sales and marketing organization or is buying its way into ever greater market share. Wall Street likes this quadrant but a vendor can’t stay here forever as its products will age and lose their market appeal or luster.

Re-enlistments – These are the customers who are re-affirming their commitment to the vendor. They are choosing to upgrade their applications to the all-new application suite, new platform, etc. These firms are making a major financial commitment and their decision to do so is not trivial. Re-enlistment scenarios often occur with major technology platform changes (e.g., going from client-server architecture to Web 2.0 applications).

Hot Space - The top right quadrant is the really high-interest zone. This is where all-new products are attracting all-new customers. This stuff is red-hot! It’s the kind of software that makes the customers of other software vendors abandon their old products and switch to the new stuff. When you think of this quadrant, don’t just think of replacement technologies. Think about the products you bought for the first time. Think about your first cell phone, spreadsheet program, MP3 player, etc.

I want to hear more Hot Space stories. They are undoubtedly more interesting than the other stories and they are really rare. If a vendor has been around a while and has 1000 customers, probably 900 are in the Still Market Relevant quadrant. The rest are scattered across the three remaining quadrants with fewer than a dozen or two in the Hot Space quadrant.

Over the last few years, the numbers of customers and stories in the Hot Space has been in decline and, worse, as a percentage of total customers, experiencing a very real decline.

Innovation in ERP, for example, has been so bogged down in technical infrastructure changes (e.g., middleware/SOA platform changes) and business model changes (e.g., from on-premise to SaaS (software as a service)) that real value-adding, business-relevant improvements to products are far and few between. Look at the ‘amazing’ value that business analytics hasn’t brought in to date. Analytic applications are still crunching internal transaction data. The lack of imagination and innovation here is an embarrassment to the technology sector.

When a software vendor comes knocking on your firm’s door, ask them to segment their customer base along the lines of the four-quadrant picture above. Then, only ask them to describe the value derived and experience of these all-new customers buying all-new solutions. If they struggle with this exercise, this vendor is selling you yesterday’s technology. Your users will love this old-time solution the vendor is pitching as much as they’d want to buy a newspaper from last week. Even if the vendor has some stories in this quadrant, these may actually reference old technology. Watch out for this. If it doesn’t have sizzle, differentiation and freshness, then it’s old news. Don’t reward vendors for re-packaging an old product in new wrapping. Make them innovate or make them get out of the way.

** UPDATE **
I read the comments many of you post to these blogs. Thanks.
A reader of this post raised a couple of points I’d like to clarify. Were a vendor to approach your firm about an existing product, one that has been on the market for a while, am I suggesting you not consider it? No, I’m not but I would caution you that the product you could be considering may be a bit long in the tooth. I wouldn’t pay too much for old-tech. But also remember that the vendor that has nothing in the top right quadrant is also a vendor with a limited future. This is an area where the vendor’s future sales momentum will occur. Without something to entice new customers into the fold, this firm will be lucky to make in-fill sales to existing customers. So, if you need something now, any product in any quadrant will do. But, if you want a product with a future, find a vendor who is building for the future.

September 7th, 2009

HP to Cut Loose its BPO operations?

Posted by Brian Sommer @ 2:25 pm

Categories: Current Affairs, ERP, Financial Software, HR, Outsourcing, Professional Services, SaaS and Beyond, Service Providers, The Applications Market

Tags: Innovation, Hewlett-Packard Co., BPO, Business Process Outsourcing (BPO), Outsourcing, It Services, It Operations, Business Operations, Outsourcing & Subcontracting, Brian Sommer

Why sell what you just bought?

A recent Channel Insider article raised the concern that HP might sell off or shutter some of its outsourcing business. Specifically, the article speculated on the BPO operations that EDS brought into the firm as part of HP’s acquisition of EDS. BPO, business process outsourcing, describes the outsourcing of entire business processes, like accounts payable, to a third party with the objective of reducing costs and/or improving the performance/outcomes of those processes.

HP bought EDS back in May this year. Selling off assets, like the BPO practice, would seem like something that would have been done earlier than now. But, HP may not be happy with the lower returns that BPO offers. That was certainly one scenario that Channel Insider offered up.

(Fellow blogger Dennis Howlett offered up an assessment of the HP EDS merger here).

Why do companies decide to get out of recently acquired businesses? They do so because:

- the businesses do not ‘fit’ their strategic game plan
- the businesses are not healthy
- the businesses cannot return the margins that the company’s shareholders demand
- the economics of that business are really messed up by competitors’ pricing
- they do not understand that space or how to operate it well
- etc.

BPO is about scale and process delivery. The more scale, theoretically, the lower the operating costs. The better designed the processes, theoretically, the lower the operating costs and improved service levels for customers. However, BPO in practice doesn’t work the same as in theory. BPO deals often include a lot of one-off processing. Few ‘best practices’ or ‘best processes’ work well across industries or work well for every company. Too often, BPO solutions are not standardized and hence more expensive to operate than in theory. I suspect that most BPO solutions look more (and are sold more) like hosted applications than the standardized, multi-tenant applications offered by SaaS (software as a service) vendors.

Another issue with BPO deals concerns the ability of the outsourcer to dramatically improve existing processes and performance levels. Some deals essentially involve the transfer of systems to another firm. No step change in improvement occurs. Other deals promise a transition to new level of performance via new systems and process designs. These deals are expensive to implement as the change management, user training, and other costs drive up the BPO cutover costs for the user firm and the outsourcer. Finally, BPO providers who promise ‘continuous’ process improvements may find that getting a customer to one step change is expensive enough. Future improvements may be too costly to justify.

BPO providers also build their business on the use of third party ERP software. Guess what, those same BPO providers better have terrific pricing with those firms as license, maintenance and support costs for these products have been growing faster than inflation, consumer price index or reason.

But the use of ERP software may not be such a great thing for these BPO firms. If every BPO provider uses the same limited set of solutions with their limited (1980s) functionality, these solutions are not innovative or delivering unique value. This is especially true for back office (i.e., accounting and HR) applications. ERP and innovation are not words often found in the same sentence. Without innovation, value is hard to deliver.

BPO doesn’t have to be a low margin business, though. If outsourcers want to get higher margins, they need to offer something more than a commodity offering. Specifically, they need to offer innovation and value. The value must be more than low cost/pricing. Innovation must be more than process designs. BPO without innovation is a commodity. Without innovation, BPO is like any other business service: janitorial, vending, delivery services, etc.

If HP can spin off this business without taking a bath, they should use the funds to re-invent BPO. BPO today should be a service offered via a SaaS solution running with a PaaS (platform as a service) in a full multi-tenant world. BPO needs to fully embrace the cloud.

BPO-based processes need a huge infusion of innovation and it won’t be coming from the usual ERP suspects. Most of these firms have become large technology portfolio managers more interested in 43% operating margins on their maintenance base than in delivering something really new or different. These ERP firms are too vested in maintaining the status quo and not in delivering something really amazing. Their inattention to innovation is hurting BPO. Maybe, this is why HP is possibly running away
from BPO….

July 22nd, 2009

Wedding Bells: NetSuite + OpenAir + QuickArrow

Posted by Brian Sommer @ 6:45 pm

Categories: Current Affairs, ERP, Financial Software, Future of Application Software, Mergers & Acquisitions, PPM - Project Portfolio Management, PSA - Professional Services Automation, Professional Services, SaaS and Beyond, Software Vendors, The Applications Market, software, software. applications

Tags: Software-as-a-service, NetSuite Inc., OpenAir Inc., ERP, Software As A Service (SaaS), Managed Hosting, Cloud Computing, Enterprise Resource Planning (ERP), Emerging Technologies, Enterprise Software

When PSA (and SaaS) Got BIG!

Today, NetSuite announced it is buying QuickArrow, an Austin, Texas based PSA (professional services automation) vendor. This $20 million deal will put QuickArrow with OpenAir, another PSA solution that NetSuite acquired a little over a year ago. Click here for the official release.

NetSuite has been aggressively targeting service industries and has developed a number of solution capabilities beyond just the PSA set. Additionally, NetSuite has a Platform-as-a-Service (PaaS), a full set of financial applications and many other SaaS (Software as a Service) capabilities.

This deal brings NetSuite serious service industry street credibility. Combined, QuickArrow and OpenAir have 80,000 users and some of the largest service firms in the world as customers.

Deals like this should wake up those ossified, old-school ERP vendors who are still on the fence about their own SaaS offerings. Vendors like NetSuite are:

- growing organically (i.e., product line and revenue growth)
- continuing to innovate
- growing inorganically (via acquisitions)
- building impressive market share

Old-school ERP vendors should realize that continuous market share gains by SaaS vendors into old ERP accounts are going to start to hurt the old-school firms’ bottom lines. When SaaS vendors got the occasional CRM deal, it really didn’t hurt. Now, SaaS vendors are increasingly their:

- vertical industry penetration
- breadth of product line
- up market movement

The times, they are a changin’ and the old ERP vendors aren’t….

July 5th, 2009

Bleak Xmas Ahead: Where's the innovation I need to fill the stockings?

Posted by Brian Sommer @ 6:16 pm

Categories: Current Affairs, Financial Software, Fun With Tech, Future of Application Software, SaaS and Beyond, Selling & Marketing Software, Software Development, Software Vendors, The Applications Market, Think About IT, Vendor Management, Web/Tech, software

Tags: Innovation, Incrementalism, Recipe, Herewith, Leadership, Strategy, Management, Brian Sommer

I know this is the July Fourth holiday and I’m half a year away from gift giving. But, when I looked through the Sunday supplements in today’s newspaper, I couldn’t find anything to buy. Nothing. Nada. Zip. Zilch. Squat.

Yes, I scanned the Best Buy, Office Depot and TigerDirect supplements and I couldn’t find anything I needed. I don’t need any new LCD monitors on my desk. I don’t need a digital camera, printer or hard drive. I don’t even need any of the software out for sale these days.

If you were my kids or a CIO, you should be worried this holiday season. I think the technology vendors out there are going to leave us with the highly innovative, LUMP O’ COAL version 4.6.2a this holiday season. I can hear the TV announcer right now. He’s saying:

WHAT’S IN THE NEW LUMP O’COAL THIS YEAR??!! WELL, WE’VE ADDED TONS OF NEW FUNCTIONS AND FEATURES THAT YOU’LL NEVER NEED OR GET A CHANCE TO IMPLEMENT. IN FACT, WE’VE EVEN CREATED SOME VERY SPECIAL AND HIGHLY EXPENSIVE UPGRADE OPTIONS THAT MAKE THE TCO OF THIS PRODUCT MORE PRICEY AND WORTHLESS THAN EVER.

WE’VE TAKEN THE SAME FUNCTIONS AND FEATURES YOU’VE GROWN ACCUSTOMED TO THE LAST THREE DECADES AND ADDED THINGS LIKE GRC AND SOA. MAYBE, IF WE CAN STILL FIND SOMEONE WHO KNOWS HOW THIS SOFTWARE WORKS, WE CAN EVEN MAKE IT MULTI-TENANT.

No matter how much someone is screaming how innovative they are, I’ll be the judge of what’s really innovative.

I feel like I’m in the bottom of an innovation chasm. I’ve got all of the cool gadgets from the last decade or two and I can’t see anything new coming out. Even if I wanted to do my part to help the economy recover, I can’t. There’s nothing new to buy.

What’s passing for new these days is merely incrementalism. Incremental innovation has replaced real breakthroughs.

Incrementalism is rampant in the ERP space. The recipe is so familiar that it’s shopworn: take one really old package from the 1980s, re-platform it to SOA and then acquire a few complementary add-on products and, presto, you’re suddenly market relevant again. Bull.

I need proof that innovation is really occurring out there. Instead, we see headlines like these:

- ERP vendors raising $ billions in debt to pay for their acquisitions and to build up cash reserves for new acquisitions
- cell phone/PDA makers releasing new products that can’t or won’t work on carriers’ networks or can’t enable a number of the new capabilities within it

Geoffrey Moore’s last book, Dealing With Darwin, is a great read. He stipulates that there are certain kinds of innovations and some, like incremental innovations, are appropriate at specific points in a product’s life cycle. Well, in that case, someone needs to send a few dozen copies of that book to all of the ERP vendors out there. Almost to a one, these firms are all piling on the incremental innovation space. Certainly there’s some room for something all new, amazing and ground-breaking.

I’ll take Geoff’s work and create my own addendum. Herewith are my laws of technology innovation:

First: Acquisitions aren’t the same as innovation. If they were, we’d see a different definition in the dictionary for innovation.

Second: If you innovate and no one can/will use it, it may not really be innovation.

Third: Vision is not the same as innovation. We’re not suggesting everyone on your team has to have 20/20 vision. No, we think you need people who are empathetic, well-read, cosmopolitan, imaginative and inspiring. You need people who can both imagine the future and can build the team, projects, etc. to make the future happen.

Fourth: Talking about innovation is not the same as innovation. If that were the case, the PowerPoint decks everyone emails me would be worth billions.

Fifth: Innovation takes daring, imagination, a sense of urgency and skill. If your firm’s glorious leader is long on financial deal making, financial engineering, sales quota enforcement or managing his personal stock option package, he/she may not be the best example of an innovation leader.

Sixth: Great firms are masters of innovation and exploitation. Some firms are brilliant at lifting other firm’s ideas. These fast followers can ramp up and exploit other firm’s innovations to great market success. Innovators can design brilliant solutions to real problems. But, the truly great excel at both.

Seventh: Being committed to innovation is not (I repeat, not) the same as being innovative. Oh, the misdirection this causes the average technology buyer. How many times have buyers postponed a major technology purchase because their favorite tech vendor has promised to some day, maybe, possibly (but not commit this to a written contract) deliver the new technology, application, vertical extension or functionality.

July 1st, 2009

NetSuite vs. SAP – How Newton would see this contest

Posted by Brian Sommer @ 8:10 pm

Categories: Current Affairs, ERP, Financial Software, SAP, SaaS and Beyond, Software Vendors, The Applications Market, Timber - The Mighty Fall, software, vendors

Tags: Software-as-a-service, NetSuite Inc., SAP AG, Barron, Software As A Service (SaaS), Managed Hosting, Cloud Computing, Enterprise Resource Planning (ERP), Emerging Technologies, Enterprise Software

Competition is a great thing. It forces even the biggest firms to become humbled. It makes innovation a necessity. It can lower pricing and expand markets to everyone’s benefit.

Competition in the SaaS (software as a service) world of ERP got a little hotter this week when NetSuite trotted out its blessed German version of its ERP solutions. Their software has now been certified by German regulatory/auditing professionals and that means that NetSuite is open for business in a big way in SAP’s backyard.

Barron’s did a nice write-up on this and I’d encourage you to view that linked article. Others have covered this, too, including several of the Enterprise Irregulars.

Let me add the following thoughts regarding this announcement. First, let’s discuss SAP and SaaS. Dennis Howlett () and I wrote a smashingly detailed review of SAP’s Business ByDesign product over a year ago. It’s a 27-page masterpiece of insight that we can’t give away as that product is still moving in a really controlled rollout. I recently wrote about this mid-June and would really like to see some real market interest in that product. But, until the multi-tenancy and channel issues are sorted out, Business ByDesign is stuck in a real slow-mo existence.

NetSuite, though, can’t seem to quit moving. I get at least three press releases a week from them. Some of them aren’t really that earth-shattering but, overall, they point to a firm in motion. So, today we have a great example of Newton’s Laws of Motion (e.g., A body at rest stays at rest, and a body in motion stays in motion, unless it is acted on by an external force.)

NetSuite is the body in motion that’s staying in motion while SAP is the ERP vendor sort of stuck in idle – particularly where SaaS (software as a service) is concerned. Your move SAP.

June 4th, 2009

Accounting for success? Darwin meets the green eyeshade world…

Posted by Brian Sommer @ 11:42 am

Categories: Auditing - Tax - Accounting, ERP, Financial Software, Future of Application Software, GRC - Governance Risk Compliance, Outsourcing, Professional Services, Selling Professional Services, Service Providers, Sourcing, The Applications Market

Tags: Software, Accounting, Firm, Darwin, F&A, F&A Executive, Operational Accounting, Financial Services, Finance, Brian Sommer

Have you really looked at your options for finance & accounting lately?

BPO (business process outsourcing) for Finance and Accounting has been going on for a time. The industry owes some part of its success to the shared services efforts of larger firms. When businesses created shared services facilities, they standardized, among other things, their finance and accounting systems and processes. In my career, I helped many, many global enterprises consolidate their numerous, diverse accounting solutions and data centers to one, shared operation.

In creating these centers, businesses designed new finance and accounting (F&A) processes that were a step change improvement in cost, efficiency and effectiveness. They often sped up the time to close the books, reduce errors (and the cost of correcting accounting errors), and improved the consistency in processing that delights internal and external auditors.

After hundreds and hundreds of shared service operations were established, some businesses moved these facilities to lower cost countries. Ireland and some Eastern European countries were the original beneficiaries of this trend. Indian and China came next.

These ‘captive’ shared service facilities then became material assets of their corporate owners. At different times, many of these operations were sold to outsourcing firms. GE spun their operation out and we now know this operation as GenPact. GenPact took F&A outsourcing up a notch and recruited/trained scores of process black belts to improve the performance of F&A processes.

So, where do businesses go today? What do mid-size or smaller firms do?

Small firms have often utilized contract accounting services that are often provided by CPA firms. For low volume, small businesses, this approach has been cost-effective and lower risk than in-house solutions. Mid-sized businesses haven’t had as many options. They are often forced to acquire expensive, on-premise accounting software and hire a large staff to do the necessary F&A work. These mid-market firms are often too small to attract the attention of larger F&A BPO providers and too large for local, CPA-based accounting service providers.

The Cloud may change that – the cloud and a firm like Corefino.

In prior evolutionary cycles, companies had to license their F&A applications from software vendors. They also had to acquire an F&A staff. The very best expertise was only available to the largest firms and those with the money to pay for it. Again, mid-market firms were often squeezed.

SaaS and Cloud phenomena can change that. These can put world-class F&A technology on the web, secure the data, etc. and make it accessible to businesses globally no matter what size firm they are. This new generation of technology also permits firms like Corefino to offer SaaS (software as a service) accounting software along with trained accounting professionals. The combination of great talent and software reduces the capital outlay and personnel headaches that many F&A Controllers and CFOs face.

The attraction of this type of solution could be compelling. Few F&A operations are strategic. Accounts Payable, Accounts Receivable, Fixed Assets, etc. are rarely strategic. Tactical functions are often good candidates for outsourcing. If an outsourcer provides the software (instead of just operating the client’s licensed software) and the people who will use it, the value proposition gets more interesting, especially for mid-market firms. Certain strategic F&A activities (e.g., strategic acquisitions, capital financing, etc.) will not be outsourced but for the basic, non-differentiated activities (e.g., bill paying), outsourcing could be the norm.

The decisions for Controllers and CFOs today are varied:

- License software, hire and train an internal F&A staff and develop all manner of policies, controls and procedures on your own nickel. This approach has a high upfront capital cost, high audit costs, many personnel issues and lots of recurring costs in the form of needed hardware upgrades, software maintenance fees, periodic software patches and re-implementations. This option does keep the data and systems entirely within the company.

- Transfer the systems of one’s F&A environment to an outsourcer to operate. The outsourcer assumes responsibility for maintaining and running the software but may do little more.

- Transfer the systems and some personnel to an F&A BPO firm. These companies may deliver an immediate step-change improvement in business processes and/or systems. This solution is great, short-term, for those firms with grossly inefficient F&A operations but may not produce many benefits for those already operating in the first or second quartile of F&A performance.

- Cutover most F&A functions, personnel and systems to a cloud-based F&A outsourcing provider. This approach is great for those who want to avoid a large capital outlay and need to upgrade their talent, processes and/or systems.

Competition and evolution yield choices in the marketplace. F&A executives are getting more and more choices and a more diverse group of solution providers. If you run an F&A operation and the current crop of on-premise software solutions look too limited, too expensive and too much of a headache, then look at some of the new opportunities out there today.

May 27th, 2009

Some welcome competition in mid-market ERP

Posted by Brian Sommer @ 4:32 pm

Categories: China, Current Affairs, ERP, Financial Software, Future of Application Software, Implementing Technology, India & Services, Professional Services, Service Providers, Software Vendors, The Applications Market, Vendor Management, software. applications, vendors

Tags: Accounting, Reseller, ERP, Channel Partner, Sage, X3, X3 Product Line, Enterprise Resource Planning (ERP), Tools & Techniques, Enterprise Software

Sage’s X3 - Does it need big systems integrators as part of its market success?

A few days ago, several members of the analyst and press community were given a briefing on Sage’s high-end ERP product, X3. X3 was acquired by Sage three years ago and has its origins as a French company. The software is positioned to compete in the upper end of the midmarket space.

Today, X3 has been sold and implemented in 38 countries. There are 2300 customers comprising some 50,000 plus users. Sage indicated that 160 customers are now present in North America with 20 to 25 of these based out of Canada. The largest customer, by the way, has approximately 1100 users.

The X3 product line contains modules for: inventory, manufacturing, finance, sales, CRM, reporting, workflow, multi-company, multi-site, multi-warehouse, purchasing, multi-currency and multi-legislation. Like many ERP systems, X3 uses Business Objects (now a SAP subsidiary) for its business intelligence functionality.

The software is built on a service oriented architecture (SOA) platform. The platform has the mnemonic name of SAFE: Sage Application Framework for Enterprise.

The software is constructed as a single core of code and is surrounded by country specific extensions. Currently, a Sage executive reported that most users are choosing single country implementations. Approximately 20% of implementations are multi-country.

I noted that X3’s ability to move further up market may be a bit constrained because of the nature of channel partners. Sage’s channel partner ecosystem may be no different from other software vendors where it is really hard to create a channel partner environment for a high-end product (but easier for SMB product lines). What I am wondering is this: more and more small and medium-size businesses are becoming multi-national corporations. They are continuing to source product from lower cost countries and many of these firms are creating subsidiaries, joint ventures or acquiring lower cost operations in countries beyond their own. The channel partner ecosystem of most application software firms is generally country-specific or highly localized in its geographic reach. For example, most US-based channel partners serve clients that are predominately within the continental 48 states. Just the prospect of crossing the border into Canada causes significant issues for many resellers locally. Likewise, Western European resellers may be able to serve clients in their home country as well as those customers in adjacent countries. But can any of these channel partners effectively serve customers with operations in the BRIC (i.e., Brazil, Russia, India and China) countries? Can they serve firms who have operations in the interior of Africa or the former Soviet republics?

For resellers to effectively sell and service multinational accounts, they must have feet on the street in other locations. In a telling back and forth conversation with multiple executives at this briefing, I pressed on this very point that a customer wants a single choke point regarding their implementation of a new ERP solution. They don’t want one implementer to install the product in the United States and a completely different implementer to install and configure the software in another country like China. What would result would be two completely different instances of the software and the highly likely prospect that data will be difficult to consolidate from a reporting or operating perspective. The customer would want consistency in accounting procedures, accounting calendars, chart of accounts, production schedules, shipping data, sign-offs, etc. They would also want all of their business processes to be consistent across the corporation. But most of all, they will want to ensure that all product movement transactions that cross between country borders would result in the efficient movement of product and/or services trans-nationally. I have no doubt that Sage has qualified internal or reseller professionals who could implement X3 in many countries. But I believe that Sage will need more high-end implementers who can really deliver the multi-national implementation that many more X3 customers will demand. Generally, this means Sage will need systems integrators who possess:

- feet on the street in many countries
- intellectual property regarding the business requirements, regulatory requirements, customs, etc. of each country in which they provide services
- global program management skills
- global change management capabilities
- ability to craft multi-lingual documentation and training
- personnel with fluency in more than 1-2 languages
- ability to sell and deliver work in cost effective ways regardless of where the data center or work must be performed
- cultural sensitivity to the work forces found in global project teams

Does any of this mean that there are shortcomings in the X3 product? No. The product may be quite sound and its executive team clearly seems to understand the space. The challenge may be that Sage will need to develop its own multinational implementation capability or attract a number of higher caliber, global systems integrators into the channel ecosystem that supports X3.

I like to see more competition, not less, in the ERP space. And given the rash of consolidation that has occurred these last few years in the midmarket, it is good to see a product line like X3 coming into North America. Let’s hope Sage can create the energy, enthusiasm and appropriate ecosystem components that will fuel growth of this product.

May 17th, 2009

Sage and the Economy – Two things that should turn around

Posted by Brian Sommer @ 7:06 pm

Categories: Current Affairs, ERP, Financial Software, Future of Application Software, Marketing, Selling & Marketing Software, Selling & Marketing Software, Software Development, Software Marketing, Software Vendors, Vendor Management, software

Tags: Brand, Channel Partner, North America, Sage, Sue, Public Relations, Sales Strategy, Branding, Sales Force Management, Marketing

Sage is a large, albeit understated, software provider that sells a multitude of applications that a significant number of people and firms use. Through acquisitions, the company has amassed a large portfolio of products that include brands such as AccPac, ACT, Timberline, MAS, Abra and many more.

Sage has recently embarked on a media blitz to position the Sage brand as an overreaching brand that covers all of the component products and their individual brands. While it’s a bit late in doing so, Sage needed to do this as few understand who Sage is, what the company stands for, etc. I’d speculate that few technology people could rattle off more than a couple of Sage’s product line names.

But branding is not the only remedy Sage needs. Several members of the media got a chance to meet with Sue Swenson, CEO of Sage North America, at the Sage Summit event this week. Sue has been in this role for about a year and she shared with us what she has been focused on and where the company must go. She indicated that:

- Sue had a lot of operational issues that needed correcting immediately. In particular, product development was not optimal. Each product line/brand was doing its own thing with little co-ordination between the numerous, diverse development groups. Doug Meyer, another Sage executive, chimed in and added that sales compensation methods weren’t necessarily incenting the right deals and behaviors either.

- Sue believes that Sage may have overpromised and under-delivered to its channel partners in recent years. She underscored how many of Sage’s current initiatives are to restore a measure of credibility to its channel network. Increased accountability of personnel is occurring via frequent, objectives-led performance evaluations that appear to be occurring at all levels of the organization. The message to workers is clear: non-performance is not acceptable.

- Sue has bolstered several key executive positions in the organization. The company now has its first CTO. He is expected to:

o Delight end-customers of existing products
o Develop product capabilities that make sales (i.e., channel partner sales) easier via introduction of higher value-added capabilities
o Create greater synergies between development groups and promote greater re-use of developed capabilities
o Carve out some of the product line specific budgets and use this to create new products/product lines

- Some future innovation may still come from acquisitions. This might include ‘surround-sound’ application plays that complement existing applications as well as deals that bring in entirely new product lines or offerings (e.g., SaaS solutions).

The overall tempo at this event appeared to me to be: cautiously optimistic. My sampling of Sage partners indicates that they want the company to:

- deliver
- innovate
- catch up and surpass competitors
- get its internal act together

In a discussion I had separately with Sue, we discussed, at length, how turnarounds occur and where she’s at with hers at Sage. At the conclusion of that discussion, I believe:

- Sue correctly assessed a number of existing operational issues within the organization and has moved fast to correct them

- Sue is implementing a program of accountability to restore morale internally and to improve customer and channel partner satisfaction

- Sue knows what new products and innovations will be forthcoming but is not disclosing these for now as she wants to restore partner confidence. She will do so by under-promising today and over-delivering new products in the near future.

Beyond Sue’s efforts, Sage does have some Marketing and brand challenges within North America. I know the company is addressing this matter currently but I’d like to offer these points for Sage to consider:

- Selling software in North America is very different from selling software in England (Sage’s home base). Marketing and PR in the North American software market are not genteel, demure or understated. They cannot be as there is just too much noise in the channel. To be heard here, you need to act like Richard Branson, Larry Ellison, Marc Benioff, etc. In North America, any PR is good PR.

- I personally believe that NetSuite does a superior job promoting itself and yet it is a form factor smaller than Sage. Should that be the case? Is there something Sage could learn from this?

- Look at the energy generated by Salesforce at their Force.com, DreamForce.com, etc. shows. These events have an energy, enthusiasm, etc. that infects attendees with one clear observation: this firm and its products are going somewhere. Can Sage do something likewise?

April 30th, 2009

Analysis of Workday's capital infusion

Posted by Brian Sommer @ 2:29 pm

Categories: Current Affairs, Dow Jones, Financial Software, Software Financial Stats, Vendor Financing, deal

Tags: Valuation, Financing, Workday, Analysis, NEA Ventures, Investment, Financial Accounting, Finance, Brian Sommer

Yesterday, Workday announced it had raised $75 million in Series E venture financing. The investors in this round included company founder Dave Duffield, Greylock Partners (a firm Aneel Bhusri joined after his PeopleSoft days), as well as VC firm NEA Ventures. NEA is the new player in the mix.

A Series E round implies that four prior rounds of venture monies had been raised. Many of the specifics on this deal (e.g., pre-money valuation) and their prior venture financing are not public.

There’s a great interview with Aneel at

. Some of the data points in it suggest that:

- total capital raised in all five rounds is approximately $150 million
- current capitalization may last and negate the need for future venture rounds
- Dave still owns over half of the company

Let’s do a bit of math. When you launch a new software firm, you probably have no customers and the ratio of capital per customer is infinite. Once the product is launched, the capital per customer number begins a high ratio and keeps diminishing over time. Early stage firms probably have million dollar/customer ratios but they quickly lower that ratio.

Workday has approximately 80 customers and has raised, if the PEHub numbers are correct, almost $2 million in capital for each customer. That seems like a lot of money for that number of customers. Granted, these funds will fuel future growth and, if Aneel’s financial projections are correct, they will fuel all future growth. If so, then this is an appropriate capital raise. But, if the customer acquisition flow does not accelerate, then capital will get consumed over a smaller number of customer acquisitions.

One implication of this financing though is clear: the pre-money valuation on this transaction must have been very, very high. To grab $75 million in financing and not dilute Dave and Greylock’s investment much mean that either NEA didn’t put much in this deal or that the pre-valuation valuation was very high. That said, this deal is a remarkable deal in that so much money was raised with a likely high valuation in this very tough economy.

While only speculative, I would guess that NEA hopes to make this late stage financing and reap a solid ROI when Workday goes public. That public offering though could be a ways off as Wall Street must recover and Workday will need a lot more customers and revenue to support the trading volumes and business valuation that the big stock exchanges require.

Bottom line: This appears to have been a good deal for Dave, Aneel and Workday. In this market, the size of the round and the implicit valuation regarding are also impressive. The only concern is whether Workday can accelerate the signing of customers in the near-term.