Friday, December 14, 2007

The Year in Review and a Look Ahead: M&A, IPOs, and Breaking a Million

The Year in Review and a Look Ahead: M&A, IPOs, and Breaking a Million
Friday, December 14, 2007
Bruce Richardson

Welcome to the last edition of First Thing Monday for 2007. It’s hard to believe that another year has raced past. Looking back, 2007 has been a great year for Red Sox fans (and South Africa rugby fans, our Roddy Martin reminds me), and should prove to have been a very strong year for the software industry. When we published our 2007 forecast for enterprise applications, we were looking for this market to grow to $61.1B, an 8% increase from last year. That forecast looks pretty safe.

Next year should be strong, too. Our preliminary 2008 estimates show that total enterprise application revenue should reach $65.4B, up more than 7% from the current year.

Business intelligence deals yield another strong year for software M&A

According to Mergerstat, there were 1,206 software mergers and acquisitions in the first nine months of this year. This is down 7% from the 1,293 deals reported for the first three quarters of 2006. If you’re an investment banker, you made more money this year as the value of the deals for the same period this year tallied $62.8B, up 11% from the $56.4B total for the first three quarters of 2006.

The big software M&A news was the purchase of the Big Three business intelligence (BI) vendors. In March, Oracle acquired Hyperion for $3.3B; in October, SAP bid $6.8B for Business Objects; last month, IBM made a successful offer of $5B for Cognos.

The next question is likely to be “Which company or sector is next?” I’ll decline your offer to name companies, but I will say that I see further consolidation in infrastructure and human capital management (HCM). We could still see an Oracle/BEA deal, or even a Hewlett-Packard/BEA combo. In addition, some of the vendors hovering around the service-oriented architecture (SOA) space are starting to get more attractive as SOA begins to creep into large ERP accounts. There’s not a lot of blockbuster potential, though.

As for HCM, Oracle and SAP are trailing some of the new-wave HCM providers in functionality and sex appeal. This sector appears to be one of the last safe harbors for best-of-breed vendors, at least for now. SuccessFactors and Taleo have each built a customer base of 1,400 companies with performance management and talent management functionality.

As I write this, SuccessFactors’ market cap is close to $735M, while Taleo’s is just above $712M. Taleo is closer to the $100M annual revenue mark, with $77M in revenue for the first three quarters versus $44.1M for SuccessFactors. Both offer their products as software as a service (SaaS). We could see one or both acquired over the next 12 to 24 months. As we were writing this, SAP (through the NetWeaver Fund) was investing in Montreal-based Nakisa, a user interface company specializing in organizational and talent management information visualization (see Christa Degnan Manning’s note below in Market Roundup for more on this).

Longer term, I’m waiting for the first batch of consolidation among the IT services and business process outsourcing (BPO) vendors. Given the high cost of new customer acquisition and the ongoing battle for scarce talent, consolidation appears inevitable. This will take longer to play out, though, thanks to high market valuations, especially for the leading firms in India. As I write this, Infosys is valued at $25B, followed by Wipro ($22.8B), and Satyam ($9B). I couldn’t find a market valuation for Tata Consultancy Services (TCS). TCS is the largest of all of the Indian services firms. This compares to $21B for Accenture, $11.13B for EDS, and $9.9B for Cognizant.

Door to IPO market slightly ajar in 2007

The IPO market opened up again for a handful of select software companies. The must-have new tech stock for 2007 was VMware. When the company made its debut on the New York Stock Exchange in August, the opening share price was $29. The stock closed the first day of trading at $51, giving VMware a market cap of $19.1B. Since then, shares have traded as high as $125.25. Currently, the shares are hovering just below $100, giving the company a valuation of $37.9B. Very nice.

DemandTec also went public in August, opening on a day when the Dow had experienced the “the second-heaviest one-day plunge since 2003,” falling 387 points. Shares of DMAN opened at $10.05, but fell to $9.34 by the end of the first day. Since then, shares have traded between $8.95 and $20.50. The shares are currently trading just under $15.

If DemandTec shareholders also bought Deltek shares when they debuted on November 1, they must have experienced déjà vu. On Deltek’s first day of trading the NASDAQ finished down 64.29 points, the Dow dropped 362.14, and the New York Stock Exchange fell 289.53. Deltek opened trading at $18.00 and closed at $17.95. In the past six weeks, shares of PROJ (Deltek specializes in project-based ERP software) have traded in a relatively narrow band—$15.01 to $18.63, with the current price at $17.20.

SuccessFactors went public last month just before Thanksgiving. Shares of SFSF opened at $10 and rose to $13.25 to end the day. Since then, shares have reached a high of $15.27. It’s trading at $14.75 now.

NetSuite should be the fifth and final enterprise software IPO for this year. On December 10 the company announced an offering of 6.2 million shares of stock at a suggested price range of $13 to $16 per share. Bidders will determine the actual price through an online auction or “Dutch auction” process. Pricing is expected to close December 19.

The fact that I’m excited about five IPOs doesn’t make me forget the craziness of the first Internet bubble. I saw a stat the other day that reminded me that more than 1,100 technology companies had their IPOs during the 1995 to 2000 mania. Now, that was the time to be a banker.

“Million” is the new black

The “new black” analogy is thoroughly overused. I am noticing, however, how many software companies have hit the coveted one million mark. Salesforce.com recently reached one million subscribers. One week later, SAP touted that its Community Network membership had topped one million. SuccessFactors and Taleo brag that their software is used by two million employees and one million employees, respectively, at their corporate customer accounts.

Next year’s theme: convergence of enterprise apps and social networks

Like you, every day I get multiple invitations to join friends on Facebook, LinkedIn, and Plaxo. In the past two weeks, I have also been asked to join Hi5 Networks and Spock.com. Smart companies are looking at social networks and seeing new prospecting and hiring opportunities. They are also looking to use these tools to build tighter links to a wide range of communities, from shareholders to suppliers.

A few months ago, I wrote that salesforce.com is looking to become the “Facebook of the business world.” Last month I wrote about Faceforce, a new tool that links information from your Facebook profile and network to salesforce.com’s software. This could be a little creepy if abused or overused, but I have the power to limit access to my Facebook profile.

A few weeks ago salesforce.com announced Salesforce to Salesforce, the world’s first “multi-tenant business network.” Some of the initial customers are using this technology to connect directly to their reseller networks to share and track leads in real-time, plan and update marketing campaigns, track orders, and share other functions and processes. The intent is to reduce the latency from suspect-to-prospect-to-customer and eliminate any and all manual processes. Rob Bois goes into detail about this below in Market Roundup. The next step should be to layer salesforce.com’s IdeaExchange on top to allow the channel master to solicit ideas for new features and functions or improvements to the indirect channel program.

In the not-too-distant future, I suspect that we will see a Facebook-like application from salesforce.com that will be used to replace static employee intranet sites, extend out to key customers (like a social network site for your major accounts), or provide pages for the sales and service members of key suppliers.

Why? Facebook envy. Even though salesforce.com has reached the one million mark, I suspect that CEO Marc Benioff won’t be happy until he approaches LinkedIn’s 17 million connections or Facebook’s 60 million friends.

Back to goofy company names

Remember the last bubble when it seemed that the name of nearly every startup either began with a small “e” or started with a letter from the end of the alphabet, like V, X, Y, or Z? Ever find yourself confused as to whether Meebo is a new prescription drug or an instant messaging tool? Are you current on all of the new Web 2.0 players? If not, and you have a couple of minutes, here’s a quiz for you.

Coming up: What lies ahead for i2 Technologies?

It’s been over a year since I last met with Sanjiv Sidhu, i2’s founder and chairman, and Mike McGrath, former CEO. We recently flew to Dallas to catch up with Mr. Sidhu and Dr. Pallab Chatterjee, interim CEO. Look for our analysis after the holidays on January 7.

In the meantime, all of us at AMR Research want to offer our best wishes for a safe and happy holiday season. Here’s to a healthy and prosperous 2008! While we won’t be publishing for a couple of weeks, we will still be looking for your feedback and ideas—brichardson@amrreseach.com.




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© Copyright by AMR Research, Inc.

Tuesday, December 11, 2007

Oracle Strengthens Its Application Management Capabilities

Oracle Strengthens Its Application Management Capabilities

The acquisition of Moniforce will widen Oracle's Enterprise Manager portfolio by adding end-user monitoring capabilities. Expect Oracle to become a competitor within the application management market.

Monday, December 10, 2007

SAP Unveils Web 2.0 Look for Its CRM Tool

SAP Unveils Web 2.0 Look for Its CRM Tool

December 10, 2007 (Computerworld) --
BOSTON -- SAP AG, looking to reduce the complexity of its customer relationship management software, last week unveiled an up­grade that adds support for Web2.0-style user interfaces.

Friday, December 07, 2007

24 Hours With SAP

SAP brought close to 200 employees to Boston for the company’s Fifth Annual SAP Influencer Summit. The audience consisted of 340 analysts, journalists, bloggers, academics, customers, and software and services partners. Given how closely we follow SAP and how much we write about the company, I can’t say there were a lot of surprises for the AMR Research analysts. Nonetheless, there is still plenty to write about for this week.

My primary interest in attending was to hear the morning keynotes, followed with one-on-one meetings with the top SAP executives, including CEO Henning Kagermann, Dr. Peter Zencke, and the members of SAP’s executive council. Mission accomplished. I was able to squeeze all of the keynotes and the meetings into a single day.

While past summits have been held in Phoenix and Las Vegas, this year’s event was held in Boston at the Westin Hotel, a 15-minute walk from our offices. In exchange for not having to fly to the event, how did we return the favor? Our city greeted the mostly German and Bay Area visitors with a snowstorm upon arrival, followed by subfreezing temperatures for the rest of the week. I wouldn’t be surprised if next year’s event is held in Orlando or returns to Las Vegas.

Rather than risking reader fatigue, I’m going to focus on three core ideas gained from the summit:

- Business ByDesign is the foundation for SAP’s next-generation application platform. It will ultimately replace the SAP Business Suite, albeit gradually and maybe transparently over a 5- to 10-year horizon (or more).
- In the interim, SAP will retain customer loyalty through Enhancement Packs and continued NetWeaver investments that move SAP Business Suite closer to Business ByDesign.
- The business user, critical to SAP’s future revenue stream, may be placing it in a potential showdown with Microsoft.
“I’ve seen the future of SAP software, and its name is Business ByDesign”

In 1974, Jon Landau wrote a memorable line in Rolling Stone that music fans still remember more than 30 years later: “I’ve seen the future of rock and roll, and its name is Bruce Springsteen.”

As you watch Business ByDesign develop, you see the future of SAP software. That’s not only my view, but also the perspective of SAP customers who attended the event. At lunch, I sat with executives from various SAP user groups based in Australia, Mexico, the Netherlands, and the United States. One of the first questions we asked each other was “What did you think of the Business ByDesign presentation?” Within minutes, we had achieved near unanimous consensus that SAP will use Business ByDesign’s model-based development framework to develop the next wave of applications.

Dr. Zencke’s keynote did not focus much on SAP’s future plans for Business ByDesign. He did say that he planned to deliver new model-based applications in 2009, though he did not say whether it would be a new human capital management (HCM) suite or one more closely linked to a specific process (such as trade promotion management and fulfillment). He also said that some of the initial announcements could come as early as next spring during the two SAPPHIRE events (May 4–8 in Orlando; May 19–21 in Berlin).

Business ByDesign continues to evolve. The newest feature to be unveiled was the software’s ability to record, in real time, all the steps and documents in a business process (order to cash or procure to pay, for example). This can be used for visualization, monitoring, analysis, and auditing. For example, how long did it take to fill the last 10 open sales positions, from initial interview to start date? And how long did it take until they closed their first substantive deals? You can model that or use the search capability. That assumes, of course, that all the data is in SAP and not in a third-party application or tied to a manual process.

Of course, maintaining that data increases the overhead. As customers add more users and functionality, we could be looking at significant data volumes and larger data transfers. What will this mean for performance over a hosted, on-demand network? Users may be willing to tolerate relatively slow performance when updating a sales prospect’s record, but they won’t accept it for more mission-critical applications. SAP is well aware of the need for sustained high performance. One executive told me that it was exploring 64-bit caching appliances to better match on-premise performance.

Enhancement Packs: “100,000 man-days” in every bite

SAP has a delicate balancing act between old and new. More than 99% of its 44,000 customers run on one of its three core systems. The company continues to invest a large part of its $2B annual R&D budget into delivering new functionality for the core SAP Business Suite base through Enhancement Packs (EhP) and continued investment in the NetWeaver platform.

The initial idea behind EhP was to deliver continuous innovation to customers without forcing them to undertake costly and time-consuming upgrades. When the concept was first unveiled, SAP pledged that there would be no new ERP release until 2010.

The EhPs are delivered through a “switch framework” that’s analogous to the lights in your office. Customers have the option of turning the new features on or keeping them off. While this might suggest somewhat “lite” functionality, Dr. Kagermann surprised most of the audience by stating that the average EhP required more than “100,000 man-days.” That’s a lot of coding and testing.

A galaxy of side-by-side innovation

On the NetWeaver front, the most exciting news was the new business process management (BPM) suite. Code-named Galaxy, the BPM products are part of the NetWeaver Composition Environment. The tools include a process composer, process server, web editor, rule builder, rule management, rule analytics, and a rule engine. Galaxy will be part of the core NetWeaver platform and will be used for SAP Business Suite, SAP All-in-One, and SAP Business ByDesign.

The continued investment in NetWeaver across all three platforms is part of Mr. Kagermann’s vision of “side-by-side innovation,” where SAP continues to invest in existing and new areas, with the intent of cross-fertilizing the best of both. This will extend to the user interface (UI) strategy. SAP said it hopes to have one primary UI for SAP Business Suite and Business ByDemand within 18 months. This is long overdue. I lost track, but I would estimate that we saw more than 20 different UIs between the demos and the canned screen shots.

How will SAP customers get to the new architecture?

Life was much simpler when SAP launched R/3 at SAPPHIRE in 1991. While R/3 replaced R/2, that was not the original positioning. The new client/server was slotted as software for smaller companies or for remote divisions of larger enterprises that needed a new ERP system. Over time, nearly all R/2 users replaced their mainframes with R/3. Of course, there were at least five years and three major releases before R/3 was close to functional parity with R/2.

Likewise, in the mid to late 1990s, SAP launched the New Dimension products to fill unmet needs around the pillars of customer management, supply chain management (SCM), and the like. Later, these were added seamlessly to the Business Suite. The new upgrades are delivered through the EhPs.

Is Business ByDesign the replacement for SAP Business Suite? It’s not that easy. Today’s SAP Business Suite is designed for dozen of verticals as well as for companies in more than 120 countries. Business ByDemand has minimal vertical capabilities and is only available in a few countries and languages. Yet, the convergence is starting.

Today, the SAP Business Suite and Business ByDesign share the common NetWeaver platform and Enterprise Services Repository and related infrastructure components. Dr. Zencke may well be delivering the 2009 equivalent of New Dimension products using the Business ByDesign development framework. This will give SAP Business Suite users the ease of use, deployment flexibility, and rapid configuration that they want, too.

Here’s the next question: In five years or so when Business ByDesign has reached functional, vertical, and geographic parity with SAP Business Suite, are the Business Suite customers already on Business ByDesign thanks to EhPs, NetWeaver, and new model-based applications? Or, do we begin the next wave of replacement projects designed to reduce the total cost of ownership (TCO)?

In either case, I’ve seen the future.

SAP to battle Microsoft over the “business user”

I suspect SAP will be ecstatic once the Business Objects acquisition closes. The current expected date is January 23, 2008. Business Objects will be a key part of SAP’s plans to sell to the “business user,” a goofy title for what might normally be called “knowledge workers.” The point, though, is that many employees without an SAP seat still need access to information generated by or stored in an SAP application.

SAP has already begun targeting customers that rely on Oracle’s Hyperion for business intelligence (BI) and performance management (PM). The company recently started a one-a-day program with the goal of replacing 100 Hyperion installations in 100 days. Given that there are an estimated 3,500 to 4,000 SAP customers using Hyperion today, this program could have a run that rivals that of Cats on Broadway.

To date, the primary way to touch that business user has been through SAP’s portal. Some companies have also deployed Duet, the software SAP has been developing with Microsoft to link SAP software with MS Outlook.

While Microsoft has a near stranglehold on office automation, SAP acknowledged that it will have to work closely with others, including IBM’s Lotus software, Google applications, and Yahoo!’s Zimbra applications. SAP also said that it is looking at supporting OpenSocial, the proposed widget standard for social networks that’s being promoted by Google, LinkedIn, Plaxo, Oracle, and salesforce.com. Clearly, the desktop is the key to getting to the business user.

One challenge for SAP is the plethora of competition. There are the ubiquitous Microsoft applications on one side, and free Web 2.0 products on the other. SAP is going to have to come up with some very clever pricing and licensing schemes and value propositions to reach the business worker.

…or does Microsoft buy SAP?

You may have seen the recent Reuters headline, “SAP Shares Climb on Microsoft Bid Talk.” A Microsoft-SAP link first surfaced during the U.S. Department of Justice antitrust lawsuit against Oracle. During the trial it came out that Microsoft had initiated discussions with SAP after Oracle made its bid for PeopleSoft. Nothing came of those initial talks.

Talking to the reporter about the latest rumor, I said “Re: one giant buying another … while all things are possible, I don’t see Microsoft buying SAP. Microsoft is more fixated with Google than Oracle. It’s looking for businesses with enormous growth/volume opportunities; SAP doesn’t provide that. Plus, if [Microsoft CEO Steve] Ballmer bought SAP, he would have to continue to invest in SAP’s costly direct sales and service model. That’s counter to his high margin needs.”

Jim Maniscalco, founder and CEO of Nobilis Software, e-mailed me with a contrarian view. Here’s his take:

On the surface I do agree with you that [Microsoft] is most likely focused on acquiring high-growth companies that are on the frontier of Web 2.0 rather than “mature” companies like SAP. Microsoft has a lot to lose with that strategy—namely the dominance it has enjoyed for 20 years. Microsoft overestimates its actual position in the market. If it does not buy SAP and secure its place in the enterprise through SAP’s maintenance revenue, Microsoft and its executive management risk following the same trajectory that Lotus Development Corp. had in the late 1980s through early 1990s. Virtualization, open source, and the commoditization of tools are adversaries that Microsoft can’t defend against with its current business and product model. Only the addition of SAP’s enterprise footprint can extend its leadership role. If not, it is a different company in five to seven years.

I welcome your viewpoint, too.

Coming up: social networks and enterprise software

Next week’s weather forecast includes a flurry of vendors. All of our conference rooms are jammed these days as software vendors rush in to brief us on their 2008 plans. Social network vendor LinkedIn must be watching The Weather Channel. Instead of braving Boston’s subfreezing temperatures, the executives have offered to update us via telephone instead. We will bring you some of the highlights of all the briefings, so look for our analysis next week.

In the meantime, do you think Business ByDesign is the successor to R/3 and the SAP Business Suite, or is it destined to be a midmarket only product? Does SAP have to take on Microsoft directly in order to be successful in the business user market? Or, do the two companies end up merging as Mr. Maniscalco suggests? As always, I welcome your feedback and ideas—brichardson@amrresearch.com.

Thursday, November 22, 2007

FT.com / Companies / Europe - US group might bid for troubled SAP unit

FT.com / Companies / Europe - US group might bid for troubled SAP unit

US group might bid for troubled SAP unit
By Helene Laube in San Francisco

Published: November 22 2007 22:56 | Last updated: November 22 2007 22:56

Rimini Street, a US-based provider of software support, said it was interested in buying TomorrowNow, the SAP unit at the centre of a corporate spying scandal.

“We are interested, but we are proceeding cautiously and need to analyse it first,” Seth Ravin, chief executive of Rimini Street, told FT Deutschland, the FT’s sister paper in an interview.

SAP, the German software group, revealed at the beginning of the week that it was exploring options for the troubled unit, including selling it.

Mr Ravin was among the founders of the Texas-based TomorrowNow and sold the company to SAP almost three years ago.

He declined to say whether talks were going on with SAP.

The scandal surrounding TomorrowNow, which like Rimini Street sells software maintenance and support to former Oracle customers, broke when SAP’s arch-rival filed a lawsuit earlier this year accusing SAP of corporate espionage.

In the wake of the scandal, TomorrowNow’s chief executive and several senior member of management resigned on Monday.

SAP is under pressure to announce a swift solution for TomorrowNow in order to avoid further damage to its image.

The announcement was widely seen as unsettling customers relying on long-term software support.

Since SAP’s announcement, Rimini Street had received a dozen enquiries from TomorrowNow customers “exploring a possible transition”, Mr Ravin said.

Customers were uncertain since SAP had not been clear about “what they are doing with TomorrowNow,” he added.

Rimini Street is seen as one of the few potential buyers for TomorrowNow, as most big IT service provider are working in collaboration with Oracle and are said not to be interested.
Copyright The Financial Times Limited 2007

Wednesday, November 21, 2007

SAP To Put “For Sale” on TomorrowNow? | AMR Research

SAP To Put “For Sale” on TomorrowNow? | AMR Research


We’re only a couple of months away from the three-year anniversary of SAP’s purchase of TomorrowNow, a company specializing in third-party maintenance and support of Oracle’s JD Edwards, PeopleSoft, and Siebel software customers. Instead of celebrating, it looks like the couple could be heading for divorce. On November 19, SAP announced that TomorrowNow CEO Andrew Nelson and several other executives were resigning from the company. SAP also said that it was considering a sale of the independent unit. In our view, a sale is likely if only to accelerate the end of the Oracle lawsuit.

On March 22, Oracle filed a complaint in U.S. District Court in San Francisco, alleging that SAP/TomorrowNow had “stolen thousands of proprietary, copyrighted software products and other confidential materials.” Barring a settlement, the trial is headed to court in February. SAP executives would love to eliminate this distraction. It’s a safe bet that Oracle would like to see it continue indefinitely.

Safe Passage on the rocks?

In January 2005, SAP announced its plans to buy TomorrowNow for an undisclosed amount. The press release hit just hours after Oracle had held a press and customer conference to introduce Project Fusion, which I described at the time as “a futuristic product set and architecture designed as the morphing of the next generation of Oracle and PeopleSoft applications.”

TomorrowNow quickly become the centerpiece for the Safe Passage initiative to migrate PeopleSoft customers to SAP. At the time of the acquisition, SAP had 2,000 customers who were using PeopleSoft.

According to people close to the transaction, the TomorrowNow deal was initiated by SAP’s Shai Agassi despite the concern of some executive board members. It was a surprisingly aggressive piece of guerilla marketing for the very conservative ERP leader.

The most logical buyer would be Rimini Street, a TomorrowNow competitor that also focuses on maintenance and support services for JD Edwards, PeopleSoft, and Siebel customers. Rimini Street was founded in 2005 by Seth Ravin, former co-founder of TomorrowNow, who started the company after he sold his 50% stake in his old firm to SAP. For as long as I have known Mr. Ravin, he has been interested in buying TomorrowNow. He may soon get his chance.

It’s a Mad, Mad, Mad, Mad World: The Sequel

How about this for a scenario: Rimini Street succeeds in buying TomorrowNow from SAP and then later sells the whole business to Oracle. Oracle could continue the discounted maintenance program as a way of ensuring that companies remain as customers or switch them back to standard maintenance. As we have said many times before, all things are possible.

Note: We did reach out to multiple sources at Oracle, Rimini Street, and SAP. All declined to comment.

FT.com / Home UK / UK - Chief of SAP unit in US quits in spy scandal

FT.com / Home UK / UK - Chief of SAP unit in US quits in spy scandal

Chief of SAP unit in US quits in spy scandal
By Richard Waters in San Francisco

Published: November 21 2007 02:00 | Last updated: November 21 2007 02:00

The chief executive of TomorrowNow, a US unit of SAP at the centre of a corpor-ate spying scandal that has ensnared the German software group in a high-profile lawsuit, quit yesterday, the company said.

SAP also revealed it was looking at options for the troubled unit, including selling it. The newsmarks the latest step in a saga that has represented an unwelcome setback for SAP in its most important market.

The scandal broke when arch-rival Oracle filed a lawsuit this year accusing SAP of corporate espionage. It levelled the claims against TomorrowNow, a Texas-based company acquired by SAP to sell software maintenance and support to former Oracle customers. That gave it a crucial role in SAP's strategy of trying to win over Oracle customers, since the need for continuing support for older software is one of the main reasons companies hesitate to switch suppliers.

According to Oracle, TomorrowNow had used the sign-on details of several Oracle customers to access that company's computers and allegedly remove information about its products.

The German company admitted in July that TomorrowNow had made "inappropriate downloads" from Oracle's machines, although it also said the information had been kept inside the subsidiary and none had been viewed by executives in other parts of SAP.

SAP said yesterday And-rew Nelson, chief executive of TomorrowNow, and "several members of his senior management team" had "chosen to resign". It did not give details.

When the scandal first broke, SAP sent one of its own executives, Mark White, to oversee the subsidiary as executive chairman. Yesterday it said Mr White was working to "assure retention of key managers and support personnel" and safeguard customer support.
Copyright The Financial Times Limited 2007

Tuesday, November 20, 2007

FT.com / Companies / IT - SAP shakes up leadership at US unit

FT.com / Companies / IT - SAP shakes up leadership at US unit

SAP shakes up leadership at US unit
By Richard Waters in San Francisco

Published: November 20 2007 02:06 | Last updated: November 20 2007 02:06

The chief executive of TomorrowNow, a US unit of SAP at the centre of a corporate spying scandal that has ensnared the German software group in a high profile lawsuit, quit on Monday, the company said.

SAP also revealed it is looking at various options for the troubled unit, including selling it. The news late on Monday night marks the latest step in an unfolding saga that has represented an unwelcome setback for SAP in its most important market.

The scandal broke when arch-rival Oracle filed a lawsuit earlier this year accusing SAP of corporate espionage. It levelled the claims against TomorrowNow, a Texas-based company that had been acquired by SAP to sell software maintenance and support to former Oracle customers. That gave it a key role in SAP’s strategy of trying to win over Oracle customers, since the need for continuing support for older software is one of the main reasons companies are hesitant to switch between suppliers.

According to Oracle, TomorrowNow had used the sign-on details of several Oracle customers to access that company’s computers and allegedly remove information about its products.

The German company admitted in July that TomorrowNow had made “inappropriate downloads” from Oracle’s machines, though it also said that the information had been kept inside the subsidiary and that none of it had been viewed by executives in other parts of SAP.

SAP said on Monday that Andrew Nelson, chief executive of TomorrowNow, and “several members of his senior management team” had “chosen to resign”. It did not give details about the extent of the departures, or whether SAP had asked for the resignations.

When the scandal first broke, SAP sent one of its own executives, Mark White, to oversee the subsidiary as executive chairman. On Monday, it said that Mr White was working to “assure retention of key managers and support personnel” and make sure customer support was not interrupted.

The signs of upheaval at TomorrowNow appear to represent a victory for Oracle in what has turned into one of the most heated confrontations in the corporate technology market. The US and German software companies have been on a collision course over the past four years, since Oracle embarked on a series of acquisitions to challenge SAP in its core application software market. While confined to an arcane part of the corporate IT market, the bitterness of the rivalry has guaranteed it a prominent place in business press headlines, culminating in the barbs thrown over the corporate espionage suit.

“Our primary focus is TomorrowNow’s existing customers, who will be supported through this management transition,” Mr White was quoted as saying. “SAP is prepared to manage through these changes to ensure that TomorrowNow’s obligations to its current customers are met.”

Copyright The Financial Times Limited 2007

Thursday, November 08, 2007

Aberdeen Group:Acquisition-Mania Generates More Questions than Answers

Aberdeen Group:Acquisition-Mania Generates More Questions than Answers

A recent flurry of acquisitions has the top two ERP vendors locked in a battle for market share. Not satisfied with what has become the "run of the mill" acquisition of competitive ERP players and complementary applications, both SAP and Oracle have upped the ante and ventured outside the realm of the conventional acquisition. On October 7, 2007 SAP announced its planned acquisition of Business Objects, a leading supplier of Business Intelligence (BI) and Corporate Performance Management (CPM) solutions. Not to be out-done, Oracle followed five days later with its own move to acquire BEA Systems, a market leader in enterprise infrastructure software. And now, on October 17, 2007 SAP counters with yet another announcement that it will acquire YASU Technologies, a privately held provider of business rules management systems.

Monday, October 29, 2007

FT.com / Companies / IT - Oracle walks away from BEA offer

FT.com / Companies / IT - Oracle walks away from BEA offer

Oracle walks away from BEA offer
By Richard Waters in San Francisco

Published: October 29 2007 00:45 | Last updated: October 29 2007 00:45

Oracle late on Sunday carried through on its threat to drop its $6.7bn offer for BEA Systems, though it did not rule out renewing its bid if shareholders succeed in pressuring the embattled software company to put itself up for sale.

It also issued a thinly veiled invitation to Carl Icahn, the activist shareholder who has become one of BEA’s biggest shareholders, to launch a proxy battle to force BEA’s hand.

“If the BEA shareholders are unhappy with the behaviour of the board, it is up to those shareholders, not Oracle, to take the appropriate action,” it said in a statement late on Sunday.

The comments came minutes after 5pm California time, the deadline set by Oracle for BEA to agree to its $17-a-share offer. BEA had already said it planned to let the deadline lapse, and that it would not consider a sale for less than $21 a share.

Oracle said that its offer had now expired, and that BEA shareholders should “not assume” it would renew the bid at that price in the future. “Over time many things can change,” the company said. “BEA’s business might materially weaken, the stock market can fall further from its recent record highs, or Oracle may have committed its capital elsewhere.”

Mr Icahn called on BEA’s board late last week to start negotiations with Oracle rather than let it walk away. He has also indicated he will take legal action to prevent BEA from taking any actions that would make it less vulnerable to a takeover.

“They are vulnerable to a proxy fight and they know it,” said one shareholder, who said that the BEA board was likely to accept a bid below the $21 it has held out for.

However, any attempt to force BEA’s hand is likely to be complicated by the investigation that is currently underway into its accounting for stock options. While that review continues, the company is not able to file accounts or hold a shareholding meeting, effectively putting it into limbo.

Copyright The Financial Times Limited 2007

Saturday, October 27, 2007

FT.com / Companies / IT - Icahn criticises BEA over Oracle bid

FT.com / Companies / IT - Icahn criticises BEA over Oracle bid

Icahn criticises BEA over Oracle bid
By Richard Waters in San Francisco

Published: October 27 2007 03:30 | Last updated: October 27 2007 03:30

Activist investor Carl Icahn turned up the heat on BEA Systems on Friday, pressing the embattled software company to let shareholders decide on a $6.7bn bid from Oracle if no better offers emerge.

His call came after BEA had declared that it was quite prepared to let Oracle walk away rather than start negotiations at the price that is currently on the table.

Mr Icahn’s intervention late on Friday came as the two software companies prepared for a weekend of brinkmanship over the unsolicited bid. Oracle has promised to abandon its offer, of $17 a share in cash, by Sunday afternoon if BEA does not either accept the terms or agree to let its shareholders vote on the proposal.

For its part, BEA on Friday released a terse letter that repeated its view that the price “significantly undervalues” the company, and that it therefore assumed the offer would expire this weekend. The biggest independent maker of the “middleware” used to build internet-based applications, BEA has held out of a price of $21 before it will enter negotiations.

Rather than risk losing the premium represented by the Oracle bid, BEA should launch a full auction of the company, Mr Icahn said.

“If a topping bid emerges, then all the better,” he said. “But if no topping bid arises it should be up to the BEA shareholders to decide whether to take the Oracle bid or remain as an independent company.”

One person familiar with the matter said BEA had held discussions with other technology companies since Oracle went public with its offer earlier this month. However, the nature of those discussions, or whether another bidder might emerge, was unclear.

Few rival bidders would be able to match the sort of cost savings from a deal that Oracle could achieve, according to analysts. One of the few that could, IBM, is BEA’s biggest rival, making it likely that any offer would attract anti-trust attention. The scale of the potential savings have led some analysts to suggest that Oracle could pay over $20 a share for BEA and still generate short-term financial benefits for its shareholders.

Copyright The Financial Times Limited 2007

Friday, October 26, 2007

The Future of Software? Think Visual Apps | AMR Research

The Future of Software? Think Visual Apps | AMR Research

The days of static applications will soon be over, as will 2D screens that look like forms or reports. The future is coming and it’s far more visually appealing.

Since the start of this year, we’ve been tracking a wide range of companies and concepts that will change how we think about and use software. This week, we introduce Forterra Systems and provide some insights from recent meetings with IBM and salesforce.com.

Wednesday, October 24, 2007

FT.com / Companies / IT - Oracle issues BEA deal ultimatum

FT.com / Companies / IT - Oracle issues BEA deal ultimatum

Oracle issues BEA deal ultimatum
By Richard Waters in San Francisco

Published: October 24 2007 03:48 | Last updated: October 24 2007 03:48

Oracle on Tuesday threatened to walk away from its proposed acquisition of BEA Systems by Sunday unless the embattled software company agreed to a deal.

While the threat wiped nearly 4 per cent from BEA’s share price by mid-afternoon, the stock still stood above the $17-a-share Oracle offer, pointing to a belief on Wall Street that the brinkmanship had not seriously damped the prospect of a deal and that Oracle or another buyer would still end up paying a higher price.

“Oracle has no interest in a long, drawn-out process to acquire BEA,” Chuck Phillips, Oracle’s president, wrote in a letter addressed to the company’s board on Tuesday. The letter followed what Oracle said had been another rejection by the BEA board of its all-cash offer.

BEA rejected the latest approach, repeating its earlier claim that the offer “seriously undervalues” the company and adding that it was open to “a transaction that appropriately reflects BEA’s value, reached through a reasonable process.”

The attempt to bring a quick end to the BEA battle is in stark contrast to the fight over PeopleSoft, the deal that launched Oracle’s ambitious attempt to force consolidation in parts of the business software market. That fight lasted 18 months, in part because Oracle had to persuade a court to overturn a US antitrust objection to the deal.

Though he started by offering $16 a share for PeopleSoft and insisting at one point that that was his “final” price, Larry Ellison, Oracle’s chief executive officer, eventually paid $26.50 a share to win over the PeopleSoft board.

Justifying the offer for BEA, Mr Phillips said it represented a 21 per cent premium to the price the day before the proposal was announced and a 44 per cent premium to the level before activist investor Carl Icahn disclosed in August that he had bought a stake in the company.

Mr Icahn, BEA’s biggest shareholder and a critic of the company’s management, has been pressuring BEA to find another buyer.

Copyright The Financial Times Limited 2007

Tuesday, October 23, 2007

SAP to Bolster Business Rule Capabilities With Yasu Buy

SAP to Bolster Business Rule Capabilities With Yasu Buy

SAP's offer to acquire Yasu will bring business rule engine technology to NetWeaver customers. This smart, if late, acquisition will challenge the status quo of the BRE and business process management technology markets.

Friday, October 19, 2007

Oracle Seeks to Consolidate the Middleware Market With BEA Deal

Oracle Seeks to Consolidate the Middleware Market With BEA Deal

Oracle's offer to buy BEA Systems will create short-term uncertainty. If the deal proceeds, Oracle will strengthen its position and emerge as the most powerful competitor to IBM, the current middleware market leader.

SAP Software Sales Soar 16% | AMR Research

SAP Software Sales Soar 16% | AMR Research

SAP posted another strong quarter, as expected, for its third quarter ending September 30. Software and software-related service revenue topped 1.74B euros, up 16% in constant currencies from the year-earlier period. Total revenue was 2.42B euros, up 13% in constant currencies. Translated to dollars at the rate of this writing, SAP’s revenue came in at $3.46B. SAP repeated guidance of 12% to 14% growth for the full year.

There were at least two departures from previous earnings calls. For one, the call was audio only, compared to previous video broadcasts. Secondly, there are normally three presentations: the opening set of financial results from CFO Werner Brandt, additional color from CEO Henning Kagermann, and a review of global sales performance from Deputy CEO Leo Apotheker. If you go to SAP’s website, you will only see Mr. Brandt’s slides.

Mr. Apotheker had several interesting statistics that didn’t make it into the slides or the press release. The number of new contracts increased 22% from the year-earlier period. New customers accounted for 26% of order entry. Midmarket customers represented 34% of the new contracts. The number of deals greater than 5M euros was 20% versus 33% for 3Q06. Last year, there were more deals in the 10M to 20M euro range; Mr. Apotheker said that the 20% figure was more typical. The number of deals less than 1M euros was 46% versus 36% last year. This is due to increased sales to smaller companies.

It would be helpful to have a bit more color on the number of contracts signed. SAP closed the second quarter with 41,200 customers and ended this quarter with 43,400, an increase of 2,200.

Wednesday, October 17, 2007

Oracle Seeks to Consolidate the Middleware Market With BEA Deal

Oracle Seeks to Consolidate the Middleware Market With BEA Deal

Oracle's offer to buy BEA Systems will create short-term uncertainty. If the deal proceeds, Oracle will strengthen its position and emerge as the most powerful competitor to IBM, the current middleware market leader.

Tuesday, October 16, 2007

FT.com / Companies / US & Canada - Executive departure may delay Oracle plan

FT.com / Companies / US & Canada - Executive departure may delay Oracle plan

Executive departure may delay Oracle plan
By Richard Waters in San Francisco

Published: October 16 2007 22:46 | Last updated: October 16 2007 22:46

Oracle’s ambitious plan to unify the software applications it assumed through acquisitions appeared on Tuesday to be heading for a delay, following news that the executive in charge of the project is to leave the company.

John Wookey’s elevation two years ago to run Project Fusion put him in one of the most high-profile positions in the company following its purchases of PeopleSoft, Siebel Systems and other smaller companies.

By unifying these companies’ software applications on a single-code base, Fusion is intended to create integration between the various products, making it a central part of Oracle’s long-term strategy to compete with SAP.

Oracle refused to comment on Mr Wookey’s position. Yet one person close to the company said he would leave early next year, after a transitional period. The job of overseeing the Fusion work has been passed to Thomas Kurian, who will combine it with responsibility for Oracle’s middleware, the software layer on which the applications depend.

The shake-up has also led to greater responsibilities for Charles Rozwat, executive vice-president of server technologies.

The upheaval has prompted speculation that Fusion has fallen behind schedule. Large parts of the software seem likely to appear next year as planned, according to the person close to Oracle, though this person stopped short of saying the entire project would be completed next year.

Copyright The Financial Times Limited 2007

SAP haalt neus op voor BEA Systems | Nieuws | Strategie | Computable.nl

SAP haalt neus op voor BEA Systems | Nieuws | Strategie | Computable.nl

FT.com / Companies / Media & internet - SAP falls on static full-year forecast

FT.com / Companies / Media & internet - SAP falls on static full-year forecast

SAP falls on static full-year forecast
By Gerrit Wiesmann in Frankfurt

Published: October 18 2007 23:56 | Last updated: October 18 2007 23:56

Shares in Germany’s SAP dropped Thursday after it shied away from raising its full-year forecast even after a solid nine months’ business.

SAP stock closed 3.3 per cent lower at €38.29 after reporting that software sales rose 11 per cent – or 15 per cent at constant currencies – to €715m in the third quarter, while operating income rose 9 per cent to €601m.

Although these figures were in line with analysts’ expectations, investors were rattled by SAP’s refusal to raise its full-year forecast. They now fear the world’s largest maker of business software is preparing for a weaker-than-expected Christmas quarter.

The company’s share price was under pressure last week after it caught investors off guard in announcing the €4.8bn ($6.8bn) takeover of rival Business Objects, a move many saw as an end to a strategy of organic growth.

Henning Kagermann, chief executive, said he expected full-year revenue from software and software-related services to grow at the upper end of the forecast range of 12 per cent to 14 per cent in constant currencies.

Given that growth in the first nine months of the year reached 16 per cent, analysts at Citibank lamented that “implied growth” of about 10 per cent in the all-important fourth quarter looked disappointingly conservative.

The company did not reach its targets in the final quarter last year, a clear sign of the dangers it faces as it tried to broaden its product scope from a saturated market for supplying software to the world’s biggest companies.

In July, August and September, SAP saw overall sales rise 9 per cent – 13 per cent at constant currencies – to €2.4bn. It said it had gained one point in market share and now held 27 per cent.

Copyright The Financial Times Limited 2007

Sunday, October 14, 2007

FT.com / Companies / IT - SAP allays fears of Oracle bid war

FT.com / Companies / IT - SAP allays fears of Oracle bid war

SAP allays fears of Oracle bid war
By Gerrit Wiesmannin Frankfurt

Published: October 14 2007 22:03 | Last updated: October 14 2007 22:03

SAP has sought to allay investor fears about a new bidding rivalry between the German business software maker and US rival Oracle by pledging big acquisitions only to enter new markets rather than to consolidate existing ones.

Henning Kagermann, chief executive, said the offers by SAP for software maker Business Objects and that of Oracle for BEA Systems – both valued at €4.8bn – showed the two groups were still on different paths.

“We bought a company that complements our product line in a fast-growing market in which SAP is not market leader,” he told the Financial Times.

“We believe in complementary deals. We’re not interested in a classic consolidating of markets.”

Investors last week dumped SAP stock for fear the largest business software maker in the world had given up its goal of growing organically to ape Oracle, which has spent $31bn (€21.8bn) on rivals in recent years. The German group’s stock price lost 5 per cent after it announced by far its biggest acquisition to gain a leading position in the market for business analysis programmes, an “end-user” area in which SAP is weak.

But investor fears of a bidding war with Oracle ebbed on Friday when the US group announced an unsolicited bid for BEA Systems, a move to consolidate its position among makers of software to bundle disparate applications. Mr Kagermann said SAP was well positioned in the market for so-called service oriented architecture.

He was not considering a counter offer for BEA, or a bid for any other company in a market that had “so much overlap” with SAP.

He said this was consistent with SAP’s strategy of growing organically in its two core units that provide the software spine or “platform” for corporations, and address the needs of small and medium-sized companies.

But he repeated adverse investor reaction would not stop SAP from committing to more deals in the end-user market. “We’re categorically not excluding further big acquisitions,” he said.

Business Objects specialises in programmes that sift corporate data to help executives decide strategy. Mr Kagermann noted “that many analysts believe that there are still interesting opportunities in this sector”.

Copyright The Financial Times Limited 2007

FT.com / Companies / US & Canada - SAP warns surprise tactics might resurface

FT.com / Companies / US & Canada - SAP warns surprise tactics might resurface

SAP warns surprise tactics might resurface
By Gerrit Wiesman

Published: October 14 2007 23:48 | Last updated: October 14 2007 23:48

Perhaps Henning Kagermann, the chief executive of German business software maker SAP, senses that catching investors off guard once could be construed as an accident, but that doing it twice could smack of carelessness.

In January, the world’s biggest maker of business software shocked the stock market when it announced that a new internet-based product for small companies would demand computer centres costing an unexpected €400m ($566m).

Last week, the company surprised again by appearing to give up on its strategy of growing organically when it bid €4.8bn ($6.7bn) for Business Objects, a Franco-US company specialising in corporate analysis software.

“Finding the right way to communicate is a challenge,” Mr Kagermann tells the FT.

“We don’t want to surprise the market too much. At the same time, we don’t want to be taken hostage so that we can’t react quickly anymore.”

Having watched SAP stock take a drubbing for the second time running after a big strategic announcement, he almost ruefully concedes: “We always try our best to master this challenge. But sometimes our efforts aren’t perfect.”

It is a delicate mea culpa that follows a week in which SAP shares closed at €39.51 in Frankfurt, 5 per cent below prices seen before the announcement last week of its agreed bid for Business Objects.

The punishment meted out by investors may have been a touch harsher in January, when shares fell almost 7 per cent. But the recent drop still stings.

“I didn’t expect to see such a big market reaction,” Mr Kagermann says.

But he is too self-assured and too convinced of his mission to do more penance than that.

As humbled as he may feel, his message throughout the rest of the interview is clear: “I don’t think we could have done it any other way.”

For one thing, he says stock market reactions in January and October were not comparable.

Investors knew SAP was working on a new so-called mid-market product, what surprised some was the cost of online availability.

“A year before [the announcement], I had flagged the fact that we no longer excluded on-demand solutions for [so-called] ERP [enterprise resource planning] applications,” he says – and it was only later that SAP could forecast the cost of the move.

Flagging a major acquisition would, to boot, have been counter-productive, he says.

“It wouldn’t have been very helpful to say, ‘We’re looking at acquisitions in this and this area’ because there weren’t that many targets around.”

Mr Kagermann stresses that investors are wrong to see an end to SAP’s organic-growth strategy: It will continue in the core areas of providing the software spine to big corporations, and addressing the needs of smaller companies.

“The business user segment is a different field,” he says. A fast-growing segment in which SAP was not market leader, it called for a different approach.

“We want to buy innovation,” he says, signalling an appetite for more.

At the same time, he says SAP is not embarking on an acquisitive strategy in this field akin to its American rival Oracle.

It has spent $31bn in the three years to buy rivals and consolidate the various markets it is in.

The top priority now is to integrate Business Objects. Mr Kagermann hopes this will be done by 2009.

“By then we should have been able to convince the market that this was the right decision,” he says.

But he cautions: “You can’t pass up opportunities just because you feel you need a quarter or half a year to prepare for them.”

Perhaps he fears that shocking shareholders a third time would appear deliberate. Now they have been warned.

Copyright The Financial Times Limited 2007

Friday, October 12, 2007

FT.com / Companies / IT - Oracle launches $6.7bn bid for BEA

FT.com / Companies / IT - Oracle launches $6.7bn bid for BEA

Oracle launches $6.7bn bid for BEA
By Kevin Allison in San Francisco and Maija Palmer in London

Published: October 12 2007 13:33 | Last updated: October 12 2007 23:38

Oracle, the US business software company, on Friday made an unsolicited $6.7bn (£3.3bn) bid for BEA Systems, a San Jose-based software maker that has come under pressure from Carl Icahn, the billionaire activist investor.

The deal comes as Oracle is trying to overtake rivals SAP and IBM by pursuing an aggressive acquisitions strategy.

BEA rebuffed the offer, arguing that it “significantly undervalues” the company.

Shares in BEA rose above Oracle’s offer price of $17 a share, indicating investor hopes of an increased bid. On Friday, shares in BEA closed more than 38 per cent higher at $18.82.

Oracle’s $17-a-share offer represented a 25 per cent premium to BEA’s share price at the close of business on Thursday.

“We have made a serious proposal including a substantial premium for BEA,” said Charles Phillips, Oracle president. “We believe our all-cash offer provides the best value for BEA’s shareholders and the best home for BEA’s employees and customers.”

If successful, the deal would represent Oracle’s biggest takeover since its $10.3bn acquisition of PeopleSoft three years ago.

It would also mark the latest in a string of deals in the software sector this year. SAP earlier this week announced plans to buy Business Objects, the Franco-US software company, for $6.7bn.

Shares in Oracle edged 2 cents lower to $22.44 on Friday in New York.

Mr Icahn last month sparked a fresh wave of takeover speculation when he reported that he held more than 8 per cent of BEA shares and called for the company to be sold.

The corporate raider has since increased his stake in the company to 13 per cent. Mr Icahn did not return a request for comment.

Shares in BEA, which makes middleware, or software that connects business functions such as billing and supply chain management to back-office databases, fell more than 30 per cent between October and March. They began to rise again in August after the company reported its second-quarter results.

BEA has been the subject of takeover speculation since the beginning of the technology downturn in 2001.

The company was an early leader in the middleware market but it has struggled to gain momentum in recent years amid strong competition from rivals such as Oracle and SAP, both of which have moved to bolster their middleware offerings.

Charles di Bona, an analyst at Sanford Bernstein, said the deal’s valuation was “financially unattractive” for Oracle at $17 a share. However, Brent Thill, an analyst at Citigroup, said a price of up to $20 a share could still make financial sense for Oracle, assuming big cost cuts at BEA. Mr di Bona said he did not expect a rival bidder to emerge.

Copyright The Financial Times Limited 2007

SAP Customers on Business Objects; salesforce.com’s VC Fund | AMR Research

SAP Customers on Business Objects; salesforce.com’s VC Fund | AMR Research

SAP Customers on Business Objects
by Bruce Richardson


By now, you know that SAP is buying Business Objects. (See “SAP Buys Business Objects” below in News of Note for more details.) When the deal is completed in 1Q08, SAP will have the broadest business intelligence / performance management (BI/PM) offering in the world. That’s both good news and bad news. If anything, SAP will have too many products.

I spent two days last week with 15 IT executives at an SAP event, and they all wanted to talk about the Business Objects deal. Ironically, the last time I saw most of these people was the week after Oracle announced that it was buying Hyperion for $3.3B. Many were Hyperion customers, too.

When I asked how many had Business Objects software in their companies, more than two-thirds of the executives raised their hand. I then asked whether they had Hyperion, and the same people raised their hand again. It will be interesting to see whether these executives can get their companies to adopt SAP-Business Objects as their standard or if they will continue to support a multivendor BI/PM world.

When Oracle bought Hyperion, several of the SAP customers I talked with were looking at big Hyperion upgrade bills. They were hoping that SAP would soon unveil plans for bolstering its business consolidation software. Six months later, they are still waiting for SAP to declare its plans for weaning them off of Hyperion.

SAP won’t be able to discuss its plans for Business Objects until the deal closes. The customers I talked with were concerned about which of the SAP and Business Objects products will survive. This is a bit unsettling for those that have already started down the Pilot Software or OutlookSoft path.

At the SAP event, several CIOs told me that their Business Objects reps were filling their BlackBerrys with invitations to seminars or requests to meet. I would expect the Business Objects reps to be very aggressive; I’m sure all good salespeople are racing to drain their pipelines before the deal closes.

What should SAP customers do for BI/PM? In next week’s First Thing Monday, we’ll look at areas SAP needs to address for this to work.

Thursday, October 11, 2007

Crossgate Challenges B2B Market With Tight Alliance With SAP

Crossgate Challenges B2B Market With Tight Alliance With SAP

Crossgate has announced an alliance with SAP that has the potential to change the vendor dynamics in the business-to-business infrastructure market. But crossgate will need to grow rapidly to ensure market success.

Wednesday, October 10, 2007

SAP's Planned Business Objects Buy Signals Strategic Shift

SAP's Planned Business Objects Buy Signals Strategic Shift

SAP's plan to buy Business Objects will put SAP into the lead for revenue from business intelligence platform products. However, many integration and execution challenges lie ahead.

Monday, October 08, 2007

Übernahme von Business Objects SAP befeuert Software-Krieg - Wirtschaft - sueddeutsche.de

Übernahme von Business Objects SAP befeuert Software-Krieg - Wirtschaft - sueddeutsche.de

Im Duell mit Konkurrent Oracle rüstet SAP auf: Der deutsche Softwarekonzern stemmt für knapp fünf Milliarden Euro die teuerste Übernahme seiner Geschichte.

Logistiek.nl - SAP koopt Business Objects voor 4,6 miljard

Logistiek.nl - SAP koopt Business Objects voor 4,6 miljard

FT.com / Companies / Europe - A new mantra to explain SAP purchase

FT.com / Companies / Europe - A new mantra to explain SAP purchase

A new mantra to explain SAP purchase
By Gerrit Wiesmann

Published: October 8 2007 20:20 | Last updated: October 8 2007 20:20

Having spent years stressing organic growth over the acquisitive strategy of arch-rival Oracle, the departure of German business-software maker SAP from its big corporate mantra proved surprisingly matter-of-fact.

But, as so often with Henning Kagermann, chief executive of the world’s largest maker of business software, it was not so much that he was changing tack – the world was at last beginning to understand things he said all along.

The €4.8bn ($6.7bn) agreed takeover offer for Franco-American software group Business Objects was entirely consistent with SAP’s goals to grow in three sectors, Mr Kagermann said in Frankfurt.

Organic growth was – and would remain – the mantra for the two areas that had been the focus of attention for the past four years: revamping the software backbone that all companies need, and luring smaller businesses.

In both areas, buying other companies made no sense because SAP was a clear market leader and so confident about its technological leadership that it saw no need for any outside help, SAP’s chief executive explained.

But, apparently forgotten by everyone, except Mr Kagermann, was SAP’s third ambition: to diversify from supplying software backbones, so-called business-process platforms, to selling programmes for end-users. And this, Mr Kagermann implied, had al­ways been a very different pro­position. So-called “business user solutions are very different”, he said, noting that this market is growing and consolidating extremely quickly.

“We have some innovation and know-how [in this field], but we have to accept that there are other [market] leaders,” he said, noting a slew of smallish companies that had long focused on addressing specialised user needs.

“People expect us to embrace the latest and coolest technology,” Mr Kagermann said. That’s why SAP decided it would be better quickly to buy in potential big sellers rather than start time-consuming development.

One of these is compiling and sifting through corporate data to improve performance. According to SAP, Business Objects is the clearleader in this market with annual sales of €10bn and yearly growth of 10 per cent.

Mr Kagermann said adverse reaction by investors – SAP stock fell 4 per cent to €39.95 – had more to do with the fact that “the market is not educated” than with any inconsistency at SAP. It would in time come around.

SAP had in past years al­ready bought software makers Virsa and OutlookSoft to offer its customers, respectively, in­tegrated programmes to check legal compliance and assess corporate performance. But in spending $200m on OutlookSoft, for example, SAP long made these moves look part of a pocket-money fin­anced sideshow that would not lay claim to corporate res­ources to any noticeable extent.

Having announced a deal 34 times bigger than the OulookSoft move this spring, Mr Kagermann strongly hinted that the time of trifling “fill-in acquisitions” had ended, presaging fill-in purchases easily above the billion mark.

SAP had proven it could grow organically and that it could innovate. “Now we are on our way to proving that we can make larger acquisitions,” he said, declining to name what fields are next.

“There are other areas in which such a move would make sense,” Mr Kagermann said, noting that ever more companies wanted integrated software “But [the acquisition of Business Objects] is by far the most important.”

Copyright The Financial Times Limited 2007

FT.com / Companies / Europe - SAP signals hunger for deals

FT.com / Companies / Europe - SAP signals hunger for deals

SAP signals hunger for deals
By Gerrit Wiesmann in Frankfurt and Pan Kwan Yuk in Paris

Published: October 8 2007 20:20 | Last updated: October 8 2007 20:20

Germany’s SAP, the world’s largest maker of business software, Monday signalled it could look at further acquisitions even as its departure from an avowed strategy of organic growth sent investors running for cover.

Outlining an agreed takeover offer worth €4.8bn ($6.7bn) for Franco-American software house Business Objects, SAP chief executive Henning Kagermann said SAP was on its “way to proving we can make larger acquisitions”.

The company’s announcement late Sunday that it was buying the market leader in programmes to collect and sift corporate data knocked 4 per cent of SAP stock in trading Monday.

The shares closed at €39.95 in Frankfurt.

Investors were rattled because Mr Kagermann had for years underlined SAP’s superiority to US rival Oracle by pointing out the German company was focused on organic growth – not dealmaking.

To catch SAP, Oracle has spent billions on buying rival makers of central business programmes as well as end-user suppliers such as Hyperion, a Business Objects rival, it bought for $3.3bn (€2.3bn) this spring.

But at a press conference in Frankfurt, Mr Kagermann said the largest acquisition in SAP’s history was not a reaction to Oracle.

“We have not seen … that Oracle is gaining market share,” he stressed.

He said the move was consistent with SAP’s strategy outlined as far back as 2003. Having “done our homework” in its two core sectors, which would still grow organically, SAP now had time to look at end-users’ needs.

As demand for traditional manufacturing and supply-chain management slows, SAP said that sales of business analysis software were growing at around 10 per cent per year from current annual sales of about €10bn.

In buying Business Objects, SAP would be able to offer its clients more integrated features, Mr Kagermann said, stressing that demand for such end-user features would likely continue to rise over the next years.

“There are other areas in which such a move would make sense,” Mr Kagermann said, noting that ever more companies wanted integrated software. “But [the acquisition of Business Objects] is by far the most important.”

SAP has spent the past years reinventing its so-called business process platform, the nervous systems of companies’ IT systems, and making a foray into the market for mid-sized companies, which critics argue came late.

Copyright The Financial Times Limited 2007

FT.com / Companies / IT - SAP buys Business Objects for €4.8bn

FT.com / Companies / IT - SAP buys Business Objects for €4.8bn

SAP buys Business Objects for €4.8bn
By Gerrit Wiesmann in Frankfurt and Lina Saigol in London

Published: October 7 2007 21:55 | Last updated: October 8 2007 00:07

Germany’s SAP on Sunday night launched a €4.8bn (£3.3bn) bid for Franco-American software maker Business Objects in what seems a departure from its long-term strategy to expand only organically and by smaller purchases.

The world’s largest maker of business software said it would offer €42 a share for the company, which specialises in business-analysis packages; a 20 per cent premium to Friday’s closing price in Paris.

The decision was seen as a response by SAP to a purchase by Oracle, its US archrival, which in March bought Hyperion, a smaller rival of Business Objects, for $3.3bn (£1.6bn).

SAP denied its agreed bid was a change of tack. Henning Kagermann, chief executive, said the company had bought interesting applications with “end-user appeal” before. SAP would continue to expand its core business organically.

In a conference call, he said that was consistent with SAP’s 2003 strategy statement. After changes to the main software platform, SAP was looking at individual applications.

Mr Kagermann said this opportunity to combine “market leaders in their respective domains” was “an opportunity unparalleled” in the German group’s history. He declined to give details of new products.

SAP said the move, financed by cash and debt, would go through if supported by 50.01 per cent of Business Objects’ shareholders. It hopes to close the transaction in the first quarter of next year.

The deal would mildly dilute earnings in the coming year, but boost profits in 2009 and beyond. “Financially and not just strategically, this is a good deal,” Mr Kagermann said.

It comes at a sensitive time for the German software maker. It is spending €400m to introduce software for small businesses, which will, for the first time, be hosted on the web by its own computer centres.

Copyright The Financial Times Limited 2007

Friday, September 28, 2007

Software Potpourri for $500, Alex | AMR Research

Software Potpourri for $500, Alex | AMR Research

Software potpourri could be a future category on Jeopardy, “America’s favorite quiz show.” If you’ve never seen the TV show, a contestant picks a one of 30 blocks on a six column by five row grid. Game show host Alex Trebek reads the answer. If the contestant gets it right, he/she collects the points for the correct response: “American History for $100, Alex.” If not, the other two competitors can respond. For example, the answer might be: “Team that won the World Series in 2004.” Of course, the correct response would be “Who are the Boston Red Sox?”

In addition to the television program, there is a home version, an online game on the website, and even a version for your cell phone. While we don’t have the space to replicate the whole six columns of categories and five rows of answers, here is a chance to play FTM Jeopardy.

Thursday, September 20, 2007

FTD.de - Kommentare - Leitartikel - SAP - Mit den Kleinen wachsen

FTD.de - Kommentare - Leitartikel - SAP - Mit den Kleinen wachsen

Der Softwarekonzern SAP ist auf dem richtigen Weg: Das vorgestellte neue Produkt für den Mittelstand eröffnet dem weltweit führenden Anbieter von Unternehmenssoftware neue Wachstumsperspektiven. Diese Perspektiven sind nötig, denn im Geschäft mit Großkunden ist der Spielraum ausgereizt.

Wednesday, September 19, 2007

FT.com / Technology - Control of the supply chain turns critical

FT.com / Technology - Control of the supply chain turns critical

Control of the supply chain turns critical
By Stephen Pritchard

Published: September 19 2007 00:54 | Last updated: September 19 2007 00:54

An efficient supply chain is a prize worth striving for. According to Accenture, the consultancy firm, “supply chain leadership” can increase a company’s market capitalisation by between 7 and 26 per cent above the industry average.

But for a business, even competing for that prize demands a significant investment in resources. In sectors such as consumer goods and retailing, established companies have already achieved the easiest supply chain efficiencies.

“Things that are likely to move the dial have to make a significant difference, rather than be technology experiments,” says Stephen Proud, a partner in Accenture’s supply chain practice.

None the less, an efficient supply chain is a must for a widening range of businesses. Fashion, hi-tech and grocery retailers grasped early on the importance of ensuring the right stock reached the right store at the right time.

No one wants a warehouse full of summer dresses in October, or indeed shelves of last season’s mobile phones in the run-up to Christmas. But the supply chain is now moving up the agenda in slower-moving sectors such as heavy manufacturing.

Effective supply chain management is the only way to make efficient use of global sourcing strategies and especially, the huge manufacturing capacity of China and the Pacific Rim.

Although globalisation has reduced production costs in a wide range of sectors, the trend to source components or even finished goods from China and elsewhere has made the supply chain manager’s task far harder.

“Our internal systems handle more than 700 suppliers,” says Christian Verstraete, worldwide supply chain expert at Hewlett-Packard. “We have to be able to ex-change messages not just with them, but with their suppliers.”

Supply chain managers in many sectors are looking for greater visibility of what is happening in their supply chains and faster access to more accurate data.

This means that if there is an unexpected event, be it storms affecting shipping or a production shortfall, companies can divert stocks or bring in alternative suppliers.

“Companies are not just asking suppliers why there is a problem with an order,” says Sanjiv Sidu, president of supply chain management software vendor i2. “They are asking: ‘When did you first know, and why did you surprise me?’”

In sectors such as retail, supply chain problems lead to “stock outs” or empty shelves, which send customers elsewhere. In heavy or complex manufacturing, supply chain problems can lead to cancelled orders running into billions of dollars, or severe penalties for late delivery.

As manufacturers move away from vertically integrated production, the supply chain suddenly becomes critical.

“In aerospace and defence, we are 10 years behind the hi-tech or even automotive sectors and how we improve the performance of our supply chain is quite a challenge,” explains Bill Black, chief quality officer at aerospace manufacturer EADS.

“The cost of running our supply chain logistics is minor, set against the $100m cost of an aircraft. But the cost of failure is enormous.”

About 80 per cent of the cost of an aircraft is accounted for by suppliers and partners,” says Black, making EADS “architects of complex products”.

“I need to know if an event can affect our master schedule and that means that I need to know what is happening, not just with my tier one, but with tier four, five or six suppliers.”

The increasing demands of customers, as well as the drive to cut supply costs, are causing manufacturing companies in particular to renew their investment in supply chain technologies.

But efficient supply chain technology can also open up business opportunities.

For Kautex-Unipart, an automotive component manufacturer based in Coventry, in the UK, supplying BMW’s Mini production line with fuel tanks came with an onerous condition attached. The company had to achieve 100 per cent delivery accuracy, matched to BMW’s JIS 5000 manufacturing process.

Kautex-Unipart is BMW’s sole tank supplier for the Mini plant at Cowley, in Oxfordshire. It has to supply 250,000 tanks each year, in exactly the order specified by BMW, for each of the 13 tanks used on the Mini car.

The tanks even have to be stored the right way round in the shipping containers. If they are not, BMW’s production robots cannot fit them.

The company used a photographic identification system, Visidot, from Israeli vendor Image ID to ensure that tanks can only leave Coventry if the order exactly matches BMW’s requirements.

“Getting supply wrong is the cardinal sin in the automotive industry,” says Jan Parylo, IT manager at Kautex-Unipart. “But the BMW contract has also brought us benefits. We used to have 24 to 48 hours’ visibility of orders. Now BMW can give us six days. As a result, we have more flexibility in our manufacturing and supply processes.”

Visidot is one of a number of new technologies that are helping businesses improve supply chain visibility and the speed at which they collect supply chain data. Others include radio frequency identity (RFID) tags as well as three-dimensional and even colour bar codes.

“In the past, for manufacturers [supply chain] visibility stopped at the batch or lot level,” says Krish Mantripragada, head of RFID and Auto-ID solutions at enterprise software vendor, SAP. “But recalls and quality issues are putting a lot of pressure on companies to make their data more granular, and to be able to track single items.”

The response to RFID, however, differs from industry to industry. Mr Mantripragada says that interest is greatest in sectors such as pharmaceuticals, aerospace and defence “where complete traceability and product integrity are the priorities”.

In other industries, some companies are looking to use RFID to make their supply chains more efficient, but they are finding the costs to be higher than expected. The costs of RFID tags may be heading downwards, but there is far more to a supply chain project than the tags alone.

RFID, for example, produces a unique serial number for each product, while conventional tracking systems may be designed just to record a product’s stock code, and assume that each product with the same code is identical.

“It is partly an infrastructure problem, with the need to deploy sensors. But the second problem is serialised data management,” says Mr Mantripragada. “Many production processes batch supplies, so business processes need to adapt to handle serialisation.”

Business processes that are already designed around items with individual serial numbers often lend themselves best to technologies such as RFID; for others, bar codes or similar scanning technologies might be good enough for some time to come.

“We are certainly not wedded to RFID as a technology. If the project is about better serialisation and that could be done as well with coloured dots, that would not be an issue. And there are environments where radio frequency technologies are not applicable,” says Mr Proud at Accenture.

For businesses considering their supply chains, the most important step is to look at the business process and how it could be improved, and then pick the technology that fits best.

Nick Costides, portfolio manager for UPS Supply Chain Solutions, based in Atlanta, says: “As an express delivery company, barcodes meet our needs. But in the long term, there are opportunities. For example, if every item in a warehouse had an RFID tag, it would make taking physical inventories much easier.”

Companies also need to consider how access to item-level data, or indeed more up-to-date status information from the supply chain will support decision making.

“Distribution centre operators clearly have different needs from C-level executives,” says Mr Costides. “We give them the information they want to see, so they are not overwhelmed.”

Fortunately, modern enterprise IT systems have the capacity to handle the increased data coming in from systems such as RFID. But technologists caution against relying on a single change to improve supply chain performance.

“There is not one killer application but rather a series of incremental steps before we see the ground shift,” says SAP’s Mr Mantripragada. “Some customers have seen significant returns on investment from better data accuracy and visibility, but no two customer scenarios are the same.”

Copyright The Financial Times Limited 2007

Friday, September 14, 2007

pVelocity: Software Plumber for Profit Leakage | AMR Research

pVelocity: Software Plumber for Profit Leakage | AMR Research

Some Northern Exposure on Software Innovation | AMR Research

Some Northern Exposure on Software Innovation | AMR Research

We recently spent a couple of days in Toronto to meet with a leading Canadian venture firm and three software companies. While it had been years since my last trip to Canada, the combination of beautiful late summer weather and the buzz around the start of the International Film Festival made Toronto the ideal September destination.

The trip was proposed by Derek Smyth, a partner at EdgeStone Capital Partners, whom we first met when he was COO at Ironside Technologies, one of the e-commerce pioneers. Ironside was acquired by SSA Global Technologies in June 2003. While at Ironside, Mr. Smyth helped grow the company from zero to C$50M (Canadian dollars) in four years.

While many U.S. venture firms shy away from enterprise software startups, EdgeStone focuses almost exclusively on this sector. In fact, the firm’s preferred role is to be the lead investor in early stage companies by taking a healthy equity position in exchange for cash and expertise.

Best early bets: SlipStream, Taleo, and Workbrain

The EdgeStone Capital Venture Fund I raised C$104M in 2000, which as been invested in 15 companies. Key investments included Workbrain, Taleo, and SlipStream Data. Workbrain and Taleo went on to have successful initial public offerings, while SlipStream was acquired by Research in Motion (RIM) (Blackberry owners) in July 2006. To date, that fund has returned 1.6 times in invested capital to investors, ranking it near the top of all North American tech venture firms in the post-bubble period.

Four years later, EdgeStone raised C$108M for Fund II. I was struck by two differences between the portfolios of the two funds: the newer fund broadened EdgeStone’s portfolio outside of enterprise software and beyond Canada, too. To date, Fund II has been invested in eight companies. There is capital available for one or two additional investments.

The Fund II portfolio includes Solace Systems, pVelocity, Shoplogix, CiRBA, RedMere Technology, Varicent Software, MusicIP, and RapidMind. On our trip, we met with pVelocity and Shoplogix (see below). The others seem intriguing, too. Solace is in the XML routing market. CiRBA, with its virtualization software, would love to be the next VMware. RedMere is an Irish fabless semiconductor company that serves the consumer electronics and multimedia markets. Varicent provides incentive management software. MusicIP is a digital-music platform, which helps listeners discover similar types of artists that map to their favorite music. RapidMind provides development tools for multicore platforms.

Steady deal flow, fewer VCs, tighter pockets

EdgeStone has begun raising money for Fund III. The goal is to build a C$150M fund. The Canadian VC market has changed dramatically since Fund I. In 2001, there were 55 early stage Canadian VCs; now there are 12. More than C$4B was raised in 2001 compared to C$1.5B in 2006. Despite the contraction, deal flow has remained relatively constant over the same period. EdgeStone looks at 150 to 160 deals a year, before settling on the two or three best.

One advantage of investing north of the border is the R&D tax credits that the Canadian government provides for early-stage companies. This can result in a 45% lower net cash cost compared to their U.S. counterparts. In some provinces like Quebec, the net cash cost delta is even greater. On the flip side, the primary challenge for firms like EdgeStone is finding experienced CEOs to run the startups. As a result, Canada has a greater percentage of first-time CEOs.

EdgeStone is well-positioned to take advantage of gyrations in the tech market. Its parent company is GMP Capital Trust, one of Canada’s leading investment banks with a strong technology investment practice. In addition to its venture group, EdgeStone has a buyout/later stage equity team. That side of the firm has raised nearly C$1.35B for its three funds. These have gotten progressively larger. Fund I raised C$179M in March 2000. Fund II took in C$361M in October 2003. Fund III generated C$800M in summer 2006.

Meet the portfolio companies

Our journey took us to two companies in EdgeStone’s portfolio, three if you count the Shoplogix customer we also met with, and one company not in its portfolio, but with which Mr. Smyth is highly enamored. For each of their stories, click the following links:

pVelocity: Software Plumber for Profit Leakage”
Shoplogix: A Single Version of ‘Machine Truth’”
Panorama: Silicon Valley Meets Toronto”.

SupplyScape Adds New CEO to Team and $10M in Financing

We also recently met with Mark O’Connell on his sixth day as CEO of SupplyScape, the fast-growing provider of software and services for the life sciences industry. If the name is familiar, Mr. O’Connell was the former CEO of MatrixOne, a leading product lifecycle management (PLM) software company. At MatrixOne, he led the company through several milestones: a successful IPO in March 2000; achieving the status as the largest independent provider of PLM software ($145M in revenue); and the successful sale of the company to Dassault Systemes for $408M last year. Mr. O’Connell joins SupplyScape as president and CEO.

On the same day, SupplyScape also announced it raised $10M in Series C financing from its existing investors: IDG Ventures Boston, North Bridge Venture Partners, Pilot House Ventures, Bethesda Partners, and Pfizer Strategic Investments Group.

SupplyScape is an interesting company to watch. The 70-person company has emerged as the software leader in the nascent e-pedigree market. E-pedigree is designed to secure the distribution channel for pharmaceuticals as finished goods move from the manufacturer to the dispensing point (such as pharmacy or hospital) and guard against counterfeit products and diversion. To date, the company has 63 customers, including many of the best-known pharmaceutical manufacturers and top retailers and pharmacies.

Coming next week: salesforce’s Dreamforce and SAP’s A1S launch

By the time you read this, we will be at salesforce.com’s annual Dreamforce user conference in San Francisco. This event has traditionally provided a sneak preview of the future of software. From there, we head to Manhattan for the official launch of SAP’s new business offering, code-named A1S, for the small and midsize market.

As always, I welcome your feedback and ideas. Is EdgeStone smart to focus on the enterprise software market? If you were a gambler and could only pick one, would you bet your retirement fund or kids’ college fund on pVelocity, Shoplogix, or Panorama? Will Benioff surprise the world at next week’s Dreamforce? Is A1S truly designed exclusively for the SMB market or will this ultimately become the R/3 replacement product? Let me know—brichardson@amrresearch.com.




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Tuesday, September 11, 2007

Bridgestream Buy Positions Oracle as a Top IAM Suite Vendor

Bridgestream Buy Positions Oracle as a Top IAM Suite Vendor

A complete identity and access management solution must include a role mining and role life cycle management capability. By acquiring the role management vendor Bridgestream, Oracle moves to the head of the IAM suite vendors.

Oracle's acquisition of Bridgestream, a Gartner 2005 "Cool Vendor," is the first attempt by a large user-provisioning vendor to enter the broader IAM market, which Gartner defines as including user provisioning, role management for enterprises (RME), identity auditing and resource administration. Three smaller user-provisioning vendors — Beta Systems, Courion and Voelker Informatik — already have their own RME capability. Other large software vendors — such as BMC, CA, IBM, Novell and Sun — have partnered with RME vendors (including Bridgestream) for some time.

Friday, September 07, 2007

MCA Solutions: Weekdays With Morris… and SAP | AMR Research

MCA Solutions: Weekdays With Morris… and SAP | AMR Research

Over the last few months, we have had a series of meetings with executives from MCA Solutions, one of the pioneers in the service parts optimization space. We have also had the chance to interview four customers, including several that were among the first in their industry to use MCA, and another that qualifies as the most recent to go live.

Google “MCA” and the search engine returns lots of listing for various art museums, a club for Ford Mustang fans, the Music Corporation of America, the UK Maritime and Coastguard Agency, and a company offering “superior clay roofing tile.”

Monday, August 20, 2007

Friday, August 03, 2007

The View from Oracle OpenWorld in Shanghai (AMR)

The View from Oracle OpenWorld in Shanghai
by Bruce Richardson - Chief Research Officer


It was 4:10 a.m. on Sunday when the alarm clock went off. By 5:00 a.m. I was at Logan Airport, only to find that the 6:30 a.m. flight to Chicago was delayed for an hour. Even at that early hour, Logan was pure bedlam.

We managed to make up some of that delay on the flight to O’Hare. Despite my initial concerns, we had ample time to make the connecting flight to Shanghai. We left at 10:30 a.m. central time and arrived the following afternoon just after 2:00 p.m. Despite losing a day in the air, we never encountered night. We followed the sun as the flight took us over Wisconsin, Saskatchewan, British Columbia, Alaska, the International Date Line, the edge of Russia, and northern Asia.

As we approached the airport, I was struck by how the water and the sky were the same color, a burnt reddish brown. I had been warned by a colleague about the increased pollution in Shanghai, but had not expected this. Fortunately, that color palette was confined to the airport. Shanghai, though, was in the midst of the worst heat wave in over 60 years. During the time I’ve been here, the daytime temperature has hovered around 100 degrees (38 degrees centigrade). Right now, it’s 100 degrees, with 42% humidity and a dew point reading of 77%. According to weather.com, it “feels like 113.” Nice.

While there was a bus to the conference, I preferred the six-minute walk from the Shangri-La Hotel to the Shanghai International Convention Centre. As you might surmise, this was always a bad idea. I’d arrive for a meeting looking like I had just lost a water balloon fight. Even at midnight, the city was too warm and muggy.

Outside of the initial flight delay and the hazy, hot weather, the only other disappointment was the discovery that the new Verizon BlackBerry 8830 World Edition Smartphone was hardly the global tool I was promised. Despite numerous calls to my IT department and Verizon, I could not send or receive e-mails or use the browser. The phone and text messaging worked great, but that’s not really the point of the BlackBerry. The BlackBerry issue seemed to be confined to Verizon and this particular model. Ironically, the phone had turned itself back on after I had put it away—it must have touched something inside my briefcase while flashing the “press any key to abort” message while I was turning it off. When I got to Shanghai, I had received a dozen e-mails while traversing North American airspace, but nothing after that. Maddening.

China’s economy hotter than weather: +11.9% for 2Q07, +11.5% for first half

The Shangri-La sits high over the Huangpu River. The other side of the river features a diverse mix of older European-style buildings from the first few decades of the twentieth century and new Manhattan-like skyscrapers. One Oracle executive told me that the area where my hotel sits was a rice paddy only 10 or 15 years ago. It seems hard to believe until you consider the rapid rise of China’s economy. A few weeks ago the Chinese government reported that the economy grew 11.9% in the second quarter and 11.5% for the first half of the year.

Like the architecture, the China of today is a mix of the old and the new. While the business pages of the Shanghai Daily were trumpeting the $15B invested in computer equipment and telecommunications manufacturing in the first half of this year, the front page focused on the continuing attempts to rescue 69 miners trapped in a flooded coal pit. As the paper pointed out, the Chinese coal industry is the world’s most dangerous, leading to an average of 13 deaths per day. As I write this, every few minutes a barge loaded with coal floats by on the Huangpu.

Oracle in China: 1,500+ employees, 800+ partners

I had not been to China since February 2004. Ironically, my host for that trip was Agile Software, now part of the extended Oracle family. As I said last week, I came here to get a better understanding of the Chinese software market, not to hear any new product announcements. Outside of a detailed presentation on the recently announced 11g database, Oracle made no product announcements. The primary news was the announcement of plans to open a new Oracle Asia Research and Development Center (OARDC) in Shanghai. This will be the third in China. Oracle opened the first development center in Shenzhen in June 2002 and the second in Beijing in October 2003.

Oracle OpenWorld Asia Pacific 2007 drew an estimated 8,000 attendees to Shanghai this week. This was twice the attendance of the previous event held here three years ago. About 87% of the attendees were drawn from China, Hong Kong, and Taiwan. Most were partners or employees. Oracle has more than 1,500 employees spread across 13 branch offices in China—there were eight offices a year ago. These resources are backed by more than 800 partners. The vast majority are local firms. These partners are very important to the region as the channel accounts for more than 90% of Oracle’s revenue here.

Unlike the U.S. market, it is harder to discern between independent software vendors (ISVs), resellers, and integrators in China. Often partners play multiple roles. Some also embed Oracle software into devices and other products. To draw ISVs to Oracle database and middleware products, Oracle has opened two partner solution centers that are co-located with the existing OARDCs in Beijing and Shenzhen. To date, more than 150 ISVs have been through the centers to port their applications to Oracle technologies and/or integrate with Oracle applications.

Ironically, the ISV partners include UFIDA Software and Kingdee International Software Group Company Limited. Both are fierce Oracle competitors in the ERP market for small and midsize businesses. Kingdee has been rumored to be an Oracle acquisition target.

7,000+ database customers, 700+ apps customers

One executive estimated that OpenWorld drew more than 3,600 customers and prospects. This figure may be a little low as many business partners paid for their customers and prospects to attend. Nonetheless, this would represent a sizeable number of Oracle’s 7,000 customers in China. Nearly all use its database.

It seems that the large banking, telecommunications, utilities, and energy firms use Oracle’s E-Business Suite, while smaller industrial manufacturers and energy producers and small and large engineering and construction companies deploy Oracle’s J.D. Edwards software. There are some installations of Siebel and PeopleSoft though Oracle executives said that these companies had very little presence here until after Oracle acquired them. To emphasize the point, one executive said Siebel had 16 employees here before Oracle purchased the firm.

Oracle has high hopes for Hyperion sales in China. While its classic customer has been the CIO, the bet is that Hyperion will help open up the door to the CFO’s office. Demand is building here for business intelligence and performance management software.

While walking around the convention center, I was struck by the relative youth of the attendees. Oracle’s major U.S. events tend to attract people in the 35 to 55 range. Here, most attendees appeared to be under 35. One Oracle executive confirmed that buyers tend to be younger here, even in the public sector. I viewed this as a positive indicator for the future of technology spending and deployment.

The real question: how big is the Chinese market?

Given that China has a population of more than 1.3 billion, 7,000 customers seems like a modest achievement, particularly since Oracle has had a presence here since 1989. This prompts the question, how big could Oracle China become? No one I met seemed to have a handle on the size of the potential market, especially the number of small and midsize businesses.

While SAP is acknowledged as the primary threat, custom software appears to be the real competition in the largest accounts. It’s only been in the last five years that the government has encouraged enterprises to use packaged software and offered them incentives.

As you might guess, Oracle declined to break out its revenue for China. Executives would only say that China is the “sixth biggest market” for Oracle and the third largest in Asia, presumably after Japan and India. This could change quickly—China is poised to overtake Germany this year to become the third largest economy after the United States and Japan.

The only real color Oracle provided was on the overall market for Oracle Asia Pacific. The company said that the 29 countries comprising Asia Pacific accounted for $2.499B in FY07 revenues. This was up 24% over the previous year. In the recent concluded fiscal year, Asia Pacific accounted for 14% of Oracle total revenues and 19% of new license sales. Overall, the region represents 35,000 customers out of the total 275,000 customer base.

Reaching new customers through schools and OTN

According to the Shanghai Daily (July 31), Oracle has contributed more than $200M to China’s educational system since 2002. Five years ago, it started the investment with Oracle University which provided online training and certification to 600 participants. Over time it’s expanded down to primary and secondary schools via Think.com (www.think.com) which is a global online community for learning. The focus also includes college interns, new graduates, and post-graduate learning.

During a reception, we spoke with Derek Williams, executive vice president and chairman of Oracle Asia Pacific about his college recruiting plans. So far this year, he’s added 200 new college graduates in 12 cities and has plans for 100 more. He boasted that most have at least two degrees and are tri-lingual—in addition to Chinese and English, they also speak Japanese or Korean.

The overall hiring market is tight with demand exceeding supply. Mr. Williams estimates that they get 10,000 resumes in China for every 100 people they hire. Retention of younger people continues to be a challenge though turnover has yet to approach the levels of India—which has been in the high teens for many firms. The challenge is managing the lofty ambitions of today’s graduates.

While Oracle’s commitment to education has helped build the brand, it also benefits from the growing presence of the Oracle Technology Network (OTN). There are 245,000 members in China, up from 150,000 two years ago. China’s OTN membership is the second largest base in Asia, trailing only India.

Is Pakistan the next China? Who’s the next i-flex?

During one of the receptions I asked one Oracle Asia Pacific executive his views on which Asian country will become the next big market. The next day I asked two more executives the same question. I was stunned that all three instantly responded with the same answer—Pakistan. All three added Indonesia as another market to watch. Apparently some of the Indian IT boom has carried over the border to Pakistan. Rather than pursuing a business or engineering degree, enterprising students are choosing IT for a career.

I also asked the last two executives what they see as the Chinese equivalent of i-flex solutions, the India-based financial services software firm that is majority owned by Oracle. Based on their responses, you may want to keep an eye on Taiji Computer Corp. in the utilities market and Neusoft Group in telco, insurance, energy, and other sectors. Another company to watch is Digital China, a large IT services firm. While unknown outside of its core market, Digital China has emerged as one of Oracle’s top five global partners.

Add Shanghai to your list of must-see cities

On my 2004 trip, I also visited Suzhou, renowned for its Confucian gardens. This time I stayed within a five mile radius of Pudong, Shanghai. Nonetheless, if you haven’t been to Shanghai, add it to your list of must-see cities because of how well the city appears to embrace and manage change. It’s especially impressive when you consider that Shanghai spans 2,239 square miles, or nearly 100 times the island of Manhattan (23.7 square miles). I wouldn’t visit during the summer months, though.

If you come, watch out for the drivers. In some countries, pedestrians have the right of way. Here they are viewed as potential speed bumps. On the walk over this morning, a truck and two taxis attempted to turn me into a hood ornament. It was as though they were practicing their human dodge ball moves.

Next week: Back in the USA

By the time you get this, I will have spent 17 or 18 hours flying home. That’s assuming the air gods are good to me in Shanghai and Chicago. It’s that last leg that is the wild card.

In the meantime, I welcome your feedback and ideas—brichardson@amrresearch.com. What do you think will happen in the Chinese market? Will the large software and services firms become major global players or will they be content serving the enormous domestic market? Will Pakistan be the next important global tech market? Should Human Dodge Ball be an exhibition sport at the 2008 Olympics in Beijing?