The Software Critic

The Software Critic: Without a Clue in White Belts and Shoes

Erik Keller — 2007-06-25T10:19:16-08:00

What has become increasingly apparent to me is how clueless I have become about the rapidly changing computing platforms of the day. I have just finished reading a fascinating analysis by Marc Andreessen on the new Facebook platform (fellow Irregular Jason Wood also does a pretty good job on the topic,) which discusses how Facebook will ultimately be set up for big enterprise uses.

Read this analysis. It is very important.

This is not just a singular phenomenon. It is spreading and growing very rapidly from a variety of different perspectives and venues. Like Facebook, there are many new platforms such as Amazon Web Services and WebEx Connect to choose from. In addition, virtual reality sites like Second Life where large companies like IBM and Toyota are setting up shop as well as crowdsourcing sites like yet2.com for outsourced R&D are creating new opportunities and ways to improve current business processes. The irony is that these sites merely scratch the surface of what is being done in a world where start up costs are going down to next to nothing and where yesterday’s idea can become tomorrow’s next big thing.

By the way, I’m not including the traditional hot-button vendors of Microsoft, IBM, SAP, Oracle and Salesforce.com (MISO+S) in this batch as everyone understands their approaches and gizmos way too much. They may get the money today but in many ways they are not capturing the intellectual and creative growth that is occurring on the fringes and exploding in the market on almost a daily basis.

The growth of MISO+S is predicated on spending lots on money using a traditional enterprise software business model. And many of us agree that the current model is broken and needs to be fixed. And unlike non-MISO+S platforms, where people and companies swarm to them with passion (via pull), the traditional platforms must be painfully maintained and managed (via push.) See my piece on push vs. pull.

Thus when common wisdom states that best of breed is dead, I have to laugh. It is not dead but is flourishing and multiplying under the monikers of Web 2.0, Enterprise 2.0, social software, software as a service, outsourcing, etc. In fact, the diversity of solutions and approaches that buyers can tap today to solve any given challenge are more rather than less in number. There are more companies in the market today doing interesting things using a wide variety of disruptive technologies and business models than ever I can remember in my 25 years plus in the software industry.

But I can see how the consolidation perspective and bias can grab hold if all you are thinking about comprises standard HR, CRM, ERP, etc. functionality.

Boring!!!!!

If that’s your perspective, then just think about how to drive down the cost of (mostly) commodity functions in a commodity space. And like all tech commodities (hardware, operating systems, database, etc,) these functions will be supported by just a couple of big sellers.

I have to both smile and groan when I start to review these changes in the context of my own professional life. I am reminded of experiences nearly 20 years ago when as a young analyst I was among the so-called vanguard talking about how client-server computing, relational database, PCs, Unix, packaged applications etc. would upset the corporate apple cart of mainframe computing and home-built applications.

At the time, the Gartner analysis stronghold was mainframe computing (representing over 40 percent of all revenue, though quickly dropping as a percentage of the total) and was run by a small group of white-male, country-club, golf-playing, gin-guzzling, IBM veterans. In their checkered slacks and white belts (and often shoes), they would scoff at how new things would challenge the old.

“My nose hairs will catch on fire before Windows will be used for corporate computing,” yelled one of the mainframers during one of our Friday afternoon research meetings.

When I look at how many of the current research firms (Gartner, Forrester, AMR Research, etc.) as well as industry leaders (SAP, Oracle, etc.) are considering these new technologies I see a similar wardrobe and world view. When you look at surveys in CIO Magazine, Information Week, etc. they express a similar theme and perspective. Smart guys like Babson’s Tom Davenport dismiss the newer approaches as nothing special or new. The trouble for all of these different groups is that they CANNOT see a different future without accepting that their current ways for success will not be the means by which they can prosper in the future.

Now to give all these folks there due, it is true that big capital assets change very slowly. Mainframes are still in use, but constitute a smaller and smaller portion of the computing platform base. By the same token, big enterprise applications will still be in use for the next 10 to 15 years but will not represent a growing part of budgets.

What will be growing are the positions and clout of today’s under-40 set who use Facebook and want their iPhones to hook up to corporate e-mail (today they are being told no way.) Where do you think they will want to spend money? Not in classic ERP. Not in classic enterprise software.

So if you are planning for the future, put down your golf clubs as well as gin & tonic and spend some time with an avatar at Second Life while updating your Facebook identity after you contribute to a crowdsourcing activity. You may get a good idea where much the new money in the future will be spent.

Erik Keller is principal of technology consultancy, Wapiti LLC.

The Software Critic: Vista! We Don’t Need No Stinkin' Vista!

Erik Keller — 2007-04-23T10:06:08-08:00

The Software Critic: Between a Rock and Capital Spending

Erik Keller — 2007-04-13T10:38:22-08:00

This morning’s (Friday, April 13) Wall Street Journal report on tepid capital spending throws the final bucket of cold water on the prospects of good growth in traditional software spending this year. It follows reports of lukewarm software spending (at best) from both Smith Barney and Goldman Sachs over the past few weeks in advance of earnings season. One thing I have learned about these Wall Street macro reports over the years is that when they are talking flat, they really mean down. I think long term it is going to get worse. A lot worse.

The Software Critic: Consolidation: The New Mediocrity

Erik Keller — 2007-03-09T10:46:33-08:00

While Oracle’s latest acquisition of Hyperion continues to cement the idea that there is nothing to stop the onslaught of consolidation, I am wondering if the software industry is sewing the seeds of its own destruction and value through such actions.

The Software Critic: The 6 Percent Solution

Erik Keller — 2007-02-12T10:00:20-08:00

As I was reading the New York Times business section this Saturday, I noticed that the semiconductor sector was down in the dumps with a return of -7.7 percent. So when I looked up the score for information technology providers—hardware, software and services and semiconductors—I was only slightly relieved that its return was a paltry 6 percent, with tech hardware coming in strong at 12.9 percent. Given these numbers my favorites, software and services, appears to have year-to-year growth of only around 6 percent.

The Software Critic: Prepare for a Tumultuous Year

Erik Keller — 2007-01-19T10:36:40-08:00

As I approach my 50th year and threatened grandparenthood from my eldest daughter, now married and living in England, I have become much more reflective and watchful of signals. So rather than come up with a set of custom predictions for 2007, I figured I would be lazy and use the “wisdom of crowds” or “idiocy of analysts” concept to cull the landscape and aggregate what folks are saying about what will happen this year.

The Software Critic: Diamonds are an Enterprise’s Best Friend

Erik Keller — 2006-12-18T10:32:51-08:00

While many industry observers would state that the four choices of application building, buying, renting and sourcing applications have always been available to buyers, they would tend to agree that many lingered in the background from the mid 1990s to the turn of the century as an unprecedented build-out of purchased applications platform occurred. However, a combination of enterprise application failed promises, market crash and the availability of a new generation of web-based tools has led the market to an inflection point today where all choices are on the procurement table.

The Software Critic: You Call That a Platform?

Erik Keller — 2006-12-04T10:39:04-08:00

Just when you thought technology choices were slowing down, the recent plethora of application “platform” announcements is reminiscent of the days in the mid 1990s when software companies needed to support multiple database, operating system and desktop platforms to be competitive. Recent announcements include:

NetSuite announced that it was introducing a new platform called SuiteFlex as an alternative to SalesForce.com’s AppExchange.
Salesforce.com announced its ApexConnect integration services.
EMC announced that it would open up Documentum to software developers.
IBM announced that it has enrolled over 600 software companies in support of its open-source application server technology.
RedHat announced the coming availability of the JBoss Enterprise Service Bus.

By the way, this is in addition to the Oracle, IBM (non open source), Microsoft, BEA, SAP, etc. platforms that already exist and want you to support them. Smart money says that there will be more platform announcements made in the not too distant future. And all of them want you to support their platform.

The Software Critic: Walking in the Past Toward the Future

Erik Keller — 2006-11-06T10:21:27-08:00

Last weekend, I took a walk in New York City to one of my favorite youthful hangouts: Tower Records. I loved going to Tower as a college student and young adult as it was packed with people at all hours and had nearly every album that was on my "want-it" list. It was also great as the staff and customers were of like mind about the music and the experience.

But this time it was a morgue. Tower is going out of business and the reasons why have a direct impact on how the future of the software business may well evolve.

Now the last time I was at Tower was a few years ago. Then, as in younger days, it was packed with people of all different ages—from spiky-haired, body-pierced kids to elderly gents quietly looking for their selections at an easy pace. Today, however, I was among the youngest of the bargain-seeking sect as all the kids were gone. It was as if some Pied Piper had released a siren song taking them all away and leaving us ancients to fend for ourselves.

Well I think we all know what that Pied Piper is and it is called on-line-downloaded music. Today's generation of kids don't want to buy content or music or software but rather they want it for free (or close to free). So what does that have to do with the rest of us?

Well a couple of these things.

The first is that we are at the cusp of a demographic bubble where most of the managers, CIOs etc. will be retiring in the next decade. You know the type: your customers.

Next is that this new generation of web-savvy, downloading kids will become like you and me in the next decade in that they will be in their mid to late 30's and become the new managers and buyers (OK, I'm 50 but everyone tells me I don't look a day over 49.)

So when this generation of today's deductions become tomorrow's IT corporate buyers, what do you think is going to happen? Are they going to want to buy traditional stuff or will they be looking for something on-line? Something free or close to free? I think you can see where I am going with this.

I don't think that I am the first person to figure this out and that is one of the reasons why I believe that all of the major vendors today are desperate to get the current generation of IT geezer users to commit to a massive SOA-based upgrade so that they can hook and reel in the next 10 to 20 years of investments as people make the switch. If you don't think commitments like this last so long, remember when everyone said that mainframes were dead back in the 1990; there are still plenty of them around today running Cobol.

If corporations don't say today, "Yes we will make the switch and invest in SOA," when corporations may be ready to five years from now, not only will there be a proliferation of very different choices, but some of the top buyers at the table will not want to play traditional ball.

So as a seller today you have a couple of choices: try to get the old geezers to make the jump and commitment to older style enterprise software or be one of the disruptive forces that is banking on a new way of making money. If you are small (less than $100 million) then you need to either tightly embrace the big companies or become a disruptor. Middle of the road choices will be tough to defend.

By the way, I did buy a couple of CDs at Tower but couldn't find an old Cat Steven's album, Foreigner. No problem, I just went to iTunes and downloaded the song I wanted for 99 cents.

Erik Keller is principal of technology consultancy, Wapiti LLC.

The Software Critic: Learn from My Mistakes

Erik Keller — 2006-10-20T10:01:40-08:00

As an analyst, part of the stock in trade is an air of infallible superiority. Like Zeus from Mount Olympus, the hurling of provocative thunderbolts in the guise of research is expected and wanted. However, when you sit (at least in your own mind) in such a lofty position, you have so much hubris that you never consider which of your thunderbolts hit the target directly rather than quickly dissipate into thin air with a loud bang and flash.

The Software Critic: Halfway to Reality

Erik Keller — 2006-10-16T10:12:22-08:00

As I sat at this week's Enterprise 2006 conference listening to companies attempt to figure out many of the larger business issues of the day, I was encouraged by the fact that most companies (that are still in existence) appear to be taking a much more realistic view of what it will take to be successful in the future.

The Software Critic: Back From "Nowhere"

Erik Keller — 2006-10-06T10:51:15-08:00

If anyone has wondered, I've been on vacation for the past few weeks with my wife and sister-in-law hiking the Grand, Bryce and Zion Canyons. If you really want to get away from stress and civilization, these places are great as access to most technology is practically non-existent. Even though I was going through hi-tech (and news feed) withdrawal during the first few days, I embraced the fact that all between me and the abyss was air unpolluted with smog or Wi-Fi waves and a view to die for.

The Software Critic: The New SLOG

Erik Keller — 2006-09-15T10:19:47-08:00

Part of a pundit's DNA is the slavish need to create acronyms. ERP, CRM, etc. is all part of the jargon-laden lexicon that is a gun in the holster of any analyst. At the Enterprise 2006 event, AMR Research's Bruce Richardson coined MISO when he spoke of the differing goals and platforms of Microsoft, IBM, SAP and Oracle. Call me snarky, but I think that MISO is so retro and represents the status quo much as BUNCH did in the 1970s for computer manufacturers. It's old school rather than something that represents the growth and future of enterprise software.

The Software Critic: Summer's Over

Erik Keller — 2006-09-04T10:57:47-08:00

As we all start to return to work in earnest over the next week or so we ought to take stock of some of the events over the summer to consider how to plan for next year. For example:

IBM's in apps, get over it. IBM went on a major buying spree and is aggressively returning to the software apps game with its acquisition of MRO Software. It is also in the apps biz via the custom-build route via its WebSphere products and global services organization.
The new normal of lower IT spending. As has happened with remarkable regularity every year for the past five, mid-year estimates for IT spending increases have dropped by 25 percent and more . In the late spring, market-research firms expected IT spending growth of 6.9 %. Within a few months, Gartner as well as the other market research firms have recently published revised budget numbers downgrading their long-term growth figures to between 3 and 5 percent through 2010.
Some make it and some don't. Uneven financial results posted for a enterprise software companies. Tibco and Oracle blow out numbers while WebMethods, Business Objects, EMC, SAP, etc. don't.
Going public sucks. As this article shows, 17 IPOs have been withdrawn since the start of summer, June 20. If SOX-compliance wasn't bad enough, market conditions continue to deteriorate.

Pile on top of that recession threats from many major economists as well as consumer-buyer challenges ranging from raising oil, health, credit-card and mortgage debt and you have a situation that is not going to open the wallets of many rational buyers. The saving grace for sellers may be the irrationality of buyers as pointed out by fellow Irregular Jason Wood.

But you can't build business plans on hopes of companies doing the wrong rather than the right thing and as the above events point out, the summer doldrums were far from that and continue to show that the software industry is at the beginning of a major structural change. And I'm not just talking the current buzz around Enterprise 2.0.

It's not just about consolidation. It's about entirely new business models and practices as Vinnie points out in this post. It's also about how consumer-led products are getting spend attention and trumping those in the business-oriented realm. When you have stories on the front-page of the WSJ this week telling the world that Dell's problem is that it focuses too much on corporate buyers to the detriment of the consumer, you know that things are different. No wonder Roger McNamee has decided to hang with Bono via Elevation Partners and focus on non-enterprise software stuff (as well as his excellent guitar playing.)

And I haven't even really discussed the ongoing and rapidly growing models of open source, software as a service, third-party maintenance and offshoring. All of these areas are poised to be rapidly adopted by buyers as the deliver more for less, which follows the business models of every non-software industry (with perhaps the exceptions of health care and government).

So now that you are all back and tan, continue to think out of the box and create business models and products along the lines of folks like Proctor & Gamble, Toyota, Wal-Mart, United Technologies, etc. who need to innovate and steal share while increasing margins in markets that grow totally proportional to GDP.

You are becoming more like your customers than you have ever thought.

Erik Keller is principal of technology consultancy, Wapiti LLC.

The Software Critic: A Network Downer

Erik Keller — 2006-08-16T10:58:14-08:00

My network is down. Not my network, exactly, but Comcast, which provides me Internet service. It was down for half a day. Now this has effected me in a couple of ways.

I couldn't download e-mail.
I had to cancel a WebEx presentation with a client.
I couldn't research a project I was working on.
I couldn't order a new book I wanted on Amazon. (Perhaps this doesn't count for work.)
I couldn't post to or track the blogs I am associated with.

The Software Critic: . . .Who Needs Enemies?

Erik Keller — 2006-08-07T10:56:15-08:00

I swear that I didn't plan to make this a two-part blog nor did I have advanced knowledge of IBM's and IDS Scheer's partner-killing announcements this week. But sometimes you get lucky and luck has always served me better than skill.

As I said my last blog, "With partners like these. . .," the idea of cooperative ecosystems in the software industry is quickly crumbling as many players have (mostly) decided that there are few if any boundaries that exist and that it is fair game to go out and pillage as much as possible regardless of consequences.

The most recent example of this is IBM's proposed $740 million acquisition of MRO Software, which sells asset-management solutions. While some of the spin on this deal is clearly focused around MRO's fledgling capability to manage IT assets like Peregrine (which was acquired by HP), most of MRO's business is focused around real assets like power plants, industrial equipment, pumps, etc. for maintenance and repair operations.

Now last time I was looking, this capability was a core part of SAP, Oracle, etc. solutions as well as independents such as Indus. How do you believe they will feel about IBM as either a technology or service partner given this announcement? One of the rationales that was used a few years ago when PeopleSoft was looking for a white knight to save it from Oracle was that IBM was off-bounds as it would not want to upset its well-oiled apple cart of software alliances.

Well with IBM's overall corporate growth in tough straits, I guess that strategy is going out the window. Nearly coincident with this buy came another: Webify Solutions, a small heath-care and insurance industry provider. So I guess now IBM in combination with these software providers, its services organization and SOA technology can build and blend a combination of solutions in direct competition with its software partners.

In another strange announcement, IDS Scheer announced a 7-year OEM agreement with Oracle to help Oracle incorporate its ARIS business-process management software into the Oracle Business Process Analysis Suite and its Fusion middleware. In many ways this is very similar to what IDS Scheer has done with long-time partner (and former investor) SAP. ARIS technology is a key component of SAP's NetWeaver technology and strategy.

What makes this announcement strange is that SAP has always considered IDS Scheer, with revenues last year just south of $500 million, one of its most strategic and important partners. The founder and largest shareholder of IDS Scheer, Dr. August-Wilhelm Scheer, is on SAP's supervisory board. Perhaps what is good for the goose is good for the gander, but you can't believe that SAP would not be a tad bit upset about this alliance.

By the way, it is great news for IDS Scheer as it has captured the two largest application players with its BPM tool. It reminds me of what happened over a decade ago when Manugistics able to become the defacto third-party for CPG supply-chain solutions with alliances with SAP, Oracle and others. That turned out so well for them, didn't it?

All kidding aside, these events are truly unfortunate because in the case of IBM seeing seeking to build new business models and grow the overall opportunity, it is taking defensive measures that may insure its survival at the expense of other vendors and ultimately greater innovation and value. IDS Scheer can make deals with anyone it chooses but this one choice will undoubtedly change the relationship that it has with SAP.

Trust and making money are what partnerships are all about. If you don't do both, then partnerships will always fail.

Erik Keller is principal of technology consultancy, Wapiti LLC.

The Software Critic: With Partners Like These . . .

Erik Keller — 2006-07-28T10:01:24-08:00

I'm sure the recent announcement that Microsoft is getting into the health-care applications market had widely divergent interpretations by its ISV partners. On the one hand, I'm sure it evoked snickers in some circles given Microsoft's track record in the traditional ERP and CRM spaces.

The Software Critic: A Reality Road Trip

Erik Keller — 2006-07-24T10:55:33-08:00

One of the more surprising things that I have found post-Gartner is that life for myself and former colleagues is much more interesting than it was when we were fat-headed, self-proclaimed, ego-centric "masters of the universe." Because few of us have the "platform" of the past, companies engage us today because they are actually interested in our views and want help verses sucking up to us because of our position and influence with key buyers. (Believe me this is a much smaller number of companies.)

The Software Critic: Fibrillation Happens

Erik Keller — 2006-07-19T10:42:00-08:00

Just when the enterprise software space was settling into its summer doldrums, we got a bunch of pre-earnings misses from marquee names including Business Objects, EMC, WebMethods and SAP. Tibco was one of the few happy companies as it was able to blow out its numbers but it was more the exception than the rule.

Clearly there are fewer misses this recent quarter than in prior years, though the cynic in me can't but help point out that there are fewer companies with increasing consolidation in all enterprise-software sectors.

So what does all this mean and when will things get better?

The quick answer is that the business models of software companies are in the midst of rapid change and many companies will soon, if not already, find their business models in a state of fibrillation, which is never a good thing. For those of you unused to cardiac concerns, fibrillation is the "uncontrollable twitching or quivering of muscular fibrils" or in the case of software companies, revenue and margins.

Surprises and lack of growth in enterprise software was supposed to be over now, right? Well, unfortunately not. From my cheap seats we are likely to see even a greater set of swings in the coming years for the following reasons:

Buyer choices are in flux. As I have mentioned before, there are lots more choices available to buyers when looking to solve a business problem. Rather than just buy software customers can build it, rent it or outsource it. All of these choices create a great deal of flux and variability in what companies will do and whom they will buy it from.
Prices are in flux. As buyers have become conditioned to lots of discounting, sellers must continue to spend lots of time convincing companies of the value of their solution only to get dope slapped by aggressive procurement groups when it comes to signing the deal. And then there is that thing called SaaS. And let's not forget offshoring.
Values are in flux. Much of the enterprise software is valued the same regardless if you are selling an analytic, price-management, workflow, order entry, etc. solution. The lack of intelligent segmentation around the value of software creates buyer confusion and problems for sellers.
Edge (innovation) technologies are in flux. There are a great deal of very interesting collaboration, Web 2.0, etc. technologies that are coming to market that buyers have started to look at. These technologies have been unevenly supported by sellers and, by the way, in many cases they are inexpensive and fast to install.

All of this implies that buyers have more rather than fewer choices of how to spend their money. When customers do spend they can get a lot more for a lot less, which leads to seller business models going into fibrillation. By the way, in the case of a human heart, when fibrillation is mild, it can be treated easily, when not the heart must be stopped and restarted. Consider that metaphor.

So because the market of enterprise software is in a great state of flux, no discernable patterns will occur for a while, making misses (and hits) all that more frequent. If you don't want to miss, make sure that you have offerings that can accommodate a much wider array of buyer preferences than you have in the past. Otherwise get out the paddles. Clear!

Erik Keller is principal of technology consultancy, Wapiti LLC.

The Software Critic: Forrester Is Boring

Erik Keller — 2006-07-13T10:10:58-08:00

The recent Forrester missive on the future of enterprise software shows how one research organization can change after an acquisition. In the boom-boom days of the Internet and free money, Forrester delivered research in style of "yell fire in a crowded theater" to get lots of attention and press ink (it was very successful in this.) Though its predictions were far from accurate (remember Organic IT?), Forrester was never boring. Vinnie has written a couple of times on how he likes Forrester.