Increasing payments fraud highlights rules-based processing benefits

The recent AFP report (Association for Financial Professionals) on payments fraud in 2008 makes grim reading for financial institutions…

…especially compared to the previous 2007 one. 30% of respondents said they experienced more payments fraud attempts in 2008 than 2007, and incidence accelerated throughout the year with 38% saying that fraud increased in the second half of the year, probably due to worsening economic conditions.

From an IT point of view, this just reinforces the need to have systems that are easy and cost-effective to change. Lustratus developed a detailed report in 2008 about the shift in the area of IT payments processing solutions, where it outlined the key elements of the new, ‘2nd generation’ approach to payments processing as follows:

…the 2nd generation payments processing model needs to be based on the following key design points:-

-An extensible, service-oriented approach featuring plug-in capabilities

-Enterprise-wide, consolidated and centralized, real-time visibility and control of all payments processing activities, from anywhere to anywhere, based on a generic, standards-based payments model

-A business rules-based architecture governing payments processing functionality

– And, of course, the continued provision of reliable, efficient and repeatable payments handling as provided by 1st generation systems

The two key features that apply to thispayments fraud example are the extensible approach with plug-in capabilities, and in particular the rules-based concept. The idea behind having a business rules-driven payments processing infrastructure is that when changes are needed in the way payments are handled, these can be implemented quickly, safely and verifiably with rules as opposed to having to change program internals with all the associated implications. For example, rules could be used to enforce the use of separate accounts for handling checks or ACH payments, or having different accounts for every different payment type. In addition, rules when combined with events processing can provide an easy way to detect out of line situations and raise a red flag.

Payments fraud is only one of many examples of the need for systems to be able to respond quickly to change – and rules-based processing combined with an extensible, service-based approach to delivering functionality provides the ideal environment to tolerate that change quickly, safely, cheaply and effectively.

Steve

Is this what you get with Enterprise 2.0?!

Once upon a time I was a developer on CICS, IBM’s ubiquitous mainframe transaction processing product.

CICS runs in just about every large business in the world, carrying out many of the corporate ‘bread-and-butter’ transactions, and is particularly notable for its long life of more than three decades. To many, CICS remains the gold standard of Enterprise infrastructure.

So imagine my surprise when I saw CICS on Youtube today! The clip provides a simple and crisp introduction to the power of events processing in a CICS environment, and is actually rather good, but I am still in shock that Youtube, which I usually use for watching Eric Clapton or any of the three Kings (Albert, Freddie and BB) playing storming blues, is featuring CICS! Is this what they mean by Enterprise 2.0 I wonder? The old world colliding with the new? Is the next step to see CICS programmers throwing themselves from 5th story windows into drifts of snow?

I guess this is the mark of a truly successful software tool – something that constantly evolves to meet the shifting and developing needs and expectations of its customers. Good for you, CICS!

One final observation – there was also a small victory in the Youtube clip for any old hands. The voice-over is by an American lady, but she still refers to CICS as ‘kicks’. This is the way CICS has been known in the UK for years, but in the US it was always spoken as the four letters – C.I.C.S. Perhaps CICS has become the subject of a new international standard!

Steve

TIBCO 1Q09 earnings (part 2)

Last week I was speculating on TIBCO’s 1Q09 results and its challenges in 2009, and of course the final results have now been released.

I have had a lot of interest in the original post and requests to do a follow-up once the figures were out, so here we go. However, please remember that these are only my personal opinions – I am a market expert, not a financial one!

Revenue declined 9% year on year, although perhaps half of this decline might have been currency fluctuations, and through smart cost cutting measures TIBCO has actually improved profitability. However, from my perspective the most important information was that new license revenue fell to 44.8M from $57.7M in the same quarter the previous year – a 22% fall. Services and maintenance was flat at $88M.

The fall in new licenses is quite dramatic, and certainly not attributable to currency. Of course, this may reflect the generally poorer conditions, but it will now be extremely interesting to see how some of the other SOA and BPM players do in their first quarters – for example, I was discussing Pegasystems yesterday, and in 2008 it showed a 50% increase in new license revenue – it largely sells BPM software. Its 1Q09 results will be an interesting yardstick for these TIBCO results.

TIBCO is proving to be very reliant on its messaging / SOA products, only 21% of revenue coming from its business optimization segment, and that shows how dependent it is on its traditional strength in messaging, but as I said last week this area is coming under threat and has forced TIBCO to adopt an appliance approach to try to defend its position. However in the 1Q09 period TIBCO says it did not make any major appliance sales. Anyway, although I am not familiar with TIBCO’s commercial arrangement with Solace Systems, its partner in the appliance deal, I have to believe that TIBCO will no longer be able to count on all of the revenue stream from the appliance. I can see no alternative but for this segment of TIBCO’s business to fall. it is not surprising that TIBCO is desperately trying to broaden its industry vertical coverage as fast as it can.

Apparently the company is actively looking to make more acquisitions. This could either be to fill in gaps in its overall solution, as its management claims, or could it be to provide non-organic revenue growth to bolster its figures?

I have to confess that personally these results have left me feeling a bit queasy about TIBCO’s future. We should know more when we see some of the other 1Q09 performances in the SOA space, but I did not see anything to make me think TIBCO is surging back…

Steve

Pegasystems points the way forward

There is a lot of chatter in the blogosphere at the moment about whether SOA (service-oriented architecture) has run out of steam – whether companies have stopped investing in it, got disillusioned with it or cast it aside for the latest new thing.

For me, this is a silly discussion – SOA is about a way of doing things more sensibly, just as structured program was many years ago. It is really all about architecting system design around the concept of a pool of shared services, and cleaning up the linkages between different programs and applications.

So on this basis SOA is not dead, but an active and important architectural underpinning of a number of different initiatives, many of which have been rolled into the ‘SOA’ term – things like BPM (Business Process Management), SaaS (Software as a Service), Business events management, BAM (Business Activity Monitoring and many others. But has the failing world economy stopped the whole SOA family juggernaut in its tracks anyway?

The answer Lustratus picks up from its clients is a resounding NO. BPM in particular seems to be seen as a powerful way to respond to the needs of operating in an economic recession. Indeed, Lustratus pointed to BPM as a shining light in its forecasts for 2009. Validation of this claim is evident when looking at the performance of Pegasystems a major provider of BPM solutions and technologies. Pegasystems is an important indicator of BPM health because it is one of the few remaining pure-play business process software vendors left. In its recent annual results announcement earlier this month, it showed a revenue increase for 2008 of over 30% to over $200M, and importantly a 50% increase in new license revenue. It is in such good financial shape that it has even just announced a quarterly cash dividend! Admittedly it is only paying 3 cents a share, but in these times this is not to be sneezed at.

Of course, these results in isolation may not be conclusive. After all, the Pegasystems rise in sales might simply indicate it is stealing market share from its rivals. However other big BPM players such as IBM are also claiming strong performance in the segment, so it is much more likely these figures shine a light on the way forward for users as they struggle to do more with less, and get a better level of control and governance over their processes.

Steve

Will Swordfish make its point?

The ECLIPSE organization has finally made its announcement of the first release ofSwordfish, the open source ESB (Enterprise Service Bus) framework.

A lot of the work for Swordfish has come from Sopera, a German open source company that has developed an offering around the DeutschePost service bus development. Sopera offers a valid and competent framework for service integration, and therefore it is assumed that Swordfish might also work.

So, will Swordfish make a successful strike at the ESB market? So far, open source ESB projects have not had a great deal of success, and as far as 2009 goes Lustratus has forecast that open source projects will suffer due to the lack of the necessary people resources to turn open source frameworks into a useful user implementation. However, Swordfish has the backing of the influential ECLIPSE organization, which has done a lot to standardize the look and feel of many software infrastructure tools.

Looking at the initial marketing thrust for Swordfish, things don’t look to good. From the announcement letter, the top functional bullet reads

Support for distributed deployment, which results in more scalable and reliable application deployments by removing a central coordinating server.

Well – duh! This is not new – it is part of the basic definition of what an ESB does! However, this initiative is still worth watching, despite the ill-fated marketing attempts so far. ECLIPSE has significant industry backing for its GUI look-and-feel stuff, and indeed most of the big industry names like IBM, Oracle and SAP are involved in the running of ECLIPSE, and provide a lot of the financial backing.

It is this that might be the source of most excitement with Swordfish. Oracle and IBM both actively market and sell their own ESBs, and SAP offers its own equivalent functionality as part of its NetWeaver set of offerings. I wonder how they feel about ECLIPSE driving an open-source ESB version that competes on functionality and is free? I would love to be a fly on the wall in internal ECLIPSE meetings about the future of Swordfish.

Steve

Is the time right for Progress Software to be bought?

In the course of my ongoing analysis of software infrastructure vendors I was intrigued by the recent earnings release from Progress Software…

…and it caused me to dig a bit deeper. Basically, Progress is holding its revenue stream although not growing it, and I guess in today’s environment that is OK. But when the performance of the company over the last few years is considered, a different picture starts to build up.

Basically, Progress made a lot of money from its OpenEdge database product, and this business is still providing a rich ‘cash-cow’ revenue stream. However, not only has this stagnated but it is starting to decay, with Q109 showing a sharp drop. Admittedly this is probably in part due to currency movements, but the trend is clear – this is not a growing business ans the writing is on the wall, at least in the longer term. Progress knows this, and so over the past few years it has been on the acquisition trail, trying desperately to find a new business that can grow sufficiently to become the new OpenEdge. It has tried the area of Data, with its DataDirect division growing through acquisition, but this business has reached a steady state with little or no growth. It tried the area of messaging, being the company that brought the term ESB (Enterprise Service Bus) to the world through its SONIC line of business, but having got a great mindshare and market position it lost focus and this business is now fatally damaged, with others such as IBM, Oracle andMicrosoft taking up the mantle. Recently it acquired the APAMA complex event processing business, Actional (SOA management) and IONA (a datedintegration business based in Ireland). It has since found some success with the excellent APAMA offering in the heartland of financial market data processing, but has struggled to replicate this success in other industries and use cases. Actional has also had some success but it is immutably tied to the SOA star which is having its own problems. And IONA, similarly to Progress, has a nice legacy integration business based around Orbix but has failed utterly over the years to create anything else worthwhile.

The result is that although the IONA purchase has increased revenues in the Progress ‘integration infrastructure’ business unit, this is likely to be a one-off improvement and once again Progress is going to be stuck with an aging cash-cow and no clear rising star to take over responsibility for driving growth.

This might seem a recipe for Progress itself to be acquired. Up to now, this has been unattractive due to the share price, but in thecurrent climate the acquisition looks a lot more interesting. My view is that there are probably two strong candidate acquirers for Progress:

  • Companies looking for attractive maintenance businesses where profit can be maximized by cutting expenses and taking the money until the product line sunsets
  • Companies not currently in the integration space but wanting to get into this lucrative area and looking for a ready-made product set (perhaps to underpin a professional services business)

Who knows what will happen in the current turmoil? I may be way off the mark, but if I was a company fitting either of these two categories, and I had the money, I think now would be a good time to strike. After so many false dawns, I suspect the Progress management team might not resist too hard….

Steve

    Recession pushes SMEs to top of mind for software vendors

    One interesting effect of the current economic turmoil is that SMEs have never had so much attention from software vendors desperate to find alternative revenue sources to replace depressed corporate markets.

    A common effect of recession is to cause larger companies working off a bigcost base to become cautious, opening the way for smaller, more nimble companies to slip in and grab a bigger piece of the pie. As a result, SMEs are often more inclined to look at a new investment in a recession, making them attractive targets for software vendors.

    Take the announcement made last week by software infrastructure vendor Axway, recently merged with Tumbleweed and the now headquartered inScottsdale, Arizona. Axway has released B2Bi Express, a B2B solution targeted specifically at SMEs. Mindful of the needs of this market segment, Axway offers B2Bi Express not only as licensed software but also as a SaaS (Software as a Service) solution.

    Most major software vendors now include products designed for SMEs, although in many cases the larger vendors such as IBM rely on partners to fill out their solution sets. I expect to see a lot more focus on SMEs over the coming months – the one warning, however, is SMEs should watch for vendors offering ‘big user’ products with simply a few marketing slides around them to make them look like SME products. SME needs are quite different (eg a SaaS option such as included by Axway in the above release) and need special handling in both product and presentation.

    Steve

    TIBCO 1Q09 earnings will make interesting reading

    In a week’s time, TIBCO Software will release its earnings figures for its 1Q09 quarter ending March 1st.

    These earnings should make interesting reading, and will start to indicate how well the company is standing up to a number of squeezes on its business. TIBCO has been caught recently in a two-way fight with both traditional and new-wave vendors. On the one hand, it sees a key growth market as the general area of SOA, BPM and wider business integration where it is having to cope with the IBM steamroller, while on the other its ‘traditional’ market of core messaging for financial services front-office needs is coming under attack from new market entrants with radical shifts in technology.

    IBM goes from strength to strength with its SOA / BPM WebSphere product suite, claiming throusands of deployments, and was always going to be a hard fight for TIBCO. The new TIBCO ActiveMatrix architecture is an attempt to fight back, but it remains to be seen how effective this approach might be. Perhaps more worrying for TIBCO is the surge of new competition in the high-speed financial messaging marketplace, where companies such as 29West and Solace Systems have emerged with messaging offerings that outperform traditional TIBCO Rendezvous messaging. The TIBCO response has been to partner with Solace Systems to produce a messaging appliance that implements Rendezvous software in hardware, since it recently claimed that

    Software has reached its limit in ultra-low latency messaging, focusing increasing importance on the hardware “plumbing” to deliver future performance increases.

    This brings TIBCO into competition with appliance offerings from Solace Systems, Tervela and IBM (DataPower). However, other vendors have taken a different approach to the performance issue in these highly demanding financial messaging markets, instead revolutionising the messaging architecture to generate the necessary high performance figures through software. Offerings have appeared from companies such as 29West, who pioneered this approach, and latterly IBM (LLM), with even NYSE promising to get in on the act.

    So this set of TIBCO results are likely to be even more closely scrutinized than previously. Is the TIBCO strategy working, or is the company getting more and more squeezed? Technologies such as BPM seem to be riding out the recession particularly well, but will TIBCO show similarly resilient figures? Has TIBCO’s admission that Rendezvous software is out of steam carried its customer base across to the idea of appliances, or is it going to open the door to competition? It certainly looks like 2009 will be an interesting year for TIBCO.

    Steve

    Justify BPM with a free night in Vegas?

    In today’s climate, investment for IT is extremely hard to come buy.

    BPM (Business Process Management) may promise a lot, but how can it be justified? With a free night or two in the Las Vegas MGM Grand Hotel perhaps?

    The Integration Consortium, a not-for-profit consortium of users, suppliers, implementers and academia focused on all aspects of business integration, is hosting its annual Global Integration Summit this year in Las Vegas, 3rd-4th June, open to allcomers, and as a special incentive it is offering free rooms to the first 200 people to register for the event. So there’s the free night(s) in Las Vegas…but what about BPM? Well, for my sins I will be giving the ‘Featured Presentation’ at the event on how to justify BPM based on the idea of identifying the BPM Sweet Spots – that is,a range of use cases for BPM that each respond to a different investment policy. The idea is that depending on whether a company is focused on restricting resource requirements, or driving payback very quickly, or getting the biggest bang for the buck in the short term, or whatever, then there should be a BPM Sweet Spot that fits the bill. Well, that’s the theory, anyway…..!

    At least the free room (if you are lucky enough to get one) is one bet you can’t lose on!

    Steve

    What use is technology without flexibility?

    I was reading a post today from mainframe integration vendor GT Software…

    …about its support of IBM’s mainframe speciality engines, and I was suddenly hit by the realization that in order to really add value for users, technology almost always has to be accompanied by flexibility. The two need to go hand in hand if returns are to be maximized and business risk minimized.

    The specific example discussed relates to an IBM mainframe invention called a speciality engine. For the uninitiated, think of a logical processing box within the overall mainframe environment where processing is much cheaper, with different boxes being aligned to specific activities such as running LINUX operations, data access or Java-type activities. What this basically means is that if part of your workload is doing something that is supported by one of the speciality engine types, then you can choose to run it more cheaply by moving it into this engine, and in fact this can often improve performance too.

    This is neat technology, offering the opportunity to reduce costs and improve effectiveness, and various mainframe software suppliers have jumped on the opportunity this offers by moving eligible workloads onto these specaility engines. However, as with any new technology development, things are not quite as simple as they seem. In the IT industry there is a terrible tendency to jump for a new technology and push everything onto it, without appreciating the implications. But, in this example, as pointed out in the referenced post,

    There are many use cases where it is much more efficient to NOT shift workload to a specialty engine. Why — because, there is overhead associated with moving workload

    This is typical with just about any new technology. It is great in SOME circumstances, but loses out in others. iPODs are great for listening to pop music, sounding little different to CDs and being very much more convenient, but try them on classical symphonies and you will wonder what has happened to the color and magic of the piece. The key is to use new technology for WHAT MAKES SENSE, as opposed to what is possible. There is another angle to this flexibility too. IT vendors often ignore the fact that users are not starting from a clean sheet of paper; they have existing investments and technologies that cannot just be written off. Therefore, it is important to have the flexibility to operate with whatever is in place rather than demand a specific new technology component. This is not a static need, but a dynamic one – it may be that a company might change its approach further down the line, and a rigid, inflexible technology implementation can cause terrible future headaches.

    While new technology may promise a lot, it is only when coupled with flexibility over which technologies to use, for what, and when that technology can REALLY deliver its full value.

    Steve