A practical approach to Open Source (part 1)

I am often asked about OSS (Open Source Software) – I am not sure whether it is because I have been somewhat outspoken in the past…

…or whether it is because users are not completely sure whether they can trust the marketing messages put forward by different OSS projects and their supporters and are looking for an independent perspective. However, I have decided to jot down a few thoughts around OSS, based on a practical and logical assessment. I have gathered these observations into four areas

  • What are the user benefits of open source?
  • What are the risks?
  • How does the particular open source project business model work?
  • What needs to be done to achieve the benefits?

This first post deals with the first area – what are the user benefits of open source?

I guess the most common one users bring up is that OSS is free! No license fees has got to be good, hasn’t it? Just one work of warning here – it is worth checking the exact terms for the specific OSS software to validate that it really IS free. Strange as it may sound, some ‘OSS software’ is NOT free of charge.

However, there are other potential benefits to consider. For example, some users find that having access to the source code is a benefit. This may be because the user can now make changes to customize the software so it is more effective for the company, or the confidence it brings that a failure can be resolved locally without having to wait for support organizations to respond. Once again, however, check the small print. Some OSS Software projects do NOT distribute the source, and others require any updates and new developments to be fed back into the project.

Another appeal of OSS is the fact that it can pool the ideas of thousands of technical minds across the globe. Hopefully this will mean that the code is usable and effective. Since these minds will also be available to check the code, it should also give a higher code quality. The caveat in this case is to make sure that the particular OSS project of interest really IS a broad community, and not just a small interest group or worse still a single vendor pretending to be pushing a widely supported OSS project.

Finally, there is the hoped for standardizing effect of OSS. That is, if an open source project takes off and gets wide industry backing, then all vendors are likely to find it easier to support because there is no hidden agenda of favouring a particular vendor. This can stimulate a much wider and more rapid acceptance of the particular code-based, resulting in it becoming at least a de facto standard if not one supported directly by standards bodies.

More to come – the next post will be about the risks of open source….

Steve

What software buyers are looking for in 2009

With the global downturn in full swing, there are a lot of concerns over how software markets will perfom.

However, one trend is emerging as a vital ingredient if software companies are to succeed, and those companies that have recognized it are already benefiting.

Software buyers in 2009 are finding an industry vertical specialization to be essential to support any investment justification. The problem for many users is that although the technologies and products available offer the same sorts of benefits as before, in order to get any purchase through the system it has become critical to have a strong business backing all the way. Nothing will move if a business sponsor is not pushing for it. Of course, investments have always had to be justified, and a business alignment is a key part of this process, but in the economic downturn this focus has moved from being part of the justification to being the overriding element. A business sponsor has to be brought on board right at the beginning if the particular project has any chance of success.

As a result, companies that do more than pay lip-service to describing business benefits are prospering. The software vendors that offer truly vertical solutions, tuned for particular industry needs and taken to market by field teams with the relevant industry domain knowledge, are the ones that are succeeding. One proof point is Pegasystems, who I blogged about a few days ago. Onereason that Pegasystems has maintained such strong growth in 2008 with its BPM offerings is a strong industry vertical sensitivity. 

Another excellent example is IBM and in particular its Information Management division. Information Management software is regarded as unsexy – although still important, it has tended to be neglected in the rush towards application-oriented strategies and initiatives. Enter a new IBM management team that has restructured the go-to-market approach for Information Management software to an industry-vertical one, generating models of particular industry challenges and processes, looking at the specific needs of these industries and carrying the industry-vertical business messages to prospective buyers. Whether serendipitous or the result of impressiveexecutive insight, this approach has almost exactly dovetailed with the software buyers’ needs for a more relevant, industry-related message in order to secure investment. The result is that IBM is claiming significant sales and successes in its information management software business segment, even in the current environment. 

Other software companies would do well to take note. If you want to sell software this year, you have to help your prospective buyers by going to market with clearly aligned business vertical offerings and messages.

Steve   

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

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

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