Software AG sitting pretty?

Software AG seems to be defying predictions and surprising the market at every turn.

Once seen as a sleepy European software house based largely around legacy system technologies, it has taken major strides to transform itself into a major global software industry player. Its acquisition of webMethods a few years ago surprised the market, with many analysts unconvinced that it could make a go of the move into integration / SOA middleware, but it has done a fair job of building some momentum by tying the webMethods portfolio up with its own CentraSite governance technology, providing service-oriented architecture (SOA) with integrated governance.

Then it once again shocked the market by snatching IDS Scheer, the well-known supplier of modelling tools, from under SAP’s nose. Given that the IDS Scheer technology is used by most of the major SOA suppliers across the world for modelling, and in particular is a key part of the SAP portfolio, this would appear to give Software AG lots of cross-sell opportunities across the two customer bases and throughout the SAP world.

Now it has announced its 2Q09 results, and they make pretty good reading ont he surface. A 9% increase in product revenues is particularly noteworthy give that so many companies are struggling to show any year-on-year growth in product sales. However, before getting too carried away it is worth delving a little deeper into the numbers. The product revenue numbers include maintenance as well as license sales. Licensesales actually fell, as with most other companies. Maintenance revenues jumped by 20% – does this mean that the company has built a much larger maintenance base, or is it actually a reflection of a more aggressive pricing policy? Then there is the split between the legacy business (ETS) and the SOA/BPM business(webMethods). License revenues in this segment were down 15% – not very encouraging since this is the strategic business unit. Also, it is noticeable that maintenance revenue in each segment increased by about 20%, suggesting that this rise does indeed reflect a price hike.

However, taking all this into consideration, Software AG is still looking to have moved forward substantially from a few years ago, and assuming the IDS Scheer acquisition goes through OK there should be lots of opportunities for the company. Of course, a cynic might point out that by adding IDS Scheer to the webMethods portfolio, the company has made itself a highly attractive acquisition target to someone – perhaps SAP?!

Steve

What is behind SAP’s ‘go-slow’ on SaaS?

There have been many reports recently on the problems with SAP’s Software as a Service (SaaS) offering, Business ByDesign – see for example the article by Timothy Morgan here.

To summarize, SAP is backing off its initial, bullish claims on SAP Business ByDesign, saying that it is now going to proceed at a much slower pace than originally planned. Of course, the SAP trade show Sapphire, which is being held this week, might provide more info, but I somehow doubt it.

So, what is going on? Why the sudden backtrack? After great trumpeting 18 months ago from SAP about Business ByDesign being the magic bullet for SMEs, offering the ability to run remote copies of SAP applications on a per user basis without having to cough up for a full license, why the hesitation?

I suspect the truth of the matter may be partly political, partly execution oriented and partly financial. There are those who would argue that SAP does not really WANT a SaaS market for its packages to come rushing into existence. After all, from a supplier point of view wouldn’t you prefer to sell more expensive licenses that lock the user in rather than a cheap usage-based service that the user can walk away from at any time?  So the conspiracy theorists would say SAP deliberately tried to freeze the market for SAP SaaS offerings to discourage competition and slow down the emergence of this market.

On the execution side, perhaps it is possible that SAP did not realize that selling SaaS solutions is a world away from selling large application suites directly to big companies. SaaS solutions are low-cost high-volume as opposed to high-cost low-volume, and hence need much more efficient and layered distribution channels – and SMEs are used to picking up the phone to ask someone whenever they have to change something, not a great strength for SAP’s support structure.

Then finally, the financial side. Many SaaS suppliers have discovered an uncomfortable truth – while in a license model the user pays a substantial sum of money for purchase followed by maintenance, in a SaaS model the risk position is reversed, with the supplier having to put the resources in place up front to support the POTENTIAL usage of the infrastructure by all those signed up users and then receiving revenues in a slow trickle over time. Is it possible that SAP just didn’t like the financial implications of having to continually invest while looking at payback times of years? Did they therefore decide to deliberately throttle the number of new customers, giving them a chance to make some money before making more investments?

Maybe SAP will tell all at Sapphire … or maybe we will just have to keep guessing.

Steve

Does Microsoft ESB Guidance have a future?

As one might have expected, Microsoft tried to ignore the Enterprise Service Bus (ESB) movement for a long time, but eventually it had to do something to answer demands of its customer base looking for SOA support.

Its response was Microsoft ESB Guidance, a package of

architectural guidance, patterns, practices, and a set of BizTalk Server and .NET components to simplify the development of an Enterprise Service Bus (ESB) on the Microsoft platform

Let’s be honest. This is a typical Microsoft ‘fudge’. Microsoft ESB Guidance is not a Supported Product, but is instead a set of guidelines and one or two components. It is a Microsoft Patterns and Practices offering – in other words, you are on your own. This may be fine if you are a Microsoft development shop, but far more worrying if you are real business user with extensive Microsoft presence. It has a lot of the disadvantages of Open Source, but you still have to pay for Bizt Talk etc..

So what does the future hold? Will trying to bring the Microsoft server world into the SOA domain always be a matter of risk and going it alone? Will Microsoft productize Microsoft ESB Guidance? Are there any alternatives other than just consigning the Microsoft platform to run in isolation on the fringes of the enterprise?

Fortunately, the Microsoft model may actually be working here. I do not believe Microsoft will ever productize ESB Guidance – after all, they have had two years and are still maintaining there are no plans to do this. However, what this position does do is it encourages opportunists to jump in and develop products based around the Microsoft technology and guidance materials. An example is Neuron-ESB, from Microsoft specialists Neudesic.

So, while Lustratus strongly cautions users about the effort, cost and risk of using Microsoft’s own ESB Guidance package, the idea of utilizing a Microsoft-based supported ESB product from a specialist vendor is much more attractive. Of course, whether these new Microsoft-based ESBs are any good is yet to be seen….

Steve

BPM is flying off the shelves – at least at Pegasystems

It’s always nice to be proved right. At the end of 2008, when Lustratus published its 2009 predictions for the infrastructure market, we highlighted BPM and predicted that 2009 would (at last) be its year.

In March I discussed the impressive 2008 for Pegasystemsin a previous Litebytes post, and now the company has made its 1Q09 announcement of earnings.

Briefly, we are talking about revenue increasing 29% YOY to $62.4M for the quarter, and license revenue up a storming 60% to $28M. Recession – what recession? Admittedly the results were skewed a little by a single large deal closing at around 12% of the total, which may put Pega under pressure for the next quarter, but this cannot disguise the point we made in our 2009 predictions – tactical, targeted BPM can deliver the real savings and flexibility to support broadening customer bases and types that businesses are looking for in the current economic downturn, or can respond to specific business channels such as tracking and reducing fraud.

The other point that these results reaffirm is that companies are looking for solutions that are geared to their own industry vertical needs – Pegasystems has a strong industry framework philosophy that responds to this need very effectively. The only possible ‘cloud’ on the horizon seems to be Peagsystems’ tentative move towards the dangerous ‘Platform-as-a-Service’ (PaaS) market segment – this area is a minefield at the moment and it is to be hoped that Pega do not find themselves sucked into the abyss by getting to wedded to this idea. Just stick to what you do best, guys!

In summary, for all those companies who have heard about BPM and then shied away, put off by the thought of the effort required to deployBPM across the enterprise for all processes, take another look with a tactical, laser-focused mind-set. BPM really can be selectively applied at a reasonable price, with rapid payback and an attractive ongoing benefit stream.

Steve

SAP takes a hammering in 1Q 2009 results

SAP released its first quarter results today – and they do not make pretty reading at all.

Although overall revenue was only slightly down overall it is the software license figures that are so alarming, crashing by a third compared to 2008. This may seem not to be important since the software license numbers are only a relatively small part of overall revneues, but in fact it is the software license performance that drives a lot of the other related activities, so weakness here will feed through over time. SAP points to the fact that 1Q08 was before the global problems had really taken hold, but while I think this is partially true, I think there is another problem evident here.

Companies are still investing in IT – there have been enough results in the last few weeks that show great growth for some, with Pegasystems and Sybase being two particular examples. However, the SAP results seem to show a greater weakness in the application package market – and this is only to be expected. The problem is that while companies like Pegasystems and Sybase are looking to help companies get immediate return through doing things differently (using BPM and going mobile respectively), SAP packages are SAP packages. They do what they do, and although it is generally a good idea to keep updating them and spreading them more widely, these tasks are

  • Very time-consuming and costly
  • Not exactly urgent

On this basis, most companies are electing to stick with what they have at the moment on the packages front, while concentrating on other areas of more immediate return in the infrastructure like BPM and Business Events implementations. This gives SAP a real headache in the near term. Eventually, once everyone is spending again, companies may well return to the question of their SAP application package portfolio, but at least in 2009 I suspect this will be put on the back burner. I guess that for SAP, 2010 can’t come soon enough.

Steve

So Oracle got Sun – but why?

I guess I am missing something. Maybe I’m just dumb. But I don’t understand why Oracle bought Sun – unless it was just so Larry could stick two fingers up to IBM.

Am I the only one? The Oracle marketing material has a number of claims as to why the purchase makes sense. In an open letter, the Oracle President points out that

Oracle can now ensure continued innovation and investment in Java technology for the benefit of customers and the Java community.

Hmmmm. As long as SUN was bought by someone, eg IBM, this would have happened anyway. All Oracle has done is take on the cost of doing this for the good of the industry. It couldn’t turn Java into a more proprietary platform because that would destroy the brand. So that doesn’t explain it.

And again,

Oracle plans to engineer and deliver an integrated system—applications to disk—where all the pieces fit and work together

OK – so Oracle plans to sell Solaris boxes with Oracle DB and middleware software preloaded. Well – yes, but is this going to work? IBM’s figures yesterday confirmed that hardware sales have taken a beating so far this year, with customers looking for more cost effective options. As people look at virtualization, or using a cloud, is the outlook for server sales that convincing? And if Oracle sees this as a crafty way to get Oracle DB licenses into new customer sites, this is a real stretch – one of the hardest things customers ever do is decide to migrate between DB suppliers. Admittedly, SUN Solaris is the most popular operating system for Oracle databases, so there may be some new sales to be made making things better integrated for Oracle/Sun clients, but I can’t believe this is too extensive.

But perhaps this points to the real reason for the acquisition. SUN was losing money hand over fist, and could have been in danger of running out of steam….and while any purchaser would look after Java, they might not be so friendly towards Solaris. To reiterate the position, in Oracle’s own words in its open letter

The Sun Solaris operating system is the leading platform for the Oracle database

Was the real reason that Oracle couldn’t risk Solaris losing its vitality, or even worse falling into enemy hands? Was this, in fact, a purely defensive move, forced on Oracle by IBM’s stated interest in SUN? This seems the most likely reasoning to me.

Steve

IBM 1Q09 results implications

When I posted last week on looking ahead to the IBM first quarter results, I put my head on the block by stating that I felt the results would hold up pretty well.

The formal results were announced yesterday, and I am pleased to say I live to look into my crystal ball another day, at least when discounting the effects of swinging currency markets.

Firstly, I had suggested that the IBM services arm would probably benefit from users wanting to cut costs and looking for help to do it. In fact, IBM claims that overall signings were up 10% at constant currency, and up 27% in the larger projects category. This bodes well for future revenue recognition as these projects flow through. I had also pointed to the desire for quick hit benefitsdriving the IBM WebSphere-based SOA offerings such as BPM, and indeed while overall IBM software was down 6% (up 2% at constant currency), WebSphere revenues grew 5% (14% at constant currency). My forecast was that hardware would take a bit of a hit, but that this shouldn;t damage the overall numbers too much. Once again this seems to be borne out in the IBM announcements, pointing to a 23% drop (18% at constant currency) of its Systems and Technology segment where the hardware products live. However, overall this had little adverse impact on IBM’s overall figures as predicted because IBM has swung its business model much more heavily in favour of software and services now.

Looking ahead, these results can only be good news for IBM, even though revenue at common currency was down 4%. From a global market perspective this should also prove encouraging to other IT vendors, particularly those with investments in the high-growth enterprise middleware area and those providing advisory professional services. However, companies reliant on hardware revenues will probably suffer most.

The final interesting point was that IBM claims it is sitting on $12B cash in hand….I wonder what it plans to do with all that money at a time when assets are cheap and it has just missed out on SUN….

Steve

Looking ahead to IBM 1Q09 results

IT market watchers are eagerly awaiting IBM’s 1Q09 results, to be announced in the next few days, anxious to see how IBM is finding the current global market conditions.

Putting my own neck on the block, I suspect the results will look pretty good despite the economic downturn. There are a number of reasons for this.

Firstly, Lustratus is seeing a lot of users looking for professional services assistance in reducing IT costs and increasing flexibility and agility. This is pretty natural in a downturn. Doing more with less is obvious, but also companies are looking to expand their customer bases into new markets with new offerings as quickly as possible to shore revenues up, driving the need for better agility and adaptability. This plays into IBM’s hands with its extensive services experience, so services revenue could well hold up OK.

Secondly, one thing users ARE looking for at the moment seems to be quick hits – do something that isn’t too costly and is not a major architectural shift to get a fast return. As I have blogged about before, BPM (Business Process Management) and Business Events processing offer two areas that fit beautifully with this need – and note this is not the BPM where a company sets about rewriting all its processes, but instead BPM targeted on fast return, pragmatic sweet spots. Both BPM and Events will tend to drag in SOA requirements (although again at the pragmatic rather than ‘change the world’ level) which is another strong area for IBM. Although other companies such as Oracle and SAP offer technology in these areas, the advantage of being able to link the products to services engagements from IBM’s massive services arm to help aim the investment most effectively is a big one for IBM. Given that IBM also has a large portion of software revenue on ‘contract’ basis, this means the software revenues should hold up well too.

Hardware may have taken a bit of a ding in 1Q09, but this is unlikely to do too much damage to the overall numbers.

So, a reasonable set of results to come from IBM? We shall see…..

Steve

Ultramatics works with IBM to defuse SOA security threat

Ultramatics has just announced SOA SafeGuard product, which is designed to shut one of the major SOA security holes – the opportunity to inject virus and other malware threats through XML file sharing.

This is good news for SOA implementers, but also introduces an interesting new stress point for IBM. Back in 2007 I was on a podcast where I identified the five SOA security traps, one of which was the XML problem. To summarize, most virus and other threat detection solutions look at the datastreams coming into the system and identify threat signatures that indicate the presence of some noxious code, but unfortunately they cannot see inside the XML wrapper, so to all intents and purposes the contents of any attached XML file are invisible. This offers the opportunity for malicious agencies to pop in some nasty code into the XML content and smuggle it through the security gates to the enterprise. Of course, it is not immediately obvious how this would help, in that getting this code executed might not be so easy, but hackers are smart….therefore it is best to close this exposure.

One way to close the window is simply to forbid any XML file sharing, but since industries such as healthcare now more or less rely on this to conform to industry standards and regulations, this is not really practical. The new Ultramatics product claims to be able to protect from these types of intruders. It runs on the IBM DataPower XI50 Integration Appliance, providing a hardware-based shield that can see into the XML files and weed out anything unpleasant. This solution will be very valuable to many SOA companies worried about security.

But there is something else interesting in the product details. The datasheet for the product says it can be used (in conjunction with IBM’s MQSeries) to:

Create a SOA ESB that can perform routing, transformation and protocol mediation functions

This is intriguing. Of course, the idea of an ESB appliance is not new, but the interesting point is that IBM is supplying this capability through the Ultramatics product…..I wonder if the other IBM ESBs, WebSphere ESB and WebSphere Message Broker, see this is encroachment?

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