Is software M&A good for the customer?

Vinnie Mirchandani asks the burning question, "How does software M&A help buyers, not just investors". He cites the fact that "between CA and IBM and Oracle and HP and Microsoft and Infor and Sage we now have a database of over 200 software industry acquisitions over the last 15 years."

Is there any evidence that this M&A has been good for the customer? It depends on the vendor doing the buying. I don't have deep visibility into all of these companies, but I think there are examples of positives and negatives here.

Microsoft's roll-up of the ERP lines from Great Plains and Navision has been largely positive for customers (sometimes tough on resellers, but that's getting better). Large customers do have the benefit of rolling their ERP license into an enterprise agreement with Microsoft. Integration is dramatically improved, as is usability. The whole "integrated innovation" term, which sounds like Microsoft marketing fluff, really has some meaning to it. If you've seen the UI, the integration to the stack, etc of the latest versions of the Dynamics products you know what I mean.

Can't comment on IBM and HP because I don't follow them at that level. CA? One of the best quotes I've read on a blog in the past year was Dennis Byron describing a particular software company's strategy this way (roughly paraphrased)...

It's a milking of maintenance revenue streams that would make even CA's Charles Wang blush.

He was talking about Infor, whom Dennis Howlett has referred to as a "Maintenance Parasite". Love that term. Sage is an impressive maintenance parasite, and a great example of how this consolidation hurts customers. Sage itself accounts for more than 50 of the 200 transactions. It is at this point less a software company than an investment firm.

The Sage business model is quite simple

1. Acquire a software company with legacy products and a large customer base
2. Slash R&D expenditures down to the bare minimum required to justify charging customers a maintenance fee
3. Aggressively sell services to the acquired customer base
4. Collect the cash and use it to fund the next acquisition

Looking just in the US market for a moment. Peachtree, State of the Art (the original publishers of MAS90/200/500), Best Software, Interact Commerce, and Timberline are some of the major regional acquisitions for Sage.

I've looked at the last three years each of these companies spent as independent company. I've calculated the R&D spend as a percent of revenue and the operating margin over those periods. I then map that against Sage, and get he following result.

Reading the chart: Peachtree in its last three years as an independent company (1995-1998) had an operating margin of -1%, State of the Art (from 1994-1997) had margins of 14%, etc.

Note that every one of these companies was less profitable than Sage, with Interact in heavy investment mode and operating at a significant loss. After acquiring each of these companies you'd think there would be a big hit to Sage's margins, right? The reality is in some reporting periods the figure might have moved by a percentage point or two, but Sage chugs along in the mid 20's. That tells me the acquired businesses are snapped to the Sage model very quickly.

None of theses businesses saw revenue explosions post acquisition, so the vast majority of business model change comes in cutting expenses, with product investment taking a big hit. Take a look:

Looking at this chart, is it any wonder most of these product lines are not doing well today? Customer adds are down across the board. There are product quality issues and little revenue growth. It's taking almost a decade to do an architectural rewrite of the MAS90/200 suite. Accpac customers wait a year for core bits of functionality (that is provided via OEM) to be compatible with the latest release. There is very little that is of benefit to the customer in a strategy like this.

To the answer to Vinnie's question is that it all depends on the rational behind the M&A strategy.

It's hard to be a Minnesota sports fan

Last night I caught the news that Johann Santana will be (pending a few negotiations) traded to the New York Mets. Being the fan of a smaller market team in a sport that desperately needs a salary cap is not easy. The Twins just cannot pay the big money that teams from New York, Boston, or Los Angeles can. So the best pitcher on the planet is no longer a Minnesota Twin. What do the Twins get out of the deal? A handful (minus one) of prospects that might amount to something in the future. What to the Mets get? Perhaps a World Series. At least for now most watchers of the game would have to concede they are the favorites in the National League.

This feels oddly familiar...trading a star player to a city out east, making that other franchise a powerhouse. It's disheartening to watch SportsCenter and be reminded that the team with the NBA's worst record traded its star to the team with the NBA's best record. I know something had to happen with the Wolves. A series of bad moves left them with no room under the cap and a team that just wasn't going to get it done. But as a fan, it hurts. The Wolves were so close a couple of years ago. So a big name player gets traded away. My team gets "potential". The other team may get a championship.

To be fair, I can think of at least one example where a blockbuster trade brought a superstar to Minnesota and sent a bunch of potential to the other team. Yes, I'm thinking of the Herschel Walker trade. In that case the superstar turned into a bust, and all that potential that got traded away turned into a couple of championships. I rest my case. It's hard to be a Minnesota sports fan.

CPA Technology Advisor should stop reviewing software

I got an email yesterday reminding me that the latest CPA Technology Advisor review is out. For anyone with a short attention span, I'll give you my two quick conclusions right up front. One - it's useless crap. Two - it at least appears to be unbiased useless crap.

This is the the High-End Accounting Systems review that CPA Technology Advisor puts out each December. Last year this review was written by a top Sage partner, a partner that sold more than $1 million worth of Sage products during the year. The two products carried by that partner got perfect scores, everything else scored lower. Surprise, surprise. So this year I grabbed a couple of aspirin before I followed the link.

I'm immediately pleased by one thing. As far as I can tell from a quick bit of research the author of this study, one M. Darren Root (CPA.CITP), does not appear to have sold more than $1 million of any particular software product last year. That's encouraging. Though I'm slightly troubled by the fact that this appears to be the first bit that he has ever written for the publication. Then again, that could be a good thing. I'm so conflicted.

Mr Root reviews four products this year. Two are from Sage - Accpac and MAS500, and two from Microsoft - GP and NAV. The two Sage products got perfect scores last year. Surely scoring them something less than perfect this year would require quite an explanation. The products would not have regressed during the year (we are talking about Sage here, so I may not completely rule that out). No, they both get perfect scores again.

Here's the good news. By removing the pro-Sage, anti-Microsoft bias in the person of the reviewer, GP and NAV now also get perfect scores. Unlike last year, the review is not written by Sage partners for Sage partners. It's not a Sage sales tool masquerading as an independent product review.

What is it then? We've got four products and four perfect scores. Am I the only one struggling to see the point. I'd Imagine the two vendors are pleased with themselves. I also imagine CPA Technology Advisor is quite happy with itself. Say only positive things about the vendors and they will happily point people to the review. It's great for web traffic. I suppose it would be just far too cynical of me to point out that CPA Technology Advisor has ads all over the review page. That doesn't mean anything, does it?

Presumably the review could be used by Microsoft and Sage resellers in situations where their competitors did not make the list. That would probably work, but you should understand that the four on the list on not necessarily there because they are the top four products. An earlier CPA Technology Advisor review of mid-range systems was missing both Microsoft Dynamics and SAP Business One. Per the author, CPA Technology Advisor sends out review requests to a number of vendors. If they vendor doesn't respond, the product can't be reviewed. Simple enough.

At the end of the day this is really just a glorified marketing piece and is worth almost nothing when it comes to evaluating software in this space. SAP, NetSuite, and others were not included in the review. I'll be you a nickel that none of them would have scored lower than a 4.5 if they had answered CPA Technology Advisor's request and been in this review.

The one thing I'm sure of is that desperate for good news Sage will push this review. But then again, they are not too discerning about this kind of thing. Case in point, can you believe this ridiculous "review" is still on the front page of http://www.sagemas.com/?

The End of Intuit's Vertical Business

With the sale earlier this month of Eclipse to Activant Solutions, only one piece remains of what looks like a completely failed strategy.

The Eclipse product never seemed to fit into the Intuit portfolio. It's a wholesale distribution package aimed more in the Microsoft Dynamics level market, with software prices typically in excess of $50,000.

Activant, which will pay $100 million in cash for the business, is one of a few private equity funded consolidators that has been making moves in the mid-market. One of their more notable acquisitions has been Prophet21, a product also aimed at the distribution space. Another such consolidator is Consona, which among many other brands owns Made2Manage and Onyx. Both Activant and Consona fly far under the radar when compared to Infor, but they are worth paying attention to.

This sale all but closes a chapter in Intuit's history. A few years ago Intuit embarked on an acquisition path aimed at providing customers who have outgrown QuickBooks the option of another Intuit product instead of moving to competitors like Great Plains or Sage. As his company began this up-market push in 2002 with vertical acquisitions, Intuit CEO Stephen Bennett commented that

"When we were just losing those customers to (rival) Great Plains Software, it was dumb. Now that Microsoft has bought Great Plains, it's really stupid for us to lose customers to Microsoft."

The stated goal at the time was to build a Vertical Business Management Solutions division into a $500M - $1B business with 30%+ operating margins by 2007-2008. To say they have missed the mark would be quite an understatement. The business unit significantly missed its guidance in FY03, delivering $94.8 million. In FY04 the vertical business grew 15% to $109 million. Following that result Intuit began selling off some of its acquired vertical businesses, and in FY05 ceased reporting a separate revenue result for verticals.

Why have they sold it now? Three reasons...

1. It's just not core to their strategy anymore. All but one of the vertical pieces has been divested at this point, some for losses. American Fundware was purchased for $26 million in 2002 and sold to Kintera for $11 million in 2005. Intuit acquired OMware, creator of the Master Builder construction management product, in 2001 for approximately $42 million. They sold it to Sage last year for less than $30 million. Blue Ocean (help desk and IT asset management software) was picked up for $177 million in late 2002 and sold for $200 million three years later. Intuit paid $85 million for Eclipse.

2. The business was not growing. When the MasterBuilder unit was sold to Sage an Intuit representative informed me that “the verticals aren't core” to the business any longer. However, unlike each of the divested vertical products the two remaining ones at that time, Eclipse and MRI (real estate and property management) where still showing growth and would apparently be kept so long as that growth continues. It seems that Eclipse may have become an anchor on Intuit's growth numbers. You can bet that the moment MRI (aka Intuit Real Estate Solutions) ceases to be accretive to Intuit’s growth rate, it too will be sold off.

3. Intuit has learned what it wanted about the distribution business. I maintain that at some point in this journey Intuit appears to have become less interested in building a mid-market business out of the acquired products, and more interested in leveraging the acquired IP into vertical flavors of QuickBooks Enterprise. That product is now available in Contractor, Nonprofit, and Wholesale & Distribution editions. The sale off of MRI may also coincide with a release of QuickBooks Enterprise Real Estate Edition.

Intuit started with hopes of leveraging its brand identity onto a collection of disparate products aimed at retaining its customers and even winning net new customers in the mid-market against Microsoft and Sage. It didn't quite work out that way. However, by applying the learning from this venture into verticalized flavors of its core product, Intuit has emerged with something much stronger. The customer add rate on QuickBooks Enterprise speaks for itself.

Oracle Apps Slows in Q4, More Acquisitions on the way

Oracle announced Q4 earnings today and had by my estimation a modest quarter in the applications business. That didn't stop company leadership from doing some trash talking about the competition and set out some very bold guidance for next quarter.

You can get at Oracle's full earnings release here. If you're deeply interested in how they are doing on the database and middleware front, follow the link and have at it. There will also be plenty of commentary by the press and the analysts regarding the quarter, so I'll try not to duplicate what you'll find there. Just as a frame of reference, the time period we are talking about for Oracle's fiscal Q4 is Feb 1st to April 30th

So, to get right to the piece of Oracle's business I'm most interested in, Oracle delivered $726 million in new license sales in the application business, up 13% from last year. They set guidance for new license growth of 20-30% next quarter (against a tough compare). Per CFO Safra Catz, next quarter could be biggest Q1 ever for the company. I really dislike that kind of spin. If your business is currently larger than it has ever been, you can grow revenues by .001% each quarter and still claim to have delivered record revenue for the quarter.

Frankly, 13% growth is better than I expected given what happened last quarter. Three months ago when Oracle announced a very good Q3, there was specutlation that this was due to heavy discounting that pulled deals from Q4 into Q3, leaving the Q4 pipeline bare. In some analysis I provided to a few of my clients I wrote...

...don't be surprised if Oracle's next quarter (fiscal Q4) is much less up beat. They had an outstanding Q4 last year, making large growth numbers highly unlikely. In addition, they may have the converse of SAP's current situation. Rather than deals slipping a quarter, there is some speculation that the company went to great lengths to pull every possible deal into Q3, presumably to take advantage of the opportunity to contrast a strong quarter against SAP's weak one.

Emptying the pipeline to hit current quarter numbers is not at all uncommon in this business. I don't have to tell you that, do I? It's nice if your vendor hits their quarterly goal, but of course that goal is meaningless to prospects (except for the discounting leverage it gives them), and too much of this sort of thing can come back to bite you.

I made reference in that commentary to Frank Scavo over at Enterprise System Spectator who was raising questions about Oracle's pipeline for this just ended quarter. Today Frank has posted a piece in which he gives Oracle credit for proving him wrong. I think he's being a bit hasty. Oracle did share today that Hyperion contributed $43 million of new license sales during this quarter, and that 60% ($25.8 million) of it can be categorized as applications license revenue (the other 40% Oracle lumps in with it's platform business). Backing out that amount leaves Oracle with application license revenue of just under 10%...respectable, but not blowing the market away, and down significantly from last quarter.

Bear in mind there are a number of smaller acquisition related figures to back out in order to get to a true organic figure which would be well under 10%. Hyperion is the only one they elected to disclose. Despite the modest quarter, applications license revenue for the fiscal year was up nicely. From the earnings press release:

“Over the last twelve months Oracle’s application new software license revenues grew at a rate of 32% while SAP’s growth slowed to 10% in their most recent fiscal year”, said Oracle President Charles Phillips. “Our strategy of combining innovation with acquisitions is clearly beating SAP’s strategy of trying to build everything themselves using a 1970s-era proprietary programming language.”

Again, 32% is a nice number. However, Oracle is increasing market share, but not growing it. I think the distinction is important. Here is what I mean. If you look at Oracle, Hyperion, Siebel, Retek, and PeopleSoft as though they were a combined entity for all of the last two years, the collective license revenue of that group is up about 7%, not 32%. Depending on which analyst datapoint you use, that growth rate is basically just keeping up with market growth. In other words, Oracle is not gaining additional momentum from the acquisitions, at least not in terms of new application license revenue. They have been successful at hanging on to customers and not losing share on this measure, but this is a case of one plus one being two, not three or more.

So what do you do when you've posted impressive acquisition driven growth, been rewarded for it with a nice increase in your earnings and your share price, but cannot seem to drive the organic growth necessary to continue to meet EPS expectations? Just ask Sage. You look for more acquisitions. Larry Ellison made it clear on the earnings call that this is exactly what they intend to do.

Recommended Reading:
Oracle struts its way into FY08
Oracle Application Growth Nose-dives; More Deals Likely
Sometimes it’s too important

Update: Oracle gave some pretty aggressive growth projections for Q1, including 20-30% growth in new license sales. I suspect that's for database and apps. They sure better hit that figure for the apps business alone. I've run the numbers and by my estimation the acquisitions of Hyperion and Agile will spot them about 24% Y/Y inorganic growth for apps.

Could we all just Get Human already?

Denis Pombriant tells a tale about finding somebody's lost Amex card and the experience of trying to call Amex and to let them know he had found it. This proved to be quite a struggle, as Amex's sophisticated call center system aimed at improving efficiency (and to the extent that it's possible, removing all human interaction from the equation) wasn't equipped to handle such a call. He suggests that these other, non-sales related, types of interactions represent about half of what drives people to vendors, and asks, if the vendors can't handle these issues, is CRM really doing what it is supposed to do?

This experience made me think about CRM in general and its future. For a long time we have been operating on the assumption that the CRM of today — what some of us refer to as CRM 1.0 — is just a down payment on something better which we have named CRM 2.0. What if it is not a down payment, though? What if this is as good as it gets and maybe we have to deal with the idea that as organizations find better ways to achieve frictionless transactions, CRM actually gets worse?

I tend to think it's going to get better, in so much as the 2.0 in CRM 2.0 means web/enterprise 2.0. Paul Greenburg has had a lot to say about his on his blog. There is a huge gap today in the linking of CRM sytems to social software and communities. That link should be a no-brainer, but apparently has too many vendors (both the ones that produce the stuff, and the ones that buy it and should be demanding such integration) stumped at this point.

When I go to a vendor website and cannot find what I need, I want that instant chat button to save me unproductive time browsing their site. I don't have the time to dig, and am such a click-happy web browser that every minute out on the web and away from my immediate to-do list can spiral down into an hour or two of unproductive time that leaves me lost someplace a dozen sites away from where I started and wondering where the time went. Such are my ADD like tendencies.

Further, I want to find a wiki based FAQ where I can add a new question. Or a pointer to user based community sites. If the answer to the problem I'm having with my Canon digital camera is not self evident on the Canon website, how about direct link to discussion boards on the topic of digital photography where someone has no doubt already ask the question that's on my mind.

Not everything can fit into the flow charts of an automated call system, or the navigation of an online support site. It never will. So please, please can I just have the instant chat button on your website when I browse and a simple way to get to a human when I call?

I appreciate the service that http://www.gethuman.com/ provides, but why is it necessary?

WPC Connect and the long road to Microsoft 2.0

I've registered for WPC next month in Denver and finally responded to the email prompts to get myself profiled on WPC Connect. This is much, much better than RIO (the networking tool offer up at past events). Now if people would only use it.

If you have attended past Microsfot events and are anything like me, you might have just skipped the use of RIO and just gone for a different approach..cell phones.

Me: Sorry I'm running late. Man did that Q&A drag on far longer than it should have. Sure wish they'd actually answer the questions. Is this time still good for you?

You: Yep. Where are you now?

Me: I'm near the entrance to the expo hall.

You: Ok, I'm heading that way now.

Me: I'm wearing a shirt with a big Google logo on it and I have on an Oracle hat (you know, just to draw attention).

You: Ok. Just walking into the Expo, don't see you yet

Me: Right in front of the SAP booth.

You: Um...

Me: I'm the one jumping up and down and waving

You: There you are.

Then we always exchange another line or two over our phones, even though we're looking right at each other and will be standing face to face in about 5 second. Why do we do that?

Anyway, this year we have something new, WPC Connect, and it's very cool. It's not just a scheduling tool. It's actually a social networking tool, with blogs, chat rooms, RSS and email alerts, etc. And based on the questions I answered when I registered I'd guess the company providing it has its sights on providing a Microsoft partner collaboration tool on an ongoing basis, not just around this event. Yes, it's missing some things, but is a huge step forward from the way we used to do this (and it's got a better name, too).

I've found the groups that users have created for discussion around the individual Dynamics products, the country specific groups, and also those oriented around specific topics, like Saas or Duet. It's all good. But for a conference with thousands of attendees (isn't it something like 7,000?) that is less than a month away, why have so few people joined the groups. Why do the groups have only a few posts? And how come the majority of those posts are marketing messages (discussion board spam), not on topics important to the attendees?

Makes me wonder....what do Steve and Hugh think of all this?

Gartner Group Is Irrelevant

There is an interesting discussion going on about the influence (some say declining influence) of the leading analyst firms. Is Gartner Group becoming irrelevant? How about Forrester, AMR Research, Aberdeen?

I remember my time working at MBS...waiting for the next Magic Quadrant to come out and watching the press releases from us and from the competition, each company making sure everyone knew that they made it into the leader quadrant. That used to matter a lot. Does it still matter?

A lot of this discussion centers around what some call flawed business models. The analysts tell you they are producing content that is aimed at helping the end buyer understand the market and the capabilities of various software vendors. They typically will not go on to tell you that they get the majority of their revenue from contracts with those same vendors, creating an obvious conflict of interest. Brian Sommer asks

If you knew your analyst firm got over 10% of its annual revenue from a large ERP vendor (e.g., SAP) would you rethink their recommendations? Don't you think they have a responsibility to inform you of this material fact? Many analyst firms get the majority of their revenues from vendors not corporate IT buyers. Do you really think they'll write an adverse report on a firm that could devastate their financials? No - they won't.

Brian references an earlier post by Vinnie Mirchandani, himself an ex Gartner analyst. It's worth a click through to Vinnie's site for the conversation that followed his original post. It includes a current Gartner analyst coming to his firm's defense.

I've just enjoyed reading the commentary on this topic but have not joined in the conversation because until a couple of days ago I did not have anything to add. I don't think these firms are irrelevant (despite the title of my post - a blatant attempt to get you to read on), but I do agree with Sommer, Dennis Howlett, and others that their reports carry less weight than they used to in terms of influencing purchase decisions.

I think Mirchandani is on the mark when he says

> In the 1970's when CIO's wanted to know what to buy, they asked IBM.
> In the 1980's when CIO's wanted to know what to buy, they asked Andersen Consulting.
> In the 1990's when CIO's wanted to know what to buy, they asked Gartner.
> In the 2000's when CIO's want to know what to buy, they ask each other.

Now here's my two cents. I've recently had the most remarkable exchange with the people at Aberdeen. In a post last week I referenced Aberdeen's glowing report on SAP's presence in the SME market, a report that to me reads like something produced by the marketing department at SAP. Aberdeen tells me they don't do opinion and ranking of vendors like Gartner or Forrester. Their stuff is just based on reporting the facts. Not possible. Even if opinion is not overtly present in a piece of reporting or an analyst report, it shows up by way of what does not get reported, or the questions that don't get asked, or the other side of the story that is not included. I think I asked some pretty obvious questions in response to Aberdeen's SAP piece. Delving into any of them might have made for a less favorable report.

But here's the big problem with Aberdeen's model. I was asked about the SAP in SME report by one of my clients who happens to be a Microsoft Dynamics reseller. The reseller provided me with a link to the report, I included a link to it in my email reply and on this site. Apparently I cannot do that, even though the report is freely available on their public website. What's more, it would have been improper for me even to just point you to http://www.aberdeen.com/ and suggest you do a search on "SAP".

Why? Aberdeen writes their reports "for the end users", and in their world application resellers are just like like a vendor, and so am I when I'm working with them, and so are you if you reference the report for any purpose other than evaluating software for use in your firm.

You see, Aberdeen considers any reseller or ISV that exists around Dynamics (or any other vendor's products) to be an extension of that vendor, meaning such companies need to license the report, just to refer to it. If you find something in an Aberdeen report that you think you'd like to reference in conversations with a client or a prospect, you are now using the report as part of your marketing strategy and must first license it. Copying the report content without permission, I can see that being an issue...widely distributing the PDF, sure....but just mentioning it exists and emailing a public URL? Really?This is just flawed on so many levels.

• Linking or just mentioning the report requires licensing it first. Why create barriers that prevent people from making others aware of your publicly available content, which you say is free to software buyers?
• Considering resellers as an extension of the vendor. I've got two issues here. First, it ignores the fact that many resellers do a great job of consultative selling. They often carry multiple products and will recommend whichever is the best fit for the prospect. The good ones will even walk away or suggest a competitive product if it's a better solution for the client. Second, related to the first bullet point, this audience can probably create more awareness for your firm and its research than any other audience.
• Trying to police the proliferation of your content is a useless endeavor. In today's internet, always connected, social web environment, there is simply no way stop it. Especially if all it takes to get it is a URL, not a password or other login credentials. You've got online discussion forums, independent bloggers and analysts, etc. Per my conversation with Aberdeenl (and I repeatedly asked to make sure I understood this correctly) any linking or mention of report in any of these places by someone other than an end buyer is a violation of the license policy.
• Aberdeen wastes resources trying to watch this. I asked how they could possibly hope to avoid their content being "distributed" by individuals providing the URL or just mentioned that its available. I was told they have some people that watch this kind of thing. I understand paying attention to what the actual vendors, your source of revenue are doing. But trying to monitor and control what resellers or bloggers do? What a pointless waste of time. They haven't the slightest chance of ever keeping up. How about tasking that staff instead with producing more good content?

My advice to Aberdeen...either lock down the content on your site, or turn everyone but the vendors loose and let them freely "distribute" the content. If you lock it down, you can still provide free access to buyers, they'd just need to complete some registration first. In this situation when resellers or other entities license the content you could give them a code or unique URL they can provide their prospects for them to get directly to the reports.

The far better option is to just recognize reality and go with the second option. Allow resellers, bloggers, etc to talk about or point to your reports. Tap into these very effective channels for increasing awareness of your company and its products. Stop trying to adhere to a restrictive licensing policy that simply does not work when you are making the content freely available on your website.

I'm not holding my breath for any quick changes in business model here. In the mean time I need to think differently about how to respond to questions on Aberdeen reports. For now, I guess I better tell you that it is inappropriate for you to follow this link on the public Aberdeen website to read the SAP in SME report. Further, you should not go to http://www.aberdeen.com/ and search for "SAP in SME" to find the same report.

Instead, I must tell you that regarding the SAP in SME report....“To license the full content of this report, please contact Aberdeen Group at memberservices@aberdeen.com or 617-723-7890.” That is, unless you are an end user looking to buy software from SAP. Then by all means go to Aberdeen's site and get the report. Just don't tell them who sent you.

Infor Enters the Public Sector

It's not terribly surprising that Infor acquired Hansen. A public company since it's founding nearly 25 years ago, Hansen had been sold to private equity firm Golden Gate Capital last year. That same firm also owns Infor, so this is a consolidation of assets as much as it is an acquisition.

Hansen has about 350 employees and did a little under $50 million in revenue last year. The government market is growing slightly faster than the ERP market overall, so represents a good opportunity for Infor. I've had a chance to read AMR Research analyst Bruce Richardson's first take on this announcement (via his fantastic "First Thing Monday" email)

Regarding Hansen's offerings he notes:

The products, aimed at city, state, and county governments, are currently sold in the United States, Canada, Australia, New Zealand, and the United Kingdom. The Hansen product line is particularly strong in revenue management particularly in such areas such as assessments, grants, property taxes, fines, and utility billing.

Of course this is just the view from 30,000 feet, and apparently not a particularly good one. The view of a Dynamics ISV I've chatted with who specializes in public sector (and has competed head to head with Hansen) is that the utility billing is quite weak, tax modules are pretty much still beta code, and that the work order system is actually the true strength of the offering.

Of interest to me is what happens on the accounting/ERP side of a Hansen implementation. Hansen doesn't do that piece and used to be an MBS partner until they elected to OEM financials from Agresso. I wonder what will happen with that OEM relationship. Will Infor end the agreement in favor of one of its ERP packages? That could pose some issues as Hansen is Windows based and much of the mess that is Infor runs best on the iSeries (though you can expect the company will claim integration via it's "Infor Open SOA" program.

Or perhaps this will prompt Infor to make a move to acquire Agresso as well...

Aberdeen's Glowing Report on SAP in SME - I've got a few questions

Aberdeen Group recently published a report on SAP's business in the SME segment of the market. It's a nice summary of SAP's offerings and their current customer/partner figures for Business One and All-in-One. I'd heard SAP shared those figures at their recent SAPPHIRE conference, and had the details on a few blogs, but it's still good to have it validated by a big name analyst.

Once you take a look at the report, you might agree with me that it reads a bit like something that might have come out of SAP marketing. I have a few initial questions (and I'm sure many more when I re-read it).

1. Don't you think defining SME as the market for companies with under $1 billion in revenues is rather broad and makes it difficult to compare one vendor against another? SAP has product for the top end of that range (All-in-One), and for the very bottom of that range (Business One), but no vendor covers that complete market.

• Epicor, Lawson, IFS, etc tend to aim at the $250-$750M space
• Microsoft targets the lower half of this space, but is moving up
• Sage exists almost entirely in the <$100M space (maybe even lower)
• Last year #1000 on the Fortune 1000 list was a $1.4 billion company. I’m not sure what the cutoff is for the fortune 5000, but would guess that it’s below $1 billion. So by defining SME as < $1 billion, you are describing a market (in the US at least) that includes all but a few thousand companies. It’s too broad to be meaningful.

2. What is Aberdeen's take on the comments by SAP’s Marketing Strategy guy that A1S will be customized “over my dead body”? How does that fit with the fact that All-in-One is all about micro vertical specialization and even at the B1 level there appears to be a thriving ISV ecosystem?

3. Does A1S target non-ERP customers (a comment made at SAPPHIRE), or just non SAP customers? In other words, does it target a gap between B1 and All-in-One which SAP has been reluctant to acknowledge exists?

4. What does Aberdeen say about the channel model around A1S? Is SAP going to put their channel at risk buy just offering the product direct? If it is going to be a non-customizable product, is there a partner (as in traditional reseller) opportunity at all?

5. From Aberdeen's perspective, is SAP’s goal of having 100,000 customers by 2010 reachable?

To me an obvious question is did SAP pay for this. I have already asked Aberdeen, and they tell me the answer is no. It was produced with no external funding. However, it is available for vendors to license for distribution. How much do you want to bet that SAP is already signed on for distribution rights (who else would want to push this)?

How would Google + Intuit change the market?

Nick Carr wrote a piece yesterday suggesting that Google should go out and acquire Intuit. He makes a good argument, though he misses a few points (like QuickBase).

I'll suggest another reason (from Intuit's perspective) the deal should happen. The QuickBooks business may be headed for some trouble. Not QuickBooks Enterprise, which at this point looks to be a phenomenal success, but the entry level stuff, the backbone of the QuickBooks business.

QuickBooks Enterprise is successful because it is filling a gap between tradition QuickBooks and mid-market packages like Dynamics. Intuit's original move up market was all about retaining customers that outgrew QuickBooks and moved to other vendors. They never felt so compelled to make this push as when Microsoft acquired Great Plains. In 2002 Intuit CEO Stephen Bennett commented.

"When we were just losing those customers to (rival) Great Plains Software, it was dumb. Now that Microsoft has bought Great Plains, it's really stupid for us to lose customers to Microsoft."

Intuit proceeded to go on an acquisition spree, picking up mid-market focused business solutions in an attempt to offer a growth path to its customers. This strategy proved to be an almost complete failure, and most of the acquire business has since been divested (American Fundware to Kintera, MasterBuilder to Sage, etc).QuickBooks Enterprise, on the other hand, has been a huge success, adding about 4,000 customers in Intuit's last quarter. The success of this product is one of a handful of reasons Sage's MAS 90/200 business has faltered.

But let's be clear, the primary driver of success for QBE is the constant stream of customers outgrowing the entry level products. They don't mind that they are not moving to a "real" mid-market solution. The ease of migration, familiarity of the UI, minimal training requirements, etc, make it a compelling option.Without this feeder system the product would not fair nearly as well. It would be just another functionally deficient solution fighting for space in a crowded market and winning deals on price and usability (simplicity), albeit backed by a strong corporate parent. Sort of like SAP Business One.

However, Intuit is once again losing a lot of customers to Microsoft - not the kind that outgrow QuickBooks and leave, but the kind that Intuit doesn't see in the first place because they are buying Microsoft Office Accounting. Yes, Intuit still reports capturing about 90% of the share of shrink wrapped accounting software sold at Staples, Best Buy, etc. But that statistic misses all the people like me that just go to Microsoft.com and download Office Accounting. The numbers make it clear what kind of impact this is having already.

There is a noticeable shift in the mix of QuickBooks customer adds over the last few quarters. While the Premier and Enterprise units continue to trend nicely up, adds on the entry level stuff (Simple Start, Basic, and Pro) are not as strong. Actually that is understating it quite a bit. Over the last 6 reported quarters customer add growth on entry level QuickBooks has been as follows: 34%, 30%, 14%, 4%, 2%, -8%.

The seamless experience of working in an accounting app that is basically part of my office productivity suite is huge, and Intuit cannot expect over time to hook into Microsoft Office as well. That comparison is a losing proposition for them. Today the market presents them with a number of alternatives to Office, from small start-ups like Zoho to a well funded player like Google.

Oracle to Acquire SAP?

Yes, you read that correctly. Rumors have come out that Oracle might make a takeover bid for SAP. They appeared in an AFX News story out of the UK. In the part of the world where I live (a snowball’s throw from Fargo) if I heard someone suggest this kind of craziness I’d conclude that the cold has affected their thinking (wind chill is -20° as I type this, actual temperature will be that low by the weekend).

As one analyst puts it, those repeating such rumors are “seemingly oblivious of the anti-trust hell that would break loose in Justice Department and European Union circles before the ink was dry on the tender documents.” Seriously, we had trials and anti-trust hearings over the PeopleSoft deal. Is there any chance the regulatory authorities are going to be ok with one company owning 100 percent of the enterprise software market? No.

Secondly, any offer for SAP would likely be too low to have any chance at being accepted. The current rumor is that Oracle is considering a possible bid of $49.78 per share, just a 6% premium to where the stock as been recently trading. That kind of offer sounds more like meaningless chest pounding than a real takeover attempt. Then again, would it be shocking to see Larry and company make a low ball offer like that just to make the point that he can? It would be a statement of the strength of Oracle while suggesting SAP is in significant trouble (hardly the case). Even the rumor helps Oracle in that regard, which makes one wonder where it originated.

A more likely target for Oracle in the near term is Business Objects. That deal makes sense for a number of reasons and a flurry of M&A activity in the business intelligence space seems imminent. But come on, Oracle acquiring SAP? That’s crazy. That would be like Exxon acquiring Mobile, or AT&T acquiring Bell South. Wait a minute…

Bloggers Can't Ignore Basic Journalism Ethics

Here's an interesting opinion piece that appeared on eWeek.com last week. If you are blogging, it's worth a few minutes to think implications of things like the recent California ruling allowing bloggers a first amendment right to protect their sources. If you read a lot of blogs, it's good food for thought regarding the objectivity (or potential lack thereof) of the sites you read.

But speaking of objectivity, one of the commentors quite rightly points out that it would be foolish to assume that because technology journalists supposedly live under tighter rules their writings can be taken as being without bias.

The Products I Sell are the Best, Trust Me

CPA Technology Advisor's 2006 review of high-end accounting systems was published late last month. The review includes analysis of Intacct, Sage – Accpac, Dynamics GP, Sage – MAS500, and SouthWare.

The solutions were evaluated across these categories:
Modules/Scalability
Usability/User Experience & Security
Extensibility
Integration/Customization
Reporting
Support, Training & HelpOverall Assessment

Accpac and MAS500 got perfect 5.0 scores, followed by Dynamics GP with 4.5 and SouthWare and Inacct both with 4.0.

The review was written by David Cieslak and Bob Gaby and appears in the December 2006 edition of the magazine. Cieslak and Gaby, both CPAs, are experienced veterans of the business applications market. Any time I see Cieslak's name, an alphabet soup of certifications and titles follows (CPA, CITP, GSEC, GIAC, etc). Gaby has similarly impressive credentials. Credentials aside, I'm not sure these guys were the best candidates to write the review as they have a vested interest in the outcome.

I'll say for the record that I've had some correspondence with Cieslak in the past (phone calls, emails, etc), and believe he is a person of integrity. Even so, given the authors' close ties to the products involved, this review is not difficult to discredit.

In addition to the link to the review itself, I'd submit the following links for your consideration.

The Partner Bios page for Arxis Technology Inc – Not only are Cieslak and Gaby co-authors of the review, they are also the two principals of Arxis Technology.

The products page for Arxis Technology – Arxis Technology represents both Accpac and MAS500, the two products with perfect 5.0 scores, but does not represent Dynamics GP, SouthWare, or Intacct. If these are the top five high-end accounting systems (a very debatable point), a company that represents two of them must find itself in frequent, head-to-head competition against the other three.

An interesting article from WebCPA.com – Given that Accpac got perfect 5.0 scores across the board, it's worth noting that Cieslak is chairman of the Sage Accpac Business Partner Advisory Council. Read the overall assessment at the end of the Accpac section of the review. It would make Sage's Accpac marketing team blush.

An Arxis press release about Sage's Million Dollar Club – In October of 2006 Cieslak and Gaby's company was named to Sage's Million Dollar Club for having surpassed one million dollars in annual software sales with Sage. If you sell a million dollars worth of one vendor's products, you're probably pretty happy with those products. You may be sincere in your belief they are the best, but you should not for a moment try claiming with a straight face that you can be completely objective in writing this type of review.

It is good press for Sage, who put out a nauseating press release that read "Sage Software Flagship Enterprise Resource Planning Systems Beat All Comers with Perfect 5-Star Overall Assessments." I guess they thought that had a better ring to it than saying We're excited to announce that one of our top resellers that did more than $1 million in business with us last year likes the products they sell better than the products they compete against, but that would have had an inconvenient element of truth to it.

One last thing...the review purports to take into consideration feedback on the products from a survey of the membership of the Information Technology Alliance (ITA). ITA's membership includes CPAs, EAs, CIOs, CTOs, value-added resellers, specialty technology consultants and the developers of technology products and services. I called and spoke with the Executive Director of ITA who informed me that ITA currently has 84 members. If I look at the survey results as shared on the CPA Technology Advisor website I see a pattern in the numbers that tells me they probably had 14 respondents.

That kind of response rate equates to a margin of error of +/- 24%. Consider if political polls had a 24% margin of error. At +/- 24% yours truly is in a statistical dead heat with Barack Obama for the Democratic presidential nomination or with John McCain for the Republican nomination. I trail the front runners Clinton and Guliani by as little as 10 points and 7 points respectively. I'm currently sitting at 0% in both polls (or as high as 24% in both). That kind or margin of error would make the polls absolutely meaningless. It certainly makes the ITA input into the software review meaningless. So we are left with a CPA Technology review apparently based entirely on the opinions of a firm that generates a great deal of its business on two of the five products reviewed. Is anyone still surprised at how it turned out?

The Best of 2006

I'm not sure that I really have any business creating a "Best of 2006" post. I've been at this blog thing for just a couple of months and have a grand total of 5 posts. People that I read like Dennis Howlett generate more content than that before breakfast on a typical day. So I can't reference the best of my work, but will point to a couple of my absolute favorite lines from other blogs that I read.

Speaking of Dennis. He wrote the best one line description of a killer app that I have seen in a long time, though I'm not sure it exactly would work in marketing materials. If you've never been introduced to the product, you should know that Blogtronix is "the dog's nuts". I wasn't sure what to make of that description, but am neck deep in evaluating Blogtronix for the site I'm building and though I might have described it in a different way, I'd thus far concur with Dennis that Blogtronix appears to be the dog's nuts.

This will be a short list, of two best lines. My other favorite, while presented in the context of describing a vendor and it's product, is not quiet so flattering. I don't understand a lot of the industry jargon..but hey, a lot of people don't. That leaves room for marketing people at enterprise software companies, who incidentally are also often clueless as to the true meaning of the industry jargon, to abuse common buzzwords to their own benefit. One such vendor is Epicor who apparently now has a 100% SOA ERP app, years ahead of formidable companies like Oracle, SAP, and Microsoft who are trying to build such an app with infinitely more R&D resources than Epicor. Sure. Epicor in fact is not SOA, at least so says the author of SOA for Dummies, a much more reliable source than I.

In a post last May about vendors claiming to be 100% SOA Robin Bloor took Epicor to task for their absurd claim, and pointed out that the best they may claim to be is web services enabled, or SOA enabled, but Web services is not SOA. They are different. In fact, as Robin puts it, "Web Services is not SOA in the same way that a squirrel with a limp is not a rat with a hat on. They are not the same thing and they are not even close relatives." Great line.

So anyway. On to 2007, a year in which I'm not certain I'll be any more successful of a blogger than I have been thus far. I'll aim to do at least one more post next year than I did this (setting the bar low).

When I read the great thinking posted on blogs from the Enterprise Irregulars and people of their ilk, I can thus far conclude the following about my blogging experience.

I'm not sure yet if I'm good enough, it's entirely unclear whether or not I'm smart enough, and at this point I have no idea if people like me. I'll get there.

The Partner Channel 2.0?

I just read a fantastic post on PCGreenBlog regarding the recent announcement between Reardon Commerce and American Express. This is the way to deliver a set of loosely coupled services is a unified way, and it reminds me of what we are doing at The Partner Channel. This is a collection of individuals and companies that know how to provide a wide array of services to Microsoft Dynamics resellers and ISV's. It's about aggregating a great deal of the services that a reseller might need, but doesn't have the internal bandwidth or expertise to handle. Resellers come to one place, www.thepartnerchannel.com to get...

Assistance with their marketing strategy
Competitive and market intelligence
A newsletter service
Tradeshow/exhibit graphics
Web site design and deployment
Case studies
Event management
Graphic design services
Sales training
Recruitment and applicant tracking services
Photography
Print advertising
Public relations
Strategic planning
Video production
Web design
To name just a few...

And there is no reason it should stop there. Someone in the office suggested that if a reseller travels for an event and brings their kids with, we should offer a service that connects them with babysitters or reputable "drop-off" day care centers. Perhaps not a realistic example - screams of all kinds of liability issues....but why not? At least it's the right kind of thinking.

The Partner Channel is much more loosely coupled than what Paul is talking about, but the Reardon/AMEX offering generates a lot of ideas. Looks like I have some reading to do.

Incomplete Analysis

Salesforce.com is providing prospects a study from CSO Insights titled “On-Demand Versus On-Premise CRM: Are There Performance Differences?” The study purports to compare these two types of systems across a number of factors including: performance improvement, implementation timeframe, cost relative to budget, and whether the company would recommend the same solution to others. Is it any surprise that the report shows the on demand solutions to have a distinct advantage in all these categories? It shouldn’t be.

I contacted the authors of this study to learn more about the methodology used for this study, which gives me serious doubts about their conclusion. They started with 1275 companies taking a sales effectiveness study. Of those, about 800 had fully implemented a CRM system. From here the authors selected just the vendors that had “significant client bases”, which pared it down to a survey set of 350. The on-demand results are an aggregation of individual results of Salesforce.com, Siebel on-demand, and NetSuite. The on-premise results are made up of Oracle, Siebel, PeopleSoft, SAP, and Microsoft.

Here’s the problem. Based on the group of on-premise vendors selected I think there are two other very plausible (and seemingly obvious) explanations for why that group had longer implementation time frames, less impact on performance, more cost overruns, etc. With the exception of Microsoft, those on-premise vendors (1) target much larger customers and (2) have much deeper products that are more complex to implement and configure. Without evidence to the contrary, I’m inclined to believe that these two issues have a significant impact on why the on-demand group scored better.

I asked the folks at CSO Insights if might provide a split of the data by customer segment, or including just Microsoft (maybe plus SalesLogix) in the on-premise group. They seem uninterested. I pointed out the other potential conclusions one might draw based on the vendor groups, and suggested their assessment that it’s all about on-demand vs. on-premise would be much more credible if they could eliminate segment and complexity as key drivers. Again, not interested, but I could pay to have this work done.

Charge me? Here I thought I was the one providing the service by suggesting how they might make their conclusions much more credible. Pull out Oracle, Siebel, PeopleSoft, and SAP from the on-premise group and replace them with SalesLogix. Or don’t even replace them; just compare Microsoft to that group. If the on-demand group still scores higher, fine. If it doesn’t, then I understand not wanting to take another look. Salesforce.com no doubt has spent generously for the distribution rights to the study.

Infor Roadmap? Are you kidding me?

In scouring the ERP-Select discussion board today I came across someone in inquiring about roadmaps from Infor. They were to have provided a post acquisition (and by this they meant after SSA was absorbed) statement of direction in the September/October timeframe. I've not seen anything yet. I can't blame them. I spent some time at Microsoft when the Dynamics people were working out the roadmap and messaging around what was then called "Green". They struggled to provide clarity amid 4 ERP lines and as much R&D resources as they cared to spend.

Infor sits here with many more products and much less resource. But it isn't really about the products going forward as it is the potential for maintenance and service revenue from the acquired base. As Dennis Byron over at IT Investment Research puts it, "This is a milking of annual subscription maintenance streams that would make CA founder Charles Wang blush."

Per Dennis the current brand portfolio at Infor goes something like this:
Agilisys (out of SC&T), Aperum, Arzoon, Baan, Boniva, Brain, BPCS, Daly Commerce, Comshare, Dun & Bradstreet, Elevon, e.phiphany, EXE Technologies, Extensity, Formation Systems, Foundation, Future Three, Infinium (nee Software 2000), Ironside, JBA Software, Lilly Software, Marcam, MAPICS (putting M&M back together for the first time since IBM spun out Mapics), Mercia, McCormick and Dodge, Ohio Community Library Consortium (OCLC), NxTrend, Octane, Pegasus, Provia, StarBuilder, SunSystems (not to be confused with the server manufacturer), Varial, and Vision.

What a mess. So what sort of product roadmap do you provide? The challenge instead is to find the right level of spin that will allow you to say "our strategic plan is to be just like Sage, but for larger customers", and have it sound like a good thing.

It brings to mind Jim Mora's famous reaction to being asked just after a horrible loss if his team could still make it to the playoffs. Can't you just hear it. Sage, Infor and a real long term product roadmap..Roadmap? Don't talk to me about a Roadmap. Are you kidding me?

So now I've created a blog. Big deal.

It's one of 70 million of them. I chose Blogger for no other reason than I've heard of it, and it's free. Sorry TypePad. In the realm of social software (blogs, wikis, whatever you call sites like yedda) there are a lot of options, and I frankly do not have the time right now to research and compare them. Blogger/Blogspot seems to work for Mark Crofton at The Village View, Frank Scavo at The Enteprirse System Spectator, and other blogs which I frequently read, so I imagine it will work for me.

Mid post I took a peek at a recent entry on another of my favorite blogs, Procurement Central, and I see that Wordpress is also free.

Ok. Just shut up already. This is less about the tool and more about sharing what's in my head, should someone stumble across it and find it interesting.