deal architect

Oracle, SAP and Nationalism

Jeff Nolan, of SAP ventures, complains of Oracle trying to dissuade US federal agencies against SAP. My views on this throughout my blog posts are fairly clear - let the best vendors - SAP, Oracle, Indian, Chinese win so long as they win it fair and square.

The US so far has been remarkably open about technology trade. It is SAP's biggest single market and it is the India offshore vendors biggest single market.

Not so Germany - as Jeff himself points out in another (written by Stephen Roach of Morgan Stanley) post about German and US attitudes to globalization. I am not convinced American companies like Oracle or offshore companies like Infosys get a similarly fair shake in Germany (or in France  - the UK is somewhat different).

I am not defending what Oracle may be doing to lobby Washington against SAP. But it sure would be nice if the Europeans were more open to products from outside the EC.

Little China Girl

The world has clearly moved on since David Bowie sang his hit

" I''ll ruin everything you are...I will give you television..."

Now, China is increasingly being painted as the next big enemy. John Hagel presents both perspectives in this balanced post

In my trip to India last week, I heard from a number of Indian software executives they were looking forward to a Nasscom delegation going to China. If there is one country which should be wary of China, it is India. In 1962, the two countries went to war and India did not do too well. It is good to see the modern generation of Indian businessmen at least try the trade route first and ignore the doomsayers about China.

Back to Bowie - forget about giving China Girl a television. She has shown she can make them - and laptops and a few other things - much cheaper and better than most anyone else.

Bangalore: Old and New

I spent last week with a client team visiting various vendors in Bangalore, It was my 3^rd visit in the last 12 months – for many in the client team it was their first time anywhere in India. It was interesting to see things from their perspective – good and otherwise.

I had suggested they read the two books about Bangalore I had written about  here. We stayed at the Leela, a fine hotel, and visited the impressive campuses of several suppliers in the planned development called Electronic City and elsewhere in Bangalore. Friedman describes the modern Bangalore in his book. Infosys told us their campus is now a favorite destination for a number of visitors to India. Not quite as popular as the Taj Mahal, but close. To and fro to the campuses, we went by clogged streets, farmer’s markets, cows – the old Bangalore Sankaran describes in her short stories.

The New Bangalore is increasingly annoyed with the Old and trying to offset the inadequate infrastructure. Many of the vendors bus their employees in, are encouraging car pools, privately paying for cops to smooth traffic flow, training the bus drivers to a “higher civic sense”.  More non-stop flights from Europe to Bangalore are coming later in the year. (Lufthansa is the only Western carrier today with direct service). The vendors are also actively, if reluctantly, building campuses in other cities to reduce dependence on Bangalore.

The pervading feeling through the week reflected two themes – confidence and youth. Confidence that the vendors can take just about any IT activity or white collar process, and given some time can learn it and optimize it using Six Sigma and other disciplines.   Youth reflective of India’s median age of 25. The campuses are extensions of universities with amphitheatres, gyms, cafes – beehives of activity.

Confident, young staff being bused around – did not Andersen Consulting (Accenture) do well with that model in the 80s and 90s? Did it also not create a back lash in a number of IT buyers? The Indian vendors seem oblivious to that.

In her book, Sankaran’s first short story is titled “Bombay This” It is a swipe on India’s leading commercial city (now called Mumbai) – with some of the most expensive real estate in the world. It is a bit like Dallas taking a shot at New York City.

Well, you get what you ask for. Bangalore prices are starting to reflect Bombay's.  The Leela goes at $ 300+ a night (at negotiated corporate rates – much more if you just call in), $ 23 a day for WI-FI access, $ 10 for a beer and so on. I said the Leela was fine, but it is overpriced by a factor of 2.5. If there were better hotels closer to Electronic City (I am told they are coming) few visitors would pay its rates.

Bangalore has a lot going for it. It needs to remember, though, that the reason visitors are coming is not for the old city, but the economic advantage promised by the new. The inexperience and the growing inflation can only dilute the advantage the Murthys and the Premjis have fought so hard to build.

The really BIG TomorrowNow opportunity

Courtesy of  Sadagopan, I saw this TomorrowNow analysis.  TomorrowNow provides limited third party maintenance services for PeopleSoft and JDE products and was acquired by SAP earlier in the year. As I have written before their PeopleSoft and Siebel acquisitions could fall apart if several customers decided to stop buying maintenance from Oracle - so SAP  can needle  Oracle with this offering.

By why stop at Oracle products? Why not offer SAP customers similar services.  SAP customers fall in to a bell curve. Several are mature and not likely to need new upgrades any time soon - if ever. Many others are in early implementation mode and do not need a lot of maintenance support. Yet SAP charges 17% without segmenting its customer base. A few years ago SAP used to be much more reasonable and allowed new users to  ramp up to the full rate as they got close to  going live. Now it expects 17% from day one - and when pushed uses some "revenue recognition" excuse as the justification.

TomorrowNow could offer SAP services a limited maintenance offering at say half the rate. Absent this,  SAP is encouraging its customers to look for 3rd party support. Just because you buy a BMW does not mean you have to keep going back to the authorized dealer for every premium priced service. The one price fits all maintenance pricing strategy has been broken for a while and TomorrowNow provides a platform for SAP ( and other enterprise vendors with comparable offerings) to rethink this.

Rural Sourcing

When auto jobs left Detroit in the 80s, many came back in different ways to states like Alabama and Tennessee.  Something similar is happening in IT and BP outsourcing.  I have written before  about how Jetblue is using VOIP to leverage moms and pops at home in the US in a virtual call center. In IT, Rural Sourcing Inc,   is leveraging recent graduates and other talent in several US states. So is CIBER.

While these newer offerings still cannot offer the breadth and security of the big Western firms, or the quality or time advantages of many offshore providers, it is good to see these options open up and expand.

Firms like Rural though need to realize it is not just about cost. Last year, I was talking to a call center manager who had moved to centers offshore. I asked him about the experience. He talked about how his staff turnover was half of that in his US centers. He also said the reps offshore were much more emphathetic to customers, spent longer time with them and resolved more issues the first time around. He did not even talk about cost savings.

I write this as I fight jet lag in India (it is 2.30 in the morning). A number of my CIO clients would similarly rather fly to Oklahoma City if they can get the rates AND the quality.

Putting our (North) Worst Foot forward

I flew to India on Wednesday. I had a Delta ticket and had to re-route due to a change in plans out of Detroit and they offered me a direct flight on their partner Air France and I took it. I checked a bag and the baggage tag was issued by Northwest, another partner. Ironic that both Delta and Northwest filed for Chapter 11 protection that very morning. It hit me that all the major airlines which represent the US flag abroad, other than American Airlines, are in or have come out of Chapter 11 protection. They cannot compete domestically and so are trying to survive in less competitive global markets.

I think it is lousy for the US to have these weaklings carry our flag abroad. As I have written about Delta on the India route before, they are losing market share in one of the hottest routes going given all the technology and other trade going there. As they look for assets to sell as part of their bankruptcy clean up, we should be encouraging – pressuring –  these airlines to start shifting these routes to newer US players. I have written about Southwest’s operating efficiency or the tech savviness of Jetblue – airlines like them would do a much better job of representing US interests and image around the world.

Larry, the Lion King

I an not a fan of Larry Ellison's big, horizontal acquisitions (PeopleSoft, Siebel). I disagree with him about industry consolidation. Every acquisition he makes is causing CIOs I deal with cringe and resolve to buy as little as possible from Oracle.

But I have to give credit to Larry for bringing a spark to the enterprise software industry. He is putting big bets while  SAP, Microsoft and IBM mostly make tactical moves.  I may not agree with his moves but you have to admire someone with cohones big enough to not just talk, but actually walk the talk.

At Gartner, I wrote a trilogy of research notes on Oracle Applications in the 1990s - they were titled:

- The Prodigal Prince Matures
- Planning the Palace Coup
- Not Ready for the Throne

A decade later I am ready to proclaim him King. A King with many enemies - but a King nonetheless.

Oracle and Siebel

Oracle is acquiring Siebel.

On surface, makes financial sense. Oracle's gross margins last quarter were 20 basis points higher than Siebel's, operating margins 60 points (admittedly Siebel has had a poor year). Oracle would pick up  Siebel's $ 2.2b in cash - almost 40% of the purchase price.

The risk is similar to that I pointed out with the PeopleSoft deal. New license revenue will likely drop off, and stability of maintenance revenue will depend on Siebel customers view of how well Fusion will take care of their needs. Customers who purchased Siebel in the last 5 years likely evaluated and rejected Oracle (and PeopleSoft) CRM - so cannot be too thrilled with the turn of events. Ditto for a number of Siebel employees who considered Oracle a mortal enemy.

I had liked Oracle's more recent Retek, i-Flex and other smaller vertical acquisitions. Not sure acquiring mostly horizontal functionality duplicative to what Oracle itself has - especially one with a large price tag like this - is the best investment Oracle can make. More Profusion for Fusion to rationalize.

"Trading" Unused software licenses

A client CFO asked during a software negotiation  recently if there was a market for unused software licenses. He wanted to see if there would be any salvage value if his company did not  end up using all the licenses they were signing up for. The software sales person burst out laughing and later asked me if the CFO was for real.

The problem is endemic. Too many companies end up with "shelfware" - software that never gets implemented. And the industry discount structure is aimed at front loading as many licenses as possible.

While the software industry will likely throw a number of revenue recognition issues on the idea, it is worth exploring further. Vendors already have fairly sophisticated usage and auditing tools so the administration can be managed somewhat easily.  Either allow users to negotiate a staggered procurement time line at pre-negotiated prices (without paying games on the discount)  or allow for future trading of unused licenses. It will "de-risk" some of the software risk for a number of CFOs and CIOs.

The bastards say, "Welcome - Again"

In the Pulitzer prize winning "The Soul Of A New Machine" , Tracy Kidder wrote of an ad that Data General produced but never ran. It read "They Say IBM's Entry Into Minicomputers Will Legitimize The Market. The Bastards Say, Welcome"

Sage Software which publishes a number of accounting and other software for the SME market like Peachtree ran an ad this week as Microsoft launched another initiative to energize its business solutions group - it reminded me of the DG ad.

Of course, IBM fumbled and persisted in the mini-computer market and built a solid franchise around its S/36, 38 and AS/400 products. DG ended up being acquired by EMC which only salvaged its storage products.

Microsoft can similarly afford to fumble in this market segment and eventually get it right. The role based approach they have introduced is a neat one, me thinks.

Reminds me of other ads where Jim Koch of Samuel Adams used to say "the big beer companies spill more beer than I brew each year".