Posts Tagged ‘NetSuite’

Quarterly Financial Tracker: Q1 CY 2010 – Software’s Back With Double Digit Gains In License Growth

The majority of 21 publicly traded software vendors managed to show year-over-year (YoY) gains over the dismal beating from calendar year (CY) Q1 2009.  SaaS vendor maintained their double digit gains while on-premise vendors mostly showed positive traction (see Figure 1) and (see Figure 2).  Highlights for the 2010 CY Q1 2010 results:

  • Big gains in YoY license revenue for on-premise vendors such as Manhattan Associates (188.64%) and  JDA (87.43%) reflect the investments being made in retail and supply chain.  Manhattan’s gains are the greatest across the board as they demonstrate a turnaround from last year.
  • Meanwhile, SMB bell-weathers Lawson (28.10%), Deltek (24.75%), and Epicor (23.21%) signal return of key license sales in on-premise.  Concurrently, Oracle (20.45%) and SAP (11.oo%) demonstrate a strong recovery in enterprise license revenue growth in on-premise.
  • Maintenance fee growth for on-premise vendors hold steady with mostly single digit YoY gains except JDA Software (32.71%) and SAP (11.34%).
  • SaaS vendors kept steady growth in the double digits for subscription revenue. UltimateSoftware (27.80%), RightNow (26.80%), Salesforce.com (24.47%), and SuccessFactors (24.29%) led the charge.
  • Overall growth rates on a YoY revenue basis have stabilized for most SaaS vendors at the mid teens to twenties.
  • Of interesting note, professional services fees for on-premise vendors match or double the license revenue. SaaS vendor professional services revenue are well below 1x license revenues, closer to 10% or less.
Figure 1.  Software Insider Index® On Premise Vendors: Q1 CY 2010*


(Right click to view full image)
Copyright © 2010 R Wang and Insider Associates, LLC. All rights reserved.
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Software Insider Index™ (SII): 2009 SII Top 35 Enterprise Business Apps Vendors™

2009 Results In Major Revenue Declines For On Premise And Officially The Year Of SaaS

A review of last year’s financial performance should erase any doubts about the viability of SaaS as a deployment option and a business model.   Traditional on-premise business apps vendors took the brunt of the beating earlier in the year but have slowly recovered.   This year’s Software Insider Index™ (SII) highlights two major themes:

  • Legacy On-Premise Vendors Retain Operating Margins But Lose Revenue Share. Almost every on-premise software vendor lost revenue on a year-over-year (YoY) basis in 2009 (see Figure 1).  IFS (3.87%) and SAS Institute (2.21%) grew in the midst of the financial onslaught.  SAP is still double the size of Oracle in apps revenue!  Vendors such as QAD (-31.42%) and Manhattan Associates (-26.84%)saw the worst YoY declines (see Figure 2).  Most vendors relied on their maintenance and support to bolster their revenues. For example, CDC, Epicor, Exact, Lawson, Manhattan, Oracle, QAD, and SAP exceeded a 1:2 ratio in new license to maintenance revenue.  Why?  Customers chose not to upgrade, purchase new licenses, and expand their footprint.   Despite the downturn, most vendors survived with operating margins between 10% an 50%, well above those achieved by SaaS vendors.   Traditional vendors clearly felt pressure from SaaS/Cloud.
  • SaaS Models Prove Themselves In 2009. Meanwhile, every SaaS vendor grew, from Ariba with the lowest YoY revenue growth (0.44%) to SuccessFactors with the highest (38.73%). Overall the SaaS vendors tracked in the 2009 SII grew 7.98% in YoY revenue. SaaS deployments expanded in all areas from CRM to HCM to spend management. Of note, Salesforce.com exceeded the $1.3B mark, a milestone for the SaaS industry.

Figure 1. Software Insider IndexTM (SII) Top 35 Enterprise Business Apps VendorsTM (Calendar Year Revenue)

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Copyright © 2010 R Wang and Insider Associates, LLC. All rights reserved.

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Tuesday’s Tip: When To Go With A Two-Tier ERP Strategy

Single Instance ERP Harder And Harder To Justify

The holy grail of an ERP implementation used to be the single instance deployment.  However, market forces, a move to adopt new disruptive technologies, slow pace of innovation from incumbent vendors, and high maintenance fees have changed many organization’s perspectives.  Add a slew of rapidly changing business requirements battling rigid legacy infrastructures and next gen CIO’s have been forced to depart from the standard apps strategies.  In fact, improved integration, web services, and SaaS deployments have now improved the success rates and ROI for Two-Tier ERP apps strategies.

Purpose Built Capabilities And Cost Savings Drive Push For Two-Tier Apps Strategies

Recent Software Insider data surveys of next gen IT leaders in Q3 2009 and Q1 2010 show a 10% increase among organizations considering a Two-Tier ERP apps strategy (see Figure 1).  Key drivers behind moving to a Two-Tier ERP approach stem from:

  • Purpose built or industry requirements (89.61%). Next gen IT leaders remain frustrated by the lack of innovation and progress in completing out promised functional footprints.  As market competition intensifies, industry specific, purpose built solutions provide the competitive advantage needed for survival and success.
  • Existing systems too expensive (70.13%). ROI calculations on existing ERP systems often show high cost factors.  The culprits – overruns in implementation, customization of reports, maintenance payments on shelfware, increasing costs to staff, and rigidity of system.
  • Upgrade too expensive (45.45%). Many customers face upgrade costs equivalent to reimplementation.  Cost factors could equal up to 85% of the original implementation cost.
  • Need to innovate (35.06%). Some organizations find that their vendors have not innovated fast enough. Social channels have not been accounted for.  User experiences seem dated.  Reporting and analytics require experts to deliver.  Paucity in mobile solutions hinder productivity.
  • Regulatory compliance (24.68%). The need to meet industry specific regulatory compliance drive organizations to choose purpose built solutions.  Many choose SaaS to mitigate the costs of legislative and regulatory updates.
  • Geographic requirements (19.48%). Country or region specific requirements may require two-tier strategies based on geography.  Some ERP systems lack the language or tax requirements and a separate instance will prove cheaper to run than customizing a monolithic large ERP solution.
  • Existing systems too rigid (15.58%). Rigidity may lead to the inability to integrate and work with other systems, new channels, and emerging stakeholders.  Integration solutions can assist, but long term, next gen IT leaders will begin to surround legacy solutions with newer technologies.

Figure 1. Two Tier ERP Strategies Gain Favor In Next Gen IT Leader Apps Strategies

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Figure 2.  Industry Requirements And Cost Drive Push To Two-Tier Apps Strategies

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The Bottom Line – Users Should Consider Scenarios Based On Business Models And Geographic Needs

Detailed apps strategy conversations highlight 3 scenarios where Two-Tier ERP strategies make sense.  A number of vendors have proven to be strong partners in enabling Two-Tier ERP (see Figure 3).

  1. Different business models. Organizations with very different lines of businesses often consider hub and spoke implementations.  The drive to standardize on a single ERP system makes little sense when one subsidiary delivers services and the other manufactures goods.  Several large multi-national conglomerates leverage more than two-tiers of ERP to handle a warranty business, financial services, and power generation manufacturing.
  2. Country specific deployments. Deploying a full scale ERP solution makes little sense for new subsidiaries when options exist at lower operating costs and higher ROI.  One large Japanese manufacturer found cost savings with local based systems in North America and EMEA.
  3. Phased modernization efforts. Organizations looking to upgrade and modernize their systems may keep some legacy systems in place as they upgrade to more modern systems.  One large entertainment concern has kept their financials systems and updated their retail systems with a more modern, web services based, SOA architected product.

Figure 3. Vendors To Watch In Two-Tier ERP Apps Strategies

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Your POV.

Have you deployed a Two-Tier ERP strategy? How has it gone?  What’s worked? What’s not?  You can post or send on to rwang0 at gmail dot com or r at softwaresinsider dot org and we’ll keep your anonymity.

Please let us know if you need help with your enterprise apps strategy by:

  • Developing your enterprise apps strategy?
  • Addressing disruptive technologies like Social CRM, Cloud Computing, SaaS deployment, and Two-Tier ERP?
  • Assessing the ROI of a Two-Tier ERP strategy?

* Not responsible for any factual errors or omissions.  However, happy to correct any errors upon email receipt.

Copyright © 2010 R Wang and Insider Associates, LLC. All rights reserved.

Related Resources

20091203  Strategy: 5 Lessons Learned From A Decade Of Naught

20091222 Tuesday’s Tip: 10 Cloud And SaaS Apps Strategies For 2010

20091208 Tuesday’s Tip: 2010 Apps Strategies Should Start With Business Value

20091102 Best Practices: Lessons Learned In What SMB’s Want From Their ERP Provider

20091006 Tuesday’s Tip: Why Free Software Ain’t Really Free

Quarterly Financial Tracker: Q4 CY 2009 SaaS Vendors Continue To Trump On Premises Vendors In YoY Growth

The Year Of SaaS Shows… And Yes, In This Economy.

The recession continued to take its toll on software sales with a slight impact to the SaaS vendors.  Growth rates have come down from the high 30′s to the low 20′s.  But with “flat” the new growth metric in this down economy, SaaS vendor results remain impressive.  On the other hand, traditional on-premises vendors see some light at the end of the tunnel.  License revenues have started to stabilize on a year-over-year basis.  Major events in the 2009 Calendar Year (CY) Q4 include:

  • In YoY quarterly revenue growth, Taleo (23.29%) led the pack followed by SalesForce (22.26%), and Blackboard (17.66%) (see Figure 1).
  • Salesforce.com achieves $1.4B in revenues for CY 2009.  As the biggest SaaS vendor in the market, Salesforce.com is bigger than Microsoft Dynamics, Lawson, and Unit 4 (Agresso).  To put this in perspective, Salesforce.com’s revenue alone is at the size of all the other public SaaS vendors listed in the Software Insider Index.
  • Most on-premises vendors stabilized declines in new license revenue (see Figure 2).  Keep in mind that on-premises vendors have remained profitable in this downturn.  Maintenance continues to provide a cash cushion for most on-premises vendors.
  • License revenues versus maintenance revenues for some vendors such as Deltek, Epicor, Exact, JDA Software,  Lawson Software, Manhattan Associates, and Oracle reach or exceed 1:2 ratios.  The result – lagging growth in acquiring new customers on latest releases.
  • IFS leads with a (21.38%) gain on YoY license revenue with Manhattan (3.21%), Epicor (2.32%), and Oracle (1.92%) following with positive license revenue for calendar year Q4

Figure 1.  Most SaaS Vendors Continue Break Neck Growth

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Figure 2. Many On Premises Vendors Rely On Maintenance To Bolster Sagging License Revenues

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The Bottom Line – Clients Now Expect On-Premises Vendors To Have A “SaaS” Option

As we tally up the winners and losers for 2009, SaaS vendors have shown to the industry what’s required for success in today’s tough economic condition.  The secret to their success transcends subscription pricing, cloud services, rapid levels of innovation, and point solutions.  In fact, the success in SaaS comes from the attention to the relationship and the willingness to take a customer friendly stance.  On-premises vendors who have delivered on a partnership with their customers have known this for years.  However, they risk being consumed by the new business models of SaaS and Cloud.   Customers expect their vendors to deliver hybrid options; and private and public clouds.  Expect on-premises vendors without a Cloud deployment option to fade away in this decade as they become the legacy vendors they replaced in the client/server and Internet eras.

Your POV.

As an end user, have you seen the pace of SaaS adoption increase in your organization?  Do you continue SaaS solutions with the same level of comfort as on-premises.  As a software vendor, do you feel you have the right go-to-market cloud strategy for 2010? Please let us know if you need help with your enterprise apps strategy by:

  • Develop your SaaS apps strategy
  • Assist with SaaS contract strategies and the Customer Bill of Rights: SaaS
  • Improving innovation via SaaS and other deployment options

You can post or send on to rwang0 at gmail dot com or r at softwaresinsider dot org and we’ll keep your anonymity.

* Not responsible for any math errors or erroneous revenue information.  Calendar year estimates based on the quarter nearest the calendar year.  Exchange rates as of February 24th, 2010.  Not responsible for currency flux.  Please read the quarterly filings yourself =)

Related resources and links

Take the new and improved survey on 3rd party maintenance

2009 Calendar Year Q3

2009 Calendar Year Q2

2009 Calendar Year Q1

2008 Calendar Year Q4

2008 Calendar Year Q3

2008 Calendar Year Q2

2008 Calendar Year Q1

Copyright © 2010 R Wang and Insider Associates, LLC. All rights reserved.

Tuesday’s Tip: 10 Cloud and SaaS Apps Strategies For 2010

Keep In Mind Basic Rules Still Apply Regardless Of Deployment Option

The proliferation of SaaS solutions provides organizations with a myriad of sorely needed point and disruptive solutions.  Good news – business users can rapidly procure and deploy, while innovating with minimal budget and IT team constraints.  Bad news – users must depend more on their SLA guarantees and deal with a potential integration nightmare of hundreds if not thousands of potential SaaS apps.  Though the 7 key benefits of SaaS outweigh most downside risks, organizations must design their SaaS apps strategies with the same rigor as any apps strategy.  Just because deployment options have changed, this does not mean basic apps strategy is thrown out the window.  Concepts such as SOA, business process orchestration, and enterprise architecture will be more important than ever.  Here are 10 strategies to consider as organizations take SaaS mainstream:

  1. Begin with the business process and desired business value. Understand the desired business value and outcome.  Map back the key performance indicators (KPI’s) to the business processes. Identify what processes will be covered by the SaaS solution.  Determine overlaps and hand-offs between on-premise and SaaS to SaaS that are required to measure the desired KPI’s.
  2. Engage stakeholders early and often. Today’s apps strategies must constantly evolve. Change is happening so fast that line of business leads and IT leaders must collaborate in real time.  The result – an ever changing list of requirements.  While SaaS allows business leaders to make go-it-alone decisions, success will require close collaboration on short term and long term requirements, dependencies, and strategy.
  3. Bet on future suites, SaaS platforms or PaaS (Platform-as-a-service). Winners and losers will emerge in this wave of Cloud computing.  Vendors such as Netsuite, Workday, Zoho, Epicor, and SAP have built or will be building suites.  They provide safe bets as more and more functionality will be rolled into their offerings. Concurrently, organizations should also choose vendors who bring a vibrant and rich ecosystem to the table because those vendors will win in the market.  Salesforce.com and NetSuite already provide users with a platform to build on apps.  Other vendors such as as Google Apps Engine, Microsoft Azure, IBM, and Zoho provide rich developer communities.  Partner and customers will drive innovation which is why platform adoption (i.e. today’s middleware) makes a difference.
  4. Augment with best of breeds, but avoid best of breed hell. No one platform can provide every solution, but choose wisely.  Best of breeds provide deep vertical capabilities and rich last mile solutions.  However, no one wants to manage hundreds of vendor relationships.  Create frameworks that allow business users to work with vendors which support open standards, integrate well with your existing integration strategies, and follow the bill of rights.   Reduction in the number of vendors will become a priority in 2010 going on into 2011.
  5. Assume hybrid will be the rule not the exception. Prepare for hybrid deployments throughout the decade.  Despite the benefits of SaaS and broad adoption in 2010, legacy apps will not go away.  Just count the number of mainframe and client-server apps still in use today.  Many on-premise apps will take time to migrate to SaaS. In some cases, legal requirements will prevent data from being stored off-site.  Software plus services offerings from companies such as Infor, Lawson, Microsoft Dynamics, and SAP may become the norm in 2010 as companies seek private and public cloud solutions.
  6. Design with good architecture. Keep your enterprise architects (EA’s) or hire some more.  Inevitably, more and more SaaS solutions will enter the organization.  EA’s will proactively plan for new scenarios and account for future business requirements.  Organizations should keep some rigor in terms of standards for solution adoption while accounting for the need to rapidly innovate.  Business leaders will need some frameworks on which solutions to adopt.
  7. Choose the right integration strategy for the right time. SaaS integration strategies will evolve based on the organization’s SaaS adoption maturity.  The first set of solutions will probably require point to point integration of data.  Over time, users often migrate to centralized integration services that account for process.  Some will go full enterprise service bus (ESB) and look at business process orchestration as well.  Consider solutions from CastIron, Boomi, Pervasive Software, Informatica, and SnapLogic.  Going forward customer data integration and master data management will be more important than ever.
  8. Minimize long-term storage costs with archiving. Storage represents a significant long term SaaS cost.  Savvy clients can reduce the cost of SaaS storage with a myriad of technologies such as EMC, IBM Optim, and RainStor.  By archiving, organizations will experience faster transaction times, maintain compliance, and reduce storage fees.
  9. Hedge risk with SaaS escrows. Most SaaS vendors will require 5 to 7 years to achieve profitability.  End users often demand software escrows in the on-premise world when they are concerned about vendor viability, takeover threats, and other related breaches to performance or service level agreements.  Software escrows vendors serve as the trusted third party independent organization which holds a copy of the software code.  This often includes user data, source code, documentation and any application executables. SaaS escrows work in a similar way.  Vendors such as EscrowTech, InnovaSafe, Iron Mountain, NCC Group. and OpSource can provide such services.
  10. Protect your rights. Client – vendor relationships in SaaS are perpetual.  Organizations have one shot to get the contract right and begin the relationship with the right tenor.  Apply best practices from The Customer Bill of Rights: SaaS. Work with vendors to find the right balance in approach.

The Bottom Line For Customers – Build Frameworks That Support Easy Line Of Business Adoption

The broad adoption and trajectory of SaaS solutions requires organizations to rapidly replace edicts and 5 year plans with guidelines and policy frameworks.  The goal – enable anyone in the organization to procure a SaaS solution that meets key guidelines and standards.  The result – flexibility, security, and scalability that allows solutions to be used on-demand and in concert with existing applications.

Your POV.

As you work out your SaaS apps strategies, drop us a line and let us know how you are deploying, what challenges you’ve faced, and what successes have you achieved.  We’re happy to weigh in.  Feel free to post your comments here or send me an email at rwang0 at gmail dot com or r at softwareinsider dot org.

Copyright © 2009 R Wang and Insider Associates, LLC. All rights reserved.

Quarterly Financial Tracker: Q3 CY 2009 SaaS Vendors Face Some Headwinds, On-Premise Still In The Tank

Purchasing in Q3 reflected both economic downturn and summer doldrums.  While on-premise vendors continued massive double digit declines in year-over-year new license revenue, SaaS vendors faced some pressures in keeping up with tremendous growth.  However, long term economic outlook still favor SaaS players and early indications on Q4 budget flush indicate that SaaS and Cloud are top of mind.  Major themes in the 2009 Calendar Year Q3 include:

  • On the SaaS front, Salesforce.com (19.55%) continues to lead the pack followed by Blackboard (18.44%) and Concur at (12.94%) (see Figure 1).  While SaaS vendors still experienced growth, Concur (12.94%), Ultimate Software (9.76%), and Taleo (8.77%), NetSuite (3.22%) experienced drops in rate of growth.  Taleo and NetSuite faced the biggest drops in Q3.
  • Tracked publicly traded SaaS vendors represented $756.2M in Q3 software revenues.
  • On-premise vendors showing gains in EPS despite revenue drops (see Figure 2).
  • Specialty on-premise vendors JDA Software (-2.63%) and IFS (-5.07%) reversed license growth and lost year-over-year quarterly gains.
  • Lawson Software reversed a license free fall showing growth in Q3 (22.77%). Healthcare and HCM continued to bolster its license growth and come back.
  • Maintenance revenues continue to float losses in license revenue for on-premise vendors.  Growth in maintenance continues to slow.

Figure 1. SaaS Vendors Face Q3 Headwinds And Growth Slows Vs Q2

2009 Q3 Calendar Year SaaS Revenues

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2009 Q3 Calendar Year SaaS Revenues - Copyright © 2009 R Wang and Insider Associates, LLC. All rights reserved.

2009 Q2 Calendar Year SaaS Revenues

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2009 Q2 Calendar Year SaaS Revenues - Copyright © 2009 R Wang and Insider Associates, LLC. All rights reserved.

Figure 2.  On-premise Vendors Face Continued Market Brutality

2009 Q3 Calendar Year On-Premise Revenues - Copyright © 2009 R Wang and Insider Associates, LLC. All rights reserved.

2009 Q3 Calendar Year On-Premise Revenues - Copyright © 2009 R Wang and Insider Associates, LLC. All rights reserved.

The Bottom Line For Users – Expect Continued Discounts in Q4

A poor Q3 will bring good news to buyers in Q4 as vendors will continue to heavily discount licenses and professional services while delivering more value to retain maintenance margins.  Conversations with 41 CIO’s indicate that a Q4 budget flush is in the works.  The conditions favor end users as poor economic conditions, realization by vendors, and need to invest will yield a great buying season.

The Bottom Line For Vendors – Start The Subscription Revenue Model Shift

It’s time to go on a SaaS offensive.  The train has left, but its not too late.  Expect hardware vendors, telecom providers, and other companies looking to gain software multiples to enter the market via SaaS.  2010 will bring significant acquisitions in this space as well as more proliferation of SaaS offerings and PaaS delivery models.  Best of breed solutions delivered via SaaS will cut into on-premise market share.  Cloud computing will not be an end all be all.  Hybrid deployment will continue to be the norm.

Your POV.

Ready for some great renewal conversations in Q4?  Feel free to post your comments here or send me an email at rwang0 at gmail dot com for any assistance in contract negotiations with your vendor or the development of a software licensing and pricing strategy for 2010.

* Not responsible for any math errors or erroneous revenue information.  Calendar year estimates based on the quarter nearest the calendar year.  Exchange rates as of November 189th, 2009.  Not responsible for currency flux.  Please read the quarterly filings yourself =)

Monday’s Musings: SaaS, SOA, Integration and How To Make A Peanut Butter And Jelly Sandwich In The Cloud

Rapid SaaS Adoption Will Lead To A Repeat Of 1990′s Best Of Breed Integration Challenges

The proliferation and rapid adoption of SaaS solutions stems from 7 key benefits: richer user experience, rapid implementation, frequent cycles of innovation, minimal upgrade hassles, always on deployment, subscription pricing, and scalability (see Figure 1). Despite these benefits, organizations head full circle towards the same best of breed dilemma they faced in the late 1990′s.  In that era, organizations sought innovation from more nimble and agile competitors.  The result – a concerted effort to deploy a number of on-premise, point solutions.  Willing to sacrifice not having a single instance for functionality, they invested heavily in integration.  Almost a decade later, organizations will encounter similar challenges with harmonizing a plethora of SaaS entry points in the next 2 to 3 years. Given the growing number of SaaS solutions at cost-effective price points and easy adoption, today’s organizations face problems in a geometrically larger scale.

Figure 1. Seven Benefits of SaaS Deployments

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Modeling How To Make A Peanut Butter And Jelly Provides Key Insights Into The Integration Challenge

Today’s integration challenges move beyond data integration to include process level and meta-data requirements that span across a range of business processes and relevant key performance indicators (KPI’s).  As more solutions are added, organizations will want to model their end to end business processes as web services and support synchronous and asynchronous communication protocols across hybrid deployments.   Organizations can expect canonical data models play a key role in harmonizing business objects.  To put this in real world terms, imagine describing how to make a peanut butter and jelly sandwich using a hodgepodge of solutions.  Let’s take a look:

Example 1:  Modeling in a .NET application

  1. Bread: take 2 slices of bread
  2. Peanut butter: spread peanut butter on one slice
  3. Jelly: spread jelly on the other slice
  4. Assembly: put the bread together
  5. Assembly: slice down the middle
  6. Delivery: serve on plate

Example 2:  Modeling in Force.com

  1. Bread: take 2 slices of bread
  2. Bread: determine whether or not to toast the bread
  3. Peanut butter: choose chunky or creamy
  4. Peanut butter: spread peanut butter on one slice
  5. Jelly: choose type of jelly
  6. Jelly: spread jelly on the other slice
  7. Assembly: put the bread together
  8. Assembly: determine if the slices is in half or diagonal
  9. Assembly: slice down the middle
  10. Delivery: choose type of plate (e.g. paper or plastic)
  11. Deliver: serve on plate

Example 3:  Modeling in NetWeaver

  1. Bread: take 2 slices of bread
  2. Bread: determine if the bread is organic or not
  3. Bread: determine whether or not to toast the bread
  4. Bread: determine how light or dark the bread should be toasted
  5. Peanut butter: determine if the peanut butter is organic or not
  6. Peanut butter: choose chunky or creamy
  7. Peanut butter: spread peanut butter on one slice
  8. Peanut butter: determine thickness of spread
  9. Jelly: choose type of jelly
  10. Jelly: determine if the jelly is organic or not
  11. Jelly: spread jelly on one slice
  12. Jelly: determine thickness of spread
  13. Assembly: put the bread together
  14. Assembly: determine whether you want the crust or not
  15. Assembly: determine how to slice the bread (e.g. diagonal, half, 4 cubes, etc.)
  16. Delivery: choose type of plate (e.g. paper or plastic)
  17. Delivery: determine garnishes with the sandwich
  18. Delivery: serve on plate

In these examples, notice how they granularity of processes become deeper and deeper within more complex solutions.  How would you take the peanut butter web service from the .NET example and harmonize this with the NetWeaver example?  Now take this real-life example at a hypothetical global pharma:

  • SAP financials (on-premise)
  • Oracle JD Edwards manufacturing (on-premise)
  • Salesforce.com CRM (SaaS)
  • Workday HR and Payroll (SaaS)
  • Concur Expense Management (SaaS)
  • Xactly Incentive Comp (SaaS)
  • NetSuite OpenAir Project Management (SaaS)
  • Ariba Spend Management (SaaS)
  • Gmail and Google Docs(SaaS)
  • Jive Community Platforms (SaaS)
  • SocialText (SaaS)
  • WebEx (SaaS)

Recommendations

As organizations consider SaaS adoption they must put into place an integration framework to support the competing forces of innovation and harmonization.  These integration frameworks must consider not only data, but also process, metadata, and business intelligence.  Key suggestions include:

  • Begin with the end in mind. Identify the key performance indicators.  Determine how to measure business value
  • Understand your key business processes. Classify your business processes into 3 buckets: commoditized, mission critical, and innovative.  This way you’ll know which processes can be put into an outsource, shared service, or internal ownership.
  • Map the granularity of the business processes.  Group similar processes across different solutions and understand the levels of granularity.  Identify points for harmonization.
  • Determine the data integration requirements. Identify the key business objects associated with the business process.  Ensure that the right data arrives to the right process at the right time for the right person.  Map key meta data to process and business objects.  Build out your canonical data models.
  • Build loose frameworks for evaluation of SaaS solutions. Give line of business teams guidelines to determine how SaaS solutions fit into existing processes.  Use this to jump start integration and proactively identify integration challenges.
  • Determine approach and SaaS adoption policies. In some cases, point to point will make more sense. In others, greater levels of integration and control may be required.  Avoid a one-size fits all methodology in setting up policies.  Consider the business case first and foremost.

The Bottom Line – SOA’s Not Dead And Integration Is Key To Successful Hybrid Deployments

Given these scenarios, CIO’s and line of business apps will need to rely on stronger enterprise architecture and integration in hybrid deployments.  In fact, au contraire on the death of SOA!  Introduction of next generation social enterprise apps will only accelerate the need for good architecture and services design. Expect solutions from Boomi, Cast Iron, Informatica, Pervasive, SnapLogic, and Talend to play a key role going forward.

Your POV

Where are you with your SaaS deployment strategy?  Have you considered SaaS integration tools? What are you using and why?  Do these issues resonate with you?   Who owns the larger integration problem in your organization? Let us know how we can assist or please post or send on your comments to rwang0 (at) gmail (dot) com or r (at) altimetergroup (dot) com and we’ll keep your anonymity.

Copyright © 2009 R Wang & Insider Associates, LLC. All rights reserved.

Best Practices: Lessons Learned In What SMB’s Want From Their ERP Provider

Competition Intensifies For The Small And Medium Organization’s Software Budget

Software vendors such as Oracle and SAP can no longer rely on their large enterprise customers for double digit year-over-year growth.  In fact, their customers have not only reached a saturation point in being able to consume new solutions, but have also faced demands to cut their large maintenance bills.  With nowhere to go, enterprise apps vendors now turn to the small and medium sized market to drive their growth plans.  Consequently, billion to multi-billion dollar SMB stalwarts such as Infor, Microsoft, Sage, and Lawson are not standing still.  In fact, they seek opportunities to take market share from the industry leaders while fending off challenges from sub $500M SMB vendors such as Agresso, CDC Software, Deltek, Epicor, Exact, IFS, NetSuite, QAD, and Syspro.

Small And Medium-Sized Organizations Seek Enterprise Class Solutions Without The Resource Overhead

Globalization, regulatory compliance, and economic demands results in similar market pressures for all sizes of business.  Size no longer plays a relevant role in business requirements.  In fact, a recent survey of over 100 small and medium sized organizations, shows similar needs as large enterprises.  However, small and medium-sized organizations can not afford the resource overhead required to maintain large and complex software systems.  The 10 areas that drive vendor selection decisions include (see Figure 1):

Figure 1. Small and medium sized organizations seek enterprise class solutions without the resource overhead

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The Bottom Line – Ten Lessons Learned Emerge From Recent Vendor Selection Trends

  • Invest in last mile industry focused solutions.Customers expect their vendor to speak their language.  Solutions that lack vertical fluency and limited industry customer referencability will be relegated to the ERP graveyard.
    Lessons learned: Demonstrate thought leadership in each vertical and lead industry discussions.  Focus on a handful of verticals.
  • Focus on rapid implementation and realization. Gone are the days of 12 to 18 month deployments.  Customers seek deployments times with less than 3 months.
    Lessons learned: Consider SaaS and OnDemand options.  Templates and productized roll-outs improve time to market but can’t compete with  SaaS solutions and onDemand offerings in demonstrating value to customers.
  • Expand the number of trusted partners and vendors. As SMB’s expand across the globe, they expect vendors to invest in trusted partners for both delivery and product footprint.  Customers expect partners to assist with localization in new geographies, extend vertical solutions, and integration.
    Lessons learned: Build partner ecosystems to geometrically expand reach while meeting customer needs.  No vendor can deliver on all customer needs.
  • Deploy easy to use reporting tools and BI. Value out of the box requires BI and reporting tools to be proactive and pervasive.  Users should have access to relevant and timely information along business processes.
    Lessons learned: Design reporting tools with the end in mind.   Start with the value of information and embed throughout the business process.
  • Reduce administrative complexity and ownership costs. SMB’s seek enterprise class capabilities sans the resource overhead of traditional large ERP products.  Business users need to be able to make changes and extend the system.  Ownership costs such as maintenance should deliver value or be reduced.
    Lessons learned: Design self-service administration capabilities from the get-go, not an afterthought.  Software maintenance needs to deliver value or be offered in tiers based on perceived value.
  • Apply Web 2.0 style usability. Solutions should not require extensive training.  New generations of work expect the simplicity and ease of use from consumer based web applications.
    Lessons learned: Invest in user experience and user interaction.  Design process flow based on role-based personas.
  • Improve stakeholder access. Employees, partners, and customers must gain access to key business information.   Value should not be locked away from users when disconnected.  Mobile remains a future growth area.
    Lessons learned: Allow information to be accessed by everyone, everywhere, and at anytime.  New stakeholders will need access so apps should be designed with bullet-proof role based security.
  • Embed Microsoft Office Integration. Ability to use productivity tools should be a given.  Customers seek the ability to seamlessly integrate.
    Lessons learned. Success requires the design Office integration to be both a user interface and gateway into applications.  Clunky interfaces into Microsoft fail in adoption.
  • Deliver worry free updates. Customers should be able to update and upgrade software without significant time spent testing integrations and taking down the system.
    Lessons learned. Design application management into the system design.  Consider the business impact of down time.
  • Provide financing options.  Customers now expect vendors to provide financing to facilitate license purchases.  In many cases, clients seek financing to preserve cash position and add additional services such as training and implementation.
    Lessons learned. Use financing as deal enabler to drive not only license growth, but also larger deal sizes.  Financing is a weapon.

Your POV

Prospects and customers – do these requirements ring true?  Vendors -where are you with your SMB strategy? Let us know how we can assist.  Please post or send on your comments to rwang0 (at) gmail (dot) com or r (at) altimetergroup (dot) com and we’ll keep your anonymity.

Copyright © 2009 R Wang. All rights reserved.

Quarterly Financial Tracker: Q2 CY 2009 SaaS Vendors and Purpose Built Solutions Rack Up Big Wins

Most on-premise vendor continue to slip into significant YoY losses in license revenue and overall revenues.  Meanwhile, economic conditions continue to favor SaaS, best-of-breeds, and purpose built solutions. Major themes in the 2009 Calendar Year Q2 include:

  • Economic conditions drive demand for best of breed and point solutions delivered by SaaS deployment.  Consequently, SaaS vendors posted spectacular double digit YoY gains.  Taleo (29.78%) led the pack followed by Blackboard (21.92%), and SalesForce (20.14%).
  • Despite subscription gains for SaaS, professional service revenues dropped as client demand for rapid implementation and discounts in delivery cut deployment costs.  Many vendors reported shorter deployment times.
  • Specialty on-premise vendors JDA Software (8.38%) and IFS (6.00%) delivered significant gains as their purpose built solutions reflect the demand for deeply verticalized software offerings.
  • On-premise vendors continue to rely on maintenance revenues to stabilize or offset huge losses in YoY license revenues.  Customers are nearing a flash point over the high cost for maintenance.  Vendors will need to quickly demonstrate value or take a hit in maintenance renewals.
screen-shot-2010-03-18-at-95444-pm

Software Insider Index® Q2 CY 2009 SaaS Vendors

screen-shot-2009-09-28-at-30312-am

Software Insider Index® Q2 CY 2009 On Premise Vendors

The Bottom Line – Worsening Economic Conditions Favor Purpose Built Solutions

Continued economic pressures force customers to choose best of breed and purpose built solutions.  SaaS vendors appear to be the beneficiary as the overall business model aligns with client pain points.  On-premise vendors will also win as they reduce the cost of entry and provide effective price points for purpose built solution modules in demand by clients.  With very little hope for a recovery in 2009, vendors will have to adjust their go-to-market strategies to deal with waning deal sizes.  It’ll take more than a hat trick in 2009 to stabilize revenues.  With 4 months to go, vendors should rethink their 2010 strategies to address price points, financing options, and module availability.

Your POV.

As an end user, have you found the deal process to have tipped in favor of the buyer?  Do you continue SaaS solutions with the same level of comfort as on-premise.  As a software vendor, do you feel you have the right go-to-market strategy for 2010?  Feel free to post your comments here or send me an email at rwang0 at gmail dot com for any assistance in contract negotiations with your vendor or the development of a software licensing and pricing strategy for 2010.

* Not responsible for any math errors or erroneous revenue information.  Calendar year estimates based on the quarter nearest the calendar year.  Exchange rates as of September 25th, 2009.  Not responsible for currency flux.  Please read the quarterly filings yourself =)

News Analysis: NetSuite Acquires QuickArrow To Expand PBS Presence

On July 21st, 2009, NetSuite announced its intention to acquire Project Based Solutions (PBS) rival Quick Arrow for $20M.   A few quick facts about the acquisition

  • Existing customers will continue to be supported. NetSuite has committed to supporting the QuickArrow solution.  Customers have the option to move to NetSuite and OpenAir.  NetSuite will not force customers to migrate from Apache.  NetSuite will maintain QuickArrow’s Austin, TX based offices and staff.
    POV: QuickArrow customers should explore the opportunity to align their ERP with NetSuite to take advantage of future synergies and integration points.  Standalone QuickArrow customers should wait for the combined future product road map before evaluating any options.   Expect NetSuite to keep its promise as it would make no sense to acquire a company and not retain the customer base.  NetSuite’s acquisition mitigates financial viability concerns with QuickArrow.
  • Acquisition signals commitment to services industry business. As with the $26M OpenAir acquisition, the addition of QuickArrow will extend NetSuite’s support of professional services verticals such as business and IT consulting, legal, accounting, and government contracting.  NetSuite’s services resource planning (SRP) capabilities include investments in key processes such as marketing, sales, quotes/orders, projects, services delivery, charges, invoices, and revenue and finances.
    POV: QuickArrow adds another 35,000 users bringing the estimated total number of subscribers to about 80,000.  This significant market presence in North America gives NetSuite the opportunity to create not only economies of scale in product development, but also additional capabilities such as international expansion, third party project tool integration, and regulatory compliance support.

The bottom line – NetSuite signals its intent to go on the offense for the services industry business

Project based solutions delivered in SaaS provide rapid benefits and allow vendors such as NetSuite to go on the offensive into the install bases of larger competitors such as SAP and Oracle.  Case in point, NetSuite’s two acquisitions in the PBS space removes key competitors and provides it with 1000 customers in a growing market centered around project based businesses.  QuickArrow brings key customers such as Symantec, Genesys, Thomson Reuters, Informatica, and SalesForce.com.   Given NetSuite’s track record, one may expect the ERP SaaS leader to continue to make acquisitions to round out its capabilities in Project Based Solutions.  Expect other SaaS competitors and on-premise giants to follow suit as this market heats up and SaaS becomes a preferred delivery option.

Your POV

Are you a QuickArrow or former OpenAir customer and want to share your experiences?  Do you want to learn more about the PBS market?  Interested in speaking at a future conference or event?  Please post or send your POV to rwang0 at gmail dot com or r at softwareinsider dot org.

Copyright © 2009 R Wang. All rights reserved.

Monday’s Musings: Why On-Premise Vendors and SI’s Should Go on the Offense with SaaS

On-premise vendors still see SaaS as a loss leader due to huge ramp up and punishing revenue recognition rules

When it comes to the topic of SaaS, many on-premise vendors appear to be living in denial, hoping that SaaS fails, and/or creating confusion in the market place.  These tactics have merit as a shift to SaaS requires plenty of work with minimal return and a destruction – disruption of the current business model.  In conversations with 61 vendors and building off of SaaS evangelist Jeffrey Kaplan’s post (July 2, 2009, Seeking Alpha – “From the Vendor’s Point of View: Why SaaS Sucks”), vendors who have made this transition or have started the investment put in heavy lifting in these activities must:

  • Re-architect apps
  • Find balance between configuration and optimization of SaaS platform
  • Design product road map and rollout strategy
  • Determine SLA’s
  • Identify a hosting strategy
  • Craft pricing and licensing policies
  • Harmonize SaaS pricing with On-premise and other models
  • Create go to market strategy
  • Alleviate channel conflict with partners, resellers, distributors

After all this work to be ready for SaaS deployments, vendors also discover that FASB SOP 97-2 software revenue recognition rules prohibit them from immediately recognizing multi-year contracts. Even worse, subscription revenue can only be recognized on a month-to-month basis – leading to a long road to profitability.  In fact, vendors such as Lawson, estimated a 7 to 10 year break even period for a full SaaS model.  No wonder Harry Debes was fired up on how SaaS could be a fad in his interview with Victoria Ho at ZD Net last year.  In private, most software executives also echo such sentiments and wholeheartedly agree with his comments about the business model challenges.

Yet, SaaS adoption moves beyond the Tipping Point in 2009

However, the confluence of recessionary forces, stalled innovation from many on-premise software vendors, and success of early SaaS pioneers such as SalesForce.com and NetSuite has put Software-as-a-Service into the mainstream.  Vendors can no longer resist the move to SaaS without negatively impacting their license sales and customer mind share.   Additional facts highlight the shift:

  • Forrester State of Enterprise Software 2009 survey results confirm significant adoption rates from 2008 to 2009. Of 1000 IT executives and decision-makers, 24% were interested/considering, 11% implemented or planning to expand, and 5% piloting SaaS solutions (see Figure 1).
  • Clients continue to vote with their budgets despite marketing FUD by many on-premise vendors on the perils of SaaS. Success Factors‘ win at Siemens for 420,000 employees, Workday‘s win at Flextronics for 240,000 employees, and Ultimate Software’s win at P.F. Chiang’s for 30,000 employees reinforces how SaaS is more than CRM and SMB.
  • Concerns over SaaS have dropped significantly over the past year. Successful deployments mitigate concerns and highlight the attitudinal shift towards acceptance.  Major decreases include integration issues (43%), total cost (31%), lack of customization (31%), complicated pricing models (30%), performance (23%), can’t find the specific application (20%), security (17%), and lock in with existing vendor (17%) (see Figure 2).

Figure 1: Users expect to increase SaaS adoption in 2009

saas-deployment-2009

Source: Forrester

Figure 2.  Concerns over SaaS have dropped significantly over the past year

2009 Enteprise and SMB Survey - SaaS Concerns Declinet

Source: Forrester

Defensive SaaS strategies by vendors miss the opportunity to take market share.

As customer’s continue to demand SaaS solutions for rapid deployment, pay-as-you-go pricing models, and timely innovation, traditional on-premise vendors without a SaaS offering must now explain, defend, or develop their own SaaS story.  Concerns about the impact of SaaS have many vendors in defensive mode.  Defensive strategies have included:

  • Creating counter marketing about SaaS and the viability of the market
  • Responding with hosting options and financing options
  • Building SaaS options for a limited set of popular SaaS solutions such as sales force automation (29%), strategic HCM (29%), and customer service and support (27%) (See Figure 3.)

At first glance, mega vendors such as SAP and Oracle have started with the first two points and are evolving to the third.  They aim to counter the success of Ariba, SalesForce.com, Success Factors, Taleo, Workday, and Ultimate Software with their own offerings.  SAP’s OnDemand for LE release and John Wookey’s ComputerWorld UK interview by Mike Simons, confirms that the strategy will include “CRM on-demand and e-sourcing, with expense management set for a 2010 release.”  Wookey’s approach appears to first shore up areas where SAP customers have been defecting and then worrying about what’s next (see Note 1).  Meanwhile, discussions with Oracle product teams also hint that a release of 5 to 9 SaaS offerings to complement Oracle Siebel CRM OnDemand offerings could be announced soon.  This defensive strategy shores up competitive SaaS solutions such as incentive comp, procurement, and strategic HCM.

Figure 3.  Rate of adoption of key SaaS solutions show significant interest in CRM and other areas

2009 Enterprise and SMB Survey SaaS Interest Areas

Source: Forrester

The bottom line -SaaS gives software vendors and system integrators an opportunity to take market share.

Instead of playing defense, vendors should look at the opportunity to take market share through SaaS.  SaaS vendors and their investors have realized they can target any install base and win by providing compelling functionality.  Why shouldn’t on-premise vendors bite the bullet and go on the offense?  To make this work software vendors would want to take advantage of their partner ecosystems and customers to extend capabilities beyond what’s being delivered in on-premise.  Vendors must make an initial investment in a SaaS/PaaS platform, agile development methodologies, and integration technologies to support hybrid deployment options.  From there, white spaces in the product road map will provide direction into the future opportunities such as vertical and other pivot points that have not been well served.  SAP’s acquisition of Clear Standards for carbon compliance, NetSuite’s acquisition of OpenAir for project based solutions, and Intuit’s acquistion of Entellium for CRM highlights examples of going on the offensive with SaaS.  Of equal importance, system integrators can shift the balance of power and deliver new IP via SaaS solutions while reducing their dependency on the mega vendors.

Recommendations: 7 best practices for crafting a SaaS strategy at an on-premise vendor

Imagine you could start from scratch and build a new software company.  That’s the question I posed to 61 software executives this year.  Most stated they would start with a SaaS deployment option for the scale and the business model.  Now what to do if you are an on-premise vendor?  Answer – build a separate SaaS software division within an on-premise software company.  This could be the next trend among the on-premise vendors for both investment and revenue recognition reasons.  What would be a good strategy:

  1. Reuse similar business process parts as the on-premise product
  2. Harmonize the data model and common objects
  3. Build a brand new RIA based UI and UX
  4. Assume that all data sources will be heterogenous
  5. Design the product to run stand alone
  6. Attack white spaces of new growth in a competitor’s install base
  7. Keep a PaaS platform in mind to attract partners and customers to extend the solution

Your POV.

Totally turned off by SaaS? In the midst of a SaaS strategy? Ready to embark on a SaaS strategy?  If you need assistance, don’t hesitate to reach out?  Please post your point of view here or send me a private email to rwang0 at gmail dot com.

Note 1: The large enterprise (LE) SaaS platform will not come from NetWeaver or SAP’s SME Business by Design (ByD) technology, but come from the acquired Frictionless platform.  While this may leave some SAP customers concerned, Wookey and product super stars Kevin Nix and Peter Lim (of Siebel fame) counter by highlighting where SAP components will be reused and highlighting the home base integration advantage.

As also seen in the July 14th, 2009 SandHill.com”Moving to a SaaS Offensive”

Copyright © 2009 R Wang. All rights reserved.

Wednesday’s Whispers: Corporate Whispers and Monthly Market Trends – June 2009

CORPORATE WHISPERS AND MONTHLY MARKET TRENDS*
Starting this month, we’ll be splitting the trends in Corporate Whispers from the People Whispers series.  Catch the latest monthly random thoughts, trend points, and corporate trends.  Hearing from twitterati, software execs, and industry experts about:

User trends

  • Recent win by SUSEN Software over SAP enhances validity of the used software market in the EU.  Other players like Used Software have battled Microsoft to open up competition in the market.  Many CIO’s hope that Nellie Kroes at the EU will investigate the lack of third party maintenance options and anti-competitive behaviour in some segments of enterprise software (i.e. Oracle DB, SAP, etc.) before her term expires.
  • Hybrid deployment options continue to gain ground.  Conversations with over 101 software decision makers highlight a shift from single source vendor strategies.  Move to support hybrid deployments benefit enterprise service bus and integration providers such as Boomi, Pervasive, and Informatica.
  • Japanese CIO’s finally realizing that they need to break free from their existing ERP software vendor relationships.  SaaS options now in consideration.  Recent advancements by NTT to host Zoho, Siemens’ 420K employee move to Success Factors, and Flextronics 240k employee deal with Workday have shifted perception that SaaS can’t solve large enterprise requirements.
  • Conversations with over 100 EMEA decision makers show a big push to move away from a single source vendor strategy.  Third party maintenance, virtualization, SaaS, Open Source, and BPO top lists of planned initiatives in 2009/2010.
  • Support for Apple Macs in corporate environments gaining significant traction.  Despite shipment gains, lack of real corporate support models (i.e. go to the Apple Store to fix your MacBook) do not engender the backing of corporate IT support departments.

Software vendor and system integrators trends

Your POV

Got a scoop or something to share? What are you hearing in the market?  Please post or send on to rwang0 at gmail dot com and we’ll keep your anonymity.

* Not responsible for any factual errors or omissions.  However, happy to correct any errors upon email receipt.

Copyright © 2009 R Wang. All rights reserved.