Competition Involves Infrastructure
Competition has increased since Oracle successfully acquired PeopleSoft, which was finalized in December. The process was far from pretty, involving court cases and not to mention some bad blood between executives. Now it is the competition's turn to react. Because Oracle's product roadmap does not include active marketing for PeopleSoft and J.D Edwards, the competition, including SAP and Microsoft are wooing existing clients, offering all kinds of incentives to get disconcerted customers to switch.
Part two of the While Oracle and PeopleSoft Are to Fuse, Competitors Ruse--Leaving Customers (Somewhat) Bemused series.
Yet, many will also notice that the battle between Oracle, Microsoft, SAP, and IBM goes far beyond applications. It goes right into the technology stack or an enterprise infrastructure, which is a less visible software layer that lies beneath the applications. It provides databases to store information, and security and data protection to preserve it, and has tools to manage hardware such as servers and storage. The technology stack also includes application servers and other integration applications commonly named middleware, which allow these software products to communicate with each other.
Oracle's acquisition of PeopleSoft, and Project Fusion, an information structure based on modularization and open industry standards, further blurs the lines between applications and infrastructure, causing some pundits to name this emerging software category as "appli-structure". For instance, currently, many PeopleSoft EnterpriseOne customers are running over Microsoft infrastructure technology, for example, running the Microsoft SQL Server database over the Microsoft Windows NT/2000 OS platform. Consequently, there is little doubt that Oracle would like to move those customers to its own technology stack, including Oracle Database, middleware, and development tools, possibly running over Unix or Linux.
On the other hand, SAP has its own infrastructure platform (excluding a database) called SAP NetWeaver which integrates applications and creates new ones that run over the Web. This platform product creates complex services that link programs, data, and scripts found on multiple servers and was initially more amendable to the Java 2 Enterprise Edition (J2EE) framework, which has been embraced by Oracle, Sun Microsystems, and IBM. Lately SAP, however, has been more open to the Microsoft .NET framework (see SAP Weaves Microsoft .NET And IBM WebSphere Into Its ESA Tapestry).
Moreover, at the end of April, during the European SAPPHIRE 2005 user conference, SAP and Microsoft announced the development of their first joint product, code-named Mendocino. Mendocino should "help companies gain a competitive advantage by revolutionizing the way information workers access, analyze, and use enterprise data to make better business decisions". Accordingly, Mendocino will link SAP process functionality directly to Microsoft Office applications, and users will enjoy the familiarity of Microsoft Office as they access SAP's business processes and information. This will be a sharp contrast to current pedestrian ways of flat file and spreadsheet data imports and exports.
With Mendocino, SAP and Microsoft aim to enhance efficiency for information workers, who rely on Microsoft Office as their primary work environment. The product will tie together Office and SAP enterprise software, giving customers greater visibility and use of business information from their desktop. Mendocino should help people avoid wasting time searching for critical corporate information, and reduce the need for specific training on disparate systems. It also stands to maximize the value that customers derive from their existing investments in Microsoft Office and mySAP ERP.
Mendocino is designed to integrate SAP business processes—such as time management, budget monitoring, organizational management, and travel and expense (T&E) management—directly into Microsoft Office. For example, with the new product, information workers should be able to use extended application menus and select process options and information in the SAP-specific smart panel. It should also synchronize information between Microsoft Exchange Server and SAP, retrieve SAP information in Microsoft Excel, and submit data via Microsoft Office InfoPath forms. Microsoft Outlook is likely to be a key user interface (UI) for an enterprise whose processes are driven by events and e-mail alerts. Users can also book an appointment in Outlook and a project within SAP. An e-mailed alert will can bring up the relevant view within SAP's portal interface, which will appear as a pane within Outlook. As a result, users can quickly resolve the issue or execute a workflow. The alert will be delivered with enough contextual information for users to click directly through to other business processes to resolve the problem.
Select customers will have early access to this new product in the fourth quarter of 2005. As a result, systems once accessed by a handful of SAP power users will now be available to thousands of employees who are familiar with the Microsoft Office environment. The roll-out of these new capabilities will likely require little training, have a high user acceptance rate, and quickly boost productivity across the organization. As part of this expanded partnership, SAP and Microsoft have agreed to resell the complete solution, meaning SAP will resell Microsoft Office, and Microsoft will resell licenses to SAP's upcoming business process platform, which will deliver ready-to-run business processes accessible as enterprise services.
Available in 2006, the business process platform will serve as the foundation for the creation and deployment of composite applications such as Mendocino. Microsoft and SAP have been working together to deliver enterprise business value to customers for more than a decade. More than 46,000 SAP installations run on Microsoft Windows—more than on all other platforms combined, while almost two-thirds of all new SAP installations are deployed on Microsoft Windows.
This comes on the heels of Microsoft's January announcement about the Portal Development Kit for Microsoft .NET (PDK for .NET). Located within SAP NetWeaver, it will deliver on their ongoing commitment to help enterprises maximize their business-critical SAP solution investments on the Windows platform. With the new solution, which is a direct result of the work SAP is doing through the Microsoft Visual Studio Industry Partner (VSIP) program, SAP customers should be able to achieve lower costs and reduce complexity through close integration of SAP NetWeaver and Visual Studio.NET 2003.
Provided as an add-in to the Microsoft Visual Studio .NET 2003 integrated development environment, PDK for .NET should enable SAP customers to build content for the SAP Enterprise Portal, the portal component of SAP NetWeaver. Any of the supported development languages, including Microsoft Visual C# and Microsoft Visual Basic.NET can be used. Using PDK for .NET, developers and SAP customers should be able to fully use the capabilities of the Microsoft .NET framework to build interactive business content for the SAP Enterprise Portal. This would leverage key portal services, such as user management, SAP Single Sign On (SAP SSO), and specialized content. As a result, developers can build the business content UI using any combination of the standard, SAP .NET controls, and the UI controls of SAP NetWeaver. .NET portal business content can then be easily deployed through SAP NetWeaver and the Portal Runtime for .NET, which processes the .NET business content code and integrates the results in SAP Enterprise Portal.
In addition to the announcement made by SAP and Microsoft, the SAPPHIRE 2005 conference also brought a similar announcement between SAP and another competitor. During the event, SAP and IBM unveiled an optimized version of the DB2 Universal Database to help customers with configuration, enhance performance, and increase the availability of their SAP solutions running on DB2. Working closely together, SAP and IBM have integrated new features into DB2 version 8.2.2, that should enhance deployment, maintenance, and availability in a scalable architecture for SAP customers. The vendors claim that customers using the new DB2 offering will also achieve improved performance over DB2's already impressive benchmark results, and will benefit from advanced autonomic capabilities, such as DB2's "SAP tuner" feature that was developed to auto-configure DB2 in an SAP solutions environment. The optimized DB2 offering for SAP solutions and ESA is tailored for both new and existing SAP application developers and customers—a group that reportedly includes more than 4,400 joint customers worldwide who are running their SAP solutions on DB2. This is also the first time that IBM has ever tailored DB2 for a specific enterprise applications provider. The database's relatively low operation and maintenance costs will allow SAP customers to recognize a significantly lower total cost of ownership (TCO).
IBM and SAP currently share a broad partnership and the introduction of DB2 8.2.2 marks the latest milestone. DB2 is optimized for the largest SAP enterprise implementations, in which high volumes of data and peak performance are required, as well as for less demanding mySAP All-in-One and SAP Business One installations. IBM and SAP will offer worldwide support for DB2 8.2.2 through jointly staffed integration and competency centers and support will include the extension of IBM maintenance to complement the SAP maintenance plan. To extend compatibility and optimized performance to these developers and customers, IBM and SAP pledge to collaborate on future enhancements and innovations for future product releases.
SAP is proving itself as a partner-friendly vendor, even with competitors, thus further differentiating itself from Oracle, whose alliances with Microsoft and IBM seem far-fetched at this stage. SAP also announced a partnership with Macromedia, which was, at about the same time, acquired by Adobe, another close partner of SAP. The plan is to extend SAP NetWeaver with the Macromedia Flex application framework to give organizations the ability to create rich interfaces for SAP solutions, including customer-facing SAP enterprise portal-based applications. To that end, the next release of SAP NetWeaver Visual Composer will include Flex technology and will be made available to all existing SAP NetWeaver customers. SAP NetWeaver Visual Composer with Flex technology should give programmers the ability to deliver applications that combine the interactivity and expressive power of desktop software with the reach of SAP's enterprise solutions, all in a "zero footprint" client application. Additionally, Macromedia has certified SAP NetWeaver as a supported platform for Flex. With this support, enterprise developers, system integrators (SI), and independent software vendors (ISV) can leverage the standards-based programming methodologies of Flex to build customizable, flexible applications on top of the SAP NetWeaver platform.
SAP NetWeaver Visual Composer is a model-driven tool aimed at business analysts and developers for the code-free creation of composite applications. By combining the SAP NetWeaver platform and SAP NetWeaver Visual Composer with Flex, the leading presentation-tier solution for enterprise-rich Internet applications, users should be able to visually design application logic and process flows and then provide more effective, engaging end user experiences. Through this partnership, SAP NetWeaver Visual Composer users can develop rich graphical interfaces that extend current investments in their SAP NetWeaver infrastructure by using Flex technology. As a result, businesses can gain credible, clear, and comprehensive business insights through new analytics solutions. The partnership is aimed at providing context to analytics, since by using the new visual composer, non-technical business analysts can now create dashboards that provide context to an alert. For example, if an alert says a customer's order is blocked by the credit department, then the dashboard can be configured to automatically show the history of the relationship with that customer.
This is Part Three of an eight-part note.
Part One detailed the Event.
Part Two presented the competitive response of SAP and Microsoft.
Part Four is a reality check.
Part Five will look at what Oracle gains.
Part Six will cover Oracle's acquisition history.
Part Seven is the SAP factor. Part Eight will discuss challenges and make recommendations.
Other Competitors—Lawson, QAD, Deltek
Like SAP, IBM, and Microsoft, other Oracle competitors have also sprung into action. On January 17, Lawson Software, an ERP competitor focusing on service industries, including the US healthcare sector, (of which Lawson claims a 75 percent market share), also announced a competitive program. It offers a complete migration program for PeopleSoft/J.D. Edwards customers seeking a long-term enterprise applications partner for their preferred IBM eServer iSeries platform. Incidentally, Lawson Software was also a key witness during Oracle's antitrust trial and it may be ironic that Lawson's existence helped Oracle's claim that the market would not be reduced to a duopoly of SAP and Oracle. In other words, the legitimate competition for Oracle still may extended well beyond SAP owing to the likes of Lawson.
Lawson says its migration program will drive immediate savings to companies that switch from Oracle support. They will find significant life cycle return on investment (ROI) by rapidly migrating to Lawson Release 8 Web-based business applications for IBM iSeries POWER5 and WebSphere-based systems. In addition to product upgrades, the program features business and technical consulting services offered by Lawson and CIBER, an IBM Premier Business Partner. This service allows PeopleSoft/J.D. Edwards World and OneWorld customers to move to Web and self-service technologies while consolidating all of their enterprise applications onto a single iSeries system. The vendor believes these migrations will typically be completed in less than twelve months, during which time PeopleSoft World and OneWorld maintenance support will be available at a favorable, albeit an unspecified discount. Unlike SAP or Microsoft, Lawson already has a significant iSeries customer base and long-term commitment to the platform, and unlike those competitors, Lawson is not asking the J.D. Edwards customers to migrate off iSeries. For more information on Lawson, see Lawson Software-IPO and Several Acquisitions After.
Among all of these migration strategies and offers, an interesting twist has come from QAD, a manufacturing focused mid-market ERP provider. Currently manufacturers of automotive, consumer products, electronics, food and beverage, industrial and medical products use QAD applications at approximately 5,300 licensed sites in more than 90 countries and in as many as 26 languages. The vendors executives were recently in Denver, Colorado (US) to open a new office and host a job fair targeting former PeopleSoft employees. The company began its campaign in December by running employment ads in Denver newspapers after Oracle's announced its acquisition of PeopleSoft. J.D. Edwards, a Denvor-grown software company, employed 2,500 workers at the time it was acquired by PeopleSoft in mid 2003. When it was acquired by PeopleSoft, 500 J.D. Edwards workers, mostly corporate managers, were laid off. Similarly, Oracle has reportedly laid off about another 200 to 600 former J.D. Edwards workers, mainly in the sales and marketing areas.
QAD's Denver office will reportedly begin with ten employees, mainly sales and marketing, but could reach fifty in six months. The office will focus on adding new clients in Denver and a swath of territory between QAD's offices in Santa Barbara, California and Chicago, Illinois (US). QAD has already established more than twenty-five major offices and a team of services professionals around the world to design, deploy, and support QAD solutions globally. With a wealth of experience resolving complex manufacturing problems worldwide, QAD support centers, located in the US, UK, Australia, the Netherlands, Mexico, Spain, and Hong Kong, have received HDI's Support Center Certification (SCC). QAD is the first company ever to achieve global certification from HDI, the world's largest membership association for service and support professionals.
Continuing to maneuver in the post-Oracle merger market, at the end of February, QAD also announced that it has created a package of software, implementation, and trade-in incentives for former JD Edwards' World and EnterpriseOne users that is designed to give the most value from their ERP software deployments, both now and in the future. According to QAD, former JD Edwards customers currently have three choices: 1) wait for Oracle to deliver the Project Fusion, 2) complicate their enterprises by migrating to another mega-suite vendor, such as SAP, or 3) innovate what they already have by adopting QAD software with advanced manufacturing capabilities.
QAD's comprehensive offer includes more than financial incentives. It provides an assessment of business processes and systems based on QAD Global Services' methodology to determine the most effective solution and implementation plan, and to help minimize risk. QAD software offers manufacturers the advantage of enhancing their legacy systems fairly quickly with advanced manufacturing functionality, such as QAD Lean Manufacturing, QAD SupplyVisualization, and QAD EDI (Electronic Data Interchange) ECommerce. These and other QAD applications should help manufacturers better align supply with demand, and support advanced capabilities, such as vendor-managed inventory (VMI) and advanced production techniques, such as lean manufacturing and just-in-time (JIT) sequencing.
QAD applications are designed with specific functionality for the six manufacturing markets the company serves, and helps customers automate manufacturing operations, streamline supply chain communication, implement advanced manufacturing techniques, and improve responsiveness to demand. The QAD MFG/PRO ERP platform and its accompanying solutions also feature open, industry standards-based architecture that allows manufacturers to standardize and centralize functions shared by all facilities. At the same time, it preserves operational flexibility to accommodate production models, plant locations, and the local business and government requirements at each site. For more information on QAD, see QAD Pulling Through, Patiently but Passionately.
Also trying to "keep up with the Jones", Deltek announced its competitive offering. On March 8, the ERP vendor-of-choice for over 8,000 project-based businesses and professional services firms, announced a complete conversion plan for PeopleSoft and J.D. Edwards customers seeking an enterprise applications partner for their project-based front and back-office solutions platform. The Deltek Enterprise, Deltek Vision, and Deltek GCS Premier product lines offer a myriad of front- and back-office applications including accounting, billing, resource planning, budgeting and control, BI, customer relationship management (CRM) and proposal automation, employee time and expense, HR management, procurement and materials management, and project management.
The plan is open until December 31, 2005 and will likely drive immediate savings for customers by offering 30 percent off the cost of the software platform and free maintenance support for a full year, upon signing. In addition to implementing best-of-breed, project-based accounting applications via the Deltek Enterprise suite, customers may also take advantage of consulting services offered by Deltek professional services industry experts who have in-depth experience converting both PeopleSoft and J.D. Edwards customers to Deltek solutions. The vendor believes conversions will average between three to twelve months and currently, customers on Deltek's support plan register a 98 percent satisfaction rating. For more information on Deltek, see Deltek Remains the Master of Its Selected Few Domains.
Competitive business is based on action and reaction and the software enterprise market is clearly no exception. Oracle also offers migration license discounts. The vendor whose actions have prompted these new, competitive programs, offers free licenses for like-to-like PeopleSoft products' migrations to Oracle's counterpart ones.
The Resulting Vendor Landscape
Traditionally less aggressive, these vendors are now sending a more assertive marketing message that seems to be resonating better with the market. Through clear positioning, they have articulated the split between those vendors that try to be all things to all people, and those that focus on a narrow and credible niche. QAD, Lawson, and Deltek logically belong to the latter.
The first group are tier 1, market-leading, "over-evolved mega-suite" vendors like SAP and Oracle, that have humongous caches of cash, and large research and development (R&D), sales and marketing resources. They have global coverage and strong corporate-level financial and HR modules, but their implementations—due to complexity of overblown, spaghetti-like code—often lack benefits and entail an element of risk (see What's Wrong With Application Software? Businesses Really Are Unique - One Size Can Never Fit All).
Another way these giants try to be all things to all people is by acquiring a number of fading, marginalized, or distressed vendors to "milk" their associated service and maintenance fees from a plethora of systems, some of which have long been past their prime. QAD calls such companies, which include SSA Global, Infor Global Solutions, Geac Computers, Epicor, and even Oracle, (in part because of its acquisition of Retek and PeopleSoft/J.D. Edwards) "the rollups." QAD explains that while such a strategy may currently work in terms of profits and market share, it leaves many questions unanswered, such as how these amalgamated vendors will move their multiple solutions forward.
Moreover, while these vendors appear to have assembled an impressive collection of software that should, in theory, be able to meet the needs of any organization, they face a nightmarish integration process. Consequently, it could take years before a cohesive product strategy is ever presented, let alone an integrated and collaborative collection of software applications. Thus, the big question is whether any of these mergers have made these companies better able to compete with various best of breed vendors, by offering a truly complete suite of ERP and SCM solutions.
Finally, there is a group QAD calls "regional" or "multinational" enterprise vendors. They have a strong presence in one or another distinct geographic location. Made2Manage Systems, Encompix, Trakware or Relevant Business Systems are regional, and MBS, Exact Software, and Sage Group/Best Software are considered multinational. These vendors often have rather loose relationships with their affiliates in other parts of the world, and disparate regions often work on diverse code bases, which will present a real hurdle as globalization continues.
This would leave QAD in a group of focused "organic grower" vendors that have a single-code, flexible product, and decent geographic coverage. Similarly, IFS, Lawson, Glovia, SYSPRO, Ross Systems, Intentia, IBS, Cincom Systems, and Intuitive Manufacturing Systems also belong in this category, albeit QAD cites that some of these vendors have dubious or subdued new revenue streams, stressed financial situations, or support for a limited selection of platforms. Some are not direct competitors of QAD, as QAD focuses on repetitive manufacturing rather than on job shops and engineer-to-order (ETO) environments.
Thus there are aggressive consolidators, whose business models are based on acquiring software vendors and placing their packages into a common portfolio, and organic growers, which grow through few acquisitions, if any, and stay close to their roots with a single platform focus. However, another approach is emerging and may be one that may further reshape the ERP mid-market landscape in the coming years. Vendors such as Adonix, Unit 4 Agresso, and Deltek who have quietly built successful businesses by using strategies from both the consolidators and organic growers. This approach is aligned towards the needs of mid-market buyers, an area where SAP and Oracle have had limited success. The competition for the underserved mid-market continues to heat up as a different breeds of suppliers occupies the landscape of vendors vying for a market share. But, history has demonstrated that these companies exhibit certain buying characteristics that must be understood and effectively addressed before a software company is successful, regardless of its size.
IBM Takes the SOMA Approach
Seemingly unconcerned by these rumbling in the market, IBM is maintaining its applications agnosticism. It recently announced a new service to help companies build capabilities to support their business goals, by freeing overstretched IT budgets, thus allowing companies to focus on growth opportunities. Offered through IBM Global Services (IGS), the new Service Oriented Modeling and Architecture (SOMA) is IBM's approach to solving a significant problem: how to create a consistent way for businesses to develop more flexible technology that provides the maximum possible return.
This program should help companies implement a service oriented architecture (SOA), an evolution in distributed computing that is based on industry standards. It is a framework that should enable enterprises to evolve into on-demand businesses that integrate data and applications with customers, partners, and suppliers (for more information, see Understanding SOA, Web Services, BPM, BPEL, and More). As a result, SOMA aims at mapping a corporation's underlying applications and infrastructure with business processes related to a particular area, such as retail banking in a financial institution.
Justifying its move in this direction, IBM cites a recent survey of CEOs, which has found that growth is again the number one business priority, overtaking cost-cutting. However, IT departments in most organizations are not aligned to quickly implement new projects that can bring growth. Despite years of major technological advances in processing power, systems utilization, and autonomic software, most enterprises still reportedly allocate more than 80 percent of IT budgets to maintaining existing systems. For a detailed discussion of how vendors are dealing with this problem, see Achieving Growth: New Accounts versus Up-Selling to Existing Accounts.
The enterprise applications market is indisputably a mature and fairly saturated field, and all players must adjust their investment strategies from those of the growing market in the 1990s. They must painstakingly find a perfect balance between cultivating the install base versus zealously hitching new customers. Every vendor, including Oracle with its absorption of PeopleSoft, has to strike a perfect balance between being hunters that pursue new accounts, and being farmers that nurture existing customers. For a more pertinent discussion, see The Reinvention of Software Vendors and End User Value.
How The "Big Few" Will Cope
The "Big Few," who are vendors with over 20,000 customers and a revenue of over $1 billion (USD), will have to establish a business model that focuses on the existing customer base. Their primary revenue stream will likely be support and maintenance, and they must focus on operational efficiency. They will also try to sell additional software and services to the base, and, in case of the likes of Oracle, SAP, IBM or Microsoft, will sell more infrastructure platform components. A large customer base also gives the surviving vendors the economy of scale for support, services, and technology investments.
But how large of a customer base will prove large enough? The top two leaders, SAP and Oracle, now claim nearly 25,000 and 23,000 customers respectively, many of which are large and mid-size global enterprises. Infor and SSA Global currently claim around 17,000 each, which are primarily mid-size global customers. This number is to likely grow through many more acquisitions that these companies are eyeing, and will likely result in new memberships to Big Few club.
With industry consolidation, we naturally see apprehension on the part of end user companies, especially given that many PeopleSoft and especially former J.D. Edwards users are concerned about Oracle's plans. Until recently Oracle has made rather unfriendly comments about its former competitor's products. First impressions tend to stick with the PeopleSoft/J.D. Edwards faithful, plus there is a general guardedness to flip-flop positions, (as seen in the US' recent presidential election). We also see increased activity in the vendor community, as competing vendors use these consolidation to replace existing systems with their products. However, for both users and vendors, what does the efforts by these "replacement vendors" mean?
Acquisitions have been, and will be, a constant occurrence in the future, and it might not be justifiable to jump ship every time one occurs. Replacing ERP systems is often compared to brain surgery—its should only to be performed if the patient is dying or will be seriously incapacitated without the operation. Hence, the installed base and current customers are generally a conservative, risk-averse crowd, and, unless flagrantly pushed away (which is not likely to happen any time soon), will take a wait-and-see approach with Oracle. For more pertinent information and discussion, see The Old ERP Dilemma—Should We Install The New Release?, The Old ERP Dilemma—The Refresh Option and The "Old ERP" Dilemma: Replace or Add-on.
This concludes Part Three of an eight-part note.
Part One detailed the event.
Part Two presented the competitive response of SAP and Microsoft.
Part Four is a reality check.
Part Five will look at what Oracle gains.
Part Six will cover Oracle's acquisition history.
Part Seven is the SAP factor.
Part Eight will discuss challenges and make recommendations.
About the Authors
Olin Thompson is a principal of Process ERP Partners. He has over twenty-five years experience as an executive in the software industry. Thompson has been called "the Father of Process ERP." He is a frequent author and an award-winning speaker on topics of gaining value from ERP, SCP, e-commerce, and the impact of technology on industry.
He can be reached at Olin@ProcessERP.com
Predrag Jakovljevic is a research director with TechnologyEvaluation.com (TEC), with a focus on the enterprise applications market. He has nearly twenty years of manufacturing industry experience, including several years as a power user of IT/ERP, as well as being a consultant/implementer and market analyst. He holds a bachelor's degree in mechanical engineering from the University of Belgrade, Yugoslavia, and he has also been certified in production and inventory management (CPIM) and in integrated resources management (CIRM) by APICS.