Michael Fauscette

Happy Holidays

To all of you I wish you a very happy holiday season! Enjoy some rest, unplug, spend time with friends & family and take some time for yourself. I think that we have become this always "on" blend of work and play that can be very productive, but at its extreme can take a toll on your soul. We Tweet, we blog, we interact on Facebook and we keep up our day jobs; and by the way we do this with passion, with love and with dedication. I'm blessed because I am a part of this community, and I truly appreciate what each of you have offered me. Take that time for yourself, reflect on this past year, think about next year, recharge and come back ready to do this even better in 2009!

Happy Holidays!

Michael

happy holidays, messages

Oracle reports Q2 2009 results

Last Thurs, 12/18 Oracle released its 2nd Quarter 2009 results to a wary and attentive audience. You see, because of Oracle's prominence in the enterprise software market, we all needed to hear "how bad" the economic crisis was hitting the software industry. Without recapping the detailed financials (find those here) basically what we heard was lower than its earlier guidance but above what most people expected. Overall revenues were up, operating margin way above expectations, maintenance up (excluding currency impact) and new software licenses slightly down...if you need more financial analysis there are plenty of other places to find it (try here). Now let's look at what it really means from a market analysis perspective.

First let's just look at this from a historical perspective. I've examined financial trends of the last few economic events and in previous incidents the software market has seen the bottom of it's drop down hit around 3-4 months (1 quarter or more) after "ground zero". Services tends to lag 2 quarters, which makes sense, the services contracts that are executing are not usually pulled, instead often additional phases of a project might be put on hold or new work could fall off. Anyway, if this trend holds true, and we use Sept 2008 as ground zero (Lehman Bros failure) then we should see the bottom of the slide down around December - Jan 2009. But there's another factor to consider, its the end of the year (or quarter) for many companies, which often results in a rush to spend budgets. We seem to be seeing that this month and so the market may see a flat slide that moves the bottom of the downward trend to Jan - Feb.

In the 2001 bubble collapse crisis, Oracle held up fairly well. In the current situation, Oracle is even better placed than 2002 to survive in the economic crisis in many ways. they offer a broad portfolio of products, including many industry vertical focused applications, middleware and database (not to mention the new Database machine), so they can shift focus internally to areas of software and verticals that have a higher probability of growth, and de-emphasize areas that are hit the hardest. The also have a much larger maintenance base now due to all the acquisitions, which not only offers financial stability but also is a fertile market for cross sell / up sell tactics. Out of all the enterprise apps vendors, Oracle seems the best set up to deal with this crisis.

The other interesting observation from the Oracle call are the three major areas that were highlighted: 1. the growing pipeline for the new Database "Machine" (they sold the 1st one in the quarter), 2. the strength and growth in the middleware market (they claim to be as large or perhaps larger than IBM now in middleware) and 3. key wins of the Oracle CRM On Demand offering against Salesforce.com. For me this is a critical shift in strategy as Oracle has historically been fairly quiet on SaaS and their on demand business. I suspect that they are now being aggressive in pursuing the SaaS business and will announce some new offerings as next year plays out. As I said before, I believe SaaS provides one of the more obvious opportunities during the down economy (see my post here) and now it looks like Oracle plans to take advantage of that opportunity.

ERP, financial crisis, Oracle, SaaS, Software

Effective Channel management through the financial crisis

At our Software Channels council meeting a couple of weeks ago I shared some channel lessons learned from the last economic down turn (think bursting Bubbles), and also facilitated a discussion on the topic. I observed some ah, interesting approaches and tactics by vendors during 2001-2002, and yes its understandable that desperate times sometimes call for desperate measures but I found myself in the "shaking my head at the crazy thing they did" and what did they think that would do to our partners more than a few times. My point is that we need to learn from the mistakes of the past, especially when it comes to managing an effective channel, and try to avoid some of the craziness this time. So here are a few things that we discussed in the meeting and that I've learned about SW channel and effective management:

• First, don't forget that your "partner" is a business person whose first responsibility is to their OWN business, not yours.
• The "shiny object" syndrome - you've invested quite a bit of time and money in getting your channel to focus on something specific, maybe its a specific industry vertical or a specific product line, whatever it is, in many cases the business plans of vendors have included getting its channel partners to FOCUS. Unfortunately in an economic focus can be one of the first things to go away when your partner is worried about business survival. Its very easy for a VAR to start taking on ANY work they can find. What can you do? Remember the focus and make sure your incentive plans are designed to reward focus for one thing...and design promotions to reward focus, make sure training is there and being consumed as well.
• "Whip-saw" promotions - The current economic climate is very tough and getting sales for most software vendors (and partners) will be tough for the next couple of years but don't fall into a trap that I've often seen from vendors when they get desperate to figure out ANY way to generate revenue; that is start throwing promotions around, changing mid-quarter, mid-month, or even building promotions that cause internal competition among product lines. Look at this from the partner perspective, not only is it almost impossible to manage that many promo changes (its often almost impossible to decipher and manage your promotions in good times, little lone now). but there is a thing called a sales cycle and you are asking your VARs to focus on the business they have tried to build over the last few years. I've seen this happen so many times, a VAR has a very good prospect, they put together a reasonable proposal and before the deal closes the vendor changes the promotion, maybe its a new 2 for 1 offer, the prospect sees it and not only does the deal shrink but the VAR may loose credibility with its customer (or worse loose the deal because of the damage done to the relationship). Remember when you wag your tail there's a bunch of businesses out there on the tip going for a thrill ride...stay the course, build good, reasonable promotions and give them a chance to work.
• Remember 2001/2002, how many partners did you loose that went out of business or defected? There will be fall out, don't doubt it. If you have to cut costs, and I suspect most of you will, then prioritize to keep your most loyal partners healthy. They will be around when things get good again and they will stick with you through the next crisis.
• It's about MARGIN, not revenue. Yes I know that as vendor sales teams (both direct and indirect) we're mostly incented on revenue, well it doesn't really work that way for a small business. Most of your VARs are watching the bottom line way more than the top line...what's left after they pay their costs, if its $0 (or close to it) why are they in business? If you want to help the small or mid-size VAR, come up with a way for them to increase profit, and revenue will follow.
• Times are hard, you and your partners may have to adjust your business models to meet changing customer needs and desires. If customers can't spend capital or get financing then offer them a subscription (from their operating budget), or come up with something else to help customers buy. See my post on SaaS and open source software and the crisis.
• If you're a SaaS vendor perhaps you need to look for some non-traditional distribution partners. see this post
• Or get creative with your partnerships and find ways for you and your VARs to expand. Here's a write up on an innovative partnership between Netsuite and HP that does just that.

There are a lot of best practices out there, I've seen some very innovative new ideas over the last few years. That said. you have to remember the lessons from the past...

financial crisis, partner, SaaS, SaaS, Software, VAR

Open source software, will the financial crisis drive adoption in a significant way?

I've spent quite a bit of time talking about the impact of the financial crisis on the software industry, no surprise, it's a top of mind topic. If you've read my post on the crisis and my take on the growth of SaaS because of the economic factors you'll know that although times are indeed bad for the industry there are some bright spots. In these conversations open source software (OSS) often comes up. The question of course, is will OSS benefit in a similar way to SaaS, with the crisis driving more mainstream adoption? It's a great question and one that I've thought about quite a bit. On one had it seems simple, why wouldn't customers seek out more economical ways of consuming technology? But...on the other, when it comes to OSS the answers have never been simple.

IDC recently conducted an extensive end user survey on OSS adoption. The survey findings are extensive and can be found in two parts, part 1 already published as IDC Doc# 215033 and part 2 coming out next week as IDC Doc #215185. I won't rehash those findings, which compare a similar survey conducted in 2007 to the post 2008 crisis events of Sept results, but there are a few data points that are worth considering related to the current topic. The first interesting data points, the key inhibitors to adoption in the 2007 survey, availability of support and the risk of copyright / patent infringement have completely reversed perception and are considered drivers of adoption in the 2008 survey (I'd say good job OSS vendors for turning these two around!!). In the 2008 survey over 50% of the respondents allocated 10-24% of budget in 2008 (in 2007 over 50% were less than 10%). I can go on here, but you get the idea. End users seem to be much more open to using OSS, although the greatest growth is in the system infrastructure software and applications (away from app development and deployment OSS). SO, the conclusion, well, I guess we'll have to see what next year brings, but in my opinion, if the OSS vendors can continue to turn perceptions in a positive way, 2009 could be a significant turning point for OSS adoption. I also believe that if the current growth of business process outsourcing (BPO) continues, a secondary OSS market could catch fire as BPO providers look for the lowest cost alternatives in an increasingly competitive market driven by extremely cost conscious customers.

financial crisis, open source, SaaS, Software, start up