Michael Fauscette

IDC announces "Innovative Top Ten" Software Company Awards

My group at IDC, Software Business Solutions, is co-sponsoring a process to identify the Top Ten innovators in one of three markets, applications (my group), application development and deployment and information access. We are inviting qualifying independent software vendors to participate in the first-ever "Innovative Top 10" ranking which will be published by IDC. We will examine how small and medium vendors are leveraging innovative business models around key trends to survive and thrive in a time of economic uncertainty.

Benefits to Participants:

• IDC will issue a press release for each of the three market areas listing the "Innovative Top 10" companies exemplifying trend innovation.

• IDC will publish a document featuring each of these three "Innovative Top 10" lists which will be accessible/viewed by IDC clients subscribing to a related software program.

• "Innovative Top 10" companies can issue their own press release announcing their inclusion in this high profile IDC ranking.

• Companies completing the survey will be considered for publication in IDC's Private Vendor Watch program which provides profiles of emerging private IT companies, their corporate strategies, technologies, and partners. (Note: additional survey follow-up may be needed to complete this profile)

There are different criteria for each of the three market areas, here are the ones for applications:

APPLICATIONS SURVEY CRITERIA

- Companies must have revenue between $5 million and $100 million for the trailing 12 month period

Companies must also meet one or more of the following criteria:

- An ISV generating at least 50% of total revenue from an application built and deployed on platform as a service (PaaS)

- At least 50% of total revenue from software as a service (SaaS) applications

- At least 50% of total revenue generated from open source software (OSS) or services around OSS

- Substantial revenue from one or a combination of:

   * Enterprise 2.0 solution

   * Social CRM solution

   * Partner 2.0 / Social PRM solution

APPLICATIONS TOP TRENDS

This ranking will take into account the key trends listed below. Respondents will be asked to explain how their organization is addressing one or more of these opportunities in an innovative way and explain the resulting impact.

1.) Acceleration of SaaS, BPO and open source over traditional on-premise software.

2.) New business models for software use by service providers (software-within-a-service).

3.) Web 2.0-like functionality moves into the enterprise (e2.0).

To Participate

To learn more about the survey criteria, top trends and to access the web form visit this page.

Methodology and Judging Process

1. A group panel consisting of key analysts in each area (software applications, application development and

deployment, and information access) will review all submissions and narrow them to the top 20 for their

area.

2. An executive panel will then review the top 20 for each area and select the final "Innovative Top 10"

emerging players for software applications, application development and deployment and information

access.

Schedule:

• Survey Responses Due: April 30, 2009

• Judging Completed: May, 2009

• Rankings Announced: June, 2009

• IDC "Innovative Top 10" Documents Published: July, 2009

Note: This schedule is subject to change

Good luck!!

Twitter gains salesforce.com support, anticipating the next great thing?

Welcome Mary Wardley with this guest post. Mary is IDC's vice president of CRM and Applications research in my Software Business Solutions Group. Catch up with her on Twitter @mwardley.

This week Twitter took another giant step up the credibility ladder with salesforce.com's addition of Salesforce CRM for Twitter to their Service Cloud offering. The productized solution from salesforce.com propels and enhances Twitter's presence in the enterprise application architecture of tomorrow. The micro-blogging site is quickly becoming one of the leading 'go-to' locations on the Web for expressing yourself, quickly and easily, particularly if you have a question or issue that needs to be solved. While major brands such as Comcast, Dell, and JetBlue have made the news in their use of monitoring the facility for customer issues, it has been a very manual process. This is one of the first 'For Twitter' products that helps bring this information back from the 'cloud' into enterprise applications for actionable responses.

The January 2009 announcement of the Service Cloud (See this blog's post from January 15th) was the first significant step in turning the orientation of customer service from one of complacency where organizations wait for customers to come find them with their problem to seeking out customer issues in the great Cloud known as the Internet. That first step from salesforce.com established a requirement to address customer activity tracking in the Cloud. They started with Amazon, Google and facebook support and now this week added Twitter. The Salesforce CRM for Twitter capability will allow Service Cloud users to search through Tweets to find relevant entries, to then monitor those entries, join the conversation and ultimately respond to the request or issue either exclusively to the initiator or to the entire stream of users concerned about that topic.

On March 5^th in this blog post I advocated that enterprise applications vendors figure out how to solve the problem of capturing information such as Twitter. The example was the Governor of MA's office. What this newly announced product from salesforce.com does that is so important is that it allows salesforce.com's service offering to join the two worlds of the organization and the Internet. While many end user organizations have seen the opportunity and requirement to monitor and interact with the Web 2.0 world, many of these new initiatives are developing into Web 2.0 silos and we know that silos are BAD. The organization needs to know about what's going on in the Cloud, particularly if it is with an established customer – and vice versa. Salesforce CRM for Twitter adds a Twitter tab to the salesforce.com screen and enables 'Tweet-to-Case' capability which will allow the agent to follow up with the customer with a Tweet, by phone or other channel. In this way the case can be tracked and ultimately it will join the other customer information upon which analytics can be performed.

Now that salesforce.com rose to my challenge, I have a new problem for them. Today it's Twitter but ultimately, it's less important that it's Twitter and more important that the access to these individuals through an application architecture be completed. While we talk about the social graph in terms of individuals there is an analogous technological graph that needs to completed in the background. Give the people a chance to speak and they take advantage of it – everywhere and anywhere. The challenge to all technology providers is insuring that their architecture is flexible enough to move quickly to take advantage of whatever or wherever this is happening. Today it's Twitter, but only a few short years ago everyone was talking about mySpace. That almost seems passé now. These sites for expression are nomadic. A few gather, there's excitement, more folks (customers) congregate, they build a base, they establish rules of engagement but then 'wait!' something new looks interesting and their off! Salesforce.com was onto it when they adopted the Cloud as their ubiquitous nomenclature and synonym for the Internet. The cloud is an amorphous arena out of which phantasms begin to appear and ultimately coalesce into fully formed shapes. This will happen more rather than less and technology vendors need to construct their architecture to be able to respond and take advantage of it.

Will the economic crisis normalize software pricing?...depends on what you mean by normal

Welcome Amy Konary with this guest post. Amy is the IDC Research Director for SW Pricing and Licensing Program in my Software Business Solutions Group. Catch up with Amy on Twitter: @akonary.

This is my first ever blog post, and I am looking forward to doing many more. I recently had dinner with Pat McGovern, founder and Chairman of IDG and IDC, to celebrate my 10th anniversary at IDC. It turns out that Pat is an avid fan of blogs, reads several each day, and sees them as a great vehicle for thought leadership and opinion. I agree with Pat, and I too read several blog posts a day. As an industry analyst, I write constantly and am very excited to communicate and collaborate with all of you through blogs like this one.

So, while communication channels for IT research may change, one constant in the software industry is customer discontent with software pricing. (Almost) since the beginning of time, software customers have complained about software pricing and licensing models. Customers believe they have been forced to buy more software than they need or use. They are rightly concerned about software cost in light of new technology scenarios such as virtual environments and cloud computing. And, they dislike complex pricing models almost as much as inflexible models, making it almost impossible for vendors to come up an approach that satisfies every customer need. When it comes to software, the price just never seems to be right, unless, of course, it's free. But nothing is ever really free.


This isn’t to say that customers have not been justified in their angst--truly, they are. It's just that in the past, there really wasn't much customers could do besides grumble. The vendors held most of the cards, and kept their software pricing models hidden away and so obtuse that it was hard for customers to take any concrete action.

In the last few months, customer discontent with software pricing has reached a fever pitch, and this time the discourse has led to action. Customers are executing on strategies to renegotiate contracts in order to get lower prices and/or more favorable terms, or even cutting software or services altogether. Software license discounts have been the norm in the industry for some time, but recently this analyst has heard of customers negotiating discounts of 90% and above. And, though software maintenance used to be untouchable by customers looking for discounts, that is no longer the case.

Besides being a sign of the times, are the vendor concessions on software price a sign of something bigger? The terms "normalize" and "level-set" are tossed about these days to talk about what these price cuts might eventually lead to, but I don't think these are appropriate descriptors. I agree that tough times will force a much better alignment of price/value that we've ever seen in the software industry. But this would be far from normal. For years, "normal" in the software industry has meant a (almost paralyzing) high up-front license cost for software installed on-premise followed by large ongoing maintenance fee. Normal has meant super-high margins for software vendors and customers that feel bullied by aggressive sales tactics.

The pendulum has shifted and customers now have the balance of power. The kinds of discounts we are seeing are clearly driven by the economy, but they would not be possible if there weren't alternatives to "normal" software business models. Software as a Service (SaaS), which is paid for via subscription and eliminates most costs associated with on-premise software is a viable alternative to traditional software, and open source alternatives exist in many software markets as well. IDC has also seen a shift in pricing metrics, moving towards those based on consumption or usage rather than total capacity, which can also help better align price and value.

So, what does all this mean for the software industry? Are 90% discounts, and steep maintenance concessions sustainable? Not for very long. Will customers be willing to give these discounts up once times get better? Unlikely. Software companies will have to evolve. Subscription pricing and SaaS will play a key role here. With great adversity comes great opportunity, and software companies that offer technologies and pricing models that customers can't afford to pass up will gain share at the expense of traditionally licensed products. But going back to business as normal? I seriously doubt it.

Eco Hour of Power

Welcome Mira Perry with this guest post. Mira is a Sr Analyst in IDC's Software Sales Channels Program in my Software Business Solutions Group. Catch up with her on Twitter @miravperry.

  Mark Landler of the New York Times reported on Monday that U.S energy secretary, Steven Chu "favored tariffs on Chinese goods if China did not sign on to mandatory reductions in greenhouse gas emissions — underscoring how the “green economy” could be the next trade battleground." Tuesday on Twitter, a string of "eco-tweets" began with the USA Today article "Leaving PCs On Overnight Costs Companies $2.8B a Year," followed shortly thereafter by similar tweets from two other major media outlets. The crescendo of eco-media coverage continued through the week, building to Saturday's Earth Hour. Leading IT companies, once criticized for their environmental impact, are now at the vanguard of this surprising shift toward green priorities in the midst of a recession.

For example, IBM is making serious financial investments in their green initiatives, over $1 billion in fact. This month's announcement of GreenCert is one of a metronome-like cadence of eco announcements from Big Blue. While much of IBM's investment is earmarked for the greening of IBM technology, there is still a considerable amount of cash that has been invested in their channel program, PartnerWorld, to help partners deliver green solutions to IBM customers. Whether addressing the requests of their customers or driving their own Green IT agenda, IBM partners have access to a number of tools like "The IBM Carbon Management Model" which helps partners present greener solutions for their customers by identifying opportunities to reduce carbon emissions through products and solutions. Other tools include a How-To Guide for implementing Energy Efficient Data Centers, plus whitepapers, and seminar kits.

Sun's most recent update to their corporate backgrounder calls out and details a single corporate initiative: Environmental Stewardship. In the channel, they back this up with their Eco Advantage Program, designed to help Sun's partners build an Eco IT practice. The program offers partners tools to guide their customers toward greener IT solutions that use fewer resources for power and cooling, helping customers reduce operational costs and lessen their impact on the environment. In conversations with the team behind this initiative, the passion for and belief in their work is evident. It also makes sound business sense. Leveraging their partner network extends the reach of the Eco Advantage Program while also anticipating customer demands, ultimately burnishing Sun's brand image.

Sun, IBM, and other IT vendors are not alone. Chu's statement signals government's belief that eco-positioning may offer American companies an important competitive advantage. Interestingly, consumers also seem to be pressing American businesses for more environmentally sound IT solutions, creating an unusual alignment of government, consumer, and industry interests toward this salient concern. With any luck, we'll all heed the call and power down for Earth Hour.

Cash Flow Trumps Margin for the Little Guy!

Welcome Daniel O'Boyle Kelly with this guest post. Daniel is an IDC Consulting Director who supports my SBS group.

  Its with a fair amount of regularity these days that I come across some vendor slideware extolling the virtues of their "partner profitability" initiatives. This, in many ways, is a good thing. Yet with few exceptions, when peeling back the layers, improving profitability relates in large part to giving 'a few extra points' to push a vendor's technology or platform. While improving margins may indeed lead to better profitability, vendors need to better meet today's business challenges for the channel and without question, challenge number one is maintaining positive cash flow.   

In a recent custom survey IDC conducted for a large software vendor, we asked no fewer than 400 of their partners about a number of business performance metrics. The positive takeaway is that at least 75% of them were experiencing positive cash-flow coming into their businesses. Of course, the flipside is that a quarter were on the bubble or in fact in negative cash-flow - an ominous position to be in during these times. What is even more stark is that when breaking down the numbers by partner size, almost a third of those channel partners with less than 10 employees were break even or negative cash-flow. In the past, when the focus was on revenue growth, rapid sales cycles could possibly carry some partners through any 'profit valleys'. But with both the number of deals and length of sales cycles being extended, partners need to shift focus to cash-flow as KPI number one to manage the business. And a few concerted actions now could keep a partner's head above water:

• Seek out vendor financing and special incentives to power specific technology buying and thus shorten sales cycles. If incentives are not obvious, partners might want to hound their vendors for options claiming that other providers are stepping up. SAP and Microsoft are currently offering 0% financing on certain business applications. Cisco recently announced the "Now's The Time" offering that lets partners offer their customers no payments and no interest for three months on all Cisco hardware, software and bundled services for deals of $30 million or less.
• Identify general channel financing options beyond traditional vendors as a way to convert bookings to cash. For instance, Tech Data has an arrangement with NexCap to provide much valued capital through Reseller financing. By structuring a deal through this arrangement, resellers can improve cash flow as accounts receivables are converted to cash in 5-7 days. There are other arrangements out there too. Now is the time for partners to at least understand their options.  
• Most importantly, partners should get disciplined on all their billing and collection practices. In a recent IDC survey, we found top channel performers had average days sales outstanding of 45 days versus typical average 64 days collecting valuable cash faster and able to fund growth or debt repayment. Even if partners need to work with customers and be creative to match their budgetary constraints, it will pay to hammer out predictable schedules. Proper terms and milestone scheduling is key and forecasting accuracy should be incented similarly to other MBOs.

Clearly, vendors need to support their partners with more options and possibly 'new ways to fund deals' type training. We will be tracking their efforts ….stay tuned.

Is there still "open" in open source?

I had the pleasure of chatting over coffee last Friday with rhomobile CEO Adam Blum. We're doing a panel discussion on Monday 3/23 at the SDForum Open Source Colloquium on the question "Is there still open in open source". We spent some time catching up on rhomobile and their mobile development platform, which by the way, if you're looking for a cross platform (iPhone, Android, Symbian and Windows Mobile) mobile application rapid development tool you should check them out. Anyway, during our chat we discussed the concept of open and what does a project really need to be called "open". Adam has a blog post on this subject that he calls "The 7 Habits of Highly Effective Open Source Products". Our conversation and his post spurred me to think more on this topic and as I've mulled it over I think there are some interesting points and issues that are extremely relevant.  

First though, I should say that I think there's a point to this discussion that is not some academic exercise but is in fact fundamental to the reasons open source is such a powerful development model. Open source, at its core, is about the power of a community, not about business models. It's one of the best examples of the power of web 2.0, as the concepts are applied to SW development a self governing community evolves and that community is essential for the development of high quality OS projects. Concepts like transparency, community status and democratization of development drive quality and innovation. At it's heart OSS is high quality because the developers strive for "status" in the community by the high quality and innovative nature of their work. They are motivated by status not money and are passionate about the work they do, after all they mostly do this in their "spare" time. OK, granted some community members make a living offering consulting and custom development on top of the OSS project, but again, that's a strength that many proprietary SW companies struggle with and spend mountains of money to develop, a knowledgeable developer / ISV ecosystem.

So what characteristics should a truly "open" project exhibit? Going back to Adam's 7 Habits I see a couple of threads that jump out at me as key to calling a product "open". I think this can be boiled down to two things: 1. transparency and 2. encouraging community. I suppose you could argue that transparency does encourage community but go with my train of thought for a minute. Project transparency, IMHO, is simply public viewing / reviewing of the source, public source checkins (realtime in a "publicly" available repository) and a completely public bug resolution process from reporting through fix. Transparency is the enabler for the continued existence and health of the community, it's what facilitates quality effort. A project must also encourage and enable its community. This is done through activities like creating a public forum where the community can congregate and share and through making the project available in a way where anyone can contribute. I agree with Adam that community is encouraged and empowered by having publicly available and community modifiable documentation (specifications and user) on a Wiki. Most companies provide documentation but don't provide it in a model where the community can contribute directly. The last issue is the license. By having a license that conforms to the accepted publicly available standards (GNU GPL) the community does not have to struggle to understand project specific terms. The community can simply conform to the terms that are commonly understood in the broader OS community. Why have a company specific and non-standard license agreement? You make it harder for the community and in the end what do you gain?

So for me it boils down to transparency with the source code AND the development support processes; and providing an environment that empowers and enables the community.

Social Product Lifecycle Management (SPLM), a reality?

Welcome Sanjeev Pal with this guest post. Sanjeev is a Sr Analyst at IDC covering PLM, engineering software, EAM and project & portfolio management in my Software Business solutions group.

What is Social Product Lifecycle Management ? I consider SPLM as a Product Development and Management approach or philosophy that is based on the Web 2.0 blueprint. Social Product Lifecycle Management approach facilitates PLM applications to exist in cloud computing or Software as a Service (SaaS) model , encourages community based product design and collaboration within and outside the enterprise. As an ex consultant in the product design industry, I used to always struggle interpreting the multiple frivolous acronyms that floated in the industry. I have no problem equating PLM 2.0 from Dassault to Web 2.0 based PLM approach.

What about CAD 2.0 ?. Of course as one would imagine , all 2.0 products would obviously be based on social networking, collaboration and cloud computing. So I Googled “CAD 2.0”, I was expecting most of my results to be CAD tools encompassing Web 2.0 tools like Wiki, SaaS, online communities etc. Surprisingly the very first result is a paper that says - " Finally a Solution to the CAD Interoperability". In short the paper refers CAD 2.0 as a product that can be used to modify drawings irrespective of the vendor specific CAD program that was used to create the drawing. So instead of my teenaged niece's definition of social networking and her love of FaceBook as a social networking/collaboration site for planning her shopping escapades, I prefer using the adoption of Web 2.0 concepts in product development space being referred to as Social Product Lifecycle Management.

How relevant is SPLM ? Social networking using the Web 2.0 concepts offering open collaboration of thoughts and ideas continues to expand in many enterprise applications like ERP, CRM etc. Product development and management is a collaborative effort as it goes through the cycle of designing , manufacturing and maintenance. Introduction of collaboration, especially the Web 2.0 concepts can help the product development to be faster with considerable reduction of ambiguous information flow across the teams through the development cycle. Complexity of designs , iterative process involved in designing and managing the products, collaboration of various engineering concepts between skilled engineers are some of the pressing reasons that would necessitate the usage of Social Product Development in industries like Aerospace and Shipbuilding.

Dassault's PLM 2.0 initiative to promote Web 2.0 concepts in the product development domain, made headlines last year by introduction of its V6 product line. Amongst the bigger PLM vendors, Dassault clearly spells out its intention of socializing product development with its PLM 2.0 concept. It should be noted that Siemens PLM's Teamcenter Community and PTC's ProductPoint address the social networking needs of their customers. Unlike Dassault, vendors like Siemens, Autodesk and PTC have not emphasized the social networking relevance in product development, as their key marketing strategy.

Social product development continues to be a topic of great interest for analysts and executives. I agree that there are many benefits of social networking in product development, but I question if it is gaining acceptance amongst the engineers, as they are the majority users of the PLM tools. I feel it is fairly early to predict the acceptance or popularity of social product lifecycle management. This is mainly because the product development industry segment has been historically slow to adopt new technologies or concepts. Some of the highly advanced companies like Toyota continued to design with complex old home grown CAD packages in the twenty first century, despite the availability of highly advanced CAD systems in the market. The complexity of managing data , interoperability, integration and loss of productivity due to the big learning curve, remain inhibitors to adoption of new technologies such as social networking in the product development space.

The Unofficial Oracle Partnering Week

Welcome Darren Bibby with this guest post. Darren is IDC's Program Director for Software Partner, Channels and Alliances in my Software Business Solutions Group. Catch up with him on Twitter @darrenbibby.

  I don't know if you're like me but I tend to find themes to each of my work weeks. A few weeks ago it was IBM week, then Microsoft week, then Citrix week and next it looks to be SAP week. This week was all about Oracle for me.

Oracle updated IDC's Software Partnering team on its plans around a new type partner designation for some of its best partners and also on the VAD Remarketer program that allows non Oracle Partner Network (OPN) partners to resell several of its baseline products. I also attended Oracle's first attempt at a virtual online partner conference.

Sales Readiness Verification initiative - Role Play for partners!

The first announcement was on Oracle's brand new Sales Readiness Verification initiative, which expands on Oracle's theme launched last Fall of Partner Enablement 2.0. It will help Oracle to enable and certify about 75 North American partners in the coming months on its Fusion Middleware products.

What's neat about this particular initiative is that it's not just a large scale, self-service, "take some training / take an exam" initiative that we're used to. Yes, those elements will be a part of this. But participating partners will also be subjected to a partner certification board where a role play and knowledge review will be conducted. Since this is sales training, a role play makes perfect sense in validating whether or not an individual "gets" it.

Oracle is doing this to move its North American partners up the technology stack. While Oracle has acquired over 50 companies to date, many of its current partners are still stuck on the database. There is a lot of opportunity for these partners if they can make the move "upward" to areas such as business intelligence, application software, content management, and much more.

In one respect, what this really comes down to for me is that Oracle's partner levels (Partner, Certified Partner, Certified Advantage Partner), and many similar partner structures in the industry, aren't enough to distinguish who the truly best partners are. In aiming for 75 partners, and asking partner reps to participate in role plays, Oracle clearly isn't trying to scale this to all partners. This is another way of picking out the best partners. It brings up the question of whether or not partner programs and their architectures should try to handle this type of "who's the best in what area" type of question, or whether it should be side initiatives like this one from Oracle.

By comparison, several partner programs have attempted to solve this. Cisco's partners can achieve Specializations and even Masters Specializations to show depth of skill in any one area. They can also then achieve partner levels (Select, Premier, Silver, Gold) to define their breadth of capability and ability to integrate different areas of specialization into a solution.

Autodesk also follows this plan in that a partner qualifies at a partner level (Standard, Select, Premier) in one or more industry-oriented product lines (Manufacturing, Geospatial, etc.). Microsoft also announced at its last partner conference that it's considering changing its program so that partners aren't just Certified or Gold anymore. A partner earns its level within each of the competencies they pursue, such as being Gold in Security, Certified in Advanced Infrastructure, but only Registered in the rest .

Most partner programs have implemented some kind of specialization or competency concept and I wouldn't be surprised to see Oracle's version at some point soon. Even then, I still think there's much merit to innovative initiatives such as Oracle's Sales Readiness Verification initiative. How else do you programmatically work with the best partners in a certain discipline? I think the key is to having consistency across similar programs at a vendor versus having a different program for every possible focus area.

Oracle VAD Remarketer Program - Oracle's take on open distribution

IDC also received an update on the Oracle VAD Remarketer Program, which allows partners who aren't qualified for the full OPN program to resell a baseline set of software products. The program is a couple of years old at this point and is growing nicely. There are 47 Remarketer VADs worldwide and hundreds of Remarketer partners who can sell any of the ten (and growing) software products including versions of database and application server products.

One new element of the update was that Oracle is trying to get these partners involved in more of a community. Oracle has set up a site on mix.oracle.com for Remarketer partners to congregate, and also developed a blog site on the program. Gathering a community like this is hard work. But if there's a reason for these partners to come together and work with each other, the effort will be worth it. But patience is key.

I think the big story with the VAD Remarketer program however, is that, before this program was in place, only full OPN partners were allowed to resell any product. For some partners who might only sell one or two Oracle software deals a year, it just wasn't worth the $1995 fee and the time and effort to earn the technical certifications necessary. This open and controlled distribution debate has been going on with Citrix and IBM very recently. The VAD Remarketer program has been done well and Oracle has opened up the right types of baseline products that don't necessarily need all the same skills that are required from an OPN partner.

Oracle Online PartnerExpo - Good first event

Lastly, I wanted to touch on a topic which I'm sure will get bigger as the year goes on. Oracle held an online partner conference of sorts on Wednesday where partners could sign on and see and hear live presentations, participate in scheduled chats by topic area, visit Oracle and partners in the Exhibition Hall or generally try to network in the Partner Lounge. This wasn't done in Second Life but rather a fairly attractive solution from On24. The presentations worked fine and it was a good way for Oracle to gather partners together for key updates at a mid-way point between the main Oracle OpenWorld conference. I think that the aim of networking at this type of online event still has a way to go, considering some of the chats I saw going on. But I'm happy to see Oracle putting this kind of event on, experimental as it still seems for many. This type of virtual conference will be a more common occurrence as partners try to save money and the technology and experience improve.

I was just disappointed that it wasn't in Second Life and I wasn't able to fly over tall buildings.

HR BPO provider NorthgateArinso licenses SAP's HCM technology and rolls out its Own SaaS

Welcome IDC analysts Robert Mahowald and Lisa Rowen with this guest post. Robert is the Research Director for SaaS and Cloud Applications in my Software Business Solutions group and Lisa is the Program Director for HR and Talent Management Services.

  We've seen more and more Business Process Outsourcing (BPO - domain outsourcing and hosting) and Managed Service Provider (MSP - traditional hosted application management) vendors decide to take matters in their own hands, and build out their own SaaS solutions as a way to compete with software vendors becoming services vendors with SaaS offerings, and as a way to lower their costs with multi-tenant solutions. The next step, it would seem, is negotiating a deal to license the kernel of a widely-used solution and building on top of that to create a multi-tenant offering.

Services provider NorthgateArinso's euHReka OnDemand solution has done just that, and is first to market with an HCM offering based on SAP's ERP HCM technology. Although not the first to sell a SaaS offering for human capital management (Workday and Ultimate Software are two of several end-to-end SaaS HCM players), NorthgateArinso's offering is unique in that it licensed core technology from SAP and developed a multi-tenant deployment and data management model as its own proprietary solution. The terms of the licensure are not restrictive, meaning that NorthgateArinso can offer euHReka to companies of any size, whether they are part of SAP's base or not. SAP is a go-to-market partner with NorthgateArinso for this deal, with both firms sharing leads, and NorthgateArinso solely responsible for closing and fulfilling the deals. The deal affords NorthgateArinso a great deal of flexibility in continuing to give its customers the choice of traditional managed BPO services (outsourced domain and technology expertise) or SaaS services (outsourced technology and development) based on a widely-used and popular SAP solution. This level of choice reaches beyond what SAP can offer to most customers today, as it has not generally made its BusinessByDesign SaaS ERP solution available.

The SaaS play will give NorthgateArinso the chance to shift from its core midmarket base into larger customers, and allows it to provide more choice to customers, who can either manage HR processes themselves using the SaaS application, or continue to have NorthgateArinso service them as part of its existing HR BPO business using the new SAP-derived solution. IDC expects many more BPO players to follow NorthgateArinso's lead by re-architecting traditional software into multi-tenant solutions because low management costs, high scalability, and quick time to market offer BPOs with a great deal of domain expertise a path to lower their cost basis, improve profitability, and get closer to their customers' technology solutions.

NorthgateArinso has built the preconfigured multi-tenant functionality into the offering, so that user data is held in isolation, assuring users of the security and privacy of their data, and this combination of HR-domain and SaaS delivery and licensing may prove a valuable advantage in selling to what has traditionally been an audience concerned with data security. NorthgateArinso will be responsible for refreshing the licensed code in step with SAP and implementing all changes/mods to the SAP core to its customers, so they are on a consistent version.

The SaaS model often turns software vendors, which have traditionally partnered with services providers and BPO firms, into competitors with these former partners, as they can build out the services delivery themselves. Line of business functions like HR (and subsegments such as talent management) have proven particularly receptive to SaaS offerings, especially ones based on proven technology. By outpacing SAP at providing its customers with SaaS flexibility SAP cannot today deliver, NorthgateArinso, with its track record as a BPO domain and technology expert, can leverage its early-mover advantage into success in the large-company HR market.

Oracle continues to execute despite the tough economic climate

Today Oracle announced its FY 2009 Q3 results and once again demonstrated that its multi-brand portfolio strategy is continuing to be effective despite the current economic climate. I won't restate the numbers, you can read those on the Oracle press release, but what I will focus on is why I think Oracle continues to be more successful than its direct competition. All three business lines (database, middleware and applications) held up fairly well, with apps being the real surprise. A lot of analyst expected Oracle's apps numbers to be much worse, especially since its largest competitor, SAP, had seen a decline in its apps revenue in the most recent earnings announcement. Let's give credit where credit is due, you don't execute to this level without very strong and consistent leadership at the top and down through the ranks. This requires building an effective strategy, putting the right people in place to drive it and maintaining focus by not overcorrecting for economic conditions.  

So what is driving this success? I outlined several key Oracle strengths in my analysis of the Q2 announcement and I believe those strengths are in fact playing out as I had predicted. Oracle's product portfolio is very broad with both acquired and built products that give the sales team the opportunity to shift focus from products that aren't selling to other "hot" products. In apps this is particularly important in this economy because core ERP and ERP upgrades is one of the slowest markets. Over the last several years Oracle has built out many vertically focus apps that offer high value and yet don't require the level of investment that a full ERP suite would. Companies are continuing to invest in software for competitive advantage, revenue growth or cost reduction and these vertical apps (edge apps in Oracle lingo) are often just the area that does get funded even with tight budgets.

Oracle's leadership in the database market is also a strength for its apps and middleware businesses where competitors apps run on the Oracle database (and also in many cases Fusion Middleware). Oracle knows its competitors customers because often they are Oracle customers too which helps them "get in the door" when there is opportunity. This concept also applies to many of the acquired customers especially in the CRM (Siebel) and business intelligence (Hyperion) markets where those products were routinely deployed with SAP or Microsoft ERP suites. Cross-sell and up-sell have become a big part of the Oracle field sales strategy and that has proven to be an effective tactic.

Customers are buying SaaS / Cloud-based apps, as I've pointed out before. More and more Oracle is paying attention to its own SaaS products like CRM On Demand and clearly targeting salesforce.com (two earnings calls in a row both Charles Phillips and Larry Ellison have talked about wins against salesforce). Oracle offers a very flexible approach to its on demand apps (see this post) that I believe customers will find attractive. SAP does not have a SaaS offering.

During the call, as usual, the Oracle execs highlighted wins against key competitors. These "named" competitors are clearly the sales target. Mentioned today: Teradata and the Oracle Exadata DB appliance; salesforce.com and Oracle CRM On Demand; SAP and well, all Oracle apps; and Microsoft and IBM and the Oracle database. For the first time in awhile Larry also talked about Fusion Apps, stating that they're still on target for release by the end of the year and that they are all on demand ready.

One last point, the good news today extended to earnings / profit, where Oracle posted a non-GAAP earnings per share increase of 16% and non-GAAP net income increase of 12% y/y (operating margins of 46%). During the Q&A session the Oracle execs credited the continued margin improvement to Oracle's stable and increasing maintenance base. Oracle declared its first ever quarterly cash stock dividend of $.05 / share.