Oracle the Partner-Friendly Partner, Round Two: E2Open, Oracle, and Transportation Management

One of the largely unheralded changes at Oracle this year has been its sudden willingness to partner at a strategic level with other enterprise software companies. This departure from previous strategy has been noted here before, as has its implications for the enterprise software community. (Great if you’re an ISV looking for a strong partner with long reach and a huge sales force, bad if you’re an Oracle competitor trying to build your own partner community.)

The latest announcement from the newly partner-friendly Oracle comes in the form of a joint agreement between Oracle and E2Open, one of the poster-children of the nascent SaaS 2.0 movement. The specifics of the deal are simple – Oracle Transportation Management is now strategically connected to E2Open’s ELN supply chain hub-in-the-cloud, making it possible to use the massive connectivity and aggregation of data in ELN to power OTM.

Networks like ELN – really latter-day net markets – have an enormous value to tools like OTM by providing data and process connectivity to a worldwide supply chain network that grows more valuable to its stakeholders the more that stakeholders in a supply network sign on to the network. I’ve been a fan of this model of SaaS company for a while, as the self-improving, self-appreciating aspects of E2Open’s ELN provide a significant value-add that cannot be brought to bear just by flipping on-premise functionality into the cloud a la Salesforce.com

What is perhaps more significant than the new functionality unleashed by this agreement is what the agreement itself means to the industry. Oracle’s avid interest in cultivating strategic partnerships has become a virtue that gives the company some new credentials beyond its highly successful M&A chops (though, I have to question the pending Sun deal – this one may break the mold yet.) Those new partnership credentials have yet to morph into a full-blown ecosystem strategy, which may mean a reprieve for SAP, which has made its ecosystem a calling card in the enterprise software market for the last few years.

But whether there is a formal program or not, the softening up of Oracle’s former strategy – as characterized by Charles Philips’ comment three years ago that “if we like a company and they demonstrate success in our market, we’ll buy them” – is a major move in a market that needs to track and understand every move by top tier players like Oracle and SAP.

The bottom line analysis is that this is a smart, pragmatic move on Oracle’s part that also puts the pressure on SAP to put up or shut up in the partnership/ecosystem category. The idea that an arms race might now be on in the enterprise software market for the best partner ecosystem should be somewhat heartening to the myriad companies looking for a big brother or sister to walk them into the CEO’s office. The cautionary side to this is that a stepped up partnership strategy may signal a slow-down in Oracle’s acquisition strategy, something that every privately-held ISV would hate to see happen in a market that hasn’t had a decent run of enterprise software IPOs since forever. But, a strong partner is certainly better than going it alone, and as such the new Oracle may engender the same interest in the software community as SAP did when it acquired Versa and launched its own ecosystem/IPO-alternative market.

It will be interesting to see what level of exclusivity Oracle requires of its partners in order to play in the Oracle partner sandbox. E2Open already has a number of SAP and Oracle customers, and is a “Powered by NetWeaver” SAP partner as well. That could signal a certain willingness to waive the usual exclusivity requirements, though E2Open is a relatively big and established company. Things may be tighter for the smaller ISVs that both SAP and Oracle are courting.

Whatever the details, the overall strategy is good for the industry, and good for customers looking for choice, built-in integration, and a set of vendors that come to the table already playing well together. The trick will be to keep things that way, and avoid the puppy farm partner mentality that places a greater value on quantity than quality. So far it looks like Oracle is getting it right.

Year Two in the Reign of SAP’s Léo Apotheker: Predictions and Proscriptions

In the aftermath of a relatively decent Q3, all things considered, that nonetheless earned SAP the wrath of the stock market, it’s important to take a look at what SAP, its customers, and its competitors have to look forward to as CEO Léo Apotheker rounds the end of his first full year at the helm.

And it’s far from the dismal outlook that a number of analysts, and the equity markets, are ascribing to SAP. Indeed, at a moment when many are questioning SAP’s continued viability as the only pure-play enterprise software giant left standing, there’s actually a lot to be said for letting SAP be SAP in a market full of hardware vendors, PC software vendors, and service providers that also happen to dabble in enterprise software.

Importantly, I see 2010 as a major battleground year not just for SAP but for SAP’s now unique business model as well. And, far from counting SAP out, I count them very much in for a fight they have a strong chance of winning.

Let’s start with the competitive landscape. I think there’s been a major defocusing of Oracle’s enterprise software energy in the wake of the Sun-to-be acquisition. Count the time devoted to applications in Larry Ellison’s Open World keynote versus his hardware time. Factor in the appearance of Marc Benioff at Open World, apparently approved at the highest levels, which could only send a signal to Oracle’s apps team that there are other agendas more important than maintaining a consistent competitive position in the CRM market. And then look at how much revenue applications are making at Oracle relative to the database side of the business. Oracle is many many things today, and in some ways that’s becoming a problem at Oracle. And an opportunity for SAP.

While there is something to be said about having a complete, turnkey hardware, database, and applications offering for the beleaguered CIO, it’s not clear to me that complex enterprise applications can be sold that way. Or, I should rather say, those apps that can be sold that way should really be sold on-demand, at which point Oracle/Sun begins to make much less sense than many thought. And a distraction from pushing its forthcoming Fusion Applications into this on-demand opportunity.

The other problem with Oracle/Sun is that IBM is now the new foil for Larry’s marketing machine. I admit I’m perplexed by this, I had thought that Java would bring the two closer together. Maybe Larry thinks that Java makes Oracle so important to IBM that it will forgive the fact that Oracle is now offering a $10 million bounty to anyone who can beat Oracle’s new Exadata TPC benchmark running IBM hardware and software. Most importantly, I think Larry has actually taken a swipe at a major ally and in the process may have given SAP some important cover.

The identity problems at Oracle belie the serious, sound work that the Oracle apps group has done with both Applications Unlimited – the core apps – as well as Fusion. These groups are executing well, and doing so in a serious and competitive way. The only problem is that the rest of the company isn’t necessarily on board, putting the full weight of Oracle behind its enterprise apps. And this gives SAP some hope that they can successfully fight Oracle in 2010 by eschewing the confusion of vertical integration for the focus of an applications-only strategy.

Speaking of conflicted competitors, Microsoft’s continues its focus on its Azure cloud infrastructure, which is becoming the nexus of some very original thinking and some exciting market leadership that can and will make a difference in the enterprise software space. It’s hard to say the same thing about Microsoft’s Dynamics, which has been struggling with its innovation strategy and market position for the last two years.

The recent announcement that Microsoft was buying the IP assets of some of its partners pointed out a major strategic weakness in the company: key go-to-market innovation tends to come more from partners than from inside Microsoft, and, with a partner ecosystem that is largely made up of small and geographically isolated ISVs and VARS, Microsoft is going to have trouble playing innovation brinkmanship with SAP’s largely internal development efforts (aided by the Business Objects acquisition, which is making more and more sense as the months go by) and Oracle’s M&A plus internal innovations. And the expected re-entry to the market of SAP’s Business ByDesign in the next year will make Microsoft’s competitive position all the more difficult to maintain.

Then there’s IBM. With Oracle now on its case, IBM’s position as an SAP spoiler is less certain than it was earlier this year. The spoiler position is still there: The Rational team is playing for some serious stakes in the SAP market by promoting its software management tools as a means to not only manage complex SAP engagements(good for SAP) but also disengage SAP customers from SAP’s vision of business process excellence in favor of IBM’s primacy in that regard (much less good). The Rational group is being very careful to talk the partnership talk, but underneath the hood there’s a very serious threat that IBM, via Global Services, will own the business process layer that sits on top of SAP (and the rest of the enterprise software market). This, of course, wouldn’t be exactly the best for SAP, or any other enterprise software vendor (et tu, Oracle). But if Oracle huffs and puffs at IBM’s front door loud enough, IBM may find itself more willing to support SAP than ever before.

So, competition-wise, I think SAP is in better shape than many believe it to be. Bear in mind that, in parts of the market, this is not a zero sum game for SAP and its major competitors. This is especially true in the mid-market, where “other” still dominates. Nonetheless, I think SAP should really emphasize its position as the last pure-play major enterprise software vendor left, and play for the zero sum game that everyone else does: applications-only is an asset in terms of focus and purpose, not a liability, and should be played as such.

Behind this pure-play enterprise apps position must come a stronger emphasis on innovation than ever before. Stronger is the word, because, no matter how much SAP seems to push the innovation marketing button, it gets characterized as a big, back-office behemoth. This despite such innovations as in-memory database (wonderfully showcased as part of the Explore BI tool) and Business ByDesign (which everyone forgets is actually an amazing piece of innovation in terms of user experience, model-based design, and deployment options), the promise of some interesting on-demand offerings from John Wookey’s team, and more than a few other things being cooked up that hopefully will see the light of day in 2010.

SAP in year two of the Reign of Léo needs to be recognized for the innovator that it genuinely is – and that means getting these innovations out in front of the company and its messaging as much as possible.

Also needed in year two is a new emphasis on partnering. SAP recently published the first few chapters of set of much-needed, and well-articulated, guidelines for ISV partners that, when finished, will spell out in black and white the steps an ISV needs to take in order to become a full-fledged partner. One important chapter that hopefully will be written soon is the one that spells out SAP’s commitment to making the partnering process efficient and effective for small and large ISV partners alike. SAP is in danger of losing its ecosystem edge to Oracle, which has recently discovered the value of an active ecosystem strategy. Putting its process and commitments in writing will help make SAP’s ecosystem fill in the white space between SAP’s own apps and thereby better meet the needs of its customers.

The next year also has to be the year in which SAP gets the TCO bandwagon going again. The work SAP started this year with SUGEN was groundbreaking, but the rest of the TCO edifice needs to be completed as well. Making 2010 the year of TCO will help SAP in innumerable ways, including diffusing the market’s, and some critic’s, single-mindedness over maintenance as well as forcing a more comprehensive discussion about TCO – and maintenance – across competitive boundaries, as opposed to just within the SAP community.

Finally, there’s a few neglected parts of SAP’s business that need a little more love. CRM is one of them. This is a battleground area of the market that SAP needs to put out in front of the market much more concisely. CRM is a funny business, as much characterized by its marketing as it is by its functionality. On the functionality side, SAP does well, but on the marketing side, there’s a relative lack of passion and, frankly, guerrilla tactics, that handicap SAP CRM’s efforts against Salesforce.com and Microsoft CRM.

Another area for a little more love in 2010 is governance, risk, and compliance. This is a complicated problem: It’s hard to sell a big GRC vision today, mostly for lack of a unified budget item, and buyer, that can be targeted by the typical, elephant-hunting  direct sales force. Rather, SAP needs to look at GRC as a collection of solutions, targeted and sold specifically to line of business owners, that can be assembled into a larger vision if and when the enterprise is ready. There’s a lot of market leadership for SAP to lose in this space, notwithstanding a wide range of interesting opportunities.

Finally, there’s the casual user. I’ve spent a lot of time talking about the growing importance of this group as both a consumer of enterprise software and a decision-maker when it comes to deploying one vendor’s solution versus another’s. SAP gets the challenge of the business user at the executive level  – these users are as hard to please as they are valuable to the vendor that does so – but getting it right now needs to be put into practice up and down the company, from marketing to the field. The awareness is there, but the execution remains to be seen.

All in all Apotheker’s second year will start with no shortage of challenges, and in many ways may look like a thankless task. Balancing the needs of shareholders, customers, and partners has never involved so many potential conflicts, conflicts that can be resolved, though not necessarily on the timetable of any individual constituent. Successfully threading that needle and arriving at a market position that works for all three groups is what every vendor in the industry needs to focus on in 2010. SAP may have a better chance than any of the top vendors to succeed at this challenge. The rest, as always, boils down to execution. It’s going to be an interesting year.

Required Reading for the SAP Crowd: The SAP Green Book is Here

I don’t read a lot of business books, in fact, I read very very few. But this weekend I took some time off from my usual work-avoidance mode to start reading a new book that showed up in my office last week. By the end of the first chapter I knew this was one book I need to be recommending far and wide.

The book is called “The SAP Green Book”, and its author is Michael Doane, who is well known in SAP circles as the author of the equally well-received “The SAP Blue Book.” Michael has been following the SAP implementation lifecyle as an analyst and consultant forever, and his knowledge of what happens when companies try to implement SAP is unparalleled. Michael is the guy I go to when I need some sage advice, and that about sums up the value of the book: sage advice on what to expect when implementation is done and it’s time to get to work using a new  SAP system. Or, as Michael puts it in his preface: “…the Blue Book addresses an SAP wedding and this book addresses the SAP marriage.”

One of the reasons this book is important is that it addresses a key issue that has been on my front burner for a long time: the care and feeding of the end user in an SAP implementation. Michael devotes a whole chapter to this subject, but it’s Topic A for much of the book. This issue of meeting the needs of end users isn’t just a good idea, it’s the only way to guarantee that an SAP investment achieves its true value. Implementation and go-live failure is almost never about software, but it’s almost always about a failure to take into account the needs of the growing number of end users who must use SAP software everyday.

While SAP customers and partners are the main audience, I think there’s a lot of reasons for SAP itself to make “The Green Book” required reading. If SAP really wants to continue to grow and remain competitive, and it definitely does, the issues raised in this book need to be understood and addressable by everyone at SAP, from the field to the executive suite. There may be debates about whether Michael’s proscriptions are the right ones, but I don’t think his analysis of why SAP marriages often fail can be disputed.

Two more points: this is a plug for a book that quotes me on its cover, so you can imagine that I might be inclined to like it. But that’s why I approved the quote — Michael speaks the truth. For my trouble I have been given me two free copies, which is the extent of the baksheesh I’m getting for writing this post. I’m also counting on some more advice down the road as well

Final point that just adds to Michael’s cachet, IMO. One of Michael’s cronies from ages ago was the creator and producer of the series X Files, and as a result Michael became the model for the most sinister — and therefore coolest — character in the series, the Cigarette Smoking Man. For those of us who know Michael, the resemblance with CSM is uncanny. ‘Nuff said.

Siemens Renews Maintenance Contract with SAP. Now For the Real Issue

As expected, Siemens renewed its maintenance contract with SAP, ending rampant speculation that the German industrial giant and one of SAP’s largest customers was going the third party maintenance route.

But if you’re SAP, or any enterprise software company, this is merely a temporary lull in a battle that will inevitably change the enterprise software market and the issue of maintenance and support with it.

The larger battle still to be engaged is about the overall issue of total cost of ownership, of which maintenance costs are one of many components. SAP’s ability to keep Siemens on board its maintenance regime doesn’t absolve SAP of the obligation to better define, and deliver, a lower TCO model to Siemens and every other customer. Working on this TCO issue will, in the long run, make it clear that maintenance costs – in fact, the overall issue of the size of the check paid to vendors for every deal – are just one part of defining the value, and cost, of the vendor/customer relationship.

Looking at TCO instead of just cost is important for many reasons, one of which is that many of the proponents of drastically lowering third party maintenance, and an overall re-architecting of the vendor/customer relationship, take the perspective that enterprise software is another item for the procurement department to obtain at the lowest cost possible. This “lowest bidder” approach is admired by bean-counters everywhere, even though lowest cost doesn’t always translate to best value, or optimal total cost of ownership either. We’ve seen this in government procurement, and in our own consumer experiences as well: just because you get the best price doesn’t mean you get the best product or service. This rule works in enterprise software as well.

While I don’t disagree that many many customers have paid too much for their enterprise software, the fact that bad deals abound doesn’t mean that blowing up the model in favor of a lowest bidder approach is the solution. I happen to think there’s a better way.

In fact, and here is where I start to part company with some of my colleagues in the analyst community, the problem with the third party maintenance problem is that it tends to look at the software acquisition and consumption process as a series of discrete financial events, each one of which has an intrinsic value that is a) knowable at the time of procurement, and b) subject to the kinds of economic analysis that procurement people tend to use to describe the relative value of two different possible choices.

I maintain that enterprise software isn’t this simple – and that the reason a company like Siemens decided to renew its maintenance contract with SAP is that there is more to the Siemens/SAP relationship than the simple dollars and euros equations that allow many in our industry to call into question the value of maintenance, software licenses, and services.

What more is there? That’s where a more complex discussion about TCO comes into play, and that’s where SAP and its competitors have fallen short in the market.

Importantly, when a company signs on with an SAP or Oracle, they do so with multiple goals in mind, only one of which may be “lowest cost”. Indeed, that goal may be foremost in the CIO or CFO’s mind, but for many line of business users, lowest cost is irrelevant to getting the job done. Discussing issues like maintenance costs feed into the needs of the buyer, for whom lowest cost is the goal, but that discussion has little or no relevance to the line of business user, who is looking at his or her P&L and wondering how the hell they’re going to get the job done, software costs be damned.

The problem with the TCO of enterprise software from an issue standpoint is that it has many components, only some of which are subject to the kind of quantitative analysis that can be applied to maintenance costs. TCO includes business value, particularly for the LOB, a class of user long-neglected in these discussions. It includes competitive value, insofar as well-designed enterprise software can be an important component in the competitive position of a company. It includes long-term cost analysis – what is the cost of upgrades, what is the cost of new innovations, the cost of changing IT to meet future business needs – that add some complexity to a pure, procurement-centered, cost-equation.

TCO also has to take into consideration what I call IT-IQ: how savvy is the consuming company in understanding its business processes and their realization in enterprise software. For the company with a low IT-IQ, paying a lot for a lot of maintenance may be the only way to consume the software. For the higher-IQ company, there may be some mutual value in discounting maintenance costs for this class of user.

It is some version of this analysis that surely went through the minds of Siemens, aided no doubt by high-level assurances from SAP that the TCO of the overall relationship between the two companies would be worth the cost. What SAP needs to do next is expand those assurances to the market as a whole, and do so in a way that adds essential nuance and color to an issue that has been over-simplified by the maintenance cost discussion. I think in the end some maintenance costs may have to go down, but I can’t see any vendor doing so until the full TCO issue is understood, analyzed, and presented to the market.

At which point we’ll stop talking about the horrors of an industry-wide average 22 percent maintenance cost and start the real discussion about the relative TCO between the different vendors. And may the company with the best TCO win.

Oracle’s Fusion Applications Are Ready. And So Is the Go-to-Market Strategy. Now The Fun Can Begin

The lid is finally off on a 12 month-old NDA for Fusion Applications, and in this case the long delay between when analysts were first shown Fusion Apps in the fall of 2008 and when we were given free hand to describe what we’ve seen now looks like a impressively smart move.

What was smart was that, while the apps looked pretty snazzy a year ago, the go-to-market strategy wasn’t as zippy. In fact, it really didn’t exist at all. Now, in anticipation of a 2010 release date (new revenue recognition rules at Oracle have clamped down on any specifics, but you can be sure that the Fusion team would be less vague if the lawyers would let them) Oracle’s Fusion team not only showed off a well-designed set of applications: they’ve got a pretty well-designed GTM strategy as well.

The basics are this: Fusion Apps can be consumed as a suite or as individual components, on-demand or on-premise. This means that existing Oracle customers – the target market, at least at the initial roll-out – won’t have to look at Fusion Apps and start planning a rip-and-replace of their eBusiness Suite/PeopleSoft/JDE/Siebel applications. Instead, they can look at the different modules of Fusion and decide that, for instance, Fusion Talent Management is the tool that will clean the competition’s clock. The customer then buys FTM (upgrading to Fusion Apps is free only for the components that fit the “like for like” free exchange that Oracle is offering its customers) and automagically hooks it up to their existing application. On-premise, on-demand, whatever. It’s up to the customer.

The automagic part of this is, of course, based on Oracle’s Application Integration Architecture, which is more and more becoming the linchpin of the company’s ultimate choice strategy. AIA, once it is fully decked out with process integration scenarios that cover the main pieces of Fusion and the Applications Unlimited suites and standalone packages, becomes the interstate highway system of the Oracle customer base. That automagic, of course, isn’t exactly as simple as anyone would like, nor is the uptake of AIA exactly reaching the stratosphere in the Oracle market today. But the roadmap to best-of-suite nirvana has at least been carefully drawn, and that big orange highway connecting all the points is called AIA.

This AIA strategy, of course, works for the SAP customers that Oracle wants to lure to its existing products and, eventually, to Fusion as well. As a testimony to the SAP-lust that inspires so much of Oracle’s marketing efforts, their erstwhile German-American rival was mentioned in Larry’s keynote and the ensuing Fusion Apps demos at least six times that I could count. Only IBM was mentioned more (in the competitive category, anyway. Larry said Sun so many times the folks in row one were getting a tan). The idea that an SAP customer could consume Talent Management, or Fusion CRM On Demand, in a Trojan-horse strategy, is one that Oracle is already executing with its existing apps, and will be executing for Fusion Apps as the products and GTM strategy mature.

Which brings us to the question weighing on SAP’s minds as the reality of Fusion Apps begins to head to the market next year: how much will Fusion Apps cramp the expected re-launch of Business ByDesign, which SAP has been carefully nurturing back to life after a false start two years ago? The answer is complicated, and full of unknowns, but here’s a try. The main reason for the comparison isn’t about market focus — Fusion Apps won’t specifically target the mid-market that ByD is focused on – but about the fact that Fusion Apps and ByD represent each company’s first foray into fully functional on-demand ERP. My opinion is that this distinction, particularly by later in 2010 when one could envision a head-to-head competition between the two might actually take place, will be the least important issue on the table. The companies that will consider on-demand will quickly move past that check-list item to the more important issues of feature/functionality, cost, and consumability that will drive the ultimate buying decision. And, at that point, may the product with the right fit for the job win.

There may be an advantage in the compartmentalization strategy of Oracle, which will make it easy to sell to an installed base in the large enterprise market, whereas ByD’s initial GTM was about finding net-new customers in the SME market interested in a highly configurable, model-driven suite. That will likely get more early adopters raring to go with Fusion, as this product will fit nicely into an existing market for Oracle. (The number of Oracle customers who were making the pilgrimage to Redwood Shores to test drive Fusion Apps was huge, and many were, of course, also SAP customers.) ByD will need to find net-new customers, and that’s always harder.

But these distinctions also mean that there will be little head-to-head competition between Fusion Apps and ByD, unless SAP changes its focus for ByD and starts more actively pursuing large enterprise opportunities as well. Or Oracle changes its focus and starts moving more Fusion Apps towards the SME market. We shall see.

Two companies have a lot more to worry about with Fusion Apps than SAP. Salesforce.com is the first: Fusion CRM On Demand many just be the perfect fix for some lingering antipathy towards Siebel in the market. Fusion CRM On Demand will represent a clean break from the Siebel past, and will have many of the cool bells and whistles that was shown in the Fusion Apps demo yesterday. And it will be positioned as an on-demand/on-premise product, unlike Salesforce’s OD-only offering. I think Salesforce, despite Marc Benioff’s marc-keting coup at this year’s Open World, will have a lot to worry about when Fusion CRM On Demand hits the market next year.

Also in trouble is Netsuite, which never really did much to market itself as anything more than a on-demand ERP provider. With two more such offerings now hitting the market in 2010, Netsuite will need to gen-up some means to distinguish itself against Fusion and ByD with some message other than “we’re on-demand.” Good luck with that.

So, Fusion Apps are finally here, and we NDA-bound analysts can finally start opining on one of the most anticipated, hyped, and poo-pooed product launches in recent memory. We’ll be watching carefully as these products start hitting the market next year to see if Oracle can meet the SLAs that are required in the on-demand market, particularly in light of SAP’s missteps in that regard with ByD. We’ll also watch for signs that customers are stalling buying decisions now that they have Fusion Apps to add to the short list: this is Oracle’s nightmare scenario, and the reason why the GTM strategy came so much later than the product development strategy. I think the compartmentalization of Fusion Apps will work to Oracle’s benefit, but only the market will tell.

Finally, we will need to see how SAP responds to Fusion Apps, and what Microsoft can do between now and mid-2010 to solidify its own on demand strategy for its ERP apps.  This is going to make 2010 a great year for customers, who will now have more choice and more offerings than ever before – and more eager vendors like Oracle anxious to prove that their big investments will pay off in revenues and market share. Stay tuned.

Larry Ellison Unveils Fusion 1.0

Here are the basics:

Version 1.0 includes the following modules:

Finance

Human Capital Management

Sales and marketing

SCM

Project portfolio management

Procurement

GRC

Notably, there is no manufacturing module. So the focus will be on the service industries.

Also notable: Each of these individual components will be deployable in a SOA architecture as standalone modules attached to an existing non-Fusion application suite, such as eBusiness Suite, Peoplesoft, Siebel, and, as Larry made a point of pointing out, SAP.

The other highlight is the user experience. It’s a pretty good looking system, having seen it under NDA (which has now blissfully been lifted).  I’ve seen a fair amount of it, more than Larry will be showing at Open World, unless everyone stays there through dinner. It’s definitely a beautifully designed  system.

More to follow.

Benioff At Oracle Open World: This Could Be A Trend

Apparently Marc Benioff scored both a PR coup and some nice/nice points by appearing at Oracle Open World on Tuesday and failing to completely trash talk his competitor. The event seemed to go so well (Benioff was described by one observer as “magnanimous“, not exactly an adjective usually associated with “shoot from the lip” Marc) that I think it’s time to start booking follow-on speaking gigs for competitors at some upcoming industry events. Here’s my list:

Oracle Open World 2010 Surprise Keynote: SAP’s Hasso Plattner. Herr Dr. Plattner will sail his yacht right into the Moscone Center and deliver a magnanimous attack on the relational database market by discussing his pet project, in-memory databases. Plattner will be joined on stage by Michael Dell, who will look surprised at all the attention Hasso is getting.

SAP Sapphire 2010 Surprise Keynote: Oracle’s Charles Philips. Sir Charles will sail Larry’s yacht into the Orlando Convention Center and deliver a magnanimous attack on SAP’s ERP software, calling it unfit for acquisition by Oracle. Charles will be joined on stage by Michael Dell, who will be wearing an Oracle racing jacket and a smug grin.

Microsoft Dynamics 2010 Surprise Keynote: Bill Gates. The unflappable Bill will parachute into the Orlando Convention Center from 30,000 feet and deliver a magnanimous attack on his company’s lack of focus on the enterprise software market. Bill will be joined on stage by Michael Dell, who will be wearing a “I Hate Vista” jacket and a tired, wan look.

Finally, Dreamforce 2010 Surprise Keynote: Hasso, Charles, and Bill will do a rendition of the Three Tenors before they magnanimously kick off their hostile takeover of Salesforce.com. They will then sail Benioff to his island retreat in Hawaii (one part Benioff on Hasso’s yacht, one part on Larry’s yacht) and vow never to talk at each other’s conferences again. Ever. Or at least until the next time.

And Michael Dell will be nowhere to be seen, to the relief of all.

The Fox in the Hen House: Benioff to Keynote at Oracle Open World

Yes, it’s true. I just got the invite for next week’s keynote from Salesforce.com’s PR team. And got it confirmed by Oracle. Apparently there  is a booth of massive proportions in the center of the Moscone Center that will be touting the Beni-fits of Salesforce.com as well. It’s one thing to have SAP and IBM boothing it up at Open World — there are literally billions to be had from the partnerships that Oracle has with these companies. But Salesforce? Rumor has it that Benioff has opened up the marketing vault and is buying advertising all over San Francisco in anticipation of his marketing coup, so expect to be seeing buses and cabs selling on-demand CRM software that doesn’t belong to Oracle all over town.

I can’t imagine how this happened, but if it sticks it will go down in the annals of competitive marketing as one of the weirdest coups of all time. If it sticks…..

Microsoft Dynamics Buys Its Vertical Expertise — Meeting The Challenges of a Channel Partner Development Strategy

Microsoft’s announcement that it was buying the industry-specific products and IP of three of its existing ISV partners reflects an important realization on the part of the mid-market enterprise software leader that partnerships alone cannot generate the industry expertise the Dynamics group needs to compete in today’s market.

These acquisitions are evidence of a shift in strategy at Microsoft that acknowledges the  impossibility of relying solely on partner products in order to push much-needed innovation into the market. I would expect more such acquisitions down the road as Dynamics strives to bake in as much industry-specific, and geography-specific, functionality as possible.

At the heart of this emerging strategy are two important facts: the main competitor-to-beat in the SME enterprise software market is still that ubiquitous “other”, typically a local company with some vertical industry expertise. This has made the fight for second place even more dramatic, and, even if it can dispatch “other” in a competitive situation, Microsoft is still taking on competitors that are more and more either baking innovation, particularly industry-specific functionality, into their core product lines and/or acquiring said functionality. That dual threat has made it hard for Microsoft to keep its current strategy afloat.

Until now, Microsoft’s industry-specific innovation strategy has relied largely on third party products and add-ons, provided by third party partners, who develop and bring to market the vertical and micro-vertical products – often geography-specific as well – that help Dynamics serve companies across a significant number of industries.

This strategy has always had two fundamental limitations, and more recently two more have been added to the mix. The first limit is simply one of development and support scope: many of these partners are small companies with limited resources, and have been unable to support their products across multiple geographies. So, while Dynamics was growing its catalogue of vertical products, it was having trouble getting them out to the broadest possible number of users. There is only so much a small ISV/partner can do to support a global development and support effort.

Limitation number two was on the sales and marketing side: even if there was the bandwidth for support at a given vertical partner, selling and marketing to the broadest possible Dynamics audience is extremely difficult for many of these partners. Localization of documentation, on-the-ground sales resources, lead-generation activities are always a problem for small companies, even though Microsoft’s traditionally strong partner program was there to lend a hand. And adding another vendor’s contract terms and conditions to a sale always makes things complicated, more than many prospective customers like.

These two limitations alone made it hard for Microsoft to compete with SAP and Oracle, both of which tend to either build or buy their industry expertise and release it to a global marketplace. And sell it and service it as a branded product, with the full weight of an industry giant behind the product, instead of the “industry giant + small ISV” combination that characterized much of Microsoft’s vertical industry efforts.

Then two other things happened to make life even more complicated for this partner-led industry strategy. The first was the recession, which hit many partners extremely hard, and made their triple role of reseller, developer, and after-market service partner even harder. Meanwhile, Microsoft announced at its Partner Conference last summer that it was, once again, asking its partners to bulk up (i.e. merge with one another) and get more business and industry knowledge (i.e. spend more time training their staffs).

What this all meant was that Microsoft was effectively stressing the part of the channel that it was depending on for a key competitive weapon – verticalization – while its competitors were building or buying internal capabilities and deploying thousands of programmers to solve their industry needs. This made it hard to imagine that Microsoft could keep up the competitive pressure against these competitors, when Microsoft’s key innovations were dependent on relatively small, and highly stressed, partners.

In other words, Microsoft needed to level the playing field by baking in more vertical industry functionality to its core products, particularly Dynamics AX, which is competing in a global market against global giants. While at the same time trying to differentiate itself from “other”, with its local appeal and industry-specific piece of software to sell. Talk about trying to be all things to all people.

Meanwhile, as Microsoft continues to do more acquisitions, SAP and Oracle will probably work on bulking up their partner ecosystems a la Microsoft in order to complement their baked-in industry functionality with even more specific vertical and geographic-based functionality. Microsoft is coming at the issue from one side, SAP and Oracle from another, and all three will converge in search of the same Holy Grail: the perfect combination of internal and external functionality needed to compete in all the major industries and all the major geographies. If there was ever a time to be a picky industry-specific customer – and a savvy industry-specific software developer – this is it.

SAP and Siemens: Rumors, Reality, Maintenance, and TCO

Rumors of the end of the world are pretty commonplace these days, and you don’t have to be following the current debate about healthcare in the US to catch a whiff of Armageddon in our times. The latest inclination that the world is coming to the end has emerged from Germany’s Wirtschaftswoche, a BusinessWeek equivalent that has a reputation for aggressively following SAP.

The rumor that WW has published, unconfirmed, is that Siemens and its 160,000 users will soon be using a third party service provider to manage Siemens’ vast SAP system. This event has been touted as any number of things, including SAP’s comeuppance and the best way for Siemens to focus on innovation and cost savings.

But is this supposedly leaked rumor real, or a bargaining ploy, or some combination of the two? It’s impossible to say, as neither company is talking except to say that Siemens and SAP are strategic partners and are planning to increase, not downgrade, their relationship.

Until facts intervene to clarify the issue, I’m going with the bargaining ploy option, for the following reasons. The first is that, with all due respect to Rimini Street, one of the putative replacements for SAP’s internal maintenance organization, I don’t see how they can gear up to provide comprehensive maintenance and support to SAP for what is either the world’s largest or the world’s second largest SAP installation (Nestle is the other contender). It would take something more than a Rimini to handle a customer of this size, despite their track record in third party maintenance.

According to WW, there are two other service providers in the running, IBM and HCL, both of which have the bulk to handle a client the size of Siemens. But would they take on such a task and risk the ire of SAP? I doubt it. HCL is considered inside SAP as a top partner, and one that has been growing its SAP practice at a phenomenal rate. More importantly, HCL is part of a vanguard of Indian SIs that are supplanting the traditional Accentures and Deloittes in the SAP market, and reaping tremendous benefits along the way. Taking away SAP’s Siemens business would be the end of that preferred status, and would, in my estimation, mean that HCL has chosen to be an antagonist and not a partner to SAP. Not exactly what I would expect from this company.

IBM might want to risk a similar rift, assuming they too had made an executive decision to start aggressively distancing themselves from SAP. But would the price be worth it? According to WW, Siemens currently pays SAP $43 million for maintenance. Assuming IBM would provide the kind of discount that Rimini provides, the value of the contract to IBM would be in the $20-25 million range. While this would mean a lot to a Rimini, $20 million pales in comparison to what IBM earns from its current SAP business, both in terms of what Global Services can command in the market as well as what IBM Software is selling to SAP’s customers. Again, would jeopardizing this much larger SAP business, worth over $1 billion a year to IBM, be worth injecting itself into this contentious issue? I doubt it.

This leaves us with a much more plausible scenario: Siemens wants to negotiate better terms for its SAP contract, and someone inside Siemens decided to put a little pressure on SAP by leaking this story. I certainly applaud the concept of negotiating better contract terms., though leaking this kind of potential bombshell may backfire inside Siemens, which doesn’t need any more funky publicity since it changed management and moved beyond its recent financial scandals. My sense is that Siemens will be sticking with SAP for maintenance, and while we’ll probably never know what the actual terms end up being, both sides will find a way to remain partners without resorting to the nuclear option.

Which brings us to the last point. The main reason why this whole issue of the value of maintenance is on the table at all is that SAP, and, frankly, the entire enterprise software market, has done a dismal job of justifying these costs to its customers. Discussions during quarterly financial calls about how maintenance revenues have kept these vendors afloat during the recession doesn’t exactly help.

What is needed is a concerted effort to do two things: the first is to define the actual value of maintenance dollars to all the stakeholders involved – excepting shareholders – in such a way that puts the reality of the issue on the table. There is a tremendous amount of confusion about what customers are getting for their maintenance dollars, and what vendors are doing with those dollars, and the debate needs more facts and less innuendo in order for this issue to be analyzed and understood in all its complexity.

The second is that vendors need to address the maintenance issue as part of a concerted effort to define total cost of ownership for their software, ideally in a way that shows how each vendor provides a competitive TCO. SAP is bearing the brunt of an industry-wide issue that right now is focused on a single metric – maintenance cost – while ignoring the larger, and much more salient, issue of TCO. Making maintenance cost the rallying cry of the disaffected ignores a much more complex and nuanced way to really assess whether one vendor or another is providing value to its customers. There is more to the cost story than maintenance, and the industry needs to expand the dialogue to make this story more complete.

I’m certain the powers that be at Siemens are looking at the value of their SAP relationship in much broader terms than just their maintenance costs, and I believe the results of that analysis will likely yield a continuation of the relationship, though probably with some lower costs somewhere in this vast partnership. Give and take makes sense between two partners makes sense, going nuclear doesn’t.