Converging Giants: Microsoft Dynamics lines up against SAP, Oracle, and

I’ve just come back the Microsoft Dynamics’ Convergence conference, where the news about Dynamics’ progress in the enterprise software space can be summed up in the following manner: The company’s two flagship products, AX and Dynamics CRM, have reached a functional level that basically places them on par with the best of their respective categories.

This leveling effect gives Microsoft the honor of not only being in elite company comparable in many ways to SAP, Oracle, and, but also effectively takes technology and functionality off the table with respect to its three largest competitors, at least today. This means that in all but the very largest enterprises –where only Dynamics CRM plays – Microsoft will win and lose deals based on the quality of its partner channel and their ability to provide support for local and micro-verticalized extensions of the Dynamics product line. The idea that Dynamics needs to play catch-up with its bigger brethren is no longer on the table.

That’s good enough for now, but in a couple of years the playing field will be even more different, and with that difference an important potential advantage will shift to Microsoft.  Dynamics’ promise – laid out in keynotes and one-on-one meetings over the course of the conference  – to fully support on-demand, on-premise, and hybrid deployments of AX, CRM, as well as GP and NAV, means that, starting approximately in 2013, only Microsoft will be able to offer pretty much any possible deployment model of its software from a single code-base.

This is an important distinction that may be hard for its competitors to deal with. The ability to offer customers the choice of running their deployments on premise, in the cloud, as a managed service, or as a hybridized mix of the above won’t be something that SAP, Oracle, or will be able to do across their core products – never in the case of Oracle and, and not for a while in the case of SAP.

While each of Microsoft’s competitors has plans for a varying mix of on-premise and on-demand products, the breadth of choice they can and will offer will be much less clean. Oracle’s Fusion will be deployable in a similar fashion to AX, with two powerful limitations: there are no plans to sell Fusion as a suite, nor will it in the conceivable future have the broad industry coverage that Oracle’s eBusiness Suite offers (or AX, for that matter.) There’s also the question of when Oracle will actually release Fusion into general availability – the official word is that there is no official word on when, leading to considerable speculation about the company’s commitment to what was to be its flagship, post-acquisition binge product.

The impact on will be harder to gauge: the on-demand market leader has tremendous momentum as the original go-to company for on-demand CRM, and its pure play strategy will appeal to on-demand purists. But as multi-mode deployment options gain ground, it will be harder for to insist that on-demand is the only way to offer rapid deployment and a means to shift the CRM budget from capex to opex.

SAP has a much broader shot at competing with Dynamics’ vision, though its Business ByDesign and forthcoming Sales On-demand have no on-premise deployment model, nor do any of the on-demand products under development at SAP that I am aware of. The larger Business Suite may someday become available in the cloud, but plans for such an eventuality have not been shared publicly. In short, SAP, which I believe has much a more solid cloud strategy than Oracle, will not be supporting the level of deployment choice that Microsoft has in mind.

There are many who think this breadth of deployment options is not as strategic as Microsoft or I believe – there’s a pretty formidable cast of pundits who believe this level of choice is either unnecessary or heretical or both. Time will tell, but I’m in the camp that believes that customers will prefer the multi-mode option for many of their deployments if given that option, and Microsoft’s plans to offer a supreme breadth of options is the right one for the foreseeable future.

And that choice effectively starts now – or rather later this year with the full release of AX 2012. Microsoft has promised that this version, while not the Azure-ready, dual-mode version that offers multi-mode deployment out of the box, will be readily upgradeable to the multi-mode version when it’s available, effectively allowing customers to buy an on-premise ERP system today and have the option to move it to on-demand at the next revision cycle. For the customer who prefers to sit on the fence and keep his or her options open, AX 2012 is looking good.

This in no way wipes Business ByDesign’s prospects off the map, nor does it obviate the fact that SAP has a strong product set for the mid-market – All-in-One, Business One for the on-premise customer, and Business ByDesign for the on-demand customer – that compete well against Dynamics. There is still considerable customer choice for SAP’s prospects – multi-mode deployments are possible, though from different code bases. And SAP’s willingness to put fight aggressively with its direct sales approach against Dynamics’ partner-driven model is a distinct advantage that one day Microsoft will have to do something about other than take the hit and live to fight another day.

The bottom line is that Dynamics has really hit its stride on the technology front, and now it needs to worry about how to compete in the channel. The above-mentioned problem with going indirect against competitors like SAP and Oracle that deploy direct sales forces against Dynamics in the upper mid-market and lower echelons of the large enterprise market will someday need to be addressed head-on, in my opinion. There are already Microsoft teams that call on large accounts, and then bring in partners to actually do the work of closing the deal. That may need to change as the capabilities of AX 2012 and beyond make it clear that Microsoft can play a stronger role at the top end of the market. At which point it may need a top end sales strategy to match its technical prowess. That’s the price to pay for growing up so well.

Microsoft Dynamics makes manufacturing a game, sort of….

During his keynote at this week’s Convergence customer showcase, Microsoft Dynamics chief Kirill Tatarinov demoed the use of Microsoft’s Kinect interactive gaming system as an interface to the company’s AX ERP system. It was a relatively lackluster demo as far as Kinect goes – no wild gyrations, or dislocating motions, no funky music or funky moves. Not exactly hyperkinetic on the AX side either. But by the time the quick demo was over, Microsoft had set another stake in the ground as both an innovator and a company that can create synergies out of its historically disparate business units. And the cause of gamifying the enterprise was furthered once more.

The demo was a simple simulation of a shop-floor environment where a gloved worker uses hand gestures to manipulate a kanban system by pulling down menus and exposing underlying data in the kanban system. I would have made the demo a little more exciting – I honestly imagine real workers would be tempted to liven up their Kinect sessions with a little more pizzazz than we saw on stage – but the outright functionality of the Kinect-driven user experience was undeniably cool.

Does this mean that Dynamics ERP is becoming a game? Not really – the use of Kinect absent any specific game mechanics means that no real games were created in the process of making the demo. But two observations on the ensuing gamification of the shop floor: the first is that, assuming that the enormous uptake of Kinect since its inception will continue apace, it will be hard for anyone to look at this user experience and not see the gaming components that Kinect could potentially bring on board.  “Hey kids, mom uses a Kinect at work too” will actually add some unavoidable gaming cachet to the boring, old-school shop floor we have come to know and (wrongfully) vilify.

The temptation – make that the imperative – to gamify the shop floor won’t be far behind. That’s the second effect: Kinect’s presence on the shop floor will make it virtually essential that some game mechanics be added to Dynamics ERP. It was hard (at least for me) to look at the brief demo and not imagine  a little leader board pop-up that showed who was the best at making a manufacturing line lean, among myriad possibilities. That and a monthly dance contest on based on the Kinect Dance Connect game, which could do wonders for employee morale too. The ability to both improve shop floor interactions and employee engagement sounds like a win/win to me.

The interfaces for this new Kinect capability are coming out shortly, and my sense is that any customer that is looking at touch screen interfaces to their ERP or MES systems should welcome the touchless touchscreen that Kinect provides. The bonus of being set up to start the gamificaiton of the manufacturing shop floor should be tempting to any forward thinking company as well.

The fact that this breakthrough is coming to ERP via Microsoft’s gaming division is the kicker. Kirill’s number one goal when he took over four years ago was to up the value and visibility of Dynamics in the greater Microsoft. For the last few years the sell-through synergy between Dynamics and the rest of the Microsoft stack has been a vastly unheralded story. The fact that the Xbox division is working hand-in-glove (pun intended) with Dynamics is further testimony to the success of Kirill’s internal synergy strategy.

How far into gamifying Dynamics will Microsoft go? My guess is we’ll see more in the near term. Microsoft’s Bing group gets gamiificaiton as well, and was one of the key presenters at last fall’s Gamification summit. As the concept of gamifying the enterprise gains momentum, I expect to see Microsoft Dynamics, with the rest of Microsoft at its back, take a leadership position.

Les jeux sont faits.

SAP’s In-memory Hana Database Appliance Gets Apped

The old canard the SAP is not an innovator took another hit this week with the partial unveiling of a new set of applications built to run on top of SAP’s Hana in-memory database system. The new apps, due out in a set of rolling releases this year, fill an important gap in SAP’s Hana strategy to date: actual applications that appeal to a line-of-business user, as opposed to Hana’s nerdy technology appeal. Not that there’s anything wrong with that, who doesn’t get all excited about a column-based, in-memory database appliance that can crunch a few hundred million records in a split second or two.

Well, actually, there was one small thing wrong with the last two year’s worth of Hana demos: after the first couple of amazing demos, a certain amount of buzz-fatigue started setting in. After all, once you’ve see the button pressed and the Explorer rows fill instantly with data from a humungous database six or seven times, the gee-whiz factor starts to lose some gee.

So, while SAP didn’t do any comprehensive demos of the new Hana-ready apps, just the prospect of a few good reasons for the line of business buyer to get excited was a refreshing sign of the potential that Hana has to rewrite the good book of data analysis in the very near term.

The Hana apps due to come out this year provide an impressive-looking range of functionality. Below is a list of the application SAP has slated for release this year, mostly in Q3 and Q4.

  • Strategic workforce planning (out now)
  • Sales and operations planning (due Q3)
  • Cash and liquidity management (due Q3)
  • Trade promo management (due Q4)
  • Smart meter analysis (due Q4)
  • Profitability engine (due Q4)
  • Customer revenue performance management (due Q4)
  • Merchandising and assortment management (due Q4)
  • Energy management for utility customers (due Q4)
  • Customer-specific pricing (due Q4)
  • Intelligent Payment Broker (Q4)

While we only saw snippets of a couple of these apps, it’s an impressive list, and adds to SAP’s potential cred as an analytics vendor with some highly competitive functionality. This list clearly comprises eleven in-memory applications that SAP will have by 2012, as compared to all those new in-memory apps the competition has – as in none.

How broadly any of these apps will attack their specific functional domains in release 1.0 requires an understanding of the back story to these apps: They have been developed using an agile methodology that would have been heretical at SAP only a few years ago. When I asked about the 90 days that Vishal Sikka, SAP’s CTO, said it took to develop Strategic Workforce Planning, the answer I got was that SWP (as it is not known internally, I just didn’t want to have to type that mouthful again) and the rest of the Hana apps were being developed without trying to exhaustively deal with the exceptions and special cases that sop up early development resources. Rather, the Hana apps are being developed first to cover the more general-purpose use cases, with the outliers to be dealt with in subsequent releases. So, will SWP 1.0 arrive in the market as the be-all and end-all of workforce planning? Probably not. But it will be the only one in the market that can totally kill the big data problem  behind workforce planning.

Other topics of note in a day crammed with noteworthy topics: Vishal also promised that Business ByDesign would eventually be running on Hana, as would SAP Business One, though no precise timetable was given for when the Hana versions would be released. There was no word on when (not if, IMO) SAP plans to make the decision to move the Business Suite onto Hana as well.

While the full Suite’s time frame for Hana is up in the air, pretty much everything in the SAP portfolio will be Hana-ized in coming years. And those apps will be available as on-demand apps – SAP partner Medidata is already providing its clinical trial management system,running on Hana, as an on-demand application. (And doing some pretty impressive analysis of the metadata being captured by Hana.)

Also noteworthy was the announcement that SAP would be offering to migrate its existing Business Warehouse customers to Hana, a move that would not only give these customers a screamingly fast data warehouse but also significantly lower the DBA costs associated with their BW data base, especially if it’s an Oracle or IBM database. This migration also gives existing BW customers a leg-up in deploying Hana apps, as they will be able to run the new Hana apps on the same Hana engine they are using for BW. Not a bad twofer in Hana’s favor. Actually it’s a threefer:  a faster BW, lower DBA costs, and a Hana engine that can  also be deployed to run Hana apps.

This isn’t just good for SAP’s customers, it’s also pretty bad for its competitors. Especially Oracle, which has bet its business on a stack strategy that SAP is trying to disintermediate with products like Hana. In addition to the possibility that Hana will replace Oracle in the BW market, the fact that it can run on standard, multiprocessor, multicore systems means that the hardware costs for Hana aren’t just cheap, they are decreasingly rapidly as the market for commodity RAM and Intel’s multicore processors just gets better. Vishal noted that a high-end Hana machine his team built last year at a cost of $530,000 was down to $405,000 four months later. I won’t enter the comparison pricing rate race here, as I don’t have enough Hana data to go on, but these prices are likely to put Oracle’s Exadata strategy on the defensive.

In the end, while the details were sparse, there was enough meat on the bone to make it clear that Hana’s future will be targeting the LOB and CEO as much as the IT department: the prospect of advanced, in-memory analytics was always a great idea in search of a critical mass of proof points. By this time next year I expect those proof points to be well ensconced in a new market that SAP is hoping to dominate. The onus is now on SAP’s competition to provide some meaningful competition. The clock is ticking….

SAP CRM Sales On-demand Heads to Market

More proof that SAP is serious about making a break from its on-premise past and in the process challenge on-demand titan came last week in the form of a preview look at SAP Sales On-demand. The preview, granted to a group of industry analysts in Boston, proved that SAP isn’t afraid to be innovative in ways that could threaten the very on-premise enterprise software edifice that SAP itself has helped create over the last 20 years. And it showcased the latest in a growing portfolio of on-demand applications that, at a minimum, gives SAP serious credentials as an on-demand player-to-be.

The preview that we were shown gave a clear view of a collaborative CRM application that represents a serious break from how SAP, and most of the industry, view CRM. While the goals of the current product are relatively modest by the overarching breadth of the CRM acronym – Sales OD is targeted at enabling the sales team, and does not include marketing or other adjunct functionality – the result is a solid first salvo over the bow of the current on-demand champion,, and the main contender, Microsoft’s Dynamics CRM.

The key component that makes Sales OD stand out is its implicit support of sales team collaboration. As I wrote here, SAP had the analysts play, literally, with Sales OD in order to give us a sense of how it works. It was clear from the game that Sales OD was designed from the get-go to be a collaborative sales tool, as opposed to having collaborative features glommed on as part of an enhancement release. This collaboration is enhanced by support for content access, analytics, and other key features that round out a pretty good looking CRM tool.

But what is under the hood is perhaps even more significant, insofar as it gives us a glimpse into a broad-based SAP strategy that will give Sales OD users and partners access to a large portfolio of functionality that will truly challenge Salesforce, and provide a potent rivalry to Microsoft’s plans for Dynamics and its Azure on-demand platform.

The secret sauce for Sales OD comes in the form of an even tighter connection to SAP’s Business ByDesign than had been previously intimated. ByD has become not only the platform for Sales OD and SAP’s other present and future on-demand applications, but the functionality in ByD – all the non-CRM, ERP stuff that ByD is designed to do – will be made available via a forthcoming software development  environment that is similar to the SDK SAP released last year.

That makes it possible to extend Sales OD to include direct process and data integration with the rest of the ByD stack’s individual on-demand processes, making it the kind of deeply integrated CRM/ERP application that Salesforce has to partner to deliver. This on-demand integration will be in addition to direct integration to the on-premise SAP Business Suite.

The ByD connection will also bring Sales OD into the extended CRM world that Microsoft’s Dynamic CRM is targeting with its xRM development environment, which has huge implications for partners as well as customers. Of course, for the most part, Dynamics is targeting the SMB market, whereas Sales OD is a large-enterprise product targeted, initially at least, at SAP’s installed base.

Microsoft’s Dynamics CRM will also have a different competitive profile due to its ability to provide a complete hybrid on-premise and on-demand CRM option, something SAP and can’t do. But the ability of Dynamics CRM Online to eventually make use of a rich palette of services to be available in the Azure on-demand environment – on top of its current ability to extend the CRM model using the xRM SDK – will put it on a collision course with Sales OD and ByD.

At a minimum, Sales OD will make it hard for Salesforce and Microsoft Dynamics to pick off the easy wins among the SAP customers unhappy with earlier SAP CRM versions, much as ByD’s CRM functionality will be able to cut into competing vendors’ ability to poach the subsidiaries of smaller operating entities of SAP’s large-enterprise customer base. And when Sales OD can be extended to include ByD’s non-CRM capabilities, the combination will be a potent competitor in the market.

When Sales OD reach this highly competitive milestone? Looks like the full complement of functionality, including the SDK, will await a future release of the product, probably in the 2012 timeframe. Meanwhile SAP will be pushing Sales OD as a “standalone” on-demand product in its initial versions, coming this year.

Sales OD comes as the latest entrant into SAP’s on-demand portfolio, following ByD, Sourcing On-demand, Streamwork, and Carbon Impact (which is not on the ByD platform), and precedes the market entry of Travel On-demand and Career On-demand, due out later this year

This growing portfolio proves that a revolution is underway at SAP, and in the industry: The old days of SAP as a purveyor of big, monolithic enterprise apps is gone. Sales OD proves that SAP is going to mount a frontal attack on the nascent on-demand market. Even if it means disrupting the very forces it helped create.

SAP Plays Games with the Analysts, and the Gamification of the Enterprise Begins

I went to a preview showing of a new SAP product last week, and had about the most fun I’ve had an analyst event since….well, if I had more fun than I had at last week’s event, I can’t remember.

In the process I got to see the product up close and personal, and it looked really nice. While that’s not really  meant to be a “and by the way, product X was really nice” – there’s an embargo on the news until tomorrow, so I’ll have to be circumspect — I have to admit that they way in which we were shown how the product works was perhaps as significant as the product itself.

That’s because SAP chose to “gamify” the presentation of product X to the analysts: the SAP team very cleverly used the doldrums of the post-lunch digestive phase to stage a game in which the analysts were teamed up and then competed to take the product through its paces. We were given some very rudimentary tasks  that gave everyone a good sense of what the user experience of the new product looked and felt like. There were bugs, there was confusion, and there was a ton of fun to be had in the process.

Most importantly, there was engagement at multiple levels. We engaged with the product, we engaged with one another, we collaborated, we competed, and, here I am, a few days later and still under embargo about the product itself, mulling over how what I saw and what I experienced is still fresh in my mind.

This is the promise of gamification, the latest buzz word to rage around the technosphere. Gamification is fundamentally the process of taking the engagement mechanisms we find in games – rewards, punishments, excitement, drama, competition, collaboration – and “plugging” them into our day to day lives.

A game is “Angry Birds”, a gamified user experience is one in which the user is having fun by being challenged  and rewarded for his or her actions. The challenges and rewards come in a many different forms – called game mechanics – that borrow from the world of online games like Angry Birds as well as offline games like Solitaire. The goal is to make “work” enough like a game to be as compelling and engaging as a game, but with an outcome that has measurable benefit beyond pure fun.

Which is exactly what took place at the product X preview last week.  And it worked. And if gamification can work in taking a product demo to the next level, imagine what it can do for, say, purchase order processing.

SAP has been looking at gamification for a while, and is beginning to make a run at the concept in its development work as well as in analyst events. SAP’s Community Network site has a number of references to recent gamification activities that are on-going at the company. One of SAP CTO Vishal Sikka’s team was at  the recent Gamification Summit in San Francisco, and the company recently had a talk by Stanford professor Byron Reeves, author of a book on the subject of gamifying the enterprise.

What does SAP see in gamification? The above SCN link says it all in its first header: “Gamification or How to win 1 billion Users until 2015.” This is the basic concept underlying SAP’s moon shot quest to reach a billion users: If you want to get people to be deeply involved in an activity, you can either coerce them or find a way to engage them in a more positive manner.

The old model that the tech industry has followed has been mostly coercive: users are forced to engage with their enterprise software because the boss said so, their job performance demands it, and they basically have to or else. The new model says that people should be engaged with enterprise software because they want to, because it’s compelling, because it’s – gasp – fun.

Having fun at work is a very subversive notion, though of course anyone who is having fun at work will tell you how much having fun compensates for working too hard. And anyone not having fun at work will tell you how much not having fun makes work even less fun. Subversion is complicated that way. So is fun. And work.

Why gamification is having its heyday has to do with the raging success of online gaming (which, in this context I mean games like World of Warcraft or Farmville, not the other gaming, which involves gambling and other vices.) Not only are games like WoW, Farmville, and Angry Birds popular, but they have spawned enormous online communities where the amount of time spent on community activities – chatting, forming teams, sharing tips, bragging, etc. – vastly exceeds time spent actually playing the game.

Translate this to the enterprise, and suddenly the notion of reaching one billion users puts the word “reach” in a different perspective. If a company like SAP can not just reach these users, but engage them in a gamified experience that is compelling and fun, SAP can potentially can make users something more than just users: they can be participants in a community environment where that old coercive model of engagement is a thing of the past.

The trick is that gamification is hard, coercion is easy. It would have been so much easier if SAP had just lectured the analysts into a stupor, instead of taking a risk and engaging us in a game. Of course, the results of gamification are vastly different, and SAP took a risk in getting the analysts so deeply engaged in the product – after all, playing a game around a bad product will only serve to reinforce a negative experience. But, regardless of the tenor of the analysts assessments that will come out tomorrow, it’s clear that all of us writing about Product X can do so from a rare position of knowledge, gained from the gamification of the knowledge acquisition process.

A little fun can go a long way, especially in the enterprise.

Bob Muglia Leaves — is this the Beginning of a Major Enterprise Realignment at Microsoft?

There’s lots of speculation floating around about why Bob Muglia, head of Microsoft’s Server and Tools Business, is leaving this summer.  I agree with my colleague Mary Jo Foley that is wasn’t because Muglia wasn’t all-in on software&services, he seemed to actually get it.  But I do think there may be a reason that is nonetheless tied more to S&S than it may appear: Microsoft is going to reorg around its own “stack” business, and in doing so take a major new tack in the battle for the enterprise.

The new tact will be Microsoft’s own version of the stack wars, in which Azure, fueled by the Dynamics ERP products and partners’ enterprise software and services, becomes the leading edge of an increasing focus on direct sales to the enterprise.  This won’t obliterate the thousands of partners from the mix, but it will create a major shift in how Microsoft goes to market, particularly with respect to the large enterprise: much more direct and more in line with what IBM, SAP, and Oracle are able to do with their stack offerings.

As I have said before, the synergies between Dynamics and the products that Muglia oversaw was growing significantly, and that overlap will continue as Azure moves forward to claim a significant piece of the cloud market. Indeed, the growing realization that the cloud is taking over mindshare (though not walletshare — yet) in the enterprise has been sharpening the focus of executives across the industry. And while Muglia was great at building a strong STB and a strong partner channel for the products, would he necessarily be the right guy to help shift gears and help position Microsoft for a C-level dialogue about the new enterprise a la Microsoft? I don’t think so.

This shift is one that has to be under consideration in Redmond, for no other reason than the fact that the competitive  landscape is demanding it. Oracle is pushing the envelope hardest right now, though it’s following IBM’s footsteps into the CEO’s office with a me-too stack sale. This is putting a ton of pressure on SAP to man and women-up its own efforts to sell a deeply strategic vision of software and services, and that vision is starting to look like it will include a decent amount of Azure+Dynamics-like functionality, and be highly competitive to the Microsoft offering. Then there’s, chewing up mindshare across a broad swath of the market that Microsoft is targeting. And waiting in the wings is Hewlett-Packard, now in the hands of a seasoned software executive who understands these opportunities as well.

This massive market realignment leaves Microsoft out on a limb if it only relies on its fabled channel to do the heavy lifting for all the new products and services that S&S and Azure+Dynamics represents. While the partner channel has been beefed up by the presence of the global SIs in recent years, the idea that Microsoft can compete directly with IBM, Oracle, Salesforce, SAP and HP in the coming market realignment with just its channel partners must have struck Ballmer as a little iffy. And it may have seemed that, for all his talents, Muglia was not the one who could take Microsoft to this new level.

What this realignment means inside Microsoft is a shift in what STB is and does in support of the rest of the Microsoft vision: STB will have to play more of a supporting role, more the loyal commodity stack provider, in a high-stakes, high-value market where everyone (except SAP) has a rapidly commoditizing stack offering on which each vendor must position high value-add assets like enterprise software and services. The stack components don’t go away — they become an essential part of the sale — but they have to take second fiddle to a higher-value offering. That offering in Microsoft-land will not come from STB, but from — and here’s where I go out on a limb — a realigned Microsoft that is selling a much broader strategic vision of what the enterprise wants and needs: a vision much more like Oracle and IBM than ever before.

I may be wrong that Muglia’s departure is related to this new market reality, but if it isn’t, then another shoe will drop soon that defines the beginning of such a realignment. Microsoft has never been in a more precarious position in its fabled history — I haven’t even mentioned the Google threat or the Apple threat, or the smart phone and tablet challenge — and it has never been better positioned to pull ahead of its enterprise competitors with a new focus on Azure and Dynamics as essential components of Microsoft’s own stack strategy. The manner of Muglia’s departure and Ballmer’s careful wording may have led me to go out on a limb about the particulars of the cause and effect at play here, but, one way or another, Microsoft needs to shift to a more direct focus on the enterprise — direct as in a direct presence in the executive suite — or watch its latest opportunity fall prey to a slew of competitors that get the enterprise opportunity in a much more direct way.

The Realignment of the Enterprise Software Market: Oracle vs. Everyone, Microsoft in Ascendance, and Watch out for Infor

Larry Ellison makes no bones about it, he’s willing and able to compete to the death, or at least to the near death, with any and all who stand in his way. So, despite the billions of dollars in joints sales between Oracle and SAP, HP, and IBM, Ellison has been directly, and at times, viciously, attacking these three companies in very public and very over the top ways.

These are not some of Ellison’s finest moments.

Not only that, he seems to have neglected one major rival – Microsoft –  despite the fact that the relative degree of competition versus joint business between Oracle and Microsoft is significantly smaller than between SAP, HP, and IBM. This would theoretically make Microsoft a more logical target for Larry’s wrath – especially if Larry really understood the degree of the threat that Microsoft presents. More on this in a moment.

And everyone seems to be forgetting that a new player is about to emerge in the form of Infor. More on this in a moment too.

Meanwhile, the consequence of Ellison’s attacks and actions regarding SAP, HP and IBM are having the unintended effect of pushing the above three competitors into a relatively united front against the Ironman from Redwood  Shores. While SAP, HP and IBM all have many reasons to compete with one another, SAP in particular is beginning to see some benefits of being the wild card in the HP and IBM portfolios that can counter the wildness of Oracle.

SAP EVP Sanjay Poonen described this effect at the SAP Summit last week – adding that in particular his field sales team is teaming up with IBM and HP to beat Oracle as much as possible. The fact that this is happening perhaps more in the field than in the executive suite is key: field sales people are notoriously pragmatic and tactical, and their apparent propensity to team up with erstwhile rivals to take on Oracle is an indication of the value of this  new realignment, all other political realities aside.

So, with Ellison talking Oracle into a corner with SAP, HP and IBM– one based, in my opinion, on a theory about the value of the hardware “stack” that is hugely outmoded – it’s interesting how little time he spends dissing Microsoft. To his peril.

What many, Larry obviously among them, don’t realize is that Microsoft Dynamics, the former bastard stepchild of the Microsoft portfolio, is now becoming the poster child of innovation in Redmond. And Redmond is taking notice big time: hidden in the departure of Stephen Elop for Nokia was a significant upgrade for Dynamics: Kirill Tatarinov, the head of Dynamics, now reports directly to Steve Ballmer.

This is no accident, or, as one of my Microsoft contacts told me, “Ballmer is already busy, he doesn’t need more direct reports.” The reason for Ballmer’s direct interest in Dynamics is based on three newly discovered values for Microsoft’s second  smallest division:

1)      The Dynamics product pull-through: Once, in the days before Jeff Raikes, there was serious talk about jettisoning Dynamics. Then Raikes figured out that Dynamics is a great driver of product pull-through. Today, every dollar of Dynamics generates from $3 to $9 in additional software sales for Microsoft. Now that’s what I call a stack sale.

2)      Dynamics’ VARs and ISVs get the software & services = Azure strategy: It’s clear that the value-add of Azure has to be about driving innovation into the enterprise, and that’s not something the average Office or Windows developer really gets. But Dynamics partners live and breath this concept every day, and Microsoft has been honing the high-value, enterprise-level capabilities of its Dynamics channel this year in a concerted effort to make them enterprise and Azure-ready.

3)      Dynamics capabilities will drive much of the functionality in Azure: Dynamics CRM is already the queued up to be the #1 app in Azure. Next stop, break up AX into components, and let the partners use them as building blocks for value-added apps. (And do so before SAP’s ByD development kit starts stealing this opportunity.) While SQL Server, Sharepoint, Communications Server, Windows Server, and other pieces of the stack will have a big play in Azure, the customer working in that innovative new Azure app will most likely be directly interfacing a piece of AX, or Dynamics CRM. That makes Dynamics essential to Azure, and vice versa.

What does the Microsoft factor mean in terms of the aforementioned realignment? Well, despite Ellison’s public neglect, Microsoft is setting up a strong case for contending for a big chunk of the market. The case starts with the SME market, where Microsoft is traditionally strong. But the Azure/S&S/Dynamics strategy is heading straight for the large enterprise as well. SAP’s recent strategic definition of the opportunity for on-demand apps to deliver innovation to large enterprise customers locked into an on-premise world plays well for the above Microsoft strategy as well.

This places Microsoft front and center in a battlefield where it is deploying 21st century technology against an Oracle that fighting the battle as though this were still the 20th century. We’ve all seen this movie before: Black Hawk Down is just one version of the danger of deploying sexy but old technology in a battlefield that has evolved in the middle of the war.

With Microsoft starting to outflank it – its version of a stack is a warehouse full of interchangeable, plug and play container-sized data centers, with virtually no on-site maintenance needed – Larry is driving Oracle towards a focus on hardware that starts to look a little tired.  Sure, we saw genuine innovation from Oracle at Open World this fall, but it was buried in a corporate message about hardware and a strategic necessity for a little too much middleware in order to deploy this innovation. Fusion looked good, but it’s not yet ready for the market, and the shenanigans surrounding the circus atmosphere preceding and during the trial against SAP was an unfortunate distraction from the business of actually building and selling innovation.

In fact, I think the impact of the trial will rebound against Oracle as the negatives  – mostly centering around the lawyering-up of the enterprise software market – start to come home to roost. I always felt that Oracle would be hard-pressed to show that its hot-footed, heavy-handed pursuit of SAP would have a measurable payback in either market share, stock price, or customer preference, and the impact of adding the fear that Oracle is ready and willing to lawyer up to win in the market will start to trickle down to the customers as well. No vendor wants its customers to worry that they could end up facing down the likes of David Boies if things start to go south.

Meanwhile, I have yet to find a single customer who thinks more highly of Oracle since the trial, or for that matter, less of SAP. I do know a number of customers who have really been scratching their heads at Oracle’s conduct, and I personally worry that the lawyers seem to be running Oracle more and more, to the detriment of the people at Oracle who actually develop, market, and sell product. I love lawyers, including the one I employ to help me when my business dealings need it – but the day he becomes a strategic asset to my business development efforts is the day I look in the mirror and start slapping myself around.

So, with Oracle facing a number of potential self-inflicted wounds of late, Microsoft on the rise, and HP/SAP and IBM/SAP starting to work better and better together, the market is starting to shift gears once again.

And waiting in the wings, but not for long, is Infor, with Charles Phillips at the helm, ready to start throwing its weight around.  I firmly believe that Charles Philips, aided and abetted by Bruce Richardson, the former AMR analyst, is calmly dissecting the market and getting ready to launch a new strategy that will have Philips old company occupying that bullseye in the middle of the target.  Not because anyone is vindictive or out for revenge – not in our industry – but because Oracle’s strategy is the one that’s looking a little stale right now. I for one can’t wait to see what the new Infor is cooking  up for the market.

So, it’s almost 2011, and my prediction is this: fasten your seatbelts. The new year will bring a shifting of forces and interests that would make Metternich drool and leave Kissinger gasping for air. And regardless of whether you believe any of the above, you have to grant me this last fact: boy, is 2011 going to be an interesting year.

SAP Goes On-demand

While the reigning crown prince of on-demand held court at Dreamforce last week, a pretender to the throne threw down the gauntlet and made its first full-court, concerted press into the future perfect of the enterprise software market.

Day two of SAP’s analyst summit was an all-day marathon of product roadmaps, demos, and discussions that made it clear that the company was looking to recapture some lost momentum and catapult its products – and customers – into the on-demand world. The combination of architecture, tools, products, and strategy made it clear that SAP has laid the groundwork for a concerted, multi-front effort, the success of which will ultimately hinge on SAP’s sales and marketing execution.

In other words, as is often the case with things technological, the technologists have done their jobs well, and now the real work of moving the market begins.

The prospects for SAP’s prospects look good, starting with Business ByDesign: In addition to its standing as an ERP on-demand product for the mid-market and the subsidiaries of large enterprises, SAP’s Business ByDesign has been reworked into a multi-tenant platform that will support the bulk of the company’s on-demand initiatives. NetWeaver, the once and future technology platform of SAP, is being reconfigured to support a hybrid on-demand, on-premise world of SAP core apps (the Suite) and edge apps (existing and pending on-demand and on-premise apps). And SAP will throw some key technologies, like in-memory computing, into the mix, hoping to drive specific competitive advantage into its efforts.

The role of ByD in the subsidiaries of SAP’s large enterprise customers is particularly interesting, as these customers are desperate for low-cost functionality and innovation that won’t put them in conflict with their headquarters. SAP told the analysts that its 400 top customers have 143,000 subsidiaries between them. That’s a helluva starting point for building a strong ByD customer base.

SAP also showcased its Sales On-demand product, which will have a very aggressive roll-out next year under the aegis of John Wookey’s team. It’s a good-looking, highly collaborative product that will give SAP a legitimate place at the table in competing with the likes of, Oracle Fusion CRM, and Microsoft Dynamics CRM. Finally.

The platform strategy SAP showed was also well-considered, though it will take two years to bring it fully-formed to market. But many of the elements, particularly those that depend on Business ByDesign, are available today, and have been used to create and stage Sales OD and the on-demand talent and expense management apps that were demoed to the analysts.

Also getting it’s first full public demo was the new SDK for Business ByDesign, which will allow partners and customers to extend the data models, workflow, and functionality of ByD in order to create net new customizations and on-demand functionality. This SDK strategy is essential for customers that require more than just least common denominator functionality.

The ByD SDK has a strong precedent in the market with Microsoft Dynamics’ xRM, the company’s SDK for its CRM product. These SDKs give partners a much-needed value-added role in the otherwise low-margin on-demand market, and SAP’s ability to use the full complement of data models and processes inherent in ByD as building blocks for net-new innovation gives SAP’s partners a particularly rich palette on which to build.

Another noteworthy product rolled out in front of the analysts was the latest version of Streamwork, SAP’s think-out-of-the-box collaboration tool. The demo I saw was particularly interesting as it included a much-needed “process” template that actually showed how to get a particular collaborative process going. This is big step from the blank-slate methodology that Streamwork started out with: the entire so-called collaborative market will be useless without methods and processes for collaboration, and SAP has wisely started to step up to the plate and show the market how collaboration can be done.

Finally, Peter Lorenz, SAP’s evp for the SME market, articulated the basics of an on-demand strategy that to me makes tremendous sense. The company’s embrace of a hybrid strategy of on-demand and on-premise apps is practical, even if it violates a perceived wisdom about the purity of the on-demand model that I find ignorant of the realities facing most companies today. Similarly, the acknowledgement by Lorenz that SMEs want on-demand to run their businesses without incurring large capital expenses, while large enterprises look to on-demand to deliver innovation at the edges of the core on-premise world, is also a solid basis for a pragmatic strategy that fits the reality of the market today. And for some time to come.

All this great technology will be fighting an uphill battle in the market, particularly against the market clout and marketing budgets of and Microsoft. While parts of the strategy – like the subsidiary focus for ByD – can be done on the cheap, there’s going to have to be a lot of viral buzz generated in order to compensate for the relatively modest budgets that SAP has allocated to this corner of its vast portfolio.

Can SAP on-demand have an impact? I believe so. The company will start off 2011 with a solid competitive story on multiple fronts – including a strong, multi-front on-demand message for SMEs, SAP’s large enterprise customers, CRM buyers, and partners. How the year will end is all in the execution: SAP has taken the field, now we get to see what they can do once they get the ball.


How long is the coast of Britain? Benoit Mandelbrot knew the fractaled answer

Benoit Mandelbrot passed away this weekend, one of the giants of mathematics and computer sciences. I ran across his work back when I was studying computer science in the early 1980s,  and it was a revelation. His ability to provoke the analytical side of the brain with provocative articles like “How long is the coast of Britain” as well as thrill the visual side with the beauty of the fractal geometry that he created was memorable. The concept of “extreme sensitivity to initial conditions,” an expression of the butterfly effect, was embedded in his fractal geometry as well.

A rare combination of intellectual and aesthetic beauty resulted from his work. Mandelbrot was that rare genius who touched many fields and many disciplines — may he rest in peace.

Setting the Record Straight: Oracle, SAP, TomorrowNow, and the NYT

I like Joe Nocera, and usually think he hits the nail on the head. But his Saturday column about HP’s new CEO, Léo Apotheker, and his role in the lawsuit between Oracle and Léo’s former company, SAP, over SAP’s TomorrowNow acquisition, swings and misses by a country mile.

The problems in Joe’s main thesis, that Apotheker is tainted by his association with allegations that TN committed “the most serious business crime that you can commit” – a moment of impressive hyperbole that tries to compare the alleged theft by TomorrowNow of Oracle’s IP with crimes like destroying the US-banking and mortgage system, annihilating trillions in investor equity, and the likes of Bernie Madoff – are curious considering the usual quality we expect from Joe.

Let’s start with the main allegation, one that looks really begs the question of what Joe is really up to. Nocera, according to his column, recently became aware of something that I had to read twice before I was sure that what I saw was really in print in front of my eyes. “As a member of SAP’s executive board, Mr. Apotheker clearly knew about the theft.”

I’m going to give Nocera the benefit of the doubt and assume that he really meant the following: at some point after the IP theft allegations were investigated by SAP, Apotheker knew that the theft of Oracle’s IP had occurred. Bear in mind that the theft has already acknowledged by Apotheker’s former boss and co-CEO, Henning Kagermann, so it would make sense that the entire executive board knew about it as well.

But there’s another interpretation that is more troubling – does Nocera think Apotheker knew all along that IP was being stolen by TN? He seems to think it’s possible, and then quotes that most objective of all sources, Oracle’s amended complaint against SAP, to prove his point. Quotes out of context, I should say. Or, rather, quotes without context. Which I will now provide.

Nocera cites the two main smoking guns of the Oracle lawsuit as evidence of his claims of what Apotheker knew and when he knew it. Both have clearly been lifted from the complaint without being vetted by any objective party.

Number one is that Nocera claims that a January 2005 presentation to the SAP board proves that SAP’s board knew that TN’s business model “depended on stealing Oracle’s code,” mostly because the presentation requests that a legal review of TN’s practices be undertaken. According to Nocera – and he says this with a throwaway statement that makes it clear he never actually tried to report the fact – this legal review never took place, because the deal closed shortly after the January 2005 presentation.

Smoking gun number two was the comment in the amended complaint that TN used a “nonproduction” (sic) copy of PeopleSoft code in order to do its work. Nocera equates this term non-production to “unauthorized”, once again revealing… well, let’s just say he doesn’t understand enterprise software.

Smoking gun number one has a major problem with it – while outright IP theft is illegal, TN’s business model as represented to SAP’s board, and the public, at the time of the acquisition was arguably very legal. Arguably is the right term, because while third party maintenance has always been done in the industry, particularly by large SI firms, the application of the legal basis for this work had never been extended to a business that only does third party maintenance, like TN.

It’s important to note, and Nocera misses this completely, that the business model TN was supposed to have is not what the Oracle lawsuit now alleges was the model used to commit a crime. The amended lawsuit clearly states that TN stole inappropriately, but the larger issue of whether a third party maintenance company can use IP licensed by a customer from a software vendor to service that customer (and only that customer) is still up for grabs. It may someday be ruled illegal, but that day has not yet arrived.

Indeed, Rimini Street, founded by TN’s founder Seth Ravin, runs exactly this kind of business. And while Rimini is being sued by Oracle, no judge has given Oracle injunctive relief to stop the practice. Which means it’s a trial-worthy issue of the law. Which means, at a minimum, if TN had just stuck to what it was supposed to be doing, SAP wouldn’t be in the mess it is now with Oracle.

So, yes, Apotheker knew what TN’s business was supposed to be about, and most likely looked at the January 2005 presentation as a warning about what legal battles SAP would have to fight – the one that Rimini is now fighting, about a very complex and opaque corner of contract law. But to imply that anyone on the SAP board knew that TN was illegally pillaging Oracle’s IP based on a few slim sentences in Oracle’s amended complaint is egregiously sloppy reporting.

The non-production issue is more silly by comparison, because it reveals that Nocera doesn’t understand that non-production instances are totally and completely authorized: these are the test, development, and training instances that every licensed user runs in addition to the production system that actually runs the business. Why this shocking, shocking issue of non-production systems is in the amended complaint at all is not explained by the complaint or Nocera. Third party service providers have access to non-production systems as a matter of course: you wouldn’t want to be testing an upgrade on your production system, would you?

Finally, Nocera’s skewering of Apotheker over TN and how Business ByDesign “flopped” shows how little he knows about the history of the acquisition and how SAP’s board operates. First, any discussion of the responsibility for the acquisition of TN would have to center around Shai Agassi, not Léo Apotheker. TN was Shai’s baby, he promoted it eagerly inside the company as an aggressive move against an aggressive competitor. Because the SAP board – unlike US-based boards – has clear functional delineations of responsibility, if any smoking gun was being held, or concealed, it would have been held by Agassi, not Apotheker. And, by the way, for the record Joe, Shai doesn’t have any smoking guns either.

Same with ByDesign – the person who held responsibility for this product was former board member Peter Zencke, not Apotheker. Again, at the board level, Léo would have likely deferred to Zencke on virtually every aspect to ByDesign, so to blame Léo is to not understand how responsibility is distributed at SAP.

So, we’re left with the gist of a column that not only doesn’t hold water, but is leaking like a sieve. The rest of what Nocera is trying prove, that the HP board has laid another egg, doesn’t have a lot left to support it. Nocera claims ethical lapses by Apotheker, but he supports them with the thin gruel of Oracle’s complaint and reportorial lapses that are astonishing in their magnitude.  Too bad for all concerned.