04.30.07
Posted in ITIL, Technology Market Trends at 1:04 am by Tony Baer
Rumor had it that, back in 1899, U.S. Commissioner of Patents Charles H. Duell declared that everything that could be invented had been invented. In actuality, Duell’s supposed comment and his recommendation that the Patent Office be closed down proved an urban myth. Of course, that didn’t prevent the metaphor from being abused by pundits such as yours truly, or by presidential speechwriters.
Next week, debate over that urban legend -– as applied to the software industry -– will be the central theme of Software 2007, an annual gathering of the folks who buy, sell, and run software companies. Specifically, it’s the question of whether consolidation is killing innovation.
Clearly, unless you’ve been living under a rock, it’s kind of hard to not notice that software industry consolidation has sharply accelerated since 2000. And according to conventional wisdom, when you have fewer voices there should be fewer new ideas.
But let’s first ask if anybody cares. Is there such a thing as too much innovation?
Ask any SAP customer about how much they look forward to upgrades. Of course, in most cases, version upgrades are not necessarily innovation. They simply augment (or detract) from existing functionality.
And then there’s innovation that in actuality is little more than feature creep. Case in point: Microsoft Word 2003. An upgrade from Word 2000 –- which we fondly remember because, for us, it worked just fine, thank you. Yet the 2003 upgrade added “smarter” formatting that was supposed to be innovative. But in actuality, it ended up making our life more complicated and less productive. Obviously there’s such a thing as half-baked innovation.
Too much innovation -– good or bad -– can be clearly disruptive. But obviously, were the march of technology to cease tomorrow, you’d never be able to solve that perplexing integration problem, or discover how to rationalize IT service management.
So let’s return to the main point: if innovation is a good thing, does consolidation stifle it?
Obviously, acquisition strategies where vendors are swallowed up for maintenance streams certainly validate conventional wisdom, witness CA’s practices during the Charles Wang era.
But when a vendor acquires a microscopic startup, it’s usually about mainstreaming, not killing innovation. For instance, when BEA bought 12-person SolarMetric about a year and a half ago, it was a shortcut to adding a critical piece of Enterprise Java Beans 3.0 object/relational mapping technology to its products.
Arguably, the goal of most niche startups not to become the next Microsoft or Google. For instance, SolarMetric was not likely to find a mass enterprise market for such a niche technology – who would go to the trouble of buying something like an object/relational mapper a la carte? Such a technology had to be part of a broader product, offered by a vendor with sufficient market reach.
Whether acquisition spurs or suppresses innovation depends on culture and, obviously, where the vendor is in its product or market life cycle. When IBM bought Rational, Rational’s peak of innovation was behind it. Not surprisingly, in the years since, IBM has failed to renew the core product. Maybe IBM should have taken the steps that Rational failed to while it was still independent, but the innovation slowed well before IBM’s watch.
Similarly, when you look at the dramatic consolidation in the ERP market, from the standpoint of innovation, it’s made relatively little difference because ERP is a pretty mature technology. Whatever innovation is occurring is happening at the edges — such as deconstructing functionality into plug and play services.
Consolidation hasn’t prevented innovations, such as software-as-a-service (SaaS), the emergence of globalized development, or the rise of open source and service-oriented architecture (SOA). It also hasn’t prevented emergence of ITIL (IT Infrastructure Libraries), which is providing ERP-like roadmaps for IT organizations on how to deliver service, and for vendors to integrate their systems management and help desk offerings.
Focusing on open source and SaaS, both have lowered barriers to entry for new – or in the case of players like Ingres – enabling the resurrection of companies back from the dead. And they have completely disrupted the industry’s business model, with open source pushing commodity software down to commodity prices, and SaaS replacing up front purchase with pay-as-you-go subscription models.
Open source and SaaS have clearly disrupted software pricing, with open source pushing commodity software down to commodity prices, and SaaS eliminating the huge upfront purchase in favor of a subscription model that looks suspiciously like the 15 – 20% annual maintenance models that, some customers claimed, was a form of extortion. It also lowers the risk of test driving new software because customers can yank subscriptions anytime, theoretically providing more shots for new startups.
Admittedly, not all these changes are as radical as they seem. For instance, subscription pricing revives a practice of renting software that prevailed before the emergence of packaged software in the 1980s (and for SAS, which never went away). And in fact, subscriptions look suspiciously like those 15 – 20% annual maintenance charges customers have been paying all along. But is does eliminate the huge upfront cost, and that’s posed a major revenue challenge for traditional vendors.
Nonetheless, if you agree with Ingres president Roger Burkhardt, open source has had another major impact on the software market: it drives out useless innovation, such as what happened with Microsoft Word. “Open source takes the onus off upgrade creep,” Burkhardt told us. “We get the same subscription revenue as before, with no changes for new features.”
Paradoxically, while open source takes the pressure off innovation, theoretically it also lowers the barriers to it, as anyone who sweats through each incremental 0.2.x release of Linux will attest. On the other hand, constant innovation – even if useful – causes chaos. Here again, the changes aren’t as great as they seem: most commercial distributors of open source products tend to tamp down the release cycles.
Clearly, rising trends like open source or SaaS are promoting innovation have nothing to do with the pace of industry consolidation. These new modes of delivering software to market are becoming mainstream in spite of the fact that desktop platforms or enterprise software markets have become highly consolidated.
M.R. Rangaswami, cofounder of the Sand Hill Group, and a veteran of the enterprise software industry, predicts that multiple business models will proliferate throughout the industry. That to us does not exactly sound like a recipe that would kill innovation. In the long run, customer appetite for new technologies will dictate the rate of innovation
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04.24.07
Posted in Application Development, Java at 6:05 pm by Tony Baer
Under its founder Marc Fleury, JBoss always played the role of renegade, with Fleury reserving the role of enfant terrible in chief. It wasn’t unusual for us to find Fleury sneaking through the back door of a conventional hall, or baiting some giant like IBM or even Oracle when the latter was rumored to be eying an acquisition.
But JBoss, and Fleury, has always had method to their madness. Make no mistake, Fleury’s ramblings about being a band of a couple dozen developers taking on the Java industry was theatre (maybe not great theatre, but entertaining enough). Behind all that, JBoss was a business, not a social cause. And Fleury was intent on carving a sphere of influence, if not an all-out empire.
In that sense, there was a cultural similarity to Red Hat, minus the cult of personality.
Consequently, we have always viewed JBoss.org as having a different open source model than, say, the informal community that spawned Linux, or the foundation model of Apache. Although no vendor will admit it, vendor-sponsored communities like JBoss.org are created not out of altruism, but for mercenary purposes such as market development and adjunct R&D. To paraphrase Jerry Seinfeld, not that there’s anything wrong with that.
Among today’s spate of announcements coming out of JBoss, the Metamatrix acquisition is certainly the headliner. But behind the news is the formal splitting off of development and productization streams between JBoss.com and JBoss.org. JBoss is formally shedding the .org renegade identity in favor of claimant of the next enterprise development stack. Yes, contributions to .org will be encouraged, but the real business is providing enterprises stable releases on the .com side. Time to ratchet things down and gain sanity there.
And, although their technology is (or in the case of the proposed acquisition of Metamatrix, will be) open source, make no mistake, JBoss views Microsoft as its model. Microsoft may not have the best known partners in the universe (exhibit floors at the TechEd and Professional Developer conferences pale compared to JavaOne), but it has a huge devoted developer base that’s not going away anytime soon.
That’s exactly what JBoss is seeking. You may have never heard of Exadel, but if their RichFaces provides the rich client library that’s missing, who cares what their name is. When we talked with JBoss’s Shaun Connolly this afternoon, he spoke of borrowing a page from Microsoft’s book, saluting them for the way they pamper developers.
If you had any doubt of JBoss’s intentions, recall its announcement of its own development portal at EclipseCon last March. While other Eclipse plug-in contributors are tripping over themselves to lead Eclipse projects, JBoss is creating its own parallel universe. Officially it cites license differences: Eclipse uses Apache, while JBoss relies on GPL or LGPL prominent in the Linux community (not to mention its new parent company). But the ulterior motive is setting up a separate developer destination – JBoss just doesn’t want to be one of them.
Announcement of the Metamatrix acquisition today (which would add back end data integration) illustrates how far JBoss still must go in building that Microsoft-killer development stack.
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04.17.07
Posted in Enterprise Applications at 10:41 am by Tony Baer
Oracle’s announcement of the Oracle Application Integration Architecture, code-named “Project X,” might have sounded like good news to customers gathered at the International Oracle User Group’s (IOUG) Collaborate user forum in Las Vegas yesterday.
But in point of fact, the announcement was hardly just another exercise in altruism. Over the past year or more, Oracle’s president Charles Phillips has been sounding conciliatory words to the client base about protecting investments, and not requiring forced migrations. But there are cold hard business realities that are driving Oracle to make more nice with its installed base.
The first fact of life is that, when you have a large enough customer base, you’ll attract more flies with honey and that maintenance can become quite a lucrative business. Mike Greenough, who brought SSA Global back from the dead prior to its sale to Infor, made that point quite forcefully when faced with a similar agglomeration of product lines. Until then, conventional wisdom was that maintaining multiple incompatible lines would drain the business. But once you have accumulated such a large chunk of the market and so many product lines, the costs of convergence get far outweighed by the revenue potential of simply maintaining and gradually enhancing them.
Anyway, with Y2K over, customers hardly in the mood to rip and replace once more.
Sure, Oracle could make a lot more money if its customer base (grown much fatter through acquisition) would migrate to some future Fusion application. But even were Oracle to continue pressing full steam ahead with Fusion apps, that product is so many years away that it would face pressures from two constituencies: shareholders that demand continued quarterly growth, and a huge installed base that demands better functionality and interoperability now.
That’s why SOA has become for most corporate customers more than a technology buzzword. And that’s also why Oracle’s so-called Project X might try to accomplish what has so far eluded cross industry organizations like the Open Applications Group (OAG): defining a set of common business objects so one enterprise system could exchange its customer object or order-to-cash process with another.
The dilemma with standards is that, the higher you go up the stack, the more contentious standards efforts become. At that point, that’s where enterprise software vendors contend their value add kicks in. Consequently, it is far easier to define headers for web service descriptions than it is to define a business process. Just look at the acceptance of Oasis with web services standards compared to, say, the Workflow Management Coalition, when it has tried to standardize representations of processes and workflows.
So on this go-round, why should Oracle be able to pick up where OAG has left off? “We have enough of an installed footprint that this could become a de facto standard,” remarked Paco Aubrejuan, Oracle’s vice president of application strategy.
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04.10.07
Posted in BPM, SOA & Web Services at 10:06 am by Tony Baer
We were a bit surprised with all the comment that we received over our first reaction to Software AG’s bid to buy webMethods. As we noted, on paper it’s potentially a great deal – but some folks thought that we were criticizing the deal by pointing out the challenges.
Let’s be clear – sizable deals that involve some overlap are always going to be a challenge. That’s just plain inevitable in a consolidating industry and it’s no different here.
But we don’t agree with analysts like Neil Ward-Dutton of Macehiter Ward-Dutton that this is a circling of wagons paring a couple midsized has-beens coasting on maintenance revenues. As Beth Gold-Bernstein points out, there is excellent potential upside when you look at both companies’ product portfolios. She’s written probably the most extensive analysis of how the lines are likely to stack up should the deal close.
Clearly both companies are in transition, although obviously Software AG is certainly in much better financial position to make the journey. And even if the bulk of its base were legacy maintenance, that still translates to a large potential market for service-enabling if it has the right product. As for webMethods, because its Q4 numbers haven’t come out yet, we don’t know whether it has gotten out of the woods (it had what looked to be the beginnings of a promising recovery early last year).
But what’s interesting on this go round is that Software AG intends to keep much of webMethods’ management in place. OK, part of the reason is for Software AG to boost its North American presence, but it also points to the likelihood that a number of webMethods SOA offerings are likely to take center stage (or dare we say, CentraStage?) in the merged company. A sleeper could be the Cerebra acquisition that webMethods made last summer, which could eventually transform the nature of service discovery.
So nope, we’re not critical of the proposed acquisition. We said that Software AG’s handling of BPM would be a key proof point. That’s because there’s potential overlap stemming from a highly promoted close partnership with Fujitsu that already has 60 customers (most of them Global 2000), and the BPM offering from the webMethods side.
After speaking with Fujitsu, we believe that even more strongly. They claim their product is functionally superior to the webMethods offering. But at the same time, they also see a great potential pairing with webMethods’ BAM product.
Obviously Software AG can’t say anything yet on what its BPM strategy will be. But once the smoke clears, we’ll want to hear.
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04.05.07
Posted in BPM, SOA & Web Services at 11:46 pm by Tony Baer
With an eye toward bulking up its emerging SOA business, Software AG is offering roughly $550 million in cash to buy webMethods. The obvious rationale is getting critical mass. According to Gartner numbers, the combined entity’s SOA business would trail only that of IBM and Tibco respectively.
My colleague Jason Bloomberg of ZapThink pronounces this “huge news,” characterizing this as “a market share play and an SOA play entirely.” He concludes that “Larry Ellison is not going to be happy about this news.”
On paper this looks like a great deal. Both companies’ SOA lines were incomplete, webMethods needed deeper pockets and put itself in play (it evidently entertained several potential offers), and Software AG had a bed of cash to make it happen.
A few more details: while Software AG is about 2 – 3x the size of webMethods, its SOA business is barely a half of the size. Both companies’ geographic footprints are almost mirror images: While Software AG’s customer base is 56% Europe and 25% North America, webMethods’ presence is 62% in North America and 26% in Europe. And, excluding registry/repository (the stepping stones for SOA governance), and a more sensitive area around BPM (Business Process Management), there are few product overlaps.
In some respects this is a tail of two cities: Software AG, with an annuity legacy business, seeking to jumpstart growth in SOA where it sees its future. webMethods, with the more substantial SOA portfolio, which has been struggling to reinvent itself from its B2B/EAI roots. In a bit of irony (and to show the devaluation of IT dollars in the post dot com era), the company solid itself for less than half what it paid back in 1999 for Active Software, the EAI company that was supposed to be webMethods’ future.
In the past five years, webMethods has been through belt tightening and roughly a half dozen acquisitions. And a year ago, it looked like it was starting to get its old groove back with 12% profits. But in the next three quarters (Q4 numbers should come out any day), webMethods sank back into the red, which CEO David Mitchell blamed on poor sales execution and gaps in its SOA offerings.
Obviously, Software AG hopes its $550 million will be better spent than webMethods’ $1.3 billion (for Active). While the balancing of regional presence and filling out of product lines makes sense, one plus one doesn’t always make three.
As Dana Gardner put it, the track record of German-US mergers is not exactly stellar. But he also points out that M&A provides a great opportunity for SOA firms to eat their own dog food –- e.g., if it works for us, it’ll work for you. But as David Linthicum, who in a previous life was CTO for Software AG’s abortive SAGA Software unit, points out, size doesn’t substitute for strategy and a firm roadmap.
And one of the first proof points will be how Software AG handles BPM, where it currently relies on a heavily-promoted strategic partnership with Fujitsu that faces competing product from webMethods. As Software AG CEO Karl-Heinz Streibich told us, there is a significant sales pipeline with the Fujitsu product, and Fujitsu BPM will continue to be the company’s strategy in the short- and mid-term. But in the next breath he added, “[Our own] IP always has a preference wherever they fit into same [product] segment.”
It’s going to be tricky telling a coherent story to customers there. Of course, that’s the challenge going into any merger, but even more so for a company that is now ramping up its SOA message. While BPM won’t be the only proof point of the Software AG/webMethods combo, we feel it will be an important one.
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