Barb Darrow, GigaOm:

Wolf’s numbers show that a select group of SaaS companies saw their values grow 313 percent from January 2009 to October 2011, compared to 154 percent growth for other software companies over the same period.

No wonder Oracle shelled out $1.5 billion for RightNow Technologies and Salesforce.com keeps snapping up smaller SaaS players every month.

“With Saas, the more vertical the better,” Wolf said in interview. SaaS companies offering financial services, healthcare services or employee benefits outsourcing services, are all hot now, he added.

So who’ll be buying? The usual suspects: IBM, Oracle, SAP, Microsoft.

Increased valuation begets consolidation, and SaaS is where all the buying is going to be happening. That much is clear. But this bubble, as it were, seems awfully vulnerable to macroeconomic factors and externalities. And as legacy software companies acquire SaaS players to broaden/deepen their portfolios, eventually valuations will get pretty muddy.

Something to watch.

###

More links:

MIPRO Consulting main website.

MIPRO on Twitter and Facebook.

About this blog.

Without getting academic about it, Vinnie Mirchandani breaks up technology markets into old and new, which mean, nutshelled, traditional and innovation-driven revenue, respectively.  I’ve often looked at it the same way; in fact, one of the reasons I’m linking to Vinnie’s post is because he articulated my thoughts better than I could.  Here it is in its entirety.  You should read it.

Key quip:

There is old revenue and new, innovation generated revenue. The poster child is Apple. The iPhone has gone from zero to half of Apple’s revenue in less than 4 years. When you add iPad, barely a year old, you get even more of revenue which is new, innovation generated.

Contrast this to SAP, Oracle, Verizon, IBM and so many other large technology vendors. SAP has been talking in-memory applications and its BYD SaaS product for almost 5 years now, and related revenue is less than 5%. Oracle has been talking Fusion apps for over 6 years and it only has 50 or so customers. IBM markets the heck out of its “Smarter Planet” projects, but most of its revenues come from decades old Lotus, Tivoli and other software and data centers that often go back to the Cold War times. Verizon spends a disproportionate amount of its advertising budget on its 4G LTE offerings, when that is less than 1% of its revenues. There are plenty more examples in techland.

It’s not for a lack of want that these lip-service vs. performance discrepancies exist; it’s for a lack of an encouraging corporate culture and the fact that these companies must perform quarter after quarter, so radical new behaviors (and sales force incentives) are very difficult.  When there are analyst targets to meet and compensation plans to fulfill, nobody is going to push the avant garde products and services unless the company culture specifically demands they do so.

Another key point by Mirchandani:

It takes an Apple (and historically Intel) to actively develop and launch new products, and not worry about cannibalizing older revenues.

Exactly right.  When Apple designed the iPhone and, later, the iPad, it knew full well that the iPod’s days were numbered.  Think about that.  The iPod – an iconic device if there ever was one – was certain to be massively cannibalized by new products.  Not just new products, mind you, but new products forging new markets.  How many companies would have the courage of their conviction to walk headlong into that algebra?  Not many.

Eventually, as the competitive landscape firms up as it relates to these next-gen products and services, companies will make the internal adjustments based on market pressures.  When that happens, you’ll start seeing the shift from ‘old’ revenue to ‘new.’  And, ironically, my money says the products responsible for the ‘old’ revenue get a new (albeit perhaps short) lease on life.  Why?  Innovation increases the luster of everything in the house.

###

More links:

MIPRO Consulting main website.

MIPRO on Twitter and Facebook.

About this blog.

CFO/CIO alert!

Have you reviewed the cost of your custom interfaces lately, particularly those associated with your “third party” software systems? Best-of-breed app systems have been on the decline for years, as clients realize enormous savings in Total Cost of Ownership (TCO) by going to mature, integrated ERP software add-on modules, by such providers as Oracle, PeopleSoft, JD Edwards, and SAP. Many of the best-of-breed solution’s days in the sun are coming to an end, as modern ERP provides more recent product suite options – especially as their clients sunset their old best-of-breed systems.

Why is that? In a nutshell: seamless integration offering significant cost reduction in custom development and support, simplified data management, and enhanced performance, along with a broad range of delivered functionality.

So what is the real TCO of your third-party system maxtrix versus using integrated systems from your ERP provider?  Have you run the numbers?  The two primary considerations are:

1. One technology support group, versus two. Consider training, space, and all associated costs, as well as 2X the staff costs.
2. The additional costs to develop, maintain, and support interfaces though upgrades.

Many technologists consider the cost to develop a custom interface to be somewhere around $50,000 each, depending on complexity. In addition, the expected costs of annual support and maintenance over a 5+ year life cycle is likely between $15,000 and $30,000 per year, per interface, or a total of $125,000 to $200,000 each, again over a 5 year life cycle.

And that may be low.

A recent article in CIO magazine noted that “By adopting a service oriented architecture, Marriott lowered the cost of adding an interface from about $400,000 to $50,000.”

Interfaces cost a lot of money, a good deal of which is apparent on the backside analysis.  Up front, it might not look so bad.  Five years down the road, and things look markedly uglier, especially if your interfaces have sprawled wider than you originally thought they would.

Whether your cost is $125,000 or $400,000 per interface or somewhere in between, zero is a lot better. Third-party systems may require between 10 and 60 custom interfaces to integrate back to an organization’s ERP system. It’s not hard to see we are talking real money if this is the true lay of the land. (Side note: Without full-on integrations, you also are not realizing the potential benefit across the enterprise.)

So, again, what are the real costs of your third-party interfaces?  The numbers may surprise you, and the gods live in the details.

###

More links:

MIPRO Consulting main website.

MIPRO on Twitter and Facebook.

About this blog.

From HP’s official release:

The Board of Directors of HP today announced the election of Léo Apotheker as Chief Executive Officer and President. Apotheker, who previously served as CEO of SAP, will also join HP’s Board of Directors.

Lot’s of people saying “Who?!” over this.  (I’ll admit I’ve never heard of the guy.)  Here’s a great explanation (and defense) of the choice by The Economist.

###

MIPRO Consulting is a nationally-recognized consulting firm specializing in PeopleSoft Enterprise (particularly Enterprise Asset Management), Workday and Business Intelligence. You’re reading MIPRO Unfiltered, its blog. If you’d like to contact MIPRO, email is a great place to start, or you can easily jump over to its main website. If you’d like to see what MIPRO offers via Twitter or Facebook, we’d love to have you.

More business posts.

Over at Manufacturing Software Advice I found an interesting (and fully interactive) timeline of manufacturing and ERP software.  For anyone in the business who wants to have a nicely-summarized origin of their trade – as well as how emerging technologies are changing the market’s plate tectonics – this timeline is an excellent primer.  Recommended.

Like the design, too.  Nice and clean.

Vinnie Mirchandani has some interesting ideas about how ERP vendors could be truly disruptive and create thriving, adjunct markets around the concept of sustainability.

There’s a truism underpinning Mirchandani’s post, which I have mirrored in its entirety below.  The truism is that sustainability and energy science is one of the emerging, global, multi-billion dollar industries (along with biotechology and genomics) of the next three decades.  If someone doesn’t fill the market need, someone else will.  It’s as simple as that.

Why not ERP vendors?  Mirchandani think it’s no pipe dream:

Today, if you’ve been scanning the wires, you’ll note that we’ve announced a  brand-new services arm focusing on Business Intelligence (BI).  This shouldn’t come as a huge surprise to people who follow us on Twitter and read this blog regularly; about three weeks ago, we announced our hiring of Larry Zagata, an established BI guru, as our BI Practice Director.

And today, after months of planning, talking to customers, and pulling everything together, we’re excited to be fully live with our BI practice.

BI is something that we’re hearing about on almost every discovery call we take.  Our existing clients are asking about it, and we haven’t found an executive who isn’t blown away by what BI can throw on a dashboard for them.  We’re pretty thrilled that we are in a position to parlay our PeopleSoft ERP experience into a BI play, and we’re especially in tune with BI inquiries as a result of our involvement with Workday’s built-in BI functionality.

With software new license revenue forecasted to be down through 2009, organizations have some tough choices to make.  They aren’t just hunkering down through the storm, because they still have business goals to hit that IT must enable.  Also, for more progressive companies, investment is happening now so they’re sitting pretty when the recovery begins in earnest.

So, today’s mindset isn’t necessarily about new projects begetting new value, but also about how existing IT investments (and data) can help the business run more profitably and efficiently.  That’s where BI plays prominently: in helping companies turn existing data into role-appropriate, actionable business information.  While that might sound a bit too buzzwordy for some, the truth remains: data is noise without the proper analysis and context.  BI provides both.

Our BI practice, which focuses on Oracle BI and SAP Business Objects, is bucketed into three offerings: Knowledge-on-Demand, BI Packaged Services, and Full Lifecycle BI Implementations.  Lots of detail included in those links, but you probably still have questions.  If BI is of interest to you and you’d like to talk to someone beyond a blog post and a website, contact us and we’ll be in touch right away.

(If you hate web forms, email us at info at miproconsulting dot com.)

Oh, a final plug: if you’re interested in what we stumble across daily (and think is worth talking about), follow MiPro on Twitter.  We’re pretty fun – we promise.

Related: official MiPro BI press release

What is the cost of a fumbled upgrade?  For J. Crew it was $3MM in unanticipated costs which, according to J. Crew, contributed to their recently announced earnings miss of 4 cents a share.   How did Wall Street respond?  Typical overcorrection seems to be the response with shares trading 15% down in after hour activity.

Ben Worthen highlighted J. Crew’s stumble in his business technology blog in the Wall Street Journal, mentioning that J. Crew isn’t the first company to blame poor earnings results on technology.

There was a wave of businesses blaming poor results on tech-projects-gone-bad in the early part of the decade. We haven’t seen it much lately, though.

One difference: Nike, Hershey and others that had problems in the past went out of their way to blame the tech vendor. J. Crew never once tried to pass the buck. The company didn’t respond to our requests for comment, which also means we don’t know which company sold the offending technology. You can search the Web for “J. Crew” and “systems” and find the names of several companies J. Crew buys software from, but there’s not enough evidence for us to point a finger.

What strikes a chord in me in the report is that Worthen assumes that the poor upgrade is the result of “offending technology.”  Our experience however, leads me to be much more suspicious of the implementation/upgrade approach, executive sponsorship, project budget and timeline constraints, and ultimately the implementation team itself.  All too often we see companies approach an upgrade as a routine activity that can be performed easily by their staff (all while their staff stays on top of their regular day-to-day responsibilities).   Supplemental staff is reluctantly brought in via simple commodity broker staffing firms that can only provide bodies and not real experience from both a people and process standpoint.

Obviously, this doesn’t fly too often.

What happens next?  For a while, nothing.  Status reports look good; the project seems to be on track because really nobody on the team really knows any better.  Then one day, usually a month or two before testing, the cracks start to show.  The team isn’t ready to start testing, but the “go-live” date isn’t movable.   Then some genius somewhere makes the brilliant decision to give the team the extra time they need to complete their work by cutting the time budgeted for testing.   Things get worse, because you can’t slaughter QA, which is a lesson that’s been taught a hundred times over yet rarely sticks at crunch time.  Testing gets cut to a bare minimum, and as a result there is an overinflated sense of confidence about the readiness to go-live.

You know the rest of the story.  The new system is turned on and all hell breaks loose.  Someone orders a few items of clothing and is charged $9,200.  Oops.  Then you spend a bunch of extra money to repair the production business logic that should have been caught in the QA you cut, you miss your earning estimate, and you get punished by Wall Street.  Fumble.

The moral here?  Self-awareness.  Understand what you do well and do that really, really well.  For everything else, work with trusted partners that can bring you the experience and expertise you need to get the job done…the right way…the first time.

Phil Wainewright:

Enterprise software giant SAP has lost one of its brightest software-as-a-service stars to SaaS titan Salesforce.com, I can exclusively reveal. Steve Lucas, who spearheaded the development of SaaS at Business Objects, acquired by SAP last year, left the company at the end of June and began work straight away at Salesforce.com, where his job title is (bear with me, it’s quite long): senior vice-president of platform marketing, AppExchange and Force.com.

Salesforce.com arguably has the most impressive collective vision of where SaaS will go from here.  This is particularly validated by all-star pickups like this one, as well as Erin TenWolde, who also recently started at SFDC.

It will be interesting to see how SAP adjusts its SaaS roadmap in the wake of Lucas’s leaving.  If this is true:

Lucas is proud of what has been achieved at Business Objects, but he said that SAP’s ability to make broader progress with SaaS is stymied by the lack of a central vision for the model. “SAP doesn’t have a SaaS strategy,” he told me. “They don’t have a single piece of paper that states what their SaaS strategy is.”

…then SAP might be rudderless in terms of SaaS for quite some time.