IT Investment Research

And who is the leader in ESB-based BPMS Suites?

Over in the ebizQ breaking news section, we are reporting that Gartner has ranked Software AG high in both the enterprise service bus (ESB) and business process management suite (BPMS) categories. 

This is not to criticize Software AG (Frankfurt TecDAX: SOW); when someone serves you up a pitch right down the middle, hit it out of the park.  But Mr. Gartner, are those two categories supposed be mutually exclusive?

I can't tell from the related Gartner press release which says middleware consists of 11 categories but only lists five or six.  Apparently BPMS suites are part of the ubercategory "BPM-enabling technologies," and ESB's are part of "application integration and platform middleware." But what about BPM-enabling technologies based on ESBs?

This is the silly season for market share reports from the leading quant houses such as Gartners' Dataquest and IDC so expect to see more such slicing and dicing of the market in ways no user would recognize. The intention is to wow you investors.

In the real world, BPM is a value proposition and dozens of different types of software technologies can be used to make it happen.  I do rank Software AG high in the category based on its 2007 acquisition of WebMethods and its own previous successes selling the concept.  I see IBM (IBM) and Fujitsu numbers one and two worldwide in BPM although Fujitsu depends on its position in Asia/Pacific to get so highly ranked.  Ironically, Software AG distributed Fujitsu's BPM products outside of A/P prior to its acquiring  WebMethods.

Other suppliers that are likely to have similar market share to (or larger than) Software AG in BPM include Oracle/BEA (ORCL), Microsoft (MSFT), TIBCO (TIBX), AT&T/Sterling Commerce, Autonomy, SAP (SAP), ACI Worldwide (ACIW) and Sun (JAVA).  Appian, Lombardi, Pegasystems (PEGA) and Metastorm (on the shelf as MSTM) are trying to work their way on to the leaderboard. Many--including the smaller suppliers--offer multiple BPM-related products because of acquisitions made over the last 36 months (so a more useful ranking to determine market acceptance would be by product rather than vendor) and these products use everything from ESBs to collaboration technology to deliver business process management.  Consider IBM with everything from Filenet to Notes or Oracle with everything from Fuego to the Plumtree portal to the Collaxa BPEL engine.

And the answer is "the non open source provider Progress"

Carnac the Magnificent has answered the question in the last envelope in the independent middleware market: Progress Software (PRGS) will acquire Iona (IONA). My prediction that it would most likely be another so-called closed source software provider pairing up with an open source provider turned out to be correct. My prediction that it would be IBM (IBM), Sun (JAVA), TIBCO (TIBX), Novell (NOVL), a Telco or a packaged app supplier (as in Workday acquiring Iona spinout Cape Clear)? Not so good.

Effectively this means little to the independent middleware market which had already collapsed in upon itself when BEA was folded into Oracle. Some might still count Axway but it is really a spinout from Sopra (Euronext Paris: SOP) and Sopra is acquiring Tumbleweed (TMWD) via Axway so it doesn’t meet my admittedly arbitrary definition of independent from two perspectives.

Other than being the last man standing, Iona had ceased to be a major factor in the market early this decade, struggling to turn it around from a plateau one-third the size of its 2001 peak of $180 million in revenue.  Iona has some loyal customers among the telcos and financial services firms that Progress will appreciate.

The question is “what does this mean for Iona’s open source strategy?” I don’t see any mention of open source in a quick reading of the non-transaction-boilerplate part of the press release. If Iona was last man standing in the independent middleware market, Progress can be thought of as last man standing in the closed-source culture (which is why I didn’t list them in my earlier prediction).  One way Iona was trying to get things going again as an independent was through its embrace of the open source culture, development model and terms and conditions.  Not coincidentally, all three are particularly important in telcos and among financial services providers.

Progress says, “IONA would become an indirect wholly owned subsidiary of Progress Software” but that is the way Progress has treated other acquisitions this decade for marketing reasons (which I have never really understood) and isn’t really a viable strategic position for so small a company as Iona. After making the “wholly owned” statement in the press release, Progress goes on to say

“The combination of Progress Software and IONA creates the industry choice for truly independent, heterogeneous Service Oriented Architecture (SOA) infrastructure. IONA products complement the Progress SOA Portfolio with leading edge, best-in-class technology now with the widest variety of heterogeneous deployment options and interoperability.”

That doesn’t sound too independent of a position to me. It just sounds like Progress wants to add another middleware choice to its Apama/DataDirect/Sonic line-up along with the classic middleware associated with its heritage OpenEdge fourth generation language. I don’t see a big place in this lineup for the former LogicBlaze which appears to compete with the Sonic enterprise service bus (ESB) and message oriented middleware.

Here's betting Microsoft never saw this open standards front group coming

_{The European open source fascists are up in arms in the U.K. over the fact that a U.K. educational ‘group’ called Becta awarded a contract for an educational program to an educational consultancy rather than a software services consultancy. The rub is that the educational program is about providing educators a better understanding of the open source software (OSS) culture and development model. The EU open source fascists are apparently afraid these consultants will not inculcate the Brit school administrators with the right propaganda (luckily I don’t think any of these people get anywhere near the kids). The flap looks similar to the uproar last month when the One Laptop per Child (OLPC) education-oriented group, based in Cambridge MA, decided to do something for the kids rather than kowtow to the open-source-or-nothing crowd.}

 

_{On one side according to the UK tabloid websites Inquirer and Register are Red Hat (RHAT) and a distributor/partner called Sirius (distributes JBoss) and Canonical and a distributor/partner called The Learning Machine, a subsidiary of IRL Systems Ltd.  Both tried to win the Becta contract in question. It was awarded instead to a group called Alphaplus with no apparent software vendor relationships but with a history of working on educational projects with Becta.}

 

_{Somewhere in the middle is a couple of typical European open source/Open Standards front groups called the Open Source Consortium, whose president as is the usual case, is also the CEO of Sirius, and the Foundation for a Free Information Infrastructure (FFII). Both look a lot like the cast of characters behind Open Standards (always upper case) although the Open Source Consortium looks even more moribund than most of the Digistan crowd. Whatever urgent crisis precipitated the Open Source Consortium’s “let’s set up a web site and call ourselves a foundation” activity must have dissipated.  No direct connection between the Open Source Consortium and the other front groups is evident (but that’s the beauty of front groups). The FFII on the other hand is an active George Soros front group which appears to have some relationship to IRL. FFII is working strongly to remove free-market forces from government procurement, which is also a major goal of Red Hat.} 

 

_{On the other side are Becta and Alphaplus. I actually cannot figure out from its web site what Becta is. I cannot even find on the web site what Becta stands for but I am guessing the “e” is for education and the “t” is for technology. Becta appears to be a government-funded consultancy about technology in education although its press releases say it is a government agency.} 

 

_{Of course there is the obligatory “open letter” calling for boycotts and accusing the government of corruption and implying Microsoft (MSFT) complicity. It comes from the Open Source Consortium. The FFII has not checked in with its opinion. Actually the open letter does not appear on the Open Source Consortium’s web site but only in the press. This open group should be more open about its open letters and not make it so obvious that this is simply a publicity stunt over a lost contract.}

And Waste Management is still using SAP?

Waste Management (WMI)’s claims against SAP (SAP) are another black eye for SAP along with the TomorrowNow/Oracle (ORCL) incident. In fact, a close reading of the related legal filings indicates there is a connection; a TomorrowNow-related Safe Passage agreement between the two was a part of the overall scope of work allegedly not performed by SAP. 

 

Based on the details as laid out in the Waste Management legal documents, I would ask--if I were a juror--did Waste Management really believe there was an “out of the box” enterprise application for “ U.S. waste management?”  The two key phrases in that question are in quotes:

1.      SAP offers the most industry-specific ERP software versions in the market but no enterprise software supplier is that industry specific. There are 9,999 possibilities simply going by the standardized industry classification code at the 4-digit level.

2.      Speaking of customization, “out of the box,” “no customization required,” “rapidly implemented” and SAP are not terms that roll off the tongue together cleanly unless you are great poker player.

Actually the publicized $100 million sought includes estimated lost opportunity costs; in its most recent 10-Q, Waste Management says it would take a $45-$55 million write down “if we decide to abandon the SAP software.”  Only in America do we sue someone for $100 million while we keep using their product.

As for the TomorrowNow connection, the initial SAP press release about the Waste Management deals said WM “joins a growing list of companies that are leveraging the SAP Safe Passage program—a tailored package of solutions, technology and incentives—to migrate to SAP…” The legal filings do not say who the migratee supplier is in this case (and likely loser in the sales process) but given the publicity surrounding the law suit, I can guess. Safe Passage was the TomorrowNow-based offerings from SAP to support “end of life” of Edwards, Oracle, PeopleSoft, Retek and Siebel solutions. That program has been abandoned and SAP considers TomorrowNow a “discontinued operation.”

 

As an aside, the legal filings say Shai Agassi was at some of the sales meetings.  Maybe this is the real reason he left SAP?

Some expert thinking on open standards vs. Open Standards, Microsoft and Java

I have posted frequently about the absurdity of the "worldwide Open Standards" movement in general and about the negative effect of Open Standards activity on shareholder value for the likes of IBM, Microsoft (MSFT), Red Hat (RHAT) and Sun (JAVA) in particular.

I always draw the distinction between Open Standards and open standards.  Open Standards is always written in propagandistic upper case by some small cell of individuals organized in a fluid amalgam of front groups (often also funded by the same public companies). Their activity is a throwback to all kinds of extremist activity in the last century, but presumably without the violence. Lower-case open standards, on the other hand, are just the market at work and are good for technology investors and users alike.

I also draw the distinction that open source and open standards are not synonymous although there seems to be a strong cultural connection to standards among open source community members. 

No one else seems to care much about this issue from an investment perspective, which is why we have blogs of course. But I was happy to see that a bona fida expert in both software development and building an enterprise that meets a payroll each week has at least thought the issue through. 

I am not suggesting he agrees with all my commentary but on the Open Source Initiative (OSI) web site's License Approval list (remember, there is no explicit link between open standards and open source), Brian Behlendorf opined that standardization best:

"... *follows* widespread innovation and implementation rather than trying to precede it.

"... the most successfully implemented interoperable standards in existance, are the ones we take for granted: TCP/IP, DNS, SMTP, and HTTP.  None of them required conformance as a license to implement or redistribute; non-conformant implementations are eliminated from the market because they provide inferior service."

He doesn't need me to make his bona fides but just in case the name is not familiar, Behlendorf co-founded CollabNet, a likely--in my opinion--future open-source-based IPO. The company provides tools and services for IT developers and adminstrators. Before launching CollabNet, Behlendorf ran a Web design and engineering consultancy while he co-founded and contributed heavily to the Apache Web Server Project, co-founded and supported the VRML (Virtual Reality Modeling Language) effort, and assisted several 'open standards' working groups, particularly the HTTP standardization effort. Behlendorf is currently a Director of the Mozilla Foundation and is a retired Director and President of the Apache Software Foundation. He's listed as Board Emiriti at OSI.

In addition to his opinion on standards, investors might want to look to the linked opinion for what he thinks about the past of Java and the future for Microsoft vis a vis the Open Document Format.

Was there a Q1 clearance sale on Windows Servers?

The May 27, 2008 IDC report on first-quarter 2008 worldwide server shipments make it look like a clearance sales was in progress on Windows-2003-based servers. Perhaps in anticipation of GA of Windows Server 2008 (happened halfway through the first quarter) or perhaps because of its GA, factory server shipments of Windows servers reached their second highest quarterly total according to IDC.

 

Only the third calendar quarter of 2007 showed higher results. (NOTE: I have tracked these numbers only for nine quarters but do not believe Windows had higher results prior to 2006

UNIX/Linux-based server revenue slipped both in absolute terms and as a percent of the market (see illustration above). The combination of UNIX-heritage servers have been losing ground slowly to Windows-based hardware as have systems based on other operating software, such as IBM's zSeries and other legacy products. 

"Flip" Filipowski re-invents himself and the wheel... again

You have to admire a guy that not only re-invents himself every couple of years but also re-invents the wheel. While getting someone else to partially fund him. The news is that SilkRoad technology (the lower case "t" is apparently not a typo) announced on May 14 that

"...it has closed on a $54 million equity round of capital led by new investor Foundation Capital, and including existing investors Azure Capital Partners, SilkRoad Equity and several individuals."

I say partially fund him because via Silkroad Equity (why not a lower case "e"?), Filipowski has some of his own skin in the game.

The nut of it is that Filipowski is now banging the drum for software as a service [SaaS], the way he banged it for dot.com 10 years ago and RAD 20 years ago. Interestingly he is hyping SaaS in the same week that Oracle (ORCL) CEO Larry Ellison, another guy with his own skin in the SaaS game via NetSuite (N), along with 469 signfiicantly minority "partners" [other shareholders as of February 29, 2008], suggested SaaS would be a slow payback investment.

To Larry, that means a long patient climb for an ERP SaaS offering to a become a billion-dollar business, a process already 10 years in the making. To Filipowski, 10 years is a dozen startups, restarts, renames, mergers, acqusitions, bankruptcies, and so forth.

As for the functionality that Silkroad is offering, it's called talent management software. I doubt if that is a billion-dollar market opportunity, at least on a pureplay basis and as I define the words talent and management. But the company offers more mundane things like benefits administration (called "life events") and hiring (sorry, "onboarding"). According to Filipowski it is:

"one of the greatest opportunities for value creation that I have ever personally observed in the software industry."

Adding such mundane functions does increase the opportunity. That's why a guy named Dave Duffield,, who actually knows something about human resources [HR] automation, is all over the opportunity already.

Google, IBM, Red Hat, Sun and "the great left-wing conspiracy"

Another anti-Microsoft (MSFT) front group has emerged in favor of “free and open standards,” hyping what it calls the Hague Declaration and making some absurd connection to the Universal Declaration of Human Rights. The propagandists, partially funded by publicly traded companies, have a little trouble describing what that term “free and open standards” means (or even using it consistently) but the group has no trouble indicating its political stripes. Unbelievably it calls itself Digistan, apparently to indentify with the fascist terrorists based in countries and regions using the Farsi-based suffix “stan.”

All of these front groups percolate around about two dozen individuals, mostly European. The vast left-wing conspiracy of George Soros works around the edges of their mostly web-site-only organizations. But there is a profit motive. Some seem to exist to raise money from public companies in order to hold conferences at excellent venues. Others run consulting companies to advise governments how to follow “free and open standards” or law firms that write licenses that follow “free and open standards.” Only if these lefties could be time warped back to the last century so that they could ‘fight the right’ in Spain (or sit in the Les Deux Maggot and talk about fighting the right in Spain). Then the rest of us could avoid having our tax dollars wasted and our share values diminished.

Digistan claims it has only individuals, not businesses or organizations, as members. But looking at the founders’ affiliations illustrates that the group goes right back to the same Microsoft-competitor-based organizations that are trying to manipulate free markets via government intervention around the world. Like many of the other anti-Microsoft organizations related to these same individuals, Digistan was likely created for some “critical” current event that only the founders recognize as critical and will fade away when that event passes All the while the shareholders of IBM (IBM), Red Hat (RHAT), Sun (JAVA) and others are seeing their share value diminished by every dollar wasted on donating to them or sponsoring their events.

Digistan was launched thanks to a grant from the Information Program of Open Society Institute (the George Soros connection) and matching grants from OpenForum Europe and the European Software Market Association. The latter does not list its sponsors but the former is the front group behind other front groups like NOOOXML and Document Freedom Day (that’s right--it’s all the same bizarre cast of characters back again to waste your money). The OpenForum Europe's events, as well as possibly the organization itself, have been sponsored by Google (GOOG), IBM, Red Hat, and the ODF Alliance (which of course is closely tied to Sun because ODF--the Open Document Format--is Sun’s document format standard).

If it wasn’t for the implied association with terrorism it would be funny.

Microsoft must have thought we'd all be on Vista by now

Find out how many HP (HP) AMD (AMD)-based XP PCs there are in the world, multiply by $100 and deduct the result from Microsoft (MSFT) profits over the next four quarters. It's probably peanuts but the rollout of Windows XP Service Pack 3 (SP3) is another black eye for Microsoft quality control and all-around poor planning for customer service and support.

It's probably not as bad as the "Vista-enabled PC" upgrade program in 2007. That Microsoft effort lead to everyone wanting to go back to XP because Vista's performance was so bad, even on so-called Vista-enabled PCs, after waiting months for their promised Vista upgrades. During the Vista-enabled scenario, luckily, my 6-year-old grandson Owen immediately complained that there was no Pinball on Vista. So I quickly returned to XP. No harm/no foul for me but I think there are even lawsuits ongoing on that issue.

So this year it's a poor release of XP SP3. The Microsoft master plan probably said that we all had Vista by now. Actually when I read Greg Keizer's article in PCWorld on May 9 I was happy two ways.

-- First I thought I had screwed up the SP3 download/upgrade somehow only to find that it affected at least all HP AMD-based PCs like mine. And maybe any AMD-based PC.
-- Second, I was happy that I had turned off Windows Automatic Update when I bought the PC (I don't like being that connected with anyone, not just Redmond).

Again, I was able to restore to SP2 pretty easily. But I don't know if the average home PC user would have figured it out. Especially if they had no idea the download had happended overnight because of Windows Automatic Update. Many users of my type PC found their home PC endlessly trying to reboot with probably no idea that Microsoft had automatically updated them to SP3 over nite, putting them in the repetitive loop.

I just left a message on the Microsoft support line, which is promising free SP3 support until April of 2009 (although it takes a little work to find this page so Microsoft may save a few dollars in support costs). I expected that they would inform me when a new version of the upgrade was available to download (although there was no apparent way to let Windows Update know that I had removed SP3 from my system). Instead Microsoft sent me the same steps that Jesper Johansson had posted to his blog on Thursday May 8. I don't see a lot of home PC users easily working their way through this set of instructions (especially since Microsoft's version was missing a few steps).

So see you this weekend Owen. Pinball is up and running again.

Agassi’s legacies, NetWeaver and BPX, are rays of good news to SAP

Shai Agassi resigned from SAP (SAP) 13 months ago. But because of the way large corporations such as SAP work, the Sapphire user conference in Orlando May 5-8 is really his last SAP event. Not much has happened during the first two days of the conference except for new SAP NetWeaver business process management (BPM) capabilities which strengthen SAP’s 21st century technology platform, Shai’s major legacy. These capabilities deliver on the NetWeaver innovation road map of April 2007 which he would have been working on prior to his departure.

Together with the recent release of the SAP 20-F and management comments to financial analysts after the SAP financial-results release of April 30, 2008, the Sapphire NetWeaver BPM announcement also highlights the revenue success the product is having. By my methodology NetWeaver revenue is nearing $2 billion on a trailing 12 month basis (SAP says it’s only a billion euro but I believe it uses a different methodology than I do).

Either way, the key statistic is that SAP says 37% of that revenue is for standalone NetWeaver instances. That does not mean that the user was never previously an SAP user (although that is true in some cases). It means that the middleware is being used for traditional middleware purposes such as integration, web/application serving, software development, etc. irrespective of which applications—SAP’s or other suppliers’ or in-house developed—that the middleware is integrating, serving, developing, etc. It’s not just tying two SAP application instances together (some of the other 63% is heritage SAP BI but the total does not include Business Objects). That makes SAP a major middleware player, right up there with IBM (IBM), Oracle/BEA (ORCL), TIBCO (TIBX), Software AG and implicitly Microsoft, from a standing start just a few years ago.

Also SAP has also quietly put together a community of 350,000 Business Process Experts (BPX) from among its users, integrators and other partners. Agassi was one of the early posters on the BPX when it was launched a few years ago.

In other words, by any measure, SAP is no longer a one-trick pony in the software market. In my opinion, Agassi is the person that foresaw the need for SAP to enter that space aggressively and laid out the plan to get there. Wherever he is today, driving around in one of the “green cars” he’s building in his new endeavor, he can toot his own horn.