When Larry Ellison stood up at Oracle’s user conference in the summer of 2001 to predict the death of all but two of the big names in enterprise applications, his vision was dismissed as classic, self-serving bluster, typical of the company’s founder and CEO. “Only Oracle and SAP will remain: Everyone else will vanish,” he declared.
At the time, that seemed preposterous – to a large degree, it still does. After all, the competitive field of business applications vendors was packed with names such as JD Edwards (JDE), Navision, Scala and Accpac – all with a strong pedigree and all boasting a large customer base. Today, however, all these companies have been consigned to IT history, folded into larger market players in what has been one of the most rampant periods of consolidation ever to hit the computer industry – and its customers.
Of 50 or so major business applications vendors that were around when Ellison made his forecast, only 19 remain. The frenzy of takeovers has not simply been the large picking off the small. Among the biggest, Microsoft has grafted on a half billion dollar business applications unit that sports at least five overlapping product lines once owned by Navision, Damgaard, Great Plains and Solomon Software; SSA Global Technology (SSA GT) has absorbed Baan and half a dozen other vendors; and PeopleSoft has acquired JDE to become the second largest applications vendor, only to find its own fate hanging in the balance as the US Justice Department and the European Commission decide on whether a $9.4 billion hostile takeover bid by Oracle threatens to undermine the competitive dynamics of the sector.
Ellison is not the only software magnate to be witnessing shifting sands. Speaking recently in London, his would-be nemesis, Bill Gates, was quick to observe that the spate of acquisitions was by no means over. “There’s still some more consolidation likely to take place,” said the Microsoft founder and chief software architect.
For analysts such as Richard Holway of IT market watcher Ovum Holway, the level of consolidation simply reflects the maturing of the sector. But for customers – most of which have built their businesses around key applications – the stakes are very high. The contraction of the industry inevitably leads to the end of new functionality for certain product lines; it can signal the winding down of support; and, as a result, it can herald a forced migration to the new owners’ favoured applications. Fewer players also inevitably means less choice and, potentially, higher prices.
Certainly customers are wary of the costs and disruption associated with consolidation. Oracle’s unsolicited offer for PeopleSoft has sparked an outflow of vitriol from numerous PeopleSoft users – not least of all because Oracle has stated that if the deal is completed it will stop selling and marketing all of the PeopleSoft product line in favour of its own eBusiness Suite.
“Even if the upgrade to Oracle was free, there would be unpalatable implementation and training costs [for] no benefit,” says Chris Alderson, program director at Air New Zealand. Dr Robert Brobst, CIO of US healthcare group Alcon Labs, is equally forthright. “Having to convert to Oracle would cost us millions and millions of dollars without any benefit,” he says.
The disquiet of users is equally evident at some European businesses. Helmut Taeger, the IT manager at Die Bahn, the German railway operator, is concerned that for an organisation of its size, the choice is already severely restricted. “At the moment there’s really only SAP, Oracle and PeopleSoft. If Oracle were to buy PeopleSoft, there would only be two,” he says.
It is not just large companies that are worried. All three of the big enterprise application software vendors are pushing into the mid-market, where the product options have already started to shrink dramatically as a result of consolidation. However, many small and medium-sized businesses (SMBs) remain reluctant to buy from the sector’s behemoths, citing over-sophistication, unpalatable prices and product inflexibility.
Nick Williams, group finance director of specialty foods group G.Costa, is typical of many mid-market users. He is wary of what he feels is big supplier arrogance – an impression gained when his company tendered for a new enterprise resource planning (ERP) system back in 1996. An £18 million-revenue company then (it is three times larger now), Williams drew up a shortlist of three packages: SAP, JDE (which is now owned by PeopleSoft), and JBA Software (now owned by Geac).
He claims that SAP seemed unenthusiastic about doing business with an SMB. “They turned round and said: ‘Unless it’s a quarter of a million pounds, we are not interested’,” he recalls. As a result, the bidding came down to a two-way battle between JDE and JBA, which, in some respects, JBA won by default after JDE indicted a lukewarm interest in the project. Williams’ experience gives a flavour for what many organisations are going through as a result of their strategic software supplier being acquired. In the months before its acquisition by Geac in 1999, JBA had been struggling financially. As the quality of product support started to slip, the ranks of the JBA user group swelled with disaffected customers, demanding that something had to be done.
When rumours circulated that SAP was interested in buying JBA, G.Costa’s Williams admits that he was filled with dread at the prospect of a forced migration to a product he had decided was unsuitable just three years earlier. “We were happy with the [JBA] product, had been through the pain of implementation, and didn’t want to do it again,” he says.
There are further hints of the drama that other organisations are currently facing as a result of the current wave of large-scale consolidation. When Geac eventually acquired JBA, the supplier did not get off to a good start when it was plunged into a row with a group of users over their contracts.
They felt that because their deals with JBA had given them access to the underlying source code, they had the right to employ third-party technicians to maintain the software. That would ensure Geac could not impose inflated maintenance fees, they reckoned. Geac begged to differ and took legal action to stop them.
On top of that, there was evidence of a weaker commitment to the development of JBA’s flagship ERP suite, System21 – at least initially – with promised new features arriving much later than originally promised, or not at all. There were also accusations over the imposition of price increases associated with customers’ server upgrades, which some regarded as unfair.
However, after (and maybe as a result of) those early conflicts, System 21 users now say Geac shows a strong commitment to the product.
But the company is hardly exceptional. “It behaves no worse than other ERP vendors. I’ve seen similar stories with the others,” says Dan Thomas, senior VP of information systems at US logistics company MDI, which is also a System21 user. In fact, Williams at G.Costa also points out that, while support fees have risen under Geac, they have not done so to an unacceptable level.
The provision of on-going support is a vital issue for users when the ownership of their core business applications systems changes. The fear is that, while support and maintenance may continue, the applications will be ‘functionally stabilised’. That creates real problems as the users rely on the vendor to update applications to accommodate changes in legislation, currency, tax and accountancy rules in different countries, even without counting on features that increase the application’s performance, its platform coverage and functionality.
Recently, sensing user concern, vendors have started to view their generous post-acquisition support commitments as competitive weapons. Microsoft, for one, has pledged support for Navision and Great Plains users until 2013, while Ellison has promised that Oracle will support the current range of PeopleSoft applications “for at least the next ten years” (should Oracle succeed in its bid). As proof of his good faith, Ellison cites the company’s longstanding and on-going support for the Rdb database, acquired from Digital Equipment in January 1995.
Support is one thing, though; a commitment to deliver major enhancements is another. In Oracle’s case, Rdb gets few of the cutting edge features that are added to Oracle’s eponymous flagship database system, such as Real Application Clusters.
Given that status, finding skilled database experts to manage the ageing product can also become more difficult – and more expensive. As a result, over the years, many Rdb users have become convinced of the need to migrate.
Moreover, there is a world of difference between providing support for a 20-year-old database product, and supporting an evolving enterprise application suite that needs to reflect the changing business processes of an organisation. Here, Oracle’s record is patchier.
When Oracle released its 11i application suite in February 2000, it announced a ‘de-support’ date for the product’s predecessor, eBusiness Suite 10.7, of June 2003. Moreover, in its early releases, 11i was riddled with bugs – a situation that made existing eBusiness Suite users reluctant to upgrade. The attempt to frogmarch users into what turned out to be a difficult upgrade caused resentment among many Oracle application customers.
In contrast to most application software vendors, Oracle has concentrated on developing almost all its software internally, having steered clear of any big applications acquisitions (before the PeopleSoft bid, anyway). In contrast, almost all its rivals have extended their portfolios through acquisition and in the process have created product overlaps that will inevitably result in some products or features being dropped.
As a consequence of buy-outs, Microsoft, for example, now has three different customer relationship management (CRM) packages: Microsoft CRM, Navision CRM and Axapta. That presents a challenge to users such as Kevin Murphy, technology development manager at food distributor 3663. The different origins and feature sets of the products make it tricky to decide which package would best fit the company’s requirements. “We have looked at those products, but we don’t really know where Microsoft is going [with them] and what ‘route map’ it has,” says Murphy.
Users of the CRM package Microsoft acquired with Great Plains – based on technology from Siebel Systems – have already endured a migration from that package to either Microsoft CRM or Siebel’s fully fledged enterprise-grade CRM package. Microsoft CRM itself, says Jeff Young, general manager for emerging solutions at the software giant, is very much simpler – closer in capability to the CRM application services offered by Salesforce.com than to the high-end offerings from SAP and Siebel that dominate the market.
One aspect of the Microsoft roadmap will cheer users. Not only has Bill Gates committed Microsoft to supporting all three packages for a decade, he says it will continue to develop them too. However, users will be encouraged in other ways to migrate to a unified CRM application that is currently being developed by Microsoft.
“If you go out two years, we will have a release that ‘supersets’ those major packages,” says Gates. It will not be based on any one of the three CRM products, although Gates cannot hide the fact that – as always – one acquired option looks more promising than its stablemates. “We were pleasantly surprised with the architecture, depth and forward thinking of the people at Navision. When we designed this future generation [codenamed Green], they had a very profound influence,” he says.
As Microsoft’s ‘softly-softly’ approach suggests, in the current state of flux in the applications market, users are in something of a honeymoon period. Suppliers are doing more than normal to avoid upsetting customers, says Albert Pang, director of enterprise applications research at analyst group IDC. “Many vendors, including SAP, have bent over backwards to deliver some kind of extended maintenance or even extend the extended maintenance,” he says. As a result, most users can expect support to continue for at least three years after a product has been acquired, even if suppliers’ ultimate aim is to migrate them to a different or unified architecture.
Not that all users are too concerned. Rab Khan, head of IT service delivery at Thomas Cook Airlines, says that he has experienced few problems when IT suppliers have been taken over: “There’s always someone else who can provide the [support] service you need. And a lot of the time, the service gets taken on as per the original contract.”
Likewise, Frank Smith, IT director at builders’ merchants Travis Perkins, has seen a number of the company’s key software suppliers change hands, but ultimately does not feel that the company has suffered as a result. For example, the company runs the PS-Enterprise human resources software package from Rebus HR, an operation recently acquired by the UK’s Northgate Information Solutions after four years under the ownership of a consortium of US venture capital firms. Smith says he is happy with the outcome because Northgate is already a major provider of maintenance services to Travis Perkins. The deal will enable him to consolidate suppliers.
It is also true that many customers are only too pleased to see their product fall under the control of a more stable vendor, especially when the original developer has run into financial trouble and is failing to sustain adequate updates and support.
Pang suggests many users impacted by the sector’s consolidation will eventually find themselves shouldering the costs and efforts associated with major product migration – at least if they want to take advantage of new architectures and functionality.
But until the smoke clears from the current blaze of market consolidation, it will be difficult for them to know which of their products are deemed ‘long-term strategy’ and which are destined for oblivion.