HP And Oracle Customers React – Not Happy, But Coping

Richard Fichera

Since Oracle dropped their bombshell on HP and Itanium, I have fielded multiple emails and about a dozen inquiries from HP and Oracle customers wanting to discuss their options and plans. So far, there has been no general sense of panic, and the scenarios seem to be falling into several buckets:

  • The majority of Oracle DB/HP customers are not at the latest revision of Oracle, so they have a window within which to make any decisions, bounded on the high end by the time it will take them to make a required upgrade of their application plus DB stack past the current 11.2 supported Itanium release. For those customers still on Oracle release 9, this can be many years, while for those currently on 11.2, the next upgrade cycle will cause a dislocation. The most common application that has come up in inquiries is SAP, with Oracle’s own apps second.
  • Customers with other Oracle software, such as Hyperion, Peoplesoft, Oracle’s eBusiness Suite, etc., and other ISV software are often facing complicated constraints on their upgrades. In some cases decisions by the ISVs will drive the users toward upgrades they do not want to make. Several clients told me they will defer ISV upgrades to avoid being pushed into an unsupported version of the DB.
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Oracle Says No To Itanium – Embarrassment For Intel, Big Problem For HP

Richard Fichera

Oracle announced today that it is going to cease development for Itanium across its product line, stating that itbelieved, after consultation with Intel management, that x86 was Intel’s strategic platform. Intel of course responded with a press release that specifically stated that there were at least two additional Itanium products in active development – Poulsen (which has seen its initial specifications, if not availability, announced), and Kittson, of which little is known.

This is a huge move, and one that seems like a kick carefully aimed at the you know what’s of HP’s Itanium-based server business, which competes directly with Oracle’s SPARC-based Unix servers. If Oracle stays the course in the face of what will certainly be immense pressure from HP, mild censure from Intel, and consternation on the part of many large customers, the consequences are pretty obvious:

  • Intel loses prestige, credibility for Itanium, and a potential drop-off of business from its only large Itanium customer. Nonetheless, the majority of Intel’s server business is x86, and it will, in the end, suffer only a token loss of revenue. Intel’s response to this move by Oracle will be muted – public defense of Itanium, but no fireworks.
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SAP 2010 - Predictions Review Of A Turnaround Year

Holger Kisker

SAP Has Managed A Turnaround After Léo Apotheker’s Departure

In February 2010, after Léo Apotheker resigned as CEO of SAP, I wrote a blog post with 10 predictions for the company for the remaining year. Although the new leadership mentioned again and again that this step would not have any influence on the company’s strategy, it was clear that further changes would follow, as it doesn’t make any sense to simply replace the CEO and leave everything else as is when problems were obviously growing bigger for the company.

I predicted that the SAP leadership change was just the starting point, the visible tip of an iceberg, with further changes to come. Today, one year later, I want to review these predictions and shed some light on 2010, which has become the “Turnaround Year For SAP.”

The 10 SAP Predictions For 2010 And Their Results (7 proved true / 3 proved wrong)

1. More SAP Board Changes Will Come — TRUE

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SAP Reports Q4 2010 Best Software Sales Quarter In History (But Not The Full Year)

Holger Kisker

Yesterday SAP announced its Q4 and full year 2010 revenue results.

 It's nice to see that SAP has managed the turnaround to leave the recession behind and pick up growth again. The company reported a strong 34% SW revenue growth in Q4 2010 as compared with the previous year - "The strongest software sales quarter in SAP's history" as stated by Co-CEO Bill McDermott. However, one has to keep in mind that one year ago SAP was in deep crisis and reported a YoY -15% SW revenue decline in Q4 2009 followed by the departure of CEO Léo Apotheker in February 2010 and other subsequent executive changes.

Indeed Q4 2010 was the strongest SW sales quarter in SAP's history but the fourth quarter is always the strongest in SAP's annual sales cycle. Actually Q4 SW revenue declined for 2 years since 2007 (€1,4 billion) to 2008 (€1,3 billion) to 2009 (€1,1 billion), and it was about time to turn around the curve again. While Q4 2010 was the best SW revenue quarter, the full year 2010 was still not the best in SAP's history. In 2007, SAP reported total SW revenues of $3,4 billion, followed by 2008 (€3,6 billion), 2009 (€2,6 billion), and now total SW revenue 2010 with €3,3 billion – SW revenues are still below the level of 2007! While total revenue (€12,5 billion) looks to be back on track, net new SW license revenue still remains a challenging point in SAP's balance sheet!

The new Q4 2010 revenue announcement is a very positive and promising signal, but the company needs to continue to innovate its portfolio to accelerate again new SW revenues for long-term sustained growth.

Please leave a comment or contact me directly.

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What Does Oracle's Court Victory Mean For IT Sourcing Professionals? Not Much, Actually.

Duncan Jones

Yesterday, Oracle got a surprisingly high award from an Oakland jury in its case against SAP, in respect of its now defunct TomorrowNow subsidiary.

http://www.bloomberg.com/news/2010-11-23/sap-must-pay-oracle-1-3-billion-over-unit-s-downloads.html

Photo of Oakland Raiders Fans

The Oakland Jury, pictured after the verdict.

As my colleague Paul Hamerman blogs here (http://blogs.forrester.com/paul_hamerman/10-11-23-oracle_wins_13_billion_award_over_sap  ) SAP wasn't able to test the validity of the 3rd party support model, so this case has no bearing on the separate case between Oracle and Rimini Street.  I've stated previously that IT sourcing managers should not be put off by that dispute: Don't Let Oracle's Lawsuit Dissuade You From Considering 3SPs, But Recognize The Risks.

SAP customers shouldn't worry about the financial hit. SAP can pay the damages without having to rein back R&D. The pain may also stimulate it to greater competition with Oracle, both commercially and technologically, which will be beneficial for IT buyers. 

Was the award fair? Well, IANAL, so I can't answer that. But my question is, if the basis of the award was "if you take something from someone and you use it, you have to pay", as the juror said, does that mean SAP gets to keep the licenses for which the court is forcing it to pay?

Oracle Wins $1.3 Billion Award Over SAP

Paul Hamerman

The $1.3 billion verdict in the Oracle v. SAP case is surprising, given that the third-party support subsidiary of SAP, TomorrowNow, was fixing glitches and making compliance updates, not trying to resell the software. The jury felt that the appropriate damage award was based on the fair market value of the software that was illegally downloaded, rather than Oracle’s lost revenues for support.

A news article by Bloomberg provides further insight into the jury’s thinking and the legal process. Quoting juror Joe Bangay, an auto body technician: “If you take something from someone and you use it, you have to pay.” Perhaps SAP should have made its case more in layman’s terms.

SAP is in a very difficult position, in that it faces the same threat of revenue loss from third-party support. It was unable to convincingly defend its entry into the third-party support business for fear of legitimizing a business that poses a similar threat to its lucrative maintenance business as to Oracle’s.

What happens to the third-party support business going forward? The size of the award potentially dampens customer interest in moving to third-party support, particularly with another case pending of Oracle v. Rimini Street. The SAP case, however, does not invalidate third-party support as a business. Third-party support, if carried out properly, offers an important option for enterprise application customers that are looking for relief from costly vendor maintenance contracts.

For SAP, the verdict is not only painful, but it prolongs the agony, because it is compelled to appeal the verdict. SAP certainly has the financial wherewithal to pay the damages but was hoping to put this embarrassing debacle behind them.

Lies, Damned Lies, And Statistics . . . And Benchmarks

Richard Fichera

I have been working on a research document, to be published this quarter, on the impact of 8-socket x86 servers based on Intel’s new Xeon 7500 CPU. In a nutshell, these systems have the performance of the best-of-breed RISC/UNIX systems of three years ago, at a substantially better price, and their overall performance improvement trajectory has been steeper than competing technologies for the past decade.

This is probably not shocking news and is not the subject of this current post, although I would encourage you to read it when it is finally published. During the course of researching this document I spent time trying to prove or disprove my thesis that x86 system performance solidly overlapped that of RISC/UNIX with available benchmark results. The process highlighted for me the limitations of using standardized benchmarks for performance comparisons. There are now so many benchmarks available that system vendors are only performing each benchmark on selected subsets of their product lines, if at all. Additionally, most benchmarks suffer from several common flaws:

  • They are results from high-end configurations, in many cases far beyond the norm for any normal use cases, but results cannot be interpolated to smaller, more realistic configurations.
  • They are often the result of teams of very smart experts tuning the system configurations, application and system software parameters for optimal results. For a large benchmark such as SAP or TPC, it is probably reasonable to assume that there are over 1,000 variables involved in the tuning effort. This makes the results very much like EPA mileage figures — the consumer is guaranteed not to exceed these numbers.
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One Code To Rule Them All: Reflections On Oracle Fusion Applications From Oracle OpenWorld 2010

Holger Kisker

With about 41,000 attendees, 1,800 sessions, and a whooping 63,000-plus slides, Oracle OpenWorld 2010 (September 19-23) in San Francisco was certainly a mega event with more information than one could possibly digest or even collect in a week. While the main takeaway for every attendee depends, of course, on the individual’s area of interest, there was a strong focus this year on hardware due to the Sun Microsystems acquisition. I’m a strong believer in the integration story of “Hardware and Software. Engineered to Work Together.” and really liked the Iron Man 2 show-off all around the event; but, because I’m an application guy, the biggest part of the story, including the launch of Oracle Exalogic Elastic Cloud, was a bit lost on me. And the fact that Larry Ellison basically repeated the same story in his two keynotes didn’t really resonate with me — until he came to what I was most interested in: Oracle Fusion Applications!

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A Tale Of Three Software Vendors: Microsoft Up, IBM Lagging, SAP In Between In Q2 2010

Andrew Bartels

To paraphrase Charles Dickens, Q2 2010 seemed like the best of times or the worst of times for the big software vendors.  For Microsoft, it was the best of times; for IBM, it was (comparatively) the worst of times; and for SAP it was in between.  IBM on June 19, 2010, reported total revenue growth of just 2% in the fiscal quarter ending June 30, 2010, with its software unit also reporting 2% growth (6%, excluding the revenues of its divested product lifecycle management group from Q2 2009).  Those growth rates were down from 5% growth for IBM overall in Q1 2010, and 11% for the software group.  In comparison, Microsoft on June 22, 2010, reported 22% growth in its revenues, with Windows revenues up 44%, Server and Tools revenues up 14%, and Microsoft Business Division (Office and Dynamics) up 15%.  And SAP on June 27, 2010, posted 12% growth in its revenues in euros, 5% growth on a constant currency basis, and 5% growth when its revenues were converted into dollars.

What do these divergent results for revenue growth say about the state of the enterprise software market? 

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SAP’s European Leaders Describe Its More Customer-Centric Approach

Duncan Jones

I joined an impressively large crowd at SAP’s World Tour event in Birmingham,UK, last week and was able to spend an hour with Tim Noble, head of SAP’s UK and Ireland business unit, and Chris McLain, who leads SAP’s team focusing on its 150 largest accounts in EMEA. I'm writing an update of my 2007 report "Effective SAP Pricing And Licensing Negotiation" and wanted to know what they thought about the clash between traditional deal-based sales incentives and Forrester’s clients’ need for commercial flexibility and more recognition, by their key software providers, of the wider relationship. It’s a topic I’ve raised before (http://blogs.forrester.com/duncan_jones/10-03-19-open_letter_season_sap), and I was very pleased to hear some things that SAP is doing to reduce this conflict.

I explained why, from my research, software vendors’ insatiable craving for recognizable license revenue at the expense of creating shared incentives for success is damaging to customers and to the vendor. Both Tim and Chris clearly understand the problem. Tim keeps reps on the same accounts for several years and rewards them for metrics such as customer satisfaction to avoid the revolving door sell-and-run approach that characterized software selling before the advent of SaaS. Chris has a team of Global Account Directors that works with local sales, pre-sales, and delivery teams to provide the holistic view that Forrester clients want and struggle to get from SAP’s competitors.

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