Oracle reported its results for the three months to February 29th yesterday, and it beat analysts’ expectations. Software license sales were up 15% from last quarter, and up 7% on last year’s Q3. The blogosphere’s “Oraclefreude” delight at its disappointing Q2 appears to have been premature. Enterprises’ insatiable demand for processing power and Oracle’s excellent products ensure a continuing demand for more "per core" license capacity of its flagship database products.
“Oracle is on track to deliver the highest operating margins in our history this year,” said Oracle President and CFO, Safra Catz, in the company’s press release. “Oracle can achieve these record margins as an integrated hardware and software company because we are focusing on high margin systems where hardware and software are engineered to work together.”
What does this mean for sourcing professionals considering Oracle deals in its important fourth quarter to May 31st?
Despite Oracle’s financial rebound, I’m still confident that sourcing professionals with leverage will be able to get better prices in the next three months than they’ve gotten before, provided they use that leverage wisely. Here are three reasons why:
Microsoft recently announced that it will change to its European currency pricing policy from July 2012, and the effect could be a 20% price increase for UK customers. It didn’t publicize the change, preferring to let its resellers tell their customers as and when the change affects them, so I thought I’d tell my readers what you need to know. Firstly, here is some background. Most global software companies have one master price list in their home currency and reset price lists in other currencies every year or even every quarter using then-current exchange rates. Microsoft has always taken a different approach, having set €, £, and other prices in 2001 and continuing to use the same exchange rate ever since. There are pros and cons to this approach:
· Pro: local prices are stable and predictable. In contrast, € and £ prices from other US-based vendors may rise or fall by 20% from one year to the next as the currencies fluctuate. (This is one reason why SAP’s revenue rises and Oracle’s falls when the € weakens against the $, as these price changes affect demand.)
· Con: European companies pay more than their US-based peers. This doesn’t matter so much if you’re only competing with domestic rivals, but global companies see and resent the discrepancies.
I’m always searching for new negotiation best practices and tips when I’m speaking with Forrester clients, but it's not often I find one when I’m relaxing in bed with an old favourite, recently rediscovered book. But here’s one that I hope you’ll find amusing, and educational, from a book written over 80 years ago.
The current Mrs. Jones did some “tidying up” over Christmas — her euphemism for moving my stuff from its organized filing places in her office and dumping it as a jumbled pile on the floor of my office. In amongst a number of unwanted books and DVDs, now available at very reasonable prices on Amazon, I found my ancient copy of Kai Lung Unrolls His Mat by Ernest Bramah. It’s a wonderful book — set in China at some unspecified date in history — and written, so the preface claims, in that country’s classical convoluted style replete with analogies, adjectives, and apophthegms[i]. Read this passage about the ivory carver, Chan Chun, and his lowly assistant, Kin Weng, buying some new tusks from the merchant Pun Kwan — I hope you’ll love it as much as I do.
Pun Kwan and Chan Chun began slowly to approach, the former person endeavouring to create the illusion that he was hastening away, without in reality increasing his distance from the other, while the latter one was concerned in an attempt to present an attitude of unbending no-concern while actuated by a fixed determination not to allow Pun Kwan to pass beyond recall. Thus they reached Kin’s presence, where they paused, the sight of the outer door filling them both with apprehension.
I’ve been with Forrester for just over a month now. It’s great to be involved with our clients and communities and to be helping businesses across the world evaluate the quality of software suppliers' proposals from a commercial perspective (e.g., is this a great deal or can the supplier do better?). One of the best parts of being at Forrester now is seeing the continuation of the work I did prior to joining Forrester — advising businesses on software contract and pricing negotiations. One thing I noticed then, and continue to hear about now, is the reluctance of software suppliers like IBM, BMC, CA, and Compuware to publish meaningful list prices or to explain how their price book worked or how discounts had been determined. Time and again I had to ask suppliers to un-bundle prices and confirm the basis for the net prices they were proposing. Does anyone else agree with me that pricing should be clear and transparent and not a black art?
Here’s an example of an “art” that should be science: list pricing. While it’s logical to think list pricing is the same foundation upon which all bids are built, that’s actually not the case. Often, I found that my clients were being quoted “list pricing” that was different. Isn’t list pricing supposed to be the same by definition? Which is why you may with good reason doubt the validity of a list price or the competitiveness of a discount that you’re being offered by a software supplier. It’s why I love my work, and why you should make sure you get third-party validation of your deals.
How you do validate your software vendors’ list pricing and proposed discounts?
The proposed acquisitions of SuccessFactors by SAP, and of Emptoris by IBM got me thinking about the impact on buyers of market consolidation, in respect of the difference between dealing with independent specialists versus technology giants selling a large portfolio of products and services. Sourcing professionals talk about wanting “one throat to choke,” but personally I’ve never met one with hands big enough to get round the neck of a huge vendor such as IBM or Oracle. Moreover, many of the giants organize their sales teams by product line, to ensure they fully understand the product they are selling, rather than giving customers one account manager for the whole portfolio who may not understand any of it in sufficient depth. Our clients complain about having to deal with just as many reps as before the acquisitions. They all now have the same logo on their business card, but can’t fix problems outside their area, nor negotiate based on the complete relationship. It seems that buyers end up like Hercules, wrestling either with a Nemean lion or with a Lernaean hydra.
The acquirers' press releases tend to take it for granted that customers will be better off with the one-stop shop. Bill McDermott, co-CEO of SAP, said, “Together, SAP and SuccessFactors will create tremendous business value for customers.” While Lars Dalgaard, founder and CEO of SuccessFactors, talks about “expanding relationships with SAP’s 176,000 customers.” Craig Hayman, general manager of industry solutions at IBM, said, “Adding Emptoris strengthens the comprehensive capabilities we deliver and enables IBM to meet the specific needs of chief procurement officers."
A couple of months ago I was blogging from sunny Barcelona with the Red Sox 0-6. Now I'm in Barcelona again for our IT Forum, but this month its raining heavily here, while back in UK we officially have a drought. But the good news is that Boston is 6-0, at least in Yankee Stadium. A lot can change in two months.
The same is true in IT. Just now, Microsoft faces threats to its strong market position from many directions, and Steve Ballmer is under pressure, but strong results for its June fourth quarter could deflect the flak. That's one reason why sales teams will have greater incentives than ever to close Enterprise Agreement deals in the next couple of weeks. Hopefully if you're negotiating an EA right now, whether a new deal or a renewal, you've read my report Consider These Five Criteria When Choosing A Microsoft Volume Licensing Program and maybe even had an inquiry call with my colleage Christopher Voce or me. One common question we get is whether the stated deadline to accept an offer is real, or will the same deals be available in the last days of the quarter or even in the subsequent months? The short answers are Yes, it is, and no, they won't." Microsoft has its own deal approval processes that take time to complete, and though it won't want to reject Purchase Orders, it may have problems processing them if they arrive too late. And the deals available almost certainly wont be as good next quarter because sales teams will still have 9 months remaining in which to recoup any shortfall.
It’s a beautiful sunny day here in England, the first snowdrops have appeared in my garden and at least one of my pet hens has restarted laying – yes, Spring is on the way. Meanwhile, in the US the main harbinger of the changing season is the migration of baseball teams to Florida and Arizona for their annual pre-season ritual known as ‘Spring Training’. In the software sourcing world, the rites of Spring often include major negotiations with Oracle and Microsoft ahead of their fiscal year ends of May and June respectively. That’s why this is a perfect time of year to get some spring training of your own, at one of our ever-popular Microsoft Negotiation workshops.1 Anyone considering a major purchase or renewal with the Redmond Sluggers between now and the World Series should come along to Amsterdam on February 16 or Dallas on March 2 to hear why they may have extra leverage this year, and how to use it to get the best possible deal.
Microsoft had very high sales revenue for its December quarter, particularly the business division, but that didn’t come from the multi-year Enterprise Agreement (EA) and Software Assurance (SA) deals that the direct sales teams need. Microsoft’s revenue boost came from one-off purchases of its just-released Office 2010 product through its retail and small business programs. EA/ SA deals would initially appear in the accounts as unearned revenue in the balance sheet, and that was at the same level as two years earlier.2 So these results are consistent with our research that predicts that Microsoft’s direct sales teams will struggle to meet their tough EA bookings targets this year, and that will strengthen prospective buyers’ negotiating position.
We can’t promise warm weather or adoring fans, but our spring training session will help you with:
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?
Marc Benioff, CEO of salesforce.com, gave a typically energetic performance at London’s Royal Festival Hall yesterday, both in the main-stage keynote and the private lunch for press and analysts. In addition to some humorous digs at Oracle, SAP, and pretty much any company that wants to run its own data center, Benioff described his vision for enterprise applications in the world of social computing, which he calls Cloud 2. Key to this vision is salesforce.com’s own Chatter application, which is . . . er, well actually it's not really clear what it is. Various spokespeople described it as an internal Facebook, a collaboration engine, Twitter but secure, but to me it still seems to be a user interface in search of an application.
The demonstration reminded me forcibly of the scene in Bruce Almighty in which Morgan Freeman lets Jim Carrey hear all the prayers being made at that instant by the citizens of Chicago. The user gets a stream of tweets, discussion threads, notifications, and alerts from feeder applications, messages from colleagues to each other, general questions, etc. My question, which no-one could answer adequately was “how is this different from email?” The features they cite — filtering, highlighting, threading, categorizing, etc. — are all in Outlook if you care to use them.
The main difference, apart from the fashionable user interface with the sender’s photo next to each message, is the switch from emailers deciding who they want to read their message, to readers deciding whose chats they want to see. Benioff’s description of his own Chatter feed puts him as the omniscient Bruce, watching every sales process, customer service problem resolution, product design collaboration, and invoice approval throughout his organization.
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.