Sending email has become a major industry problem thanks to both the massive growth of legitimate sending mixed with an enormous amount of SPAM.  Much as it is in online security, there is no one “silver bullet” to efficiently and effectively deliver large amounts of email.

For small organizations the typical answer has been one of the many email marketing service providers.  This includes companies like Constant Contact (NASDAQ: CTCT), MailChimp, VerticalResponse, ExactTarget, and many others. Most relationship management solutions like Salesforce (NYSE: CRM), Responsys (NASDAQ: MKTG) and Unica (acquired by IBM) include email services as part of their solution.

Large organizations don’t need or want the content creation and management features of these marketing tools and they need to send far more email than these solutions are built to handle. Large-scale applications require a “sending platform” to deliver the emails, which can reach into the millions.

 There’s also a big difference between internal company email and external consumer email.  Thanks to new rules and regulations, many types of emails have become legal documents.  There’s now a significant compliance burden on company email for retention, discovery, content management, etc. Large external email distributions simply don’t belong in this environment and are better handled externally with a service provider.

Sending large volumes of emails effectively requires infrastructure, technology, tools and expertise.   To make it even more challenging, SPAM has become such an issue that large senders of email are viewed as “guilty until proven innocent” which means their sent email may never reach the intended destination. Senders must develop an online infrastructure reputation.

These dynamics favor specialty cloud infrastructure service providers like SMTP (OTC: SMTP).   Over time we expect this market to evolve in a similar fashion to content delivery networks and financial market technology. Institutions use purpose-built online infrastructure for services like video asset management, funds transfer, stock trading and transaction processing.

The size of the email market in general and the slice for SMTP in particular is not well-documented.  The largest segment of the market is internal email, which is estimated to cost about $20 to $25/month in the enterprise.  If outsourced to Google this cost can drop to about $8/month but companies give up considerable flexibility and integration by doing so.

 These high costs are forcing companies to move their high volume emails to clients, customers and prospects outside of their internal systems.  In addition, there are large organizations without substantial internal infrastructure (like non-profits) that want to reach millions, tens of millions and in some cases hundreds of millions of email subscribers.  Estimates for external email volumes are notoriously flawed due to the high percentage of SPAM in the raw numbers.  However, many would agree that the figure is “around” 300 billion email messages sent per day with about 3 billion email accounts.  The line between SPAM and that subtle opt-in when someone checks the “I want to receive updates from American Airlines” box is a blurry one.

The fact is that almost every successful consumer-focused organization is likely to need this service.  This is as true for the Catholic Church as is for Groupon, Patron Tequila, Budweiser, American Airlines, or Coca Cola.  One fairly simple back-of-the-envelope way to get at the size of the market opportunity for SMTP and other high end email outsourcing companies is to base it on volumes.  We’ll assume that just 1% of the daily volume is bona fide consumer marketing email sent to large lists by big organizations.  That’s 90 billion messages per month to parse into potential revenue.  We used a typical power law distribution of customer email volumes to segment the market and determine how many customers are in each segment. Then it’s a matter of applying the normal pricing to come up with the current market size of just over $500M per year.

The Highlights of the Full SMTP Report (link below):

• SMTP, Inc. (SMTP) is a cloud service provider that specializes in the increasingly challenging task of sending email on behalf of their clients by providing intelligent engine to power successful email delivery.  In this regard SMTP is more akin to a technology service provider like Amazon or Rackspace rather than an email marketing company like Constant Contact.
• Volumes of email continue to increase and the cost, complexity and ever-shifting nature of what is required for successful delivery is driving the majority of organizations to outsource all or part of their email delivery.
• Over time we expect this market to evolve in a similar fashion to the content delivery space and include some dedicated providers (like CDN players Akamai & Limelight) and the large general players offering some level of service (like Amazon and Rackspace.)
• SMTP is a small but rapidly growing company that is very capital efficient.  The company generated $2.7m in revenues for 2010 (an increase of 76%) with 27% operating margins. Our market size estimate for the services SMTP provides is approximately $500m/year. SMTP is growing faster than the overall market but is unlikely to hit any market limitation for some time.
• The company recently completed a “direct to market” IPO process and is just now accessible to pubic investors. Our intrinsic valuation (IV) suggests a share price of $3. The shares just started trading and as the float is limited the shares will fluctuate more sharply than normal. Both our IV and peer analysis are attached.

The full research report is available here: SMTP Coverage Report May 3 2011 and contains more information regarding the company, the market, competition and valuation.

[Disclosure: SMTP, Inc. is a corporate research advisory client.  Please see the disclosure information in the research report and on our website for more information.]

Primarily this is a defensive (meaning not very creative) move by Oracle.  IBM would have been a measurably stronger competitor for Oracle with Java and MySQL added to their formidable software stack.  So the real value for Oracle is more in IBM not having Sun rather than direct benefits for Oracle.  All their statements to the contrary are only corporate posturing.  That fact is not going to be good news for Sun employees who can expect Oracle to make the Sun acquisition highly profitable by dramatically eliminating costs, shutting down initiatives and exiting businesses.

We’re aware of the fact that many commentators are taking Oracle comments at face value that they are going to create a real full service counter to IBM in the industry by preserving all the major elements of the company and adding more global services.   We see no chance that this will actually happen.  Failing that the speculation is that HP will act in concert with Oracle to present a unified solution to large customers but we see the Oracle move as being more threatening to HP and that they will be extremely aggressive at undermining Oracle’s efforts.

Oracle may do some constructive things with the Java assets which hold great sway in the enterprise and are tied with Microsoft .NET in most corporate development environments.  However Oracle doesn’t exactly inspire confidence in the hearts and minds of end users.  That they will be around is a certainty but whether they will put the community and customers first is more questionable.

MySQL would seem to be doomed in the hands of a proprietary monopolist like Oracle.  However it may not be quite the case.  After all there are open source licenses in force and a community in place.  This will help to keep MySQL viable in the short and medium term.  What steps Oracle takes will influence the decisions of the key developers and users.  The rhetoric won’t be a tell at all.

From an end-user perspective we can be fairly sure this will force some strategic rethinking.   Java and MySQL in the hands of Sun meant they were safe and stable and owned by a company that wasn’t much of a threat.  Now it’s a bit different. Oracle is seen in the same light as Microsoft.  Providing a valuable set of technologies and services but also charging heavily for it thanks to their proprietary IP and very fat operating profit margins.

Implications by company:

Microsoft (MSFT) – Probably good news.  IBM would have been more customer and open source friendly than Oracle is likely to be.  It makes Java and MySQL along with frameworks based on them more similar to the .NET and SQL Server choice. Oracle may try and take OpenOffice into battle but we’ve seen similar efforts from Oracle for the past 10 years or so and they have never been able to “get” productivity applications.

IBM (IBM) – Looks like a bumbling loss from where we sit.  May force them to take a more serious look at Red Hat (RHT) which is doing very well in the enterprise.  We don’t know Red Hat management well enough to say if they are up to the task but they are sitting on a powerful industry opportunity right now.  IBM is big enough that it won’t effect the company but we expect the IBM Software Group is scrambling this week.

Cisco (CSCO) & HP (HPQ) – Many Sun customers are going to have to look at alternatives.  HP is the market leader in servers and this will bump up the pace of their share gains vis a vis Sun.  Cisco will have work to do in order to break into the server market but this event will spur some percentage of Sun server customers to start a fresh evaluation which will help Cisco get a foot in the door at some large accounts.

EMC (EMC) & VMware (VMW) – EMC is likely to pick up some share in the storage market and VMware gains some strategic value as in infrastructure layer that can help improve the fluidity of server infrastructure and enable a containment and migration from Sun servers in places where that will be happening.

Probably also good for: Salesforce.com (CRM), Sybase (SY), Google (GOOG) and Amazon (AMZN).

Probably also bad for: SAP (SAP) who is increasingly irrelevant with software that isn’t aging well.

We have published a number of full reports that are useful in looking at this sector including The IBM Software Group ($), Microsoft ($) , HP Software ($), Google ($) and Open Source ($).  (They are also available to clients in the research library after login.)

[Disclosure: At the time of this writing Research 2.0 does not have an investment position in any of the stocks mentioned in this post.]

We don’t know what’s going on at Sun but somehow feel that there is a ball still in their court.  At first we noted that some of the software assets (Java, MySQL) are very strategic and in some ways the current value of the company ($3.6B TEV at $6.60/share) might be worth these assets.  Of course Sun comes along with over $13B in annual revenue, a bloated cost structre, dysfunctional management and declining viability versus competition from companies like HP to name one.

The IBM deal seemed like a home run for both parties were it not for the anti-trust concerns, some of which seem quite valid in areas of the business.  The deal is highly accretive to IBM even at $12 or $13/share.  So much so that we won’t even bother showing the math here.  (Although you can start with the Sun TEV/R of 0.3x versus the IBM TEV/R at 1.5x and start to get the gist of it.)

Unfortunately Sun has been destroying businesses they acquire and shareholder value for a decade.  (Before everyone throws their long-term charts at us showing what a rise they had in 1999, save it!  They were destroying software companies by acquisition (with one or two clear exceptions) way back then to but it wasn’t recognized by the market and the bubble bailed them out.)   Sun is obsessed with selling servers and so they focus on products like mySQL as a vehicle to move more Sun hardware.  This linkage is artificial and not what customers want.  They seek standardized (and now virtualized) hardware environments where they can efficiently run their underlying software infrastructure and company applications.  They don’t want some specialized solution from Sun or anyone else.  This is true for some esoteric applications but not for mainstream computing.

That Sun management still drives the company with this world view and business model is fatal for all concerned.  We really are not trying to pick on Sun.  And we do sympathize with employees there.  Most of them are not to blame and there’s no question that there’s lots of “good stuff” to be had at Sun.  But the strategy and the management approach have been rotten for so long it doesn’t make any sense to walk on eggshells about it.

We’ve looked at a set of proprietary server spending data from enteprise customers and Sun is in the Novell category in terms of technology roadmap, spending plans and vulnerability.

But would it be that hard for Sun to stop hurting themselves and get more aggressive about coming up with a strategy that is different and works?  IBM was left for dead before Gerstner helped get it sorted out.  There are great assets and opportunities still for Sun and a new approach could unlock them.  The shares would be worth $12 or even more if they could just get on a decent footing.

[Disclosure: Research 2.0 has a small long position in JAVA.]

The big IBM-Sun news has come and gone; so far without an outcome.  It’s going to be ugly for Sun.  A situation like this is absolutely fatal to an organization.  The wheels of employee defection and revised customer spending plans are set in motion and there is little that can be done to stop them.  Sun senior management and the board probably have no idea how much has already happened in the last two weeks.  So whether they understand the urgency to find a solution for shareholders is an open question.

Right after the IBM-Sun deal fell through the speculation turned to Red Hat.  The reason is that we are in a perfect time for open source companies and solutions.  Budgets and spending are under huge pressure and all the growth seems to be at lower price points.  The netbook craze is a good example of this.  There are designs out there that promise formidable performance with HD video and high end graphics at “stupidly cheap prices” according to eager customers.   This has become a motif in many areas of technology adoption and growth.

What is very valuable in this market at Sun is the MySQL database which has become the standard for many web-based applications.  Java has also become the standard for most distributed enterprise applications.  Finally the OpenOffice productivity tools have been a disappointment so far in terms of market penetration but in the hands of IBM they could certainly do some more damage to franchises like Microsoft Office.  (Google and Apple are nipping away there already.) At $6.56 Sun has a market cap of $6.3B but a TEV of $4.9B.  At a TEV/Revenue of 0.4x the company seems hard to resist.  Our guess was that IBM had room to sweeten their offer to do the Sun deal but we were wrong.  (Perhaps not surprisingly since we skipped our regular golf game with Sam Palmisano last weekend.)

It’s not Linux itself that is interesting but these open source products on top of it that can deliver quite a bit of business value at very low cost.  Red Hat purchased JBoss which was a very hot open source application server in the past and could be useful.  IBM already has a full suite of middleware so our guess would be that a Red Hat solution would be aimed more at the SMB market to drive money away from the pockets of Microsoft than being used to drive deeper into enterprise software infrastructure.    You never know though.  Red Hat has been trying to add features on the OS to bring about virtualization and management capabilities.    As of yet their efforts haven’t made much of a ripple in the enterprise market but again in the hands of IBM, maybe they could be more credible.  (Right now VMware continues to be a clear #1 with no viable #2.)  Red Hat is trading with market cap of $3.6B and a TEV of $2.9B or about 4.4x revenues.

Citrix purchased open source virtualization company Xen some time ago for about $500M.  Like Red Hat they haven’t gained much ground on VMW but are incorporating it into some of their own application and desktop virtualization solutions.  The issue often is service and support if a #2 to VMW is going to be considered.  In most cases it’s not worth the risk.  (The Microsoft solution will be used in Microsoft environments but that’s another story.)  Citrix does have one other aspect that IBM might like uniquely.  They have the #2 position behind WebEx for online meetings. IBM has their own service that is part of Lotus but it’s a distant runner in the race. Now that Cisco is tweaking IBM in the server space it might be fun to do some of it back with the Citrix GoToMeeting family of products.  Citrix has a market cap of $4.5B but a TEV of $3.8B or about 2.4x total revenue.

Scraping the bottom of the barrel is Novell, as usual.  Maybe it’s been a loser too long to be taken seriously any more.  And any purchase of the company might come with a stigma of paying up for something that is already dead.  We’d have to take a closer look at Novell to get a better sense of their software assets but all we can say now is that the company is cheap. I’s on a TEV/Revenue of 0.5x and a bit over 3x tangible book.

Looking over the list it certainly appears that Sun stands out as the bargain.  Their software assets are far more strategic, they have a cadre of top-notch engineers and the marketing, sales, distribution and management team can be reduced drastically to improve profits and company performance.

That JAVA has not declined back (or below) the $5 price where the IBM-Sun news started suggests that many agree Sun looks too tempting not to pick up in this economic environment.  But the most logical (IBM, HPQ) would have anti-trust issues.  Cisco would be a real spoiler and game changer for IBM and HPQ were they to decide to do it.  Dell is saddled with too many of their own problems.  Some have mentioned Oracle and Microsoft.  Seeing either of those firms get into the hardware business in a big way is hard to picture.

If the Sun board doesn’t see a transaction in the wings they need to bring an a new CEO if there is any hope to transform the company into an worthwhile equity investment.  JAVA will be a great trading vehicle for some but a dangerous stock for most.

[Disclosure: Research 2.0 has no position in JAVA at the time of this writing.  See our website for more disclosures.]

Less than a week after Cisco delivered on their announced intent to get deeper into the cloud computing space with their own line of servers IBM is said to be in serious talks to acquire Sun Microsystems (JAVA).  This is the just one of what should be many moves to consolidate positions to address the “Compute 2.0″ opportunity that blurs the lines between servers, networks, storage and devices.  

Sun has blundered it’s way to only a 10% market share in servers but it will help put IBM firmly in the #1 spot ahead of a surging HP.  It makes it clear that IBM is going to take this battle seriously and Cisco may be surprised how competitive the old Big Blue can be if you come into their living room.   The hardware though is not what interests us the most.

Sun would bring IBM some very strategic software assets.  Java occupies a key role in enterprise computing and some open source products like MySQL are king in the more open general Internet space.   Sun has many software product lines but for something to matter in the context of IBM it has to be bigger than most of these.

If the deal goes through we will be especially interested in what IBM will do with StarOffice.  (An equal to Microsoft Office on Linux.)  Linux on the desktop has yet to catch on in any mainstream way but has seen some pockets of success with individuals and government organizations in Europe.   In the hands of IBM it might be a very different story and a very unpleasant outcome for Microsoft.  

The potential deal would make it clear that IBM will not sit back and watch Cisco gain share in the server space but we don’t yet know if part of this is to counter growing client computing influence from Google and Apple and the ability for Microsoft to rebuild itself on the back of Windows 7.

If IBM does take the initiative with OpenOffice they will again occupy a prominent space in the client computing space, at least on the software side.  With no personal computers or mobile devices they may be feeling that they have to do something to prevent Google and Apple be putting down roots from the client and mobile computing spaces.

As I read it, for IBM (IBM) 2007 represented the first year this decade that the growth rate in internal software revenue (e.g., the Software Group from Global Technology Services) dipped down into single digits. In 2004 and 2006, the internal growth rate was twice the external rate at 12% and 14% respectively. In 2003 the internal growth was three the times the external growth rate at 32%. In 2002, software revenue from down the hall grew 25%, representing a large percentage of the growth of the IBM Software Group that year.

I’m not sure how to interpret that. Maybe somehow when IBM sells itself software it adjusts for exchange rates in a way you can’t do with real money. Therefore the internal growth rates are closer to the constant currency rates that IBM reports. I also suspect it has something to do with the transitional period vis a vis IBM mainframes (a large percentage of IBM software sold deploys on mainframes).

I know part of the reason is because the numbers I’m using for comparison (from the IBM Investor Relations page) are not backcast for IBM’s software acquisitions. That tends to inflate the external growth-rate number vs. market reality. Using a pure apples-to-apples comparison to take into account the 2006 acquisitions of Filenet, Internet Security Systems, MRO, Vallent and so forth might reduce the GAAP-compliant external growth rate of 10% down a point or two. But it would still be higher than the 7% growth in internal software sales.

Maybe the booming services groups are buying someone else’s software, when they win an outsourcing or management consulting contract. I recall a story—surely just a story—about former CEO Lou Gerstner writing one too many seven-figure checks to that company out in Islandia and immediately sending someone out to acquire Tivoli. Who’s looking at the outgoing checks these days?

Or maybe open source software (OSS) is being used in a lot of the contracts won by the IBM services divisions. As I have researched and reported in depth, OSS does not mean “free” unless you have a bunch of highly trained and highly motivated computer scientists on staff. Without expert staff, it is very hard to maintain and upgrade OSS without a service contract from someone. There are very few organizations that have that kind of expertise hanging around but Big Blue’s services organization is definitely one that does. Wouldn’t that be interesting?

Tags: open source software, OSS, IBM, Global Technology Services, Filenet, Vallent, MRO

It’s common at the end of calendar years, to think back and think ahead. At least that’s the case at the end of Gregorian calendar years when there is so little daylight here in the mid to northern latitudes of the Northern hemisphere and nothing else to do but think.

As an aside, how come the political-correctness police haven’t eliminated a calendar named after a pope (or at least renamed it)? And do people in Australia and Chile think “southern” is pejorative the way lefthanded people think of “right?” The guy who promotes this map must think so:

Which takes me full circle to thinking back and thinking ahead.

Whatever happened to the Factory of the Future? GM MAP and all that stuff?

And whatever happened to the Software Factory?

Well on the Factory of the Future question, Google didn’t turn up much written after 1990. I suspect it all happened with a different buzzword a la the way articfical intelligence is all around us but no one dares whisper the term AI.

But I don’t think IBM (IBM) has forgotten about the Software Factory and I think it wants to own the machines that run the Software Factory of the Future. The December 11, 2007 IBM announcements about new Rational capabilities is just an example. It means there are some legs in the software development tools market despite the open source software (OSS) development trend. While heavily funding OSS as a tactical move vs. Microsoft, IBM is really thinking long term to the Software Factory.

A big part of my research agenda is OSS but I am constantly amazed at what a cottage industry OSS development is. I don’t mean it literally takes place in homes per conventional wisdom (in fact it is completely dominated by IBM and other leading IT supplier funding) but it is still highly individualistic (which means full of errors that no one else can correct because they don’t know what the individual that made the error was thinking). That fact means that software development today is still figuratively where shoe manufacturing was in the 1860s when my great grandfather beat leather around a last in what is now my sister’s kitchen. A generation later his son (not my line of the family which is why I think for a living rather than make something useful) founded Plymouth Rubber to make soles and heels with a machine. Is the software industry still a generation away from automating the manufacture of its piece parts?

If so, IBM looks like it plans to be there. Of course, given IBM’s overall business strategy of building up its IT services businesses and becoming more of a management services provider you constantly have to ask whether it will spin Rational back out the way it has spun out PCs to Lenovo and so forth. You never say never but in the short term, the answer is probably no. PCs had truly become a commodity. Because of OSS, software is almost the opposite of a commodity. Even layers of the software stack such as application/web server software that I have dubbed commodity still offer dozens of choices. Rational development tools give IBM a leg up on everyone else in the services business in dealing with these choices. Almost everyone else in the services business such as HP (HP) and even in higher layer parts of the software industry is highly dependent on OSS for their tooling. Or, like SAP (SAP) they still have to build their own tools.

This recent Rational announcement tells me IBM’s services guys do not want to be caught sitting in a little shoe shop waiting for the leather guy to drop off a hide–Dennis Byron

When I did software marketing back in the day, user group meetings were not major events. The key information-technologist and IT-staff meetings of the year were the spring and fall ACM/DPMA/IEEE/etc. “Joint” conferences in the 1960s followed by the annual National Computer Conference (NCC) in the 1970s and—in the 1980s—the geeky tradeshow that probably single-handedly drove the mob out of Las Vegas, Comdex. From a marketing perspective, every IT supplier was on a level playing field in trying to get the attention of the press and prospective customers.

Beginning in the 1990s, smarter software marketeers than my generation’s figured out it would be much better to deal with a captive audience of already committed customers. Thus IT suppliers began to put the full court press on their own user conferences and the great all-comer IT trade shows faded away.

I noticed today that that idea has lead to another marketing technique. Rather than give the company holding its user conference the entire weekly news/blogger cycle, which this week could have been Oracle’s (ORCL) with its OpenWorld beginning November 12 in San Francisco, the other guys’ PR folks try to come up with a news blast that can’t be ignored. Hats off to IBM (IBM) with its proposed purchase of Cognos (COGN), announced on November 12, and Microsoft (MSFT) with its November 12 rollout of Windows Server 2008 details. Of course, IBM would say that they could not control the timing of the release of the Cognos deal once it was signed and Microsoft is holding its European TechED in Barcelona this week.

So the question is does Oracle have any news blasts itself to counter the IBM and Microsoft efforts? Based on Charles Phillips kick-off keynote, the answer is a resounding “maybe.” In addition to the usual platitudes about market and technology leadership in the various segments of its business (database/middleware and applications) in his keynote, Phillips joined with the “new” head of all Oracle development, Chuck Rozwat to demonstrate some mildly interesting new products. (With John Wookey’s recent demotion/departure, Rozwat now moves into a spot at Oracle that has about the half-life of a baseball manager’s.)

To kick things off, the pair demonstrated:

• Some rehashed applications features which I would summarize as “no news blasts here.”
  • Application integration architecture features that looked like SAP (SAP) BAPIs from the late 1990s, even leading with the order-to-cash example that has had a longer “demo shelf life” than Steve Jobs
• Compliance stuff inherited with the Logical Apps acquisition based on active governance and a lot of last-year yawn on Sarbanes-Oxley
• Former Agile PLM functionality designed to demonstrate Oracle’s best of breed plus suite strategy

• Some possibly interesting infrastructure stuff that might be more important than the demo illustrated. These included
  • Fusion 10g middleware beta (implicitly)
• Enterprise Manager and Software Configuration Management functionality
• Oracle VM, based on the Xen open source virtualization software, which looks like it will let users virtualize both applications as well as servers, including Linux servers

The show goes on all week at Moscone and there maybe a news blast buried somewhere. In terms of investment potential, unless Oracle uses the new Enterprise Manager functionality to more directly take on BMC (BMC) and CA (CA) or the VM product to be more aggressive in its Red Hat (RHT) Linux program, this week’s PR battle looks like “advantage” IBM and Microsoft.

–Dennis Byron

Tags: Oracle, open source software, OSS, IBM, Microsoft, virtualization

Back in July, I read the IBM (IBM) and SAP (SAP) Q2 conference call transcripts and said it was a time to just lay back and enjoy the sun. The two company’s quarterly financials made for good beach reading. There would be plenty of time when the leaves turned here on Cape Cod to dig deeper, I said.

Hello Columbus Day!

In response to that post, dolphl2man wrote in and said, “Hi Dennis I agree with your feelings on IBM and SAP. There has been chatter regarding these two companies getting together. Any thoughts?” I responded, thinking of comments by SAP founder Hasso Plattner made a year earlier, that it’s always fun to “what if” but I really don’t believe IBM wants back into the “ERP applications” game (having exited in 1991). There are multiple reasons but the most important are channel conflict and IBM’s strategy of becoming almost totally a services provider. Happy and peaceful coexistence.
Then after SAP’s Business ByDesign (BBD) announcement, I thought about dolphl2man’s question some more. Rather than getting together, I think SAP might be in for a fight with IBM. At BBD time, I noted that BBD puts SAP right up against its long-time partner Microsoft as well as Inuit (INTU), and salesforce.com (CRM). I noted that SAP also needed to build a BBD ecosystem from among Microsoft, Intuit, Lawson (LWSN), Infor, and so forth partners.

Now I realize that in Lawson, and Infor and that “and so forth,” and after all these years, IBM is still the one. IBM is actually SAP’s biggest competitor in its strategic move into the small/medium enterprise (SME) market with BBD. (For SAP, by the way, SME really means just “M,” the medium enterprise.) Although IBM does not directly “own” the applications intellectual property in this segment, it partners heavily with all those that do. That includes not only the Intentia and heritage wings of Lawson but as many as 10 pieces of Infor, including the original IBM Mapics ERP software buried within Infor. There are also dozens of small industry-specific application suppliers, especially in all types of wholesale distribution, and even the JD-Edwards (JDE)-heritage portion of Oracle (ORCL). These suppliers have dominated the mid-market for decades. To be successful in its goal of doubling its customer count by 2010 with Software as a Service (SaaS)-paying BBD customers, SAP has to “unhook” thousands of IBM AS/400s (iSeries, or whatever).

Of course, ERP is not just MRP-plus anymore but most of these AS/400-heritage application suppliers have kept up by adding supplier and customer relationship management (SRM and CRM) modules that approximate the freestanding SRM and CRM suppliers’ products in functionality. This is the same functionality that BBD touts as superior to Microsoft, Intuit and other more “S” oriented BBD competitors. And as a group the IBM partners cover industry-specificity at almost the four-digit SIC level.

All these suppliers are already moving or will be moving to a SaaS delivery methodology if BBD and Microsoft market dynamics force them. And more good news for IBM and bad news for SAP; these long-time partners will use IBM to help them make that move. IBM WebSphere middleware will underlay much of the necessary software re-engineering to make it happen and IBM’s services groups can even provide the hosting. Looked at as a group, the IBM ERP lineup is much more functionally capable to serve the mid-market than the multiple Microsoft (MSFT) ERP offerings grouped under the Dynamics brand. (Note: Oracle management said as recently as its most recent conference call that it did not want to get into this space, deftly dodging the point that it is already heavily into the space because of JDE.)

–Dennis Byron

Tags: SME, ERP, CRM, SRM, SaaS, AS/400, iSeries, SAP, IBM

Back in March I wrote that only IBM could take an out-and-out obtuse technical concept such as service oriented architecture (SOA) and turn into a business issue. IBM had to overcome two challenges to make it happen. Most important, technically SOA refers to:

• Layering a 10-year-old service-level-agreement mechanism (“the contract”) inherited from the utilities industry
• On top of the decades-old concepts of set-theory-based object-oriented polymorphism, encapsulation and inheritance
• In a 20-year-old client/server relationship

To some that conduct academic research into SOA, Internet and enterprise service bus (ESB) technologies are also required on the above list to make the architecture truly SOA.

Another challenge IBM faced of course is that very little of IBM’s current software revenue stream is SOA-based.
But I said at the time that if IBM wants to say SOA is a business strategy, it had its advertising power during the upcoming golf-season and March-Madness basketball tournament to make it so. We saw later that month that IBM also commissioned the Object Management Group to advocate for SOA as a business issue from the user side.

Looks like it worked. This month, IBM announced the results of “a survey of clients” that concludes that the “strategic decisions to adopt an SOA are shifting away from the realm of IT staffers to business executives.” That must be why so many IT guys are telling me the IBM message causes them so many problems (expletives deleted) but are also good for a stress-relieving laugh. And why TIBCO’s (TIBX) Greg the Architect series had so much fun with the SOA acronym and won awards for best tech PR.

The survey was conducted for IBM by the Link Group and consisted of a “sampling of” attendees at the IBM Impact 2007 SOA event in May, which drew more than 4,200 technical and business leaders. This approach has a few methodological problems of course but it’s interesting to see what they said. The survey revealed that 67 percent of the respondents said the key decision makers responsible for moving to an SOA strategy are business leaders, including C-level executives and business managers. For anybody that remembers a few years back, that was the same crew that brought us the dot.com bubble. Additionally, 65 percent of “clients” said that business leaders are also primarily responsible for selecting an IT partner to help achieve business goals in an SOA. I think the press release means to say (1.) attendees at the event (2.) that took the survey but I am not sure. And of course, 53 percent of respondents indicated that their budgets for SOA projects for 2007 increased between 10 and 20 percent compared to 2006. That’s not exactly a wow increase but that’s what the survey said.

IT guys get either bent out of shape or a good laugh out of this stuff because basically the IT whole world is going to be based on SOA by about 2019 no matter what, ending a process that began around 2001, just as almost the whole IT world today is based on n-tier client/server computing, almost at the end of a process that began around 1989. No amount of surveys or advocacy groups is going to make it happen any faster or slower. But IBM will do its best to speed up the chemistry.

(By the way, the SOA buzzword itself is in the third year of the typical five-year life of buzzwords. With the standard buzzword half-life of one year, SOA will soon become much less visible. Greg the Architect will have to find a new buzzword to kick around.)

–Dennis Byron

Tags: IBM , SOA, TIBCO, ESB, enterprise service bus, services oriented architecture