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Mergers: Taleo, Vurv, HP, EDS

                          Logic Behind Recent Mergers

                                                    Taleo and Vurv

Taleo and Vurv are hooking up. My research firm, Vital Analysis, did a report on Vurv last fall. Vurv is the rebranded Recruitmax and they had spent a lot of time replatforming their talent management solution over the last couple of years. The result of their efforts was debuted to much fanfare at the Fall HR Technology show in Chicago. The Vurv solution set is complete and looks good. Taleo will get a nice solution from this deal as well as 1700 customers.

This deal is interesting  as both firms offer relatively complete talent management solutions and have enjoyed similar customer/market successes. At first blush, it would appear that is a market share play. A review of the underlying technologies and geographic reach of the two firms would suggest that this deal expands the reach of the combined firm, lowers future development and operating costs and offers additional solution formats (e.g., SaaS). This deal should be good for shareholders and most employees. Some redundant back office personnel will likely be let go, though. Customers using old versions of either vendor's product line might want to seriously consider upgrading to a more recent product once the combined firm announces its post-merger product line rationalization strategy.

                                                     HP/EDS

EDS could probably tell HP management what happens when you buy a consulting firm. EDS bought AT Kearney several years ago and never really integrated it. The culture of a consulting firm is an interesting beast and it must be considered whenever a consultancy is acquired.

Some would argue that EDS is not a consultancy but rather an integrator or outsourcer. For the most part, this assessment is correct. The point about cultural integration remains though. The HP culture of old, an engineering excellence culture, would have been a hard one to fit in with EDS. One pundit described EDS several years ago as 'sharks in wingtips'. The EDS people I've met are solid with numbers and definitely know how to put together big deals. They can play to the top execs and the CIO with equal aplomb. In a really big deal, I'd give the advantage to the EDS sales team.

If you combine EDS and HP, I'd also give the vertical industry advantage to the EDS personnel, too. That said, I'm not so sure either firm is really great at getting verticals the way that integrators like Accenture (ACN) can.

I understood why HP pursued PriceWaterhouseCoopers years ago for their consulting expertise. That deal could have really changed the HP landscape. PWC Consulting has been a boon to IBM although that took a while to become accretive. The HP/EDS deal may not have as many rough patches before it as EDS has a lot of long-term outsourcing arrangements that should remain relatively untouched post-merger. It's the long-term view of this merger that I'm questioning.

What's tougher to figure are the real long-term upsides in this merger. HP could help EDS with additional cost reductions as more HP equipment is brought into its deals. HP could also see hardware sales improvements as EDS utilizes more HP (and not IBM) gear. Both firms are already global but the increased density of personnel and abilities in lightly staffed markets should help shares.

Both parties understand mergers. EDS used to be owned by GM and bought ATKearney. They've even done a joint venture deal with Hitachi in the past. HP has bought Compaq and countless other firms. Both companies have acquired many smaller software and services firms, too. Merger integration skills should be available in-house (and, if not, HP should give me a call) but the scale of this one is going to be big and complex.   

Big VC Round For SilkRoad

                $54 Million to SilkRoad technology, inc.

SilkRoad technology is a provider talent management solutions. The company has the backing of several venture capital firms including one involving Flip Filipowski. This week they announced the successful close of $54 million in venture funding.

Flip's a great fellow. He took time years ago to meet with me re: a startup I was launching. He was super to deal with back then and was great to visit with last fall at the HR Technology show in Chicago.

My research firm, Vital Analysis, prepared a report on SilkRoad last fall and it remains one of the most requested reports we have. Interestingly, many of the requests come from European businesses that are interested in a new Talent Management solution. Just based on the market interest in that report alone, I would guess that SilkRoad is definitely getting traction in the market and may turn out to be a winning investment for its VCs.

Incidentially, any software firm that can raise $54 million in this market must be doing better than just ok. Specifically, they must be:

• closing a growing quantity of deals (proof of business model)
• managing expenses well (operational excellence)
• expanding their pipeline (gaining market acceptance)

Best wishes to their continued success...

AAACK!!??? Vinnie's Blog a Top 25 Blog?

                         Zoli Makes the Industry Standard List, too!

Working with the Enterprise Irregulars has been a pleasure the last year or so. I get to hang with ssome pretty bright folks. I just saw today's Industry Standard newsletter and saw their announcement of their Top 25 Tech blogs. My congrats to colleague and former business partner/arch enemy Vinnie Mirchandani for making the list.

Zoli was number 6 on the same list. Congrats!

Accenture: Acquisitions and Layoffs

                                 Accenture Adjustments

The Houston Chronicle reported last week that: "Accenture LLP plans to cut 95 jobs in the Houston area on July 1." On the same day that this broke, Wachovia Capital Markets, LLC reported that: "Accenture (ACN, Outperform, $37.79) agreed to acquire AddVal Technology Inc., a privately owned provider of shipment management products and services. The acquisition is expected to close within 45 days. Financial terms were not disclosed."

While any job loss is tough for the person(s) affected, 95 people are not significant in the total view of Accenture's workforce. However, if these cuts are part of other cuts or are a result of the loss of a major customer(s), we will want to follow this story very closely.

November 1 Deadline - FTC's Red Flag Program

   Now You Have to Check for Terrorists, Identity Thieves & Criminals

The GRC (governance, regulation and compliance) sector has another set of requirements to propagate to businesses small and large. On November 1, 2008, businesses must comply with a new Federal Trade Commission regulation to check customers and suppliers against databases of known Internet criminals.

This comes on top of US Treasury requirements to compare customer lists against those of known terrorists. Failing to comply with these screening activities could result in jail time and penalties.

Clapton and SAP - What a Combo....

              'Slowhand' Eric Clapton and SAP

As a very long-time Eric Clapton fan, I was overjoyed to see him last night as the Deloitte sponsored entertainment at the Sapphire conference. He and his band performed about 20 numbers over the course of two hours. And, thankfully, they played the full-on, electric guitar version of Layla.

Clapton earned the nickname 'Slowhand' because of the way he'd make audiences wait for him to replace broken guitar strings on stage. Frustrated audience members would sit there and slowly clap as a means of getting him to move faster (see this Wikipedia entry for more info: http://en.wikipedia.org/wiki/Eric_Clapton). While he may have been a slow, perfectionist with his guitar equipment (i.e., his tools of the trade), he could flat play a guitar and he could be really fast with it too. I was always struck at his versatility - going from blues to rock to a love song to something altogether different.

SAP this week showed that they share some of those same characteristics of Slowhand. In their Business ByDesign product line, the company is taking a more measured approach to ramping up sales for their newest creation. Analysts, Wall Street, customers, etc. can sit there and clap all they want but SAP, like Ernst & Julio Gallo wines, won't release a product before its time. Business ByDesign is going to get more functionality in its vertical application capabilities and the operational cost will be reduced before the company gets really aggressive with its marketing.

But, Slowhand SAP will likely deliver a screaming hot, fast solution when it's ready to let the market play with Business ByDesign in a big way. Sure, companies in six countries can buy it now but the real fun will be in watching 1000s of customers pounding on this in 12-18 months.

The Business By design product is already quite strong now. Some of the Enterprise Irregulars and I wondered if this conservative approach to marketing Business ByDesign is really the right strategy for SAP. In 12-18 months, competitors will have better solutions as well. Should SAP strike now while it has already has considerable market advantages?

How strong is Business ByDesign? Here are some interesting points to ponder:

• as shipped, the product comes with 400 reports and 1000 infocubes
• the product has one of the most functionally complete SaaS solutions on the market although top SAP executives report that prospects want more. My kid never gets a big enough allowance but sometimes we have to be selective in what we hear and what we act upon.
• the product has already seen TCO and performance improvements. Where the product only supported 25 concurrent users/blade, that number has doubled and doubled again
• the User Interface has been upgraded significantly. It still has a spartan look but this is to allow for faster screen refreshes (see previous post).

SAP - You Should've Caught Hasso's Keynote

                 SAP, SaaS and Memory Resident Databases

Some time ago, several of the Enterprise Irregulars got an A1S briefing from Dr. Hasso Plattner, board member and founder of SAP. A1S was the project name for an all-new solution SAP was developing for the SMB marketplace. That product was introduced last Fall as SAP Business ByDesign.   

 

In my conversations with Dr. Plattner back then, we discussed whether they would utilize a memory-resident database as part of the Business ByDesign product. I was told then that they would and we had a spirited discussion about the value of such an approach. Back then, I should have been clearer and asked when this technology would be brought to bear. Now we know – it’s now. 

 

 

Memory-resident databases are immensely valuable as they reduce search times by several form factors. There is no delay/latency waiting for a disk drive to re-position its read/write head or waiting for the drive to rotate to the correct spot. Memory resident databases don’t suffer the performance hits that conventional media do when data is fragmented across numerous parts of a drive. 

 

To see how effective a memory-resident database works, SAP executives showed how quickly a 1.3 billion record database of Point-of-Sale data is searched. In a live demonstration this morning at SAPPHIRE, sub-second results were consistently achieved. 

 

 

Workday has been using in-core or memory-resident database architecture for some time now. 

 

SAP has been both experimenting with it and now, with the Business Objects acquisition, is ready to really exploit it for both Business ByDesign product users and beyond. Several times today, Dr. Plattner remarked how the product could be used by Wal-Mart to parse billions of customer transactions.

 

The new architecture works as follows (see photo):

• A user initiates a transaction
• The system wants to add/delete/update a record
• The software updates the memory-resident database, the MaxDB rdbms and BI data stores
• When the user wants to review, search, report, etc. this data, the actions are performed in-memory at a form factor faster time

Latency in high-technology is rarely desirable or valued. In a SaaS (software as a service) environment, latency is a real problem as users could be anywhere, connecting via the Internet on spotty connections accessing faraway servers. SAP developers are being ordered to produce rendered screen pages in 300 milliseconds or less. Given all of the ways that page loading can be slowed down (e.g., graphics-intensive images, inefficient searches, etc.), anything that helps make SaaS fast is a godsend. 

 

SAP intends to bring this technology to its other product lines beyond Business ByDesign. The initial catalyst will be Business Objects and the T-Rex architecture. Last year, prior to the Business Objects acquisition, SAP was able to search through 36 million accounting transactions/second using memory-resident database technology. Now, the company can easily search over 1 billion records/second.

As we’ve written previously re: Workday’s approach, the use of an in-core database obviates the need for subledgers and other redundant data stores. Dr. Plattner indicated that the degree of ‘compression’ is 10-20X.   

 

Dr. Plattner also indicated that graduate students at the University of Potsdam  are working aggressively in this area with SAP.

 

The implications of this technology decision are:

-          RDBMS technology will get relegated to a backup media or light-duty technology

-          Users will be able to perform previously unimaginable searches, reports, analyses, etc.

-          Older application software products will need re-working. To stay RDBMS-only focused will become competitively untenable.

-          Universities, technical schools, etc. need to develop more skills in the areas that memory-resident technologies open up (e.g., analytics, competitive intelligence)

-          That we all need to buy more stock in solid-state memory makers like Spansion.

Decelerating ByDesign

                          The Caution Behind Business ByDesign

Coming into SAP's Sapphire conference this week, a number of bloggers, tech analysts and Wall Street researchers were looking for answers around recent decisions on SAP's Business ByDesign product line. Business ByDesign is a relatively new offering from SAP and represents a huge investment by SAP in the Software as a Service (SaaS) space. During a recent earnings call, SAP executives indicated a more cautious approach to the continuing rollout of this product line.

After three meetings today with senior SAP executives, there is now more clarity around SAP's recent moves. We spoke with Henning Kagermann (outgoing CEO), Leo Apotheker (incoming CEO) and others. What we learned was:

• The product is not performing to the cost expectations the company had set for it and, as such, was not operating at the level of TCO (total cost of ownership) that the firm needed for it to be a profitable solution. A high TCO is not something investors or Wall Street would appreciate.
• The root cause of the higher than expected TCO was apparently related to two major items. First, the version of NetWeaver (SAP's development and execution software stack) being used by the Business ByDesign solutions is out of date and needs to be updated to version 7.1 once it's completed. When that's accomplished, the solution should run more cost effectively.  Second, the upgrade process (e.g., the upgrade from Version 1.0 to 1.1) turns out to need more automation so that fewer errors are made and human intervention is reduced. Human intervention triggers added costs and introduces potential errors. This creates quality and cost problems.

SAP executives admitted that their new on-demand solution encountered challenges the company had previously never encountered. First, SaaS was an entirely new space. Second, the company couldn't fully 'leverage their 35 year experience' in application software as these customers were not the typical SAP customer and the solution would be used differently than its prior on-premise solutions. One SAP executive said they "thought they knew this market" but that wasn't exactly true. Lastly, their development staff was caught by surprise as the they did not have the same level of control with this product as they have had with other product lines.

Business ByDesign has been an expensive development exercise for SAP. One source indicated some 2000 persons were involved in the creation of the product. While further development efforts are being scaled back, this has more to do with a planned development deceleration and a need to wait for the NetWeaver architecture to be implemented. In creating the product, one executive commented that the company made hundreds or thousands of assumptions (e.g., how quickly customer deals would occur, what response rate is needed for acceptable performance, the targeted TCO, etc.) and some of these assumptions now require a rethink.

Bottom line for Business ByDemand is that:

• sales will continue in six countries: France, US, UK, China, Germany and India but not beyond these for now
• the company will continue to focus its TCO reduction efforts on cutting the cost of hot-patching, hosting, upgrading and on-going operations. Moving their hosting centers to low-cost countries (for a labor arbitrage) is not being considered for now.
• the $149/user cost figure is being held. TCO will be reduced while customer cost will not be increased.
• adjustments by SAP should take 12-18 months to complete

Better News - Business Objects / SAP

                      External Knowledge in BI

I recently caught a Business Intelligence (BI) promotion here in Chicago. At first, the event had a long sales pitch for SAP/Business Objects. We were reminded, many times, that SAP had recently acquired Business Objects.

The best part of the event followed. During this stage, Business Objects showed how it now includes access to a number of third party databases to assist business decision makers in crafting more reasoned, intelligent business decisions. Some of the highlighted data sources included:

• US Bureau of Economic Analysis
• Dun & Bradstreet
• eBay transaction data
• Thomson Financial
• US Census Bureau
• and more

These external data sources can be chosen by provider, vertical industry need, geography or other selection criteria.

Why is this important?

Businesses have known for years that you cannot understand your customers, suppliers, competitors and other entities by studying internally generated accounting transaction data. Only when you add outside perspectives to internal data can a business executive make intelligent business decisions. In fact, the whole concept of business intelligence has been a misnomer as most every system to date does not use outside data. How can this be intelligent?

This is a big step forward for Business Objects and culturally a huge improvement for SAP. Just a few years ago, a senior SAP executive dismissed my suggestions that they could improve their product line by adding external data/perspectives to it. These changes should help their efforts to expand and extend their BI offerings.

Next, Business Objects should deliver the data as a fully integrated, context sensitive part of the SAP suite. For now, it's great one can access this information. But, in the future, it would be nice to see this data appearing side-by-side with transaction data throughout the system and not just on reports.

This is a great step forward but it's only the first step.

More on SAP Earnings / Business ByDesign

          What Others Are Saying / Will Say…

I’ve been reviewing a number of pieces re: SAP’s recent earnings and their Business ByDesign product line. I found this comment by Patrick Walraven’s of JMP Securities to be particularly jarring:

“On a separate note, our due diligence suggests that SAP's new Business ByDesign solution may have been originally built in a number of silos rather than with a single data model. We believe this unfortunate engineering decision may help explain the magnitude of SAP's investment in the Business ByDesign product in 2007 and 2008. Our due diligence suggests that SAP may have a major update to Business ByDesign later this year to attempt to address these issues.”

On the eve of SAPPHIRE, issues like this reflect poorly on SAP. They suggest that:

-          SAP may have assumed that the SMB SaaS market is very similar to other markets they’ve played in before. That assumption is faulty and may have lured them into making a series of bad decisions re: Business ByDesign architecture, go-to-market strategies, pricing and more

-          SAP was overly cocky and misestimated the challenges, both technical and sales, in successfully creating a product for a market in which they had no prior experience.

Right now, I am reminded of the tortured merger of the Southern Pacific and Union Pacific railroads. Fortune magazine had this insightful comment in a piece they did to examine why the merger led to the biggest rail congestion problem the U.S. ever faced. They said:

“It is a virtual certainty that Union Pacific will solve its operating problems--probably within the year. The same pride and arrogance that got it into trouble will eventually get it out.” (see: http://money.cnn.com/magazines/fortune/fortune_archive/1998/03/30/240141/index.htm )

   

Pride and arrogance might be two cultural concepts that SAP may want to look at. The Union Pacific (UP) lesson is interesting as the solution for the UP may be the same solution SAP will need to embrace.

Next week should be interesting….