Topping Hollywood: Software's Frenzied Year

Monday Dec 17th 2007 by Larry Barrett
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SaaS, SOA and Virtualization hit new heights in adoption and hype during 2007, while SAP and Oracle continued their grudge match.

Looking Back

If and when striking Hollywood writers finally get back to work, they might want to consider drawing upon some of the intriguing storylines that dominated the enterprise software industry in 2007 for inspiration.

While there was no shortage of villains, upstarts and old familiar faces to entice viewers, "Software 2007" seems like a can't-miss proposition.

Then again, how would they sell advertisers and viewers on a project that reads like a soap opera, looks like an Ultimate Fighting cage match and, at times, sounds more far-fetched than any child's fairy tale?

Imagine this pitch: "It's kind of like 'Wall Street' meets 'Where's Waldo?' with a little bit of 'The Amazing Race' sprinkled in. You know, billionaires circumnavigating the globe in yachts and tricked-out 767s searching for cheap labor, Shai Agassi and anyone who can provide the authoritative definition of SOA."

Even if that would-be producer isn't immediately laughed out of the room, he or she still won't have an ending to the story. Instead, we'll have to wait until next year just to find out what happens next.

Until then, here's a look back at some of the most significant software subplots for 2007:


The SaaS model gets some respect

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Rather than locking themselves into never-ending license service contracts -- to say nothing of the months or years it takes to complete an on-premise software implementation -- companies of all sizes are increasingly turning to Software-as-a-Service (SaaS) (define) for their daily business applications. This has been good news for providers like Salesforce.com and NetSuite.

Salesforce.com during the year extended its lead in the sector. The company reported strong earnings, customer wins (including many wins against on-premise competitors) and the launch of its platform-as-a-service offering, Force.com, for developers to build and deliver any application they want, on demand.

Cisco Systems' $3.2 billion purchase of WebEx in March now positions the network-equipment maker as serious threat to top-tier enterprise software vendors servicing corporate customers that are increasingly enamored with the SaaS model for unified communications and collaboration.

Meanwhile, Microsoft is expected to launch its CRM Live on-demand product early next year. Oracle in November announced plans to beef up its Siebel CRM On Demand service with a slew of social networking features.

But the strongest vote of confidence for the SaaS model may have come in fall, when SAP -- the world's largest business application vendor -- jumped on the bandwagon with its first on-demand service, Business ByDesign.

In announcing what amounts to a sea change in the German company's strategic direction, CEO Henning Kagermann stepped up the rhetoric when he called Business ByDesign "the most important announcement I've made in my career."

That a company of SAP's size and stature would spend more than $500 million to launch what can only be viewed as a direct challenge to Salesforce.com makes it perhaps the most resounding endorsement of the SaaS model.

Believe it or not, Salesforce.com, which eclipsed the 1 million-subscriber threshold in 2007, is pleased by the turn of events.

"I feel like sending Henning Kagermann a fruit basket today," Bruce Francis, Salesforce.com's vice president of corporate strategy, said in an interview with InternetNews.com in September. "This is a fantastic thing. What SAP is doing is confusing their customer base and opening minds and markets for the SaaS model."

And then there's NetSuite. On Dec. 6, the company finally formalized its initial public offering, filing to sell 6.2 million shares for between $13 and $16 a share. NetSuite, which is majority-owned by Oracle CEO Larry Ellison, hopes to raise almost $100 million to pay down some debt and build a second datacenter.

Despite being an early mover, the company has yet to turn a profit, however.

And SaaS isn't a sure-fire win for SAP, either. The model may have received the nod from the software giant, but it still represents a gamble.

Business ByDesign "is a big bet for SAP," Gartner analyst Dan Sholler said in an interview with InternetNews.com in August. "This has to succeed or they will have a whole host of business challenges ahead of them. No one has ever proven they can sell this type of business technology this way. SAP is betting the profitability of the company that it will be able to do it."

Continued on Page 2: The SAP-Oracle war rages on.

Looking Back

The SAP-Oracle war rages on

The Hatfields and McCoys have nothing on these two. Put simply, both of these companies and their CEOs want to annihilate each other.

And things actually got worse in 2007.

Oracle's Ellison has made it abundantly clear he wants to overtake SAP as the world's largest business application vendor. The company has made almost four-dozen acquisitions during the past four years to build the end-to-end software platform of choice for enterprise customers.

Meanwhile, SAP keeps plugging away with its formidable installed base of more than 43,000 companies -- and the recurring service and maintenance contracts that come with them. It's also set an internal goal of achieving 100,000 customers by 2010.

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Yet with Oracle's mounting challenge, the company also proved this year it's open to more radical thinking. Even after having long mocked Oracle for its growth-at-any-cost strategy in favor of its own plan of organic growth, SAP took a page out of Ellison's book when it ponied up $6.7 billion in early October to acquire Business Objects.

It didn't take Oracle long to respond.

Less than a week after SAP broke from tradition with its Business Objects purchase, Ellison and company launched an unsolicited and (so far) unsuccessful $6.8 billion takeover bid for middleware provider BEA Systems.

For Ellison, the fact that BEA rejected Oracle's bid and remains independent isn't the point.

Industry watchers widely regarded the timing of the takeover bid -- rumored for more than two years -- as yet another dig at SAP. Not only did Oracle try to upstage SAP's big purchase, but it swooped in on BEA knowing it was highly unlikely, if not impossible, for the German firm to mount a counteroffer less than a week after committing $6.7 billion for Business Objects.

Along with the M&A activity and both companies' penchant for bragging about customer wins against each other, the animosity spilled over into the courtroom in March. Oracle filed a lawsuit alleging SAP, though its TomorrowNow subsidiary, had engaged in "corporate theft on a grand scale" by engaging "systematic, illegal access to -- and taking from -- Oracle's computerized customer support systems."

SAP's Kagermann conceded some TomorrowNow employees engaged in "inappropriate" downloads of Oracle support materials but said SAP did not access any of Oracle's intellectual property. Oracle, however, contends TomorrowNow employees downloaded thousands of mission-critical items from Oracle's database to service its customers.

In September, a U.S. District judge set a trial date of Feb. 9, 2009 for the two antagonists to resolve the matter in court, unless they reach a settlement in the interim.

After showing most of TomorrowNow's management team the door, SAP in November appeared to be ready to put the scandal behind it and announced it was considering a number of options, including the possible sale of the third-party services provider.

Continued on Page 3: What's the deal with SOA?

What's the deal with SOA?

When they weren't at each other's throats, software vendors of every shape and size spent a ridiculous amount of time this year proclaiming that their enterprise products and services were the secret sauce for a service-oriented architecture (SOA) (define).

Of course, the idea of SOA -- essentially aligning IT services and business processes through loosely coupled heterogeneous services -- has been around for years.

But judging from this year's press releases and product announcements from vendors like IBM, Microsoft, SAP and Oracle, SOA is some kind of magic tonic that will revolutionize the entire organization, and each vendor is the only one that can make it happen.

It's still unclear whether SOA will become the next evolution in IT architecture or just a interesting footnote like the Y2K scare. That will depend on how committed enterprise customers are to defining and identifying thousands upon thousands of business processes.

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Equally important, analysts and systems integrators say, is whether or not enterprise customers are willing to pay millions upfront to overhaul all their business and IT processes for some future benefit that, at this early stage, is almost impossible to quantify.

"Right now with SOA, it's like we're in a spaceship and looking at that big, bright star way out there," said Don Rippert, Accenture's chief technology officer. "That bright star is SOA. And we want to get there and see that star. But as we get closer, we realize it's a not a star but a galaxy. There's a logic and a gravity to it but it's not a single thing. Just like client-server wasn't a single thing. There's a lot of promise. But we're not there yet. We're still a long way away."

Vendors continue to promise this fantastic architecture in which pre-defined business processes are put into a modeling tool. That tool controls the software in the service, allowing companies to adjust their hardware and software on the fly, helping them meet changing business needs without touching the underlying code.

That might sound valuable. However, this all starts with identifying and defining business processes, which is no small order.

For a large retail bank, this step could involve 1,500 to 2,000 processes, including everything from opening new accounts and scheduling teller work shifts to ordering paperclips and envelopes. A global food services company might fare worse, having to go through more than 10,000 business processes.

As a result, it's a tedious, time-consuming and expensive effort that requires executive sponsorship and buy-in throughout the organization. And it almost certainly requires breaking down the legacy systems and processes that have proliferated for decades, a process that CEOs and CIOs alike are loathe to embrace.

"That's what we need to bridge that gulf," Rippert said. "If it's not bridged in the next 18 months to two years, SOA could turn into the hula hoop."

Continued on Page 4: Virtualization frenzy

Virtualization frenzy

Unlike SOA, virtualization software stepped into the limelight during 2007 to help companies address a real and pressing need: finding new ways to cut datacenter costs and reduce energy consumption.

VMware, which enjoyed a fantastic initial public offering in August, stands as the clear industry leader in developing software that allows IT managers to cram multiple computing environments onto one machine. By allowing one physical server to perform the function of two or more servers, more applications and operating systems can be hosted and managed in the datacenter.

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In May, Gartner reported more than 500,000 of these virtual machines were already online and it predicts that figure to grow to more than 3 million machines by 2009.

In its first quarter as a publicly held company, VMware posted a profit of $64.7 million, or 18 cents a share, on sales of $358 million. The company's success has not gone unnoticed, however. Enterprise software vendors such as Microsoft, IBM and Oracle are aiming to cash in on the virtualization craze, joining established players Virtual Iron and XenSource, which Citrix Systems acquired acquired in August for $500 million.

Yet again, there's a flip side to the technology. When too many virtual machines are created too quickly -- which today can often be done with a single click of a button -- it can create massive server sprawls with very little organization. And all these virtual machines need to be configured, patched regularly and secured.

Companies looking for a solution to the new wave of problems created by incorporating both physical and virtual servers really only have two choices.

They can hire a services provider like SunGard or IBM to host and manage snapshots of their server environment and provide additional capacity when needed, or they can do it themselves with some help from another software vendor.

"The more you put in one basket, the more things that can go wrong with that basket," said Don Norbeck, director of product development at SunGard. "Everyone wants to lessen hardware and reduce power consumption and space. But people need to take a step back and assess their environments and infrastructures before they start their virtualization projects."

This article was first published on InternetNews.com.

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