Andy on Enterprise Software

MDM Platform Support

July 9, 2008

At the Information Difference we continue to add new research on the MDM vendors. One of the things that is useful to know about vendors when drawing up a shortlist is which platforms the various vendors support e.g. which database, which web server, and perhaps more minor but useful technical information about whether they have double byte character support, do they have 7 x 24 helpline support etc.

There doesn’t seem to be a place where this kind of information is gathered together but there is now.

This also has information on the level of SOA support (if any), which non-English languages are supported in the user interface etc.

Initiate not going for Initial

June 27, 2008

In what could not be described as surprise move, Initiate Systems just pulled its previously planned Initial Public Offering. The turmoil in the capital markets means that it is difficult time to raise money right now, and so it seems sensible to wait until a better time for going public. This does raise the possibility of whether Initiate will consider raising money another way (update – it just did a USD 26 million private round), or indeed whether a potential predator might consider this a good time to pounce.

Generally this has little impact, but a lack of exit opportunities is a poor thing for the enterprise software sector in general, as venture capital firms are less likely to invest in earlier stage firms with one of the two exit routes (the other being a trade sale) closed. Initiate had made excellent market progress with its MDM technology, and it would have been nice to see a pure-play MDM vendor going public.

MDM Research

June 18, 2008

Just to let you know that the Information Difference has released its first piece of primary market research, as reported by IT Pro. There are some intriguing snippets in the survey results, as well as some rather more expected results, or the “well, duh” results as Homer Simpson might say.

13% of the (mostly larger) 112 companies surveyed had over 100 systems that hold and maintain customer data, which gives some idea of the scale of the problem that MDM is tackling. It is bit more than “just put in a hub” when you have systems at this level of complexity.

Given the generally flaky level of data quality reported, I found it surprising that nearly a third of the companies in the survey had not purchased an automated data quality tool.

The good thing was that plenty of companies seem to have begin measuring the costs of poor master data, and those costs are high, which should make it easier to justify master data management initiatives.

The Information Difference

May 13, 2008

Today sees the launch of the Information Difference, a boutique market research and analyst firm specialising in the master data management market. This reflects the increasing interest in this fast-growing area. The company has developed detailed profiles of all the vendors in the MDM space, as well as of some of the major and most interesting players in the related data quality space. The company will shortly announce its first piece of primary research (into MDM adoption) and will produce white-papers on key issues in the MDM market.

Its principals are Dave Waddington (ex Chief Architect at Unilever Foods) and myself, with some part-time assistance from a number of other talented individuals. It is nice to see some positive reactions from some serious industry luminaries (see press release).

We hope to bring a more in-depth perspective to this emerging market than is common today, and have some exciting research in preparation.

For more information see the company website.

Software and the Nature of Being

May 12, 2008

Semantic integration is something I wrote about some time ago, but is definitely getting more attention than it used to. This week we see the launch of expressor, a start-up with some interesting features but amongst other things it plays in the semantic integration field. There are also products such as DataXtend from Progress, Contivo (bought by Liaison), Software AG’s Information Integrator, 42 Objects and Pantero, while early pioneer Unicorn was bought some time ago by IBM. Arguably, the technology used by certain data quality vendors such as Exeros and SilverCreek also qualifies.

Given the scale of the SOA bandwagon, I am a little surprised that semantic integration does not get even more attention. Perhaps it is the partly the name: “semantic” and “ontology” are hardly the terms that a marketer would come up with in trying to sell this technology to a mass audience. Moreover the problem is quite a deep one, and it is going to be a clever technology indeed that can browse through a company’s applications and derive a meaningful business model that captures all the implied meaning that is currently embedded within data models, database stored procedures and application code in all its guises.

Still, at least now there are a number of technologies starting to address the problem, and the market will decide which ones work and which ones are just marketing fluff. As SOA rumbles on, I expect to see more activity in this space, and more M&A activity as the larger vendors wake up to the importance of this area. However, it would be really nice if someone managed to come up with some decent names for this market. I had thought that “ontology” was a term that I could safely bury away in the recesses of my mind after I completed my philosophy subsidiary course at University. I can’t see it making to mass media, can you? “Link: The new semantic integration software with its own ontology endorsed by David Beckham” isn’t likely to be wending its way to a TV advert any time soon.

Opening up data quality

May 7, 2008

There is an interesting web forum which seeks to bring an open source approach to the world of data management. Of interest are topics involving the creation of open source de-duplication, profiling, matching and cleansing tools (hat tip to CW for pointing this out).

No doubt the tools here are at an early stage and won’t directly compare in broad functionality with a major data quality vendor. However, for many people with less sophisticated requirements that may not matter. The rise of products like MySQL has shown how influential an open source product can become given the right circumstances.

I would be very interested as to whether any readers of the blog have any experience with the tools here, or any views on the merits or otherwise of an open approach to data quality and data integration.

Let the sunlight in

March 13, 2008

I have recently noticed a pronounced division in the mentality of software vendors to disclosing information. On the credit side of the column are vendors like Kognitio, whose CEO happily discussed the company strategy, their revenues, profitability and customer deployments. At the other end of the spectrum was a data quality vendor who would not even tell me how many employees they had (actually, at the far, far end of the spectrum is Ab Initio, who won’t demo their software to a customer without a non-disclosure agreement). What I am curious about is what these so-shy vendors think they are achieving by hiding information. To either prospects or analysts, if a vendor looks shiftily to one side and says “ah, as a policy we don’t disclose xxx” (substitute: employees, revenues, customers, profitability, whether they have a working product, etc) then do they think the prospect is going to be (a) reassured (b) more nervous than before?

If a vendor is a small start-up then we all know that it is likely to be loss-making, have just a few customers so far and be fairly small. That is what software start-ups are. The reason we are talking to them is that (hopefully) have something interesting to offer that the big brand vendors do not. It is OK if there are only a handful of customers if the product is fairly new, and it is OK to not be profitable if the company strategy is rapid growth. As a customer, it is often much easier to deal with smaller vendors who actually care about you, rather than some vast marketing machine where raising a software bug is as useful as dropping a message in a bottle in the ocean.

However anyone contemplating purchasing software is at some point going to want to get a sense of whether they are customer number #32, or customer #2, and how this element of risk stacks up against what the company has to offer. Incidentally, as I have written previously, it is far from clear that it is always safe to buy from large vendors. I have personally been stung a couple of times as an enterprise buyer when giant vendors decided that their product was not doing well enough, so just dropped it. If small company has just the one product you can be pretty sure they will care about it. Presumably vendors who are coy are thinking “let’s not scare them off now, we’ll demo the software, get it installed and then they will be so impressed that they won’t notice we are small/unprofitable/early stage/etc”. Well, I have news for you, at some point they will care, and if this moment comes after you have invested a lot of time with them then it is a lot more painful than if this came out right at the start, when at least you can redirect your attentions elsewhere.

So in my view, openness is the best policy. If a customer is terrified about the idea of dealing with an early stage company, better to find out at he beginning of the conversation than after you have invested scarce pre-sales time in doing demos and perhaps even a software trial. IBM or Oracle can afford a few wasted sales calls, but for a small start-up every conversation and pre-sales demo is precious. If a company is serious about a purchase and they have concerns about the vendor, they will find about your dark secret during their due diligence (when they will run one of those pesky Dun & Bradstreet reports), and they will not thank you if you have glossed over an important issue due to your “policy” of not talking openly about your company.

Nowhere to hide

January 30, 2008

A Computerworld article highlights the risks that enterprise buyers run in an age of vendor consolidation. In this case the article talks about Peoplesoft and Oracle, but the point is a general one. Just how anxious should software buyers be about their vendor being acquired?

I would argue that the vendor risk issue is frequently overplayed. You may “never get fired by buying IBM” but I recall when IBM dropped its “strategic” 4GL ADF for CSP in the late 1980s, leaving plenty of seriously large customers in the lurch (I worked for Exxon at the time, which had standardised on ADF). There is a risk in any software purchase, not only about whether the vendor will go bust at some point, but as to whether the vendor will continue to maintain and enhance the particular product you are buying. People often agonise about buying software from small vendors, but in the case of a company with one product in their portfolio, you can at least be sure that they will care a lot about that product. An industry giant may have ultra-solid finances, but can decide to drop a product line if it does not do well commercially, or for other internal reasons, as in the IBM example I mentioned. There are numerous other cases e.g. SAP MDM was dumped in favour of a new product based on acquired technology from A2i just a couple of years ago, while Oracle has plenty of “prior” in abandoning acquired product lines that did not meet its view of the world.

I believe that buyers should look at a few things in terms of risk. Look beyond the finances of the vendor to the installed base of the particular product they are buying. A product with hundreds or thousands of enterprise customers is likely to live a lot longer than one with a few. Moreover what is the growth trajectory of the customer base? A fast growing customer base will very likely receive continued investment, either internally in the case of an industry behemoth, or externally from venture capital firms in the case of smaller companies. The situation to be wary of, whatever the vendor size, is where there is a small customer base that is not growing. This situation should send warning bells off, whatever the vendor size. Of course vendors may be very coy about revealing figures, but you can for example try and talk to the chairman of a product user group to get a sense of how well the customer base is growing; a user group with shrinking numbers of attendees would be a worrying sign.

Above all, customers need to ensure that their investment has a clear and rapid payback. If you spend a million dollars in licences, with 20% annual support and 4 million in services putting it in, you should be able to stack up on the other side of the balance sheet the benefits that you are expecting to see. If the benefit case has a payback period of (say) a year, then it is less of an issue to worry about the vendor will be around in ten years time. If you have a choice between a mediocre product from a “safe” vendor and a much more productive product from a smaller riskier, vendor, then you should be able to quantify what the difference in productivity is worth to you. If the better, riskier, technology saves you millions of dollars a year and pays back in eight months v the alternative, then what sense does it make to accept an inferior technology that will actually cost you many millions in poor productivity, however “safe” it may be.

As discussed earlier, very few product lines are completely safe anyway, given the tendency of vendors to cull non-performing product lines and encourage “migration” to newer (read “profitable”) newer products. If you have a fast enough payback then you can be philosophical about a migration a few years down the road. It all comes down to rigorous cost benefit analysis of the software life-cycle, sadly something all too few customers pay proper attention to.

Last exits?

January 1, 2008

Happy New Year. There was a useful post in regarding 2007 technology IPOs. Some of these are outside the scope of this column, but what I found interesting was that it seems that enterprise software companies were able to tap the capital markets at levels of revenue and profitability unseen over the last few years. A couple of years back the message from investment bankers was that you needed quarterly revenues of not less than USD20 million (and preferably more) and several quarters of profitability before even considering an IPO. Yet Netezza’s IPO got away OK despite a lack of profitability (though strong growth), while Sourcefire had quarterly revenue of under USD 15M and was still not profitable, yet also managed an IPO. It looks as if the markets have taken a slightly harder view since then judging by the early performance of these shares, but these IPOs would simply not have happened in 2004 or 2005.

What is less clear is whether 2008 will show the same softening of view, or whether the financial debt crisis afflicting banks will have collateral damage in the IPO market. Software companies and their backers will be hoping for a continued thaw rather than a return to the wintry outlook the capital markets have seen in the past few years.

Blowing Bubbles

November 15, 2007

Back in the late 1990s companies filed for IPOs even though they had modest revenues and were losing money. Due to the tulip mentality of the time investors suspended disbelief and bought in anyway, giving way to the crash of 2001. A couple of years after that bankers were telling me that in order to have an IPO you would need “at least a couple of years of solid trading profits”, quarterly revenues of at least $25 million and preferably more, as well as strong growth. Those heady days of the late 1990s were a freak occurrence, like the South Sea Bubble. Certainly technology IPOs dried up almost entirely.

With the recent gloom on Wall Street I was therefore surprised to see Initiate Systems filing for an IPO. They are growing quite rapidly but not only have never made a cent of profit, but their losses appear to be, if anything, widening slightly at about a third of their revenues. Throw in an admitted financial misstatement and does this start to feel to you like the late 1990s again? No doubt Initiate is expertly and expensively advised, but this will certainly be one to watch, as if the IPO goes ahead and well then it will change perceptions of exit strategies for high tech companies.