Investment bank Goldman Sachs just released its "Americas: 2009 Software Outlook" report, and it promises near-term pain for an already struggling technology industry:
The worst of the IT-spending slowdown likely remains in front of us, as we start the clock on slashed 2009 budgets. We forecast 0 percent revenue growth for our group, below consensus at 5 percent, and 1 percent earnings growth, below Street at 2 percent.
(Credit:
Goldman Sachs)
In other words, things are going to get worse before they get better.
For Goldman, this means that it is recommending stocks that it believes enterprise customers will buy into: defensive/large-cap stocks like Microsoft and Oracle, as well as companies that suggest "strong cost-cutting discipline and mission-critical product sets" like BMC, CA, and Symantec. Why? Because these are the safe bets, among other reasons:
We expect the "Big 5" software companies (Microsoft, Oracle, SAP, Symantec, CA) to benefit from more defensive revenue streams due to critical nature of functions, "stickier" maintenance, stronger negotiating leverage, and a likely spending consolidation to larger vendors. Hence, we assume 0 percent growth for this group in 2009.
The other reason called out in the report is that recessionary pressures will push CIOs to consolidate their IT spending into the big "ecosystem" vendors, rather than buying best of breed. If true, this will likely hurt open source, even as its lower costs help.
Even so, I'm looking at a sales pipeline for Alfresco Software, my employer, that is three times anything we've seen in the past, which suggests to me that the recession may be very good for open source, though more data (and time) is necessary to prove out this thesis.
Interestingly, Goldman sees Salesforce.com getting a lower share of IT spending in 2009, and it has slapped a "Sell" rating on its stock. I suspect that Goldman may be off in this, given that SaaS is a great way to adopt IT, at a measured pace with diminished risk. But the point is well-taken on spending with established vendors, though this may ultimately benefit Salesforce.com, as it's the biggest player in SaaS.
The only positive in a recession is that we'll see a serious separation of wheat from chaff in IT vendors. I continue to believe that open source will do well through the downturn (indeed, Goldman calls out Red Hat as a winner in the downturn, able to withstand downward pricing pressure), as well as SaaS, though I also concede to Goldman's point that a large portion of IT budgets will find their way to the industry's dominant vendors.
As ZDNet picks up on, Oracle revealed a fixation on Salesforce.com during its last earnings call, with eight mentions of its rival.
The last company on which I've heard Oracle focus this much was Red Hat, as the software maker (re)announced Unbreakable Linux as a way to undercut Red Hat's dominant Linux distribution.
ZDNet Editor in Chief Larry Dignan suggests that the Salesforce smack talk may simply be a prelude to Oracle buying the online customer relations management specialist. I've heard those rumors going around, and it wouldn't surprise me: Oracle considered buying Red Hat before too.
Indeed, the best way to get acquired (or, at worst, undermined) by Oracle seems to be by beating it in the market. Oracle's corporate culture seems to appreciate vendors that can beat it at its own game. Oracle's latest fixation on Salesforce might suggest that its efforts to clobber the software-as-a-service leader with its own SaaS offering haven't worked, at least not as well as planned.
Regardless, it's becoming clear that the best anti-Oracle poison pill may well be a failure. If you want to avoid Oracle's acquisitive hands, lay down and die in the market. Oracle doesn't touch roadkill. It likes to eat winners.
That says a lot about the confidence Oracle has in itself and in its ability to compete.
Silicon Valley Watcher has the scoop on SugarCRM being booted from the San Francisco Marriott hotel during Salesforce.com's recent Dreamforce conference, but SugarCRM isn't the only open-source company getting shafted by its proprietary competition.
At last year's EduCause conference, an inside source tells me, Microsoft refused to sponsor the conference unless the conference organizers denied Zimbra the opportunity to take a big, prominent booth at the event.
Two billion-dollar companies fretting about Lilliputian open-source competitors? Surely you jest!
Nope. As SugarCRM CEO John Roberts explains:
"When Marc Benioff found out we were at the Marriott he pressured the hotel to move us out. That's how we ended up here at the St. Regis, and Marriott is paying for it."
The reason SugarCRM might be irking Mr Benioff is that it's growing very fast. "We now have more than four thousand customers, and more than half-a-million users, in 80 languages. That's in just four years."
While Mr Roberts credits Marc Benioff with educating the market about the benefits of software as a service, he says SugarCRM is winning business because there isn't any customer lock-in as there is with Salesforce and its proprietary behavior...."What is the point of Apex? We built SugarCRM in PHP and we use Internet standard technologies. We are open source, our technologies are owned by the Internet. We view ourselves as the Linux of the CRM world."
In other words, perhaps Microsoft, Salesforce, and their ilk do have something to fear from the Zimbras and SugarCRMs of the world. Value wins in a recessionary economy, to the extent that anyone does, and these open-source vendors are providing a heck of a lot of value...for a very low price.
Disclosure: I am an customer of and advisor to SugarCRM and a customer of Zimbra's.
Nick Carr has a brilliant analysis of the current battlefield between Google and Microsoft. Microsoft may have the most money in the bank, but Google is the one disrupting the industry and making Microsoft play by its rules.
The way Google is doing this is, as Nick suggests, a page right out of Microsoft's book:
One of the cornerstones of Microsoft's competitive strategy over the years has been to redefine competitors' products as features of its own products. Whenever some upstart PC software company started to get traction with a new application - the Netscape browser is the most famous example - Microsoft would incorporate a version of the application into its Office suite or Windows operating system, eroding the market for the application as a standalone product and starving its rival of economic oxygen (ie, cash). It was an effective strategy as well as a controversial one.
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On days when your belief in open source may wane, things like British Telecom's (BT) news that it will be distributing SugarCRM Professional and Enterprise editions to its 1.2 million business customers will replenish that belief. And then some.
This is a win for the SugarCRM community, as Sean Michael Kerner notes, even if it's not an automatic win in terms of downstream deployments, as The 451 Group points out.
And lest we forget, it's also a big upfront revenue opportunity for SugarCRM. I'm not privy to the deal, but I know from having done deals like this at Alfresco that the numbers often exceed $1 million. This is particularly rich when it likely comes at the expense of Siebel, which used to be BT's CRM provider of choice.
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Chromatic has a great post analyzing how the Free Software Foundation's "Four Freedoms" apply to Software as a Service (SaaS). The answer? Not very well.
Should you care? I think so. The benefits of SaaS also point to its greatest flaw: it's the ultimate lock-in scenario when it comes to your data, even though it "liberates" the user from software. In fact, it's this very liberation that creates the problem. If you don't have the software, you really don't have the data, no matter the vendor's data policy. My data qua data is only as useful as the software used to open it up and read it.
Chromatic writes:
... Read moreMi amigo Dave Rosenberg has a thoughtful post on why open source wins against SaaS (Software as a Service). The answer, in a nutshell, is "community." SaaS sets up a one-way relationship with consumers, whereas open source breeds both consumers and producers, and so sustains itself better.
Dave writes:
... Read moreA friend and I were discussing the state of software adoption yesterday. Our kids were floating down a river toward us, and we had plenty of time to talk about our respective companies as the kids kept repeating the trip.
It struck both of us that the problem with enterprise software is that it tends to forget how people actually work. Things like CRM, ECM, etc., tend to require users to change their normal behavior to fit the application. As a result, they tend to not get used, or at least not unless someone threatens to withhold compensation.
In the Web 2.0 world, Tim O'Reilly has spent the last few years advocating "architectures of participation" (meaning, as Tim further clarifies, that "users pursuing their own 'selfish' interests build collective value as an automatic byproduct" of their participation). But in most enterprise software, users must spin extra cycles to provide group value, e.g., they spend all day in e-mail or on the phone but then have to go to a Web page to record their sales activities in a CRM system.
Surely we're missing something.
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