Webware

Sridhar Vembu, CEO of AdventNet, is not afraid of going up against Microsoft Office or Google Apps. He is also the CEO of Zoho, which recently announced that it had achieved 1 million registrations (between 300,000 and 350,000 log on to the service monthly) for its cloud-based set of productivity applications. Vembu is now making a financial case that Zoho is better positioned than Google to take on Microsoft in the upcoming office suite sweepstakes.

Vembu's analysis is based on a comparison of revenue per employee and profit per employee metrics. "The gap in revenue per employee between Google and SAP and Salesforce.com, for instance, indicates that Google would more likely be more interested in what eBay does or in monetizing YouTube than in Zoho or Salesforce.com's barely profitable business. Companies invest in what generates the best return on investment," Vembu explained to me.

In an e-mail explaining his financial analysis, Vembu wrote:

We simply don't believe Google has the rational business incentive to go deep into the business/IT software category. The lower revenue and profit per employee figures would be tolerable if there were huge growth opportunities there; but when very successful companies like Adobe and Intuit pull in revenues well shy of a Yahoo, when even the enterprise software leader SAP is the same size of Google (Google makes more in profit per employee than SAP makes in revenue per employee), it is fairly clear this market is not going to make a material contribution to Google's growth and profitability objectives. So what is Google's plan here? It is fairly obvious they are in it to put Microsoft on the defensive on its home turf, so that Microsoft's offensive capability in the internet is diminished. It is also perfectly clear why Microsoft wants to be an Internet player--as Google has shown, it is a higher margin business even than its monopoly-profit core business.

"Google's margins are a once in a lifetime occurrence, and Google will move in that high-growth direction--that's why Microsoft is so desperate about search. It has a higher growth rate. We are more worried about Microsoft than Google. Microsoft will address the Internet, but pulling down Office margins is a challenge for them. No company peacefully accepts a lowering of margins," Vembu said. "Our intention is to help erode Microsoft's profit margin, coming in from below." Zoho has built a more comprehensive suite of cloud-based apps than Google or Microsoft, and most of them are currently free to users.

Vembu cites the cost of sales and support as a drag on revenue per employee and profit per employee. "If salesforce is a proxy, it would be difficult for Google to justify the investment. More costs are associated with support than in R&D, even with on-demand software. The moment you have paying customers, the expectations are different, and Google is finding that out with recent Gmail problems," Vembu said. In addition, he noted that selling into small- and medium-size businesses is difficult, but the margin is higher than for large enterprise accounts. Adobe Systems and Intuit, for example, have more revenue per employee than Oracle or SAP.

Zoho's revenue per employee is mostly nonexistent given most of the Zoho suite is currently free and not-ad supported. Vembu estimates Zoho's revenue per employee will be in the $200,000 to $250,000 range when the revenue spigot is fully turned on at some undetermined point.

While Zoho behaves like a scrappy start-up, it is well-funded by India-based parent company AdventNet, which develops enterprise IT management software. AdventNet has 900 employees and is profitable, according to Vembu. "One of the privileges we enjoy as a private company is to not disclose revenue/profit numbers, which lets us do the kind of analysis on competitors they can't do on us," he joked.

The problem with Vembu's logic is that Google has an enormous pool of cash to invest in improving the economics of business and consumer productivity software suites. And, part of being a software company is having multiple and adjacent revenue and user data streams. Microsoft is a highly profitable software company with many adjacent divisions. Google Apps won't be as profitable as search, but it will be profitable and ties users into the Google platform and monetization engine.

If Google can attract consumers with its apps, gaining entry into small- and medium-size business won't be a huge profit-sucking sinkhole of sales and marketing. The search giant claims that more than 500,000 businesses and schools have signed up for the free and $50 per-user-per-year Google Apps. According to Dave Girouard, head of Google's enterprise division, the Google suite has about 10 million active users. Google can afford to invest in building the the market for Google Apps, and Microsoft will be forced to alter the economics of its Office business as cheap and capable cloud-based suites, with offline capabilities, gain traction.

What does that mean for Zoho? Run faster and hope that Google and Microsoft move slowly.

As Microsoft makes a buyout play for a reluctant Yahoo, the software giant may want to enlist the help of billionaire investor Carl Icahn.

The shareholder activist apparently played matchmaker extraordinaire in Oracle's $8.5 billion buyout bid for BEA Systems, according to BEA Systems' Securities and Exchange Commission filing on Thursday.

The SEC filing, which provides a behind-the-scenes look at the merger, not only gives a glimpse of Icahn's active matchmaking role between Oracle and BEA, but also the middleware software maker's efforts to find other suitors.

For those who were wondering whether there was ever anyone else except Oracle who was interested in doing something with BEA, the answer is a sort of "yes," according to the filing:

Between the time Oracle made its initial $17-a-share offer in October and through January, when BEA agreed to Oracle's higher offer, the list of potential interested "strategic partners" dropped from three to none.

"From time to time during the period from October 2007 until January 2008, BEA and its advisors held exploratory discussions with ten potential strategic partners regarding a possible transaction with BEA. These exploratory conversations led to in-person meetings between management of BEA and three potential strategic partners," BEA said in its filing. "By early January of 2008, of the three potential strategic partners with whom BEA had in-person meetings since October 2007, two had indicated they did not wish to continue discussions. The one potential strategic partner with whom conversations were ongoing expressed an interest in a possible strategic investment or commercial agreement, but stated that it was unwilling to contemplate an acquisition of BEA in the near term."

Meanwhile, Icahn was standing by and pushing BEA to the dance floor, where Oracle was ready to do the waltz.

BEA, after initially rejecting Oracle's $17-a-share offer because it undervalued the company, had a discussion the following day with its advisors to figure out the right value that would be needed to kick off talks, according to the filing. And Icahn played a big role in prompting such action, according to the filing.

"On January 11, 2008, Mr. Icahn called a representative of Goldman Sachs and conveyed that, as a result of the discussions and negotiations that had occurred between Mr. Icahn and Oracle, Oracle would be prepared to pay $19.375 per BEA share..."

--BEA Systems SEC filing

"On October 24, 2007, at the direction of the board, representatives of Goldman Sachs had discussions with Mr. Icahn and certain of his associates, in which Mr. Icahn recommended that the BEA board of directors exempt Oracle's $17-per-share offer from BEA's stockholder rights plan if the offer were supported by a majority of the shares. Mr. Icahn also stated that he intended to make a public announcement the following day regarding his recommendation.

"The BEA board of directors met telephonically and representatives of Goldman Sachs described the conversations that had occurred between them and Mr. Icahn. Representatives of Goldman Sachs stated to the board that they and BEA's other advisors had discussed Mr. Icahn's recommendation and statement that he would make a public announcement, and recommended to the board that it consider whether it should make an announcement that evening regarding the price at which the board would be prepared to discuss a sale of BEA.

"Discussion ensued regarding financial analyses, synergies expected by BEA's management to be achievable with various acquirers, other strategic options and related matters, and after thorough consideration and discussion, the board unanimously determined that it would be prepared to discuss the sale of BEA at a price of $21.00 in cash per share."

Roughly two weeks later, BEA announced it entered into a confidentiality agreement with Icahn, in which BEA's largest investor would be able to review certain financial data of the company. BEA's chief executive, Alfred Chuang, also addressed with Icahn such topics as BEA's strategic options and tactical issues.

That apparently wasn't lost on Oracle's president, Charles Phillips. The next day, Phillips was on the phone with Icahn.

"On November 7, 2007, Mr. Phillips telephoned Mr. Klein to discuss the nondisclosure agreement BEA had entered with Mr. Icahn and inquired how to recommence discussions with BEA regarding an acquisition. Mr. Klein reiterated the board's conclusion that the $17 proposal substantially undervalued BEA and that it was prepared to authorize negotiations at $21 per share on reasonable and customary terms. "

Towards the end of November, Icahn offered his New York offices as a meeting place for Oracle and BEA, with the hope of the two companies could "move forward toward an acceptable transaction."

But BEA said thanks, but no thanks. Instead, they asked Oracle to prepare a markup of a proposed merger agreement and send it to their attorneys.

While that was underway, Icahn had not been idle.

"On January 11, 2008, Mr. Icahn called a representative of Goldman Sachs and conveyed that, as a result of the discussions and negotiations that had occurred between Mr. Icahn and Oracle, Oracle would be prepared to pay $19.375 per BEA share and to include a $500 million reverse termination fee in the event regulatory approval was not received. Based on those terms, Mr. Icahn stated that he would agree to vote in favor of a transaction, and that he would be prepared to announce publicly his support of such an offer by Oracle."

Five days later, BEA Systems announces its merger with Oracle.

And the sales price? $19.375 per share.

For anyone who's ever listened to Oracle founder Larry Ellison talk about his company, or on any topic for that matter, it can be entertaining. The dude is humorous, has great punch-line timing, and at times will make outlandish comments that send his public relations team into major damage control.

So, it was painful to listen in on the company's audio Webcast (registration required) announcing its $8.5 billion acquisition of BEA Systems.

The tightly scripted press conference, which had Ellison reading off a piece a paper, conjured up images of a tiger in a tight cage. His comments, which generally flow fast and freely, were so plodding in the press conference that occasionally he stumbled over his words, and, at one point, said "let me try that again" as he took another stab at reading off the script.

Alfred Chuang, BEA's co-founder and CEO, followed up Ellison's presentation, sounding comfortable with the task of reading off a script. And, in his relaxed tone, he wrapped up his comments with: "And back to you, Larry."

But Larry was gone.

He had left the proverbial building.

It almost makes one wonder whether BEA had negotiated the uncharacteristically scripted press conference as part of its buyout agreement.

Ever want to own a third-party enterprise applications software maintenance and support company?

Better hurry. Tuesday's the deadline to declare your interest to its owner SAP, as the deadline draws near, according to sources.

SAP, back in November, said it was considering putting TomorrowNow on the auction block, and apparently it's headed in that direction. But whether the software applications vendor ultimately selects a buyer from among TomorrowNow's competitors and new parties interested in entering the market has yet to be seen, sources said.

SAP could also just wind down the operations and let it go at that. In its recent preliminary fourth quarter announcement, SAP noted is in its footnote about its U.S. GAAP requirements that the company is "required to present its results of discontinued operations (TomorrowNow) separately from its results from continuing operations."

That TomorrowNow reference was part of SAP's preliminary fourth quarter announcement and is not my add.

One source speculated SAP may want to let its TomorrowNow business slip into the sunset without a buyer, if it cannot find one that can adequately care for its TomorrowNow customers. The last thing SAP needs is more controversy surrounding TomorrowNow, which is entangled in a legal mess with arch-rival Oracle.

Oracle in March filed a lawsuit against SAP and its TomorrowNow subsidiary, alleging TomorrowNow downloaded proprietary Oracle software that it was not entitled to access.

TomorrowNow provides third-party maintenance and support to PeopleSoft, J.D. Edwards, and Siebel customers--all companies that Oracle has acquired over the years.

If you build it, will they come?

Apparently not when it comes to Oracle's quarterly Critical Patch Updates (CPUs).

Database security firm Sentrigo released some surprising numbers Monday, culled from a survey of 305 database administrators, consultants, and developers in attendance at Oracle Users Group meetings last year.

The survey found that a staggering two-thirds of respondents had never applied an Oracle quarterly CPU. Not one, nada, a big fat zero.

And of the remaining 33 percent of survey respondents who did, only 10 percent noted they had gotten around to applying Oracle's more recent CPU, or the one before that.

"When it comes to installing the CPUs, it involves testing the applications that are running on the database. A single database may run three or four applications, or thousands of them. It takes a lot of time, and fixing a bug here, or there, in the database can affect the application," said Slavik Markovich, Sentrigo's chief technology officer.

Hopefully, database administrators will step up to the plate and take a swing at this cumbersome task, given Oracle is set to release its next quarterly Critical Patch Update on Tuesday--and we're talking 27 security patches across hundreds of Oracle products.

The upcoming CPU includes eight security patches for Oracle's database and six for its Oracle Application Server. While the database security flaws are believed to be less problematic in that the bad guys can't exploit them without such authentication as username and passwords, the Oracle Application Server security vulnerabilities aren't so lucky. These security flaws could be remotely exploited without authentication.

Despite this work ahead--or not if you're part of the group that never deploys the Oracle CPUs--one thing that you may find heartening is the 27 patches are far less than the 101 security fixes Oracle doled out in October 2006, as part of its Critical Patch Update.

NetSuite's IPO debut launched like a rocket Thursday morning--soaring skyward, only to plunge back to earth.

Shares of the highly anticipated IPO, which priced at $26 a share Wednesday, shot as high as $30 a share in early morning trading, only to fall below sea level to $23.86 a share. The shares have since stabilized a bit, trading slightly above its IPO price.

NetSuite and its investment bankers, which conducted an IPO auction in setting the price, won't be accused of leaving money on the table in raising as much capital as possible for the company.

NetSuite, an on-demand enterprise applications company backed by Oracle's Larry Ellison, happily started the day by opening the bell on the New York Stock Exchange, where the company trades under the ticker "N."

But NetSuite investors, however, may now be feeling a bit sober if they were expecting to ride the same continual bump up seen with the pricing range earlier in the week.

One report in MarketWatch cited an analyst who raised concerns that the enthusiasm investors exhibited during the IPO auction process may have taken steam away from the offering's debut.

For NetSuite's investors, they may be hoping the "N" in the ticker doesn't stand for nowhere.

NetSuite's IPO auction has apparently attracted strong interest from investors, as the company prepares to set the final IPO price after market close Wednesday.

The on-demand enterprise applications company, backed by Oracle's Larry Ellison, has raised its pricing range by 46 percent from its initial pricing range of $13 to $16 a share that was announced on December 5.

The range was raised Tuesday to $16 to $19 per share. And it was raised a second time Wednesday to $19 to $22 a share, according to a Securities and Exchange Commission filing.

NetSuite could begin trading as early as Thursday, under the ticker symbol "N" on the New York Stock Exchange.

Investors are apparently eager to snap up the 6.2 million shares that NetSuite is offering. NetSuite could raise as much as $136.4 million, should the initial public offering be priced at the high end of the range.

As the day progresses and the close of the market draws near, it will be interesting to see whether NetSuite again raises the price range before setting the final IPO price. And although, as the company notes, it reserves the right to change the final pricing date, it can't push it back much further given the holiday crunch time that's approaching.

SAP announced Monday its third-party support and maintenance company TomorrowNow, which is embroiled in a legal battle with archrival Oracle, may be put up for sale. TomorrowNow's founder and several executives have resigned effective immediately.

SAP acquired TomorrowNow as a means to woo away maintenance and support customers from Oracle. TomorrowNow provides third-party support and maintenance for PeopleSoft and JD Edwards, two companies that Oracle acquired.

But earlier this year, Oracle filed a lawsuit against TomorrowNow and SAP, alleging the company went beyond its former customers' contracts and downloaded proprietary Oracle software and materials.

SAP and Oracle have been in the process of seeking documents and depositions from each other and are scheduled to give the court an update in February on that process.

In the announcement, SAP said it is exploring its options for TomorrowNow's business, including the possible sale of TomorrowNow. An SAP spokesman declined to comment on whether these options are currently being explored because TomorrowNow has seen a drop-off in customers since the controversy erupted, or whether it may be part of any potential settlement negotiations with Oracle.

Mark White, TomorrowNow executive chairman, will continue in his role in running the company.

Within the first six months of next year, Oracle plans to trot out the first of its long-awaited Fusion applications.

And if Larry Ellison, Oracle chief executive, has his way, the three Fusion applications will make their debut in the earlier part of that period. As they say in the financial world, he's cautiously optimistic.

Oracle's "Sales Prospector" will be the first to debut, a type of software as a service (SaaS). That will be followed by "Sales References" and "Sales Tools."

"All new applications in 2008 will be Fusion applications. They are built on an industry standard-based middleware and a service-oriented-architecture (SOA)," said Ellison, during his keynote speech at Oracle OpenWorld on Wednesday. "That's the primary characteristic of a Fusion app."

The Fusion Sales Prospector application is designed to help companies make better sales forecasts, where Sales References' aim is to help sales representatives sell more products or services with the aid of data mining.

Oracle's Fusion Sales Tools are designed to aid developers.

And when it comes to Oracle's customers, Ellison said they have one thing that's top of mind.

"They're saying, 'My Fusion apps have to coexist with my other applications,'" Ellison said. "That's priority No. 1."