Sridhar Vembu
(Credit: Zoho)
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.
(Credit:
Zoho)
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.
Endeca Technologies announced Wednesday it landed a $15 million investment from industry titans Intel and SAP, signaling yet another sign that enterprise search is gaining serious traction.
That investment appears a bargain, compared to the price Microsoft is paying for search company Fast Search & Transfer. Earlier this month, the software giant announced it would acquire Fast Search & Transfer in a deal valued at $1.2 billion, according to a report in the New York Times.
For Endeca, this $15 million investment adds to the more than $50 million the company has raised to date. Back in 2001, for example, Endeca raised a $15 million second round of funding from Ampersand Ventures, Bessemer Venture Partners and Venrock Associates.
In this latest funding round, Intel alone is kicking in $10 million, the chip giant said. That leaves SAP with the remaining $5 million tab. And, of course, these corporate titans are looking to get something out of their investment.
Intel, for example, wants to ensure its next generation multicore chips will play a role in the crucial search market.
"Information access platforms play a crucial role in linking vast collections of data," Arvind Sodhani, Intel Capital president, said in a statement. "Endeca will further their capabilities by capitalizing on Intel's next generation multicore platforms in this market segment."
SAP, meanwhile, is hoping the Endeca investment stake will lead to customers gaining greater visibility into their enterprise-wide assets, Jennifer Scholze, an SAP Ventures investment partner, noted in a statement.
SAP on Tuesday sent out a notice to employees that the deck chairs will be realigned following its megamerger with Business Objects, according to sources close to the company.
SAP's business user organization, which is responsible for information worker and organizational performance applications, will be moved over to Business Objects, the sources said.
In some ways, that should come as no surprise.
SAP, as part of its $6.8 billion Business Objects merger announcement in October, said Doug Merritt, the head of its Business User Development and a corporate officer, would join the Business Objects group and report to Business Objects Chief Executive John Schwarz, rather than Henning Kagermann, SAP's chief executive.
Post-merger, Business Objects will continue to operate as a standalone business under the SAP Group.
SAP's business user organization, according to its presentation to financial analysts in Vienna last year, includes Duet, enterprise search, mobile, Adobe Systems forms, and analytics dashboard, as well as governance, risk, and compliance software and corporate performance management software.
Kagermann and Business Objects executives plan to chew the fat with the press on this topic in greater detail Wednesday.
UPDATE: January 16, 2008, 1:30 pm (PT)And chew they did. Kagermann, along with Leo Apotheker, SAP deputy CEO, and Business Object's Schwarz, offered up their vision and road map of the combined company. SAP on Tuesday closed its merger with Business Objects.
SAP and Business Objects plan to jointly introduce nine products by the end of this month, of which two will specifically be targeted at mid-size to small companies. Those two products include its SAP Business All-in-One with BusinessObjects Edge Standard package, which focuses on delivering a business process platform with comprehensive business intelligence, and also the Crystal Reports Server Package, which is a type of reporting technology.
The other seven products include: a financial performance management package geared toward chief financial officers, a.k.a. head bean counters; a governance, risk and compliance package for tackling regulatory issues; a visualization and reporting package; enterprise query, reporting and analysis package; data integration and data quality management package; and, finally, a master data services package.
With Business Objects, a pioneer in the business intelligence arena, SAP is looking to build its fourth pillar in its four-pillar growth strategy, said Kagermann. SAP has viewed business intelligence as key to their strategy of maintaining a high growth rate, given the recent rapid acceleration SAP has seen in that market.
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.
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.
SAP announced on Wednesday that it is snapping up Yasu Technologies, which creates business rules management software.
The India-based company was founded in 1999 and has about 120 employees.
The deal is designed to boost SAP's business process management (BPM) offerings and will be tucked into SAP NetWeaver, which channels the ebb and flow of data to software applications via SAP's back-end middleware.
The Yasu announcement comes just a little over a week after SAP announced that it will acquire Business Objects in a deal valued at more than $6.8 billion, its largest acquisition ever.
SAP, however, notes that the Yasu deal and past acquisitions have been designed to fill in and complement its own products, rather than to double-down on its existing businesses. As a result, the company has been reluctant to throw its hat in the ring to bid for BEA Systems, despite moves by archrival Oracle to do just that.
Financial terms of the Yasu deal were not disclosed. The acquisition is expected to become final later this month.
SAP has no plans to follow Oracle down the megamerger path.
That, apparently, is the sentiment of Henning Kagermann, SAP's chief executive, who played down the prospect that the German enterprise software maker would make a bid for middleware maker BEA Systems, according to a report in the Financial Times.
The lithe Kagermann wants to stay focused on acquisitions to push SAP into new markets, such as its mega billion-dollar acquisition of Business Objects, whereas a bid for BEA would only bulk up its presence in the middleware market. He indicated that SAP archrival Oracle can make its play for BEA, undisturbed.
Kagermann apparently is not blowing after-dinner smoke. He has not approached SAP's supervisory board about clearing the table for yet another megadeal, a source told CNET News.com.
Meanwhile, back at the BEA ranch, Oracle President Charles Phillips kicked up some dust when he complained of BEA canceling a meeting set for last Friday, which was allegedly designed to lead to a deal announcement for Monday. BEA rejected Oracle's $17-a-share cash offer as too low.
One BEA source noted that the middleware maker has publicly refuted Phillips' characterization of a planned "meeting," but that despite the craziness of Oracle's claims, BEA would take a look at any other bids its rival passes its way. After all, BEA is a publicly traded company, so it has an obligation to deliver the best bang for the buck to its shareholders.
Talk of rival bids other than from SAP have also surfaced, such as ones from IBM and Hewlett-Packard. But IBM has its own middleware deal with WebSphere that rivals BEA's WebLogic. And HP took a hit on its acquisition of Bluestone Software for $467 million in 2000. Two years later, it exited the middleware market, with plans to partner with BEA and Microsoft.
So with Oracle's offer still standing at $17 a share in cash for BEA, a watchful eye is on the horizon for a bigger offer from Oracle--or a rival bid.
Oracle has been known to play musical chairs with its executives and retool its operations with a jack hammer.
And in this latest go-around, the enterprise applications software giant is cutting loose John Wookey, Oracle's senior vice president of applications development, who handled its Fusion efforts, .
Wookey, when reached at his home Monday night by CNET's News.com, declined to comment on his status. A spokesman for Oracle said Tuesday morning the company does not usually comment on executive changes.
Howlett, citing an e-mail sent throughout the company by Larry Ellison, Oracle's top dog and founder, notes Wookey's work of fusing together all of Oracle's acquisitions of applications companies under its Fusion efforts will now be headed by Thomas Kurian.
Kurian will now handle Oracle's Fusion middleware and applications efforts, while Ed Abbo will handle non-Fusion related application development, according to a report in the Wall Street Journal.
Although the changes are slated to take effect immediately, Wookey reportedly will remain with Oracle until the transition is humming along, the Journal reports.
SAP announced Sunday afternoon it plans to acquire Business Objects in a cash deal valued at slightly more than $6.8 billion.
The acquisition, which is expected to close in the first quarter of 2008, is SAP's largest acquisition ever. The deal is especially noteworthy for SAP, which has tended to favor developing its own technology rather than acquiring it. The acquisition of Business Objects, a leading player in business intelligence software, is designed to dovetail into SAP's previously announced plans to double its addressable market by 2010, said Henning Kagermann, SAP chief executive, during a press conference Sunday afternoon.Nearly a year ago, SAP noticed the business intelligence market was growing at a rapid rate. SAP's customers, meanwhile, have been calling on the enterprise applications giant to add an end-to-end solution for structured and unstructured business analytics and embed them into SAP's business suite, Kagermann noted.
"This acquisition accelerates our growth potential," Kagermann said.
Forrester Research estimates that the business-performance solutions market will grow by 11 percent through 2010.
Business Objects, based in San Jose, Calif., and Paris, will operate as a stand-alone business and be part of the SAP Group.
Roughly 40 percent of Business Objects' customers use SAP, said John Schwarz, Business Objects chief executive.
The companies said there is very little overlap among their products and neither company expects significant restructuring as a result.
With the Business Objects acquisition, SAP will be further positioned to compete against archrival Oracle. Last March, Oracle acquired business intelligence tool developer Hyperion Solutions in a $3.3 billion deal.
When the Hyperion acquisition was announced, Oracle said that "thousands of SAP customers" relied on Hyperion for things such as financial analysis and systems of record for financial reporting. With its acquisition, Oracle said, SAP customers would need to tie into Oracle's Hyperion software to view and analyze their underlying SAP enterprise resource planning (ERP) data.
Business Objects' Schwarz, however, noted that his company is roughly three times the size of Hyperion.
UPDATE on October 8 at 7:22 a.m. PDT:Analysts, however, believe the SAP-Business Objects deal was driven by Oracle's Hyperion acquisition and that restructuring is likely in store for the companies.
Roughly 20 percent of Business Objects' business overlaps with that of SAP, in the performance-management software side. Between them, SAP and Business Objects offer three financial consolidation products.
The other 80 percent of Business Objects' business, which deals with business-intelligence tools, is where SAP will find value, said Paul Hamerman, an enterprise applications analyst with Forrester Research.
"I think there will be restructuring. There are personnel and real estate costs that SAP will have to rationalize," Hamerman said.
Just last April, SAP apparently wasn't convinced it needed to buy itself into the business intelligence market. Hamerman said he spoke with Kagermann at Sapphire, SAP's annual user conference, where the SAP CEO said he couldn't expect to make a big push into the market with an acquisition and still get a return on investment by 2010.
Meanwhile, AMR Research notes that spending on business-intelligence and performance-management products is expected to reach $23.8 billion by the end of the year, up 3.6 percent from the previous year.
Shares of Business Objects soared 16 percent in morning trading on Monday to $58.36 a share. SAP shares dropped 5.2 percent to $56.14 a share.
Office 2.0 is not just about putting Word and Excel online. What are the key things in Office 2.0 moving forward? The first panel at the Office 2.0 conference, hosted by GigaOm's Om Malik, tackles this. Some directions we can look forward to in future business applications:
- Social networking. This can be a "game changer" for the workforce, if applied correctly to business needs. So says Microsoft's Richard McAniff. Interesting take, considering Microsoft's lack of juice in this arena. Is McAniff presaging a new product or acquisition?
- Better tools to tackle the "signal to noise ratio" so users can stay focused on what matters most to their work. Widgets might play a role here. (I'm skeptical--little apps popping up to "help" us with work flow sound more disruptive than focusing.) This wish from SAP's Senior Vice President of Imagineering, Denis Browne.
- Customization. Applications that are molded by the user or the enterprise to a much greater extent than they are right now. Another take on this: applications that adapt themselves to the user automatically. This is either a wish, or a preview, from Jonathan Rochelle, Product Manager of Google Spreadsheets.
