thanks,

Josh

I genuinely like Microsoft's approach, for the simple fact that making it as easy as possible for companies to buy enterprise software is absolutely essential at a time when the spirit may be willing but the flesh all too weak. In fact, the benefits for customers can be huge: Microsoft execs told me last week in a pre-briefing that Microsoft will effectively “buy down” whatever the standard loan terms are to zero – meaning a customer looking at a 10 percent loan would be effectively getting a 10 percent discount on the cost of the software. Not a bad deal in times like these.

As I sorted through the details of the announcement, and its rationale and potential impact, I realized that Microsoft isn’t the only one offered creative financing to its customers. In fact, having recently spent some time looking at my company’s books, I realize that I actually beat Microsoft to the punch: a look at my receivables shows that I’ve been extending a 0% line of credit to a number of my customers, for the last six months in some cases. Never mind the fact that some of them, unlike Microsoft’s target customers, aren’t exactly cash-poor or unable to raise money: Altruism is its own reward.

This unexpected realization makes me feel like I’m a front-line warrior in Depression 2.0 – doing my part for God, country, and enterprise software by helping my deadbeats, er, clients, as they struggle through these uncertain times. It’s a lovely feeling not too dissimilar to the feeling I had when I heard that the ex-head of Lehman was roughed up in the locker room at Lehman's own club by a now-unemployed, but still buffed, banker. Satisfying, as only enormous irony can be.

Of course, I don’t have the kind of bank account that Microsoft can fall back on, in fact things are getting perilously low at the Bank of EAC. As a result we’re cutting back on unnecessary items all around, such as that new yacht I promised my gardener, my second Ferrari, and three square meals a day for the wife and kids. (Don’t worry about the food part, here in Berkeley we get all our nutrition grazing in the fields of liberal self-righteousness, especially since the election. So delicious and so filling.)

But the sacrifice is worth it, particularly for the smaller companies who are genuinely struggling. Seriously. My fees may not represent that big a chunk of the credit shortfall by themselves, but I’m sure if more individuals like me offered 0% financing to our clients, we’d be out of this financial mess in no time. Or my name isn’t Alan Greenspan.

And lucky for me it ain’t. I don't want to get roughed up at the gym either....

John won’t lack for challenges in his new job, the title of which is executive vice president for large enterprise on-demand. Having lead Oracle’s efforts to rationalize its ever-growing, and increasingly heterogeneous acquisitions until he abruptly left last year, John has some experience in accomplishing what looks almost impossible to do.

Why this job will be so hard only starts at the technical challenge of figuring out how to push the quintessence of on-premise software into the cloud. That may turn out to be the easy part of the job. And that’s saying a lot. SAP’s software portfolio is so huge, and so complex, that nothing in the cloud today remotely comes close to matching its capabilities or capacity requirements. In fact, that complexity probably signals one of the design goals of John’s team: don’t try to put it all in the cloud any time soon. Because it won’t be possible, period.

(That sentiment was echoed to me by Microsoft’s Dynamics team at their analysts’ meeting last week. With Azure, Microsoft’s new platform in the cloud set to launch next year, one of the things the Dynamics group is not doing is rush headlong towards hosting their full- blown ERP systems on Azure. Microsoft CRM, yes. But not AX, NAV, or GP: not yet, and, as they are currently constituted, not ever, either.)

The bigger challenge for John and SAP will be that elusive on-demand business model. Look at Salesforce.com’s margins (which are starting to look as negative as its stock price), and Netsuite’s struggles, and you can see what SAP is trying to avoid.

Mixed up in John’s mandate is the on-going struggle about how to rationalize SAP’s Business ByDesign mid-market on-demand product, which its users tell me is highly functional, and which SAP tells me still can’t run in a profitable fashion. And that’s before anyone figures out who will sell this and how SAP will keep BBD from cannibalizing everything else SAP sells. BBD isn’t a large enterprise product, so I doubt it will come under John’s bailiwick, but it’s impact will loom large over his efforts going forward.

Here’s where I think he’ll start first, and in many ways this is similar to what Microsoft told me about Azure and Dynamics: SAP’s large enterprise, on-demand efforts will likely start with running specific processes and services in the cloud that are both highly discrete and have a distinct value-add above and beyond the cost benefits of merely flipping on-premise functionality into the cloud a la Salesforce.com. That latter model eventually ends up in a price war, and flies in the face of SAP’s higher value market position.

Here’s what else I imagine John will get to do. Help guide SAP towards strategic on-demand acquisitions, which he will then have the pleasure (genuinely, I believe) of synching up with SAP’s on-premise and on-demand offerings (remember SAP CRM On-demand? It’s still out there, poised for a come-back this spring). Considering his integral role in the heady days of Oracle’s initial acquisition spree, I think John will be rather good at this.

Final point: John’s resurfacing at SAP says a lot about SAP’s perception of its own strengths -- and weaknesses – at a time of incredible uncertainty in the market. SAP clearly sees that there’s no time like the present to invest in the future, and bringing John Wookey on board is a remarkable vote for future success that SAP is willing to make at what otherwise might look like a pretty bleak hour for the global economy. The fact that the company went outside to find a high-profile executive to lead this effort is a welcome recognition that an infusion of some new blood is exactly what is needed for this critical effort. Hopefully John will be able to navigate the somewhat complex SAP culture and put SAP in the leaders’ circle in a market it can no longer afford to sit back and watch unfold without it. Regardless, it’s going to be a helluva ride.

This new definition of CRM is a desperately needed addition to the enterprise software market, and I for one applaud SFDC's leadership in this arena. In case you haven't noticed, the kids on Facebook do tend to run amok, not only in terms of what they post on Facebook, but what they do with all the social interactions they spawn (pun intended) through their unmanaged use of social media. With teen pregnancy up, drug use through the roof, and disrespect to their elders rampant, it's time parents become empowered to manage their child relationships in a proactive, comprehensive manner.

While I know I'm violating an NDA (no dads allowed) agreement when I reveal this, here are the main features of the new CRM capabilities in Facebook.

1) Friend Manager: The essential starting point for Child Relationship Manager. As a parent, you get to control all friendships in Facebook, block the ones you don't like, and force your kids to befriend the ones you think will be better role models, even if your children actually loathe your nerdly choices. The ROI on this feature alone is worth the product's price.

2) Kid Watch with GPS: Use of Facebook CRM automatically initiates the Kid Watch feature, which provides a direct Google Maps mashup feed to a PDA or laptop. You can define off limit geographies in Kid Watch -- such as a smoke shop, liquor store, or tattoo parlor -- and use the Obedience Analytics (below) to maintain a running score on your child's compliance with your commands.

3) Stud Watch: Parents are alerted to friendships with known sexual deviants, especially young unmarried fathers who father children with the daughters of self-righteous social conservatives. Depending on the relative Stud score, this feature can automatically trigger the Virtual Chastity Belt feature (below.)

4) Bikini-line Watch: Using some rather impressive visual analysis tools, Bikini Watch can search photo albums and alert parents to suggestive pictures that show too much flesh, too little fabric, or promote Abercrombie and Fitch products. This feature includes controls that allow parents to adjust the allowable amounts to reflect geography, season, religious values, or sexual orientation.

5) Comprehensive Obedience Analytics: This is one of the best things about Child Relationship Manager. Obediance Analytics allow parents to maintain a comprehensive obedience tally on such important key performance indicators like overall room cleanliness, percent homework completed, number of emergency teacher conferences, net sibling punches, and other factors that make up a well-managed child relationship. This feature ties into KPIs that are segmented by race, religion, gender-preference, voting record, among others, and then allows parents to manage according to best practices in their demographic.

6) Virtual Chastity Belt. Despite its name, this feature is actually not meant to be gender specific, though early beta tests reveal it to be a favorite feature among the fathers of teenage girls. Basically, the VCB is an upgrade of the Virtual Birth Control feature: by using patented remote electro-shock technology, VCB can anticipate when a child is potentially in a compromising position, and, by inducing a low-grade electric shock, force the child to call a parent and get them to either unlock the VCB, or come and take them home.

There are many more features, but those are the highlights. So, hats off to Salesforce for this ground-breaking development. This is truly the first-ever CRM meets social meets the home enterprise, and I'm excited about how much better everyone will be able to manage this uncontrolled and dangerous social world for children and their parents that Facebook has created. Who says enterprise software can't serve society in a positive manner?

First, I have to set the record straight. We are not “seeing social meet CRM and the enterprise for the first time,” as Benioff suggested in his press release on the deal. Oracle definitely showed CRM and social and the enterprise in a big way at its Open World conference last September, and should get all of the credit for “first time” bragging rights.

Second, I’m really having to stretch to understand why Benioff picked Facebook. SAP’s investment in LinkedIn seems to make so much more sense. After all, my inbox is flooded with LinkedIn requests (mostly from people I’m already in touch with, which is one of the reasons I so far have deigned to join LinkedIn), proof positive that the business community, at least the high tech community, thinks LinkedIn is the social site of choice.

Facebook, which COO Sheryl Sandberg claims has 300,000 business pages already, is still largely the playground of kids like my niece, who really has even less business playing around with CRM apps than she does posting bikini-clad pictures on her Facebook page. I think there is some potential for Facebook to grow up as its core audience grows, but right now I look at it mostly as a place where teenagers and tweens play games that make parents and uncles a little nervous or a little “whatever”, and we old farts wander around wondering what it is we’re really doing in the kid’s section of the Internet playground.

A final comment, apparently SFDC’s new marketing mantra is love, according to Venture Beat. Apparently it’s all you need. Apparently I’m having trouble with this concept, so it’s time to go write on someone’s wall or snoop on my niece and her friends again. Meanwhile, social meets CRM meets the enterprise already had its first mover, and, from what I can tell, it’s still awaiting its second.

At first, I was tempted to disagree with George Colony’s optimistic assessment that the tech market won’t suffer through the current downturn as much as it did in the dotcom implosion. He’s right that, last time around, tech was front and center in the downturn, and took it in the shorts when it became clear that, as the dotcom fluff headed for the dustbin of history, the tech companies that had been minting money on the upside began bleeding red ink. Yet another example of garbage in, garbage out, in this case those ridiculous, disintermediating business models that seemed so simply ingenious even a fool could become a billionaire. And more than few did, until it all became the fool’s errand we now know the dotcom boom to have been.

I even began to feel that the dean of Forrester Research had made an error in being overly optimistic by discounting the fact that, unlike last time around, enterprise software is so intertwined with the global economy that a downturn of this magnitude has to hit everyone, everywhere. This time around, so I believed, there’s no place to run for cover when it’s the entire global economy that’s disintegrating: Companies like IBM, SAP, Microsoft, and Oracle, and pretty much anyone else that’s catering to the global economy now has to feel, and ride out, that global economy’s pain. In that wonderfully flat world that Tom Friedman made as if on order for an all too eager technology sector, if you live by the sword, you’re destined to die by the sword (and, apparently, in a hot, crowded way, so his new book claims). We’re all flat worlders, right? Ergo, we’re all doomed.

But this weird little optimism keeps creeping into my admittedly tortured sleep, as evidenced by some weird little facts that I’m having trouble fitting into my “we’re all doomed” scenario. And as I parse these facts I’m starting to come around to agree with George, though less than it might appear.

Part of this change of heart is fueled by the fact that is no shortage of economic activity in the real economy, despite a plunging market that looks like a prize fight gone berserk: Eight of the last eight planes I’ve flown this month have been full; New Yorkers, or least people who visit New York, are shopping and museuming and schlepping like crazy, despite the apparent total collapse of the local financial sector. Meanwhile, back home in Berkeley, before I took off on a much-needed vacation with my family, it was standing room only signing up my daughter for next season’s swim class at the Y, and my mechanic, while bemoaning the fate of his friends who work at the new car lots around town, was putting in the extra hours trying to keep up with the demand for his services.

Hey, if this is a depression, this doesn’t seem as depressing as it’s supposed to be.

Now, you will say, rightly so, that I’ve just described a series of bubbles far from the reality of the genuine downturn that has bankrupted, dispossessed, and impoverished more individuals than I could count. And you’re right. When you look at some of the core sectors of the economy that have been decimated by the current downturn, there’s nothing but shredded bank accounts and shredded lives. But I have trouble looking at the sectors that are taking the biggest hits and not seeing the modern equivalents of those bogus dotcom businesses models that fundamentally lacked the fundamentals to keep on gorging themselves at the revenue trough as long as they did, much less as long as their proponents believed they were destined to gorge.

So, let’s look at what’s tanking and try to find the solid, honest, well-managed sector that, despite its ability to deliver fair value and fair price, and reap fair profit, is dying on the vine: We can certainly exclude the bankers and mortgagers and hedgers from this list. Ditto for Detroit, which simply never understood the need to build cars that people actually want to buy. Credit card issuers, the spiritual cousins of the banker-mortgage-hedgers, are next, so yesterday’s New York Times has told me: bad debt is mounting, and it looks like it’s going to exceed the quantity of bad debt racked up in the dotcom error. Oops, there goes Visa.

Now, it’s true that every industry that sold to or otherwise depended on these BS-artists is hurting, as well as their employees – or ex-employees. And all the victims of this collateral damage that does provide evidence for some of that flat world, global gloom that the Friedman-ites are nattering about.

But there are strong reasons why the tech sector, and thereby enterprise software, isn’t in the same losers league as the biggest losers in the current recession, and here is where George Colony is right, even if we see the why and how a little differently: The fallout of the dotcom disaster annihilated lots of companies that, frankly, had earned the right to be annihilated. These were dogs to begin with, bad ideas that never should have been given the green light, not to mention the billions of greenbacks they wasted on their way into oblivion.

And so it is with so much of the global chaos of today: So far, the biggest disasters are taking place in the sectors that tend to deserve it, and every one of the failed companies that have been bailed out or left to rot had good reason to fail, and most deserved their fate.

All of which has left me with the following optimistic conclusion: One of the great effects of the dotcom bust was a winnowing of a lot of junk and jive and untenable business models and companies from the technology sector. What emerged from that disaster was a core set of big companies – IBM, Microsoft, SAP, Oracle, and a few others – and a core conviction, held by start-ups and multi-billion behemoths, that we’ll never make those mistakes again. And hence my new optimistic perspective on life in the current recession.

Since the last recession, technology in general, and enterprise software in particular, has proven its ability to actually deliver value for money, and return on investment, and competitive differentiation, and enhanced productivity. This sector is, by and large, not about ripping off the rest of the world for a fast buck (okay, it’s not all perfect – but we’re not talking Lehman or Fannie or Freddie or AIG here, nor are we talking Enron either).

And therefore, unlike the rip-off artists who have been culled in the current recession, and the ones who will soon be culled, the technology sector and the enterprise software sub-sector won’t disappear or suffer anywhere near the same devastating losses a la Lehman or Freddie or Fannie.

I’m now convinced this recession will be a little like the last time around insofar as we’ll see a lot of deadweight being jettisoned in a shockingly merciless fashion. And it will be completely different in that tech will actually remain relatively strong and emerge relatively unscathed, simply because it was so well-tempered in the last recession and has been focused on delivering measurable value, not speculative profits, ever since.

Yes, things are ugly and will likely get worse before they get better. And lots of undeserving people will be harmed by a lot of thoughtless people who probably deserve worse than they’re getting off with. But in the end, there were a lot of lessons learned the last time around, and I think they’re going to pay off. And just when the stakes couldn’t be higher.

Paraphrasing Edgar Allen Poe’s The Raven seems somehow appropriate to this moment, when it seems that everything we’ve all worked and dreamed about is going up in smoke. And yet, having seen a version of this movie more than once, I’d like to offer a little comfort to those who look at what’s happening around the globe and think, as I have several times this week, that dreams of retiring, much less paying the mortgage next year, are looking rather bleak.

Back two recessions ago, the stuffing got knocked out of the market and, with it, a lot of gloom and doom was bruited about not just regarding the macro-economic disaster of lower output and heightening unemployment, but the disasterously permanent effect this was going to have on high-tech.

No company was more a bellwether of high-tech than IBM, and no stock took it in the shorts – pun intended – the way IBM did. Before the dust had settled, IBM’s stock was down to $10.50 a share. Yes, for approximately the cost of two lattes at today’s prices, you could have owned a share of the great IBM.

Actually, one stock did even worse, relatively speaking. Oracle, at the time a nascent player in the nascent relational database market, hit absolute rock bottom at 13 cents a share – as in, that and a dollar won’t get you a cup of joe, not to mention the aforementioned latte. (Note: I've since been told that the 13 cents price is the split-adjusted price, not the actual price, which was, according to my fellow Enterprise Irregular, Anshu Sharma, at something over $5 at the time.)

It was that bad out there.

It always seems to happen in October. Whether it was October 1990, when Oracle hit its nadir, or October 1993, when IBM hit the skids, the tendency of the market to tank as the leaves start changing is yet another indicator of the psychological nature of what we often mistaken for a rational, objective process. The fact that this collective psycho-freakout always punishes tech stocks is indicative of the role these stock play in the overall global economy. So the sellers in today's market think.

But things are very very different than back in the ‘89-’92, as well as in the 2001 recession we think we were just getting over. For one, high-tech has more of a hypercritical role in running companies than it did in the last two recessions – the core footprint of IT extends across more people and processes than ever before. And there’s more proof, real proof, that IT investments yield genuine value in terms of per employee productivity, competitive advantage, and customer satisfaction.

This means that one of the more shortsighted things one could do right now is place a long term short on tech stocks, and yet as a sector they’re getting beaten up along with everything else. In reality, when the mass hysteria of the moment settles down, what we’ll see is that, no matter how deep and dangerous the current recession is, technology will emerge as not just an essential budget item that must be maintained no matter what, but as an essential component in the cost-effectiveness of the overall enterprise that will continue to be maintained regardless of how grim the immediate future may look.

And once this realization settles in, those with the memories, and the cash, to remember what IBM at $10.50 and Oracle at $5-ish meant both as potential investments back then – had you bought either stock at its nadir, you’d be sitting on a golden nest egg even after today’s market close – as well as what they and the rest of the core of high tech mean to the future of the market once the recovery comes, will start buying tech stocks like crazy.

In the midst of this panic is a fundamental truth: There will be a recovery, and when it happens, high-tech will be in the lead. Within two years of its nadir, IBM’s stock had more than doubled. And Oracle, starting so low, tripled its value in the ensuring 12 months.

Ready, set, buy……..

The resulting failure of the NC, and the subsidiary that Oracle set up to handle the flood of NC business that never arrived, is one of those chapters in Oracle's history that Ellison would want to forget anyway. Shortly after the NC was introduced, Microsoft, IBM, HP, and Gateway -- all scared diskless by the thought of the end to the PC franchise -- came up with an alternative standard that took some of the buzz effect of the NC away. But the final straw that broke the camel's back was the reality of the Internet's lack of productivity. Very few companies had email -- at the time companies like HP eschewed email, and made it hard for employees to have an email address -- and even fewer had high-speed connections. And then there was the software, or lack thereof, to actually do something in a completely diskless environment. Game over.

I wish Larry luck in his next endeavor, though I think he's playing a potentially losing game of catch up this time, as opposed to playing a losing game of being too far out in front of the market. Not only is the Oracle database appliance very me-too, considering all the competitors who are already in the market, but putting a relational database on a dedicated hardware appliance is never going to provide the kind of throughput that a column-based database can provide, and that's before you run a column-based DBMS in RAM, the way SAP is now doing with its BIA in-memory data warehouse. Seeing Larry on stage with a massive chunk of metal and calling it an innovation made me think of all the times Detroit responded to a sales crisis by unveiling yet another over-sized SUV. Game...over.

I have sinking feeling this isn't the last time Oracle will unveil its first-ever hardware product. First there was the NC, and now there's the Exadata. Third time's a charm, Larry. Good luck.

So it’s only fitting that, during the same year that SAP made a major innovation-through-acquisition play by buying Business Objects, Oracle used this week’s Open World shindig to showcase an impressive amount of innovation at the core of its now vast software portfolio. Perhaps the most impressive, due only in part to the huge hype riding behind it, is Fusion Applications. Oracle gave industry analysts a two-hour mind-melting core dump earlier in September on Fusion Apps and is planning on showcasing some of the new functionality during Open World on Day Three. And here’s what I can say without blowing the terms of an NDA agreement I signed two weeks ago: Oracle has made good on its promise to deliver Fusion Apps, and has greatly exceeded my expectations in doing so. A very impressive debut.

But Fusion is far from the only core innovation. E-Business Suite has new talent management, supply chain, and MES integration capabilities, for example. PeopleSoft has global payroll support, and is planning new talent management functions as well. JD Edwards is adding more real estate management capabilities, and cost accounting, among others. And so on. In short, each of the major suites has new releases and new functionality that can definitely be called innovative.

And then there’s net new functionality, like some of the Social CRM apps (which represent in my mind the best example of enterprise-class Web 2.0 functionality I’ve ever seen) that Oracle highlighted on Day One of the conference. These are net new applications that can be placed into an existing portfolio, regardless of whether a company is running EBS, PeopleSoft, some versions of JD Edwards, and even (or especially), SAP. Included in the standalone innovation category are new products like the Demand Signal Repository – a product that helps supply chain managers deal with fluctuation in demand, and Beehive, a new version of Oracle’s Collaboration Suite that hopes to be more acceptable to the customer base than Collaboration Suite ever was.

Oracle’s Business Intelligence apps are also getting some new functionality, with new capabilities regarding spend analytics, project analysis, recruiting, and asset management, among others. And the list goes on and on.

Of course, Oracle is innovating for all the usual reasons, customer requirements being only one of them. The other reason is all about the bottom line: Oracle, like everyone else in the business, needs a lot of net new license revenue – and with it the recurring revenue that comes from a 22 percent maintenance fee – in order to keep the financial picture rosy. Putting these standalone applications into the market place has a potential 2-for-1 benefit to Oracle: Benefit number one comes from buying a license for, say, Demand Signal Repository. Benefit two comes from potentially having to upgrade to Fusion Middleware, Application Integration Architecture (AIA), and the latest release of EBS, PeopleSoft, Siebel, or JDE in order to run the new application, all of which can have a license revenue upside.

Which is a great segue into the importance of AIA: I used to think that Fusion Apps (did I say I was impressed with what I saw? So what, it’s worth saying twice) would be the make-or-break development on which would ride the future of the company. But more and more that make-or-break role is falling to AIA. This product, which orchestrates all the different processes across the vast, and disparate, Oracle Applications stack, is the place where the vision of Oracle becomes reality: There is no way for Oracle to pull off rationalizing its massive acquisition strategy without AIA making all the interprocess communications between, say, Glog, Siebel, Oracle Financials and PeopleSoft HR (and SAP, while we’re at it) seamless, easy, and fast. Absent a highly performant AIA middleware layer, Oracle’s dream of cross application process functionality becomes a user nightmare.

So how is AIA doing? So far, it looks good on paper, but the numbers are a little slim for now. Again, the NDA police are watching closely, so I can’t really say much except this: growth in AIA deployments will be a major measure of how well this innovation at the core strategy really works. Without a huge uptake – and it’s way to early to use that word today – Oracle’s core innovations won’t be worth anywhere near what they should be for Oracle or its customers.

Here’s why: The more AIA becomes deployed in the Oracle customer base, the more Oracle’s twin visions of core innovation and innovation through acquisition can be realized in a competitive manner against SAP’s core innovation strategy. Right now, innovation at the core in SAP-land implies a high-degree of out-of-the-box integration: for the most part SAP’s core innovations, even if they incur a separate license cost, don’t need a massive middleware layer to tie them to the rest of the suite. If you buy core SAP innovation, integration comes with it.

Meanwhile, in Oracle-land, core innovation will likely require AIA to connect to one of the many product lines that might make use of this innovation. Customers of PeopleSoft, JDE, EBS, Siebel, Hyperion, Agile, and iFlex – to name the major product lines – will need some middleware to truly leverage the innovation Oracle is providing, or that innovation’s value will be potentially limited.

So, it’s hats off time to Oracle for coming up with a lot of net new functionality, thus proving that there’s more to the company than its financial and M&A acumen. Now it’s time to breach the next hurdle, and grow AIA’s critical mass. The product supports a wide range of integration options today, but it’s up to Oracle customers to prove that this integration strategy -- and by inference the company’s entire acquisition strategy – makes sense. So the next stop on the Oracle train is AIA customer uptake. I’ll be watching carefully, and so should the rest of the market.

Sure there are some indications here and there, and some basic notions like “grow market share”, “grow stock price”, “grow revenues and customers” that go without saying, but beyond those generalities, there is little known – or said – about what the Apotheker Era will look like.

I’ve written about what I think he has to do already – but my guesswork doesn’t replace some specific direction about where he plans to take the company, its customers, its employees, and its partners. Not to mention his competitors and shareholders. There’s no doubt he will have his hands full – a resurgent Oracle, more nasty allegations about SAP’s conduct in the TomorrowNow suit, a spasmodic global economy, a complicated merger with BusinessObjects, restless customers – and his carefully weighed words will by necessity be even more carefully weighed as he tries to sort these issues out.

But having just had my nth conversation with an SAP employee on the subject of the Apotheker Era, which followed quickly upon a similar nth conversation with an SAP customer and an SAP partner, I think it’s time for Lo to make a statement about what he plans to do, and make that statement now.

I’ve even prepared a draft for him to try on for size, it goes like this:

Welcome to the new SAP, which promises to be much like the old SAP, only better. My name is Lo Apotheker. For the record, Lo rhymes with mayo, and Apotheker rhymes with… nothing, so just call me Lo. Please try to pronounce (and spell it) it correctly. I promise I’ll be gracious if you get it wrong and appreciative if you get it right.

Thanks for listening.

Would Lo ever actually say these things? Hard to tell – as I’ve said, not a lot is known about what he’s really thinking. But if he doesn’t say something to this effect, and say it soon, my sense is that it will be a cold day in January when he finally takes over the helm Personally, I think SAP would be better served by getting off to a hot start to the Apotheker Era. The sooner, the better.

This shift was somewhat predictable, though what it really means is less clear than it may seem. Surely, Microsoft’s insistence on an indirect sales model as the only way to sell enterprise software precludes selling to large enterprise accounts. It was also predictable that very large enterprises would be hard to service insofar as Microsoft has been hampered by a partner model that does a decent job of providing vertical solutions but is a little challenged when it comes to supporting global customers: Too many vertical solutions come from local partners that simply lack the girth to meet global customer needs.

But the change at Dynamics still represents a disruption in the marketplace that takes a major player out of a key competitive arena, at a time when the SAP-Oracle duopoly could use the pressure from a smaller, lower-cost competitor. SAP and Oracle have been looking over their shoulder at Microsoft for some time, and Microsoft’s moves out of the very large enterprise gives the duopolists one less massive competitor to worry about. Sort of.

Because how this will really impact the competitive landscape remains to be seen. For one, the definition of what is now off-limits to Microsoft’s channel is a little vague. Clearly, the very largest global accounts are now verboten, but their actual number is relatively small. SAP has about 200 of these very large accounts, accounts that have licenses worth more than $60 million. Oracle’s very large accounts are little harder to figure, as Oracle has a much broader portfolio to sell to its large accounts. But I would imagine it has no more than 200 comparable accounts, and probably fewer.

So, taking a few hundred accounts out of play leaves tens of thousands of SAP and Oracle accounts as potential targets for Microsoft. SAP counts some 34,000 mid-market customers today, all of which could probably fit into Microsoft’s new definition of Dynamics’ sweet spot. Take away the very largest of the SAP mid-market customer base and you still have 24,000 customers whom Microsoft would love to convert to Dynamics.

And, in a coincidence that’s almost weird, guess how many mid-market customers Oracle now counts: 24,000. In Oracle’s case, none of these companies are smaller than $15 million in revenues, whereas SAP’s count includes BusinessOne customers that are better characterized as small businesses than mid-sized. Regardless, those 24,000 Oracle customers represent a decent playing field for some heavy-weight competition.

And that’s just the existing accounts that the Big Three would love to poach from each other. Remember, this is the mid-market, where “other” still remains the dominant vendor. Indeed, when it comes to winning deals, the Big Three’s biggest problem is getting in the running at all: the deal flow is so large and so predominantly local in the mid-market that SAP, Oracle, and Microsoft often struggle more to find the deals than to win them in a competitive bake-off.

Which is where Microsoft’s massive channel comes in. Having literally thousands of resellers and partners around the world makes it much easier for Microsoft to find and compete in these deals. Of course, there really aren’t thousands of truly great partners – to 80/20 rule works in the partner world too: in a very rough estimate, 80 percent of the deal flow comes through 20 percent of the partners. Regardless of how you count the channel, Microsoft has a massive lead that will be hard to beat.

And that’s without counting the global systems integrators, traditionally the handmaidens of SAP and Oracle, and now more and more attracted to growing complexity of Dynamics. To the chagrin of the traditional partners, Microsoft is going to push its growing global SI partners towards the mid-market – in direct competition with the traditional partners – and away from the very large accounts where global SIs have the most traction.

So, Microsoft exiting the very large enterprise market doesn’t take a lot of pressure off of SAP and Oracle after all. In fact, it probably increases the pressure more than a little by allowing Microsoft to focus more strategically on accounts that it’s frankly more likely to win anyway.

A final note: I have a feeling that Microsoft CRM either missed the memo or is ignoring it. Or maybe their recent string of successes are another indication of what exiting the top end of the market really means. Microsoft CRM has won some pretty big deals this year, numbering in the thousands of seats, from some pretty large companies. These are deals that SAP’s and Oracle’s direct sales force would have given a body part or two to win, and their value to Microsoft is only beginning to be realized, assuming these new CRM customers might, just might, be interested in some other Dynamics functionality down the road.

In the end, the admission the Microsoft should try to stay out of the top end of the market is neither shocking nor does it give SAP and Oracle a free pass. What it does is actually sharpen the competition for the majority of the customers in the market, which in volume represent a majority of the market’s revenues as well. Indeed, all Microsoft is saying by exiting the top end of the market is that it would rather have thousands of mid-market customers than a few hundred very large customers.

Sounds like a good plan to me.

GOOG has since "amended" its EULA, claiming that they made a mistake when they took a boilerplate EULA and grafted it on to the Chrome EULA. I'm not sure that really excuses them: their boilerplate EULA is such a non-starter for anyone with the slightest concern for security and privacy that it shouldn't be the default for anything any vendor does with its customers' content. Period.

My colleague Dennis Howlett has blogged on this issue sufficiently for me to do no more than agree with his assertion that the last minute change doesn't change that much. Fundamentally, I think Google is either being stupid or malicious: either way they've got to more to protect their user's content. I'm sure the folks at GOOG are thinking that surrendering users' rights is a fair price for a free service, and I guess in their own stupid or malicious way they are right (either stupidly or maliciously so.)

Which brings me back to another point: it's time to end the rule of "free" on the Web and start thinking about whether there's a value in paying for good and services, and thereby, as the payee, retaining some legitimate control over what you do and what is done to you. I wrote a piece here about my recent problems with Craiglist, and I think this latest nonsense from GOOG is further proof that you get what you pay for -- and if the loss of privacy and security are the price of free, I'm ready to pay for my Web-based services. The alternative is to let GOOG and others like it do what they want under the guise of providing nominally useful free services.

You get what you pay for on the Web. And it's time to start paying.

Here’s what Microsoft and its CRM team are up to. Coming to CRM Online this fall – and for the low low price of “free”, no less – is a new feature that lets Microsoft CRM customers track the success of their search word-based web marketing campaigns. The concept is simple: capture the leads as generated by your favorite search engine, and then analyze how those leads translate into actual sales for your company. In the process you get to see whether the money you’re paying to Google for your marketing campaign – to pick on the company most likely to hate this idea – is actually worth anything in terms of genuine results.

I have to admit I love this idea, and wish there were some way to do this on a much broader base, because the bottom line is that Henry Ford’s old adage about advertising – half of what I spend is wasted, and if I knew what half it was I’d get rid of it – is very much alive and well in the online world.

The problem is simple – the metrics that are typically used by search engines and marketplaces to measure their own value to their advertisers, like clicks and page views, really only report on the most basic of behaviors: someone came to the site and did something. Did that interaction actually result in any business being generated? Hard to tell, because there’s really no way to connect browsing behavior to an actual sale in most B2B and B2C environments.

But if your campaign is launched from the same CRM system that is tracking completed orders, you suddenly have a roundtrip view of your campaign’s success – or failure – that’s about as accurate as you can get. And, over time, you have a pretty accurate picture of how well that search engine you pay your big marketing bucks to is actually performing, in dollars and cents.

But wait, there’s more. Much more. Supposing you are a big enterprise software vendor –take Microsoft, for instance – in a do-or-die struggle against a big Web search vendor – Google, if you will – and you had a hosted service that tracked search engine success for a large number of customers. Imagine if you – Microsoft – aggregated your customers’ success rate in using their – Google’s – search engine, and then published the results. Wouldn’t it be interesting to show exactly how successful – or, as I am inclined to believe, shockingly unsuccessful – Google Ad Words are in generating real business for a broad range of customers?

Damn right it would be interesting. Game changing, I would add. Because suddenly the myth of Ad Word advertising would be faced with the reality of sales, and, well, I think the results would be sobering for anyone who thinks Google is invincible and a welcome revelation for anyone who thinks there’s more to marketing than Google Ad Words.

Will Microsoft actually collect and publish this data? I don’t know, they wouldn’t tell me. But in my heart of hearts I just know that those shy quiet milktoasts up there in Redmond would never do anything like publish success and failure rates for their competitors. That would be too… aggressive. I’m sure they’d much rather just let the mythology of Google Ad Words continue to eat their market perception lunch every day.

Wouldn’t you?

Oracle is jumping into the marketing fray following a summer in which its two major competitors, SAP and Microsoft, both trotted out their respective strategies for market domination. Microsoft was the first to jump, dragging its partners to the summery beauty of Houston for its Worldwide Partner Conference. SAP jumped next, holding a two-day summit in Boston that provided a massive core dump for its Business Objects and mid-market strategies, and in the process cut my summer vacation in two.

With Oracle set to bring its latest and greatest strategy to bear on the market, it’s appropriate to sum up the essence of what its competitors have been up to on their summer staycations.

Microsoft’s major news came on two fronts: online and CRM. As I’ve written elsewhere, of the big three, Microsoft is leading the pack with a strong hybrid on-demand/on-premise strategy that will become a major differentiator in the marketplace, absent some action from SAP or Oracle to counter its effect. This Software+Services strategy does a lot to support customer needs for choice when it comes to on-demand and on-premise deployments, and while very much in the nascent stage of development, the strategy looks good, and looks like it will potentially help move Microsoft, and its Dynamics enterprise software, further up the competitive food chain.

Only one problem – S+S will need a new breed of partner that can leverage all that enteprisey stuff in a hybrid environment, while making use of the growing number of moving parts – like Sharepoint and Office Business Applications – that will make S+S a competitive dream come true. That’s going to take a lot more hard work, on the part of Microsoft and its partners, and, like all great ideas, how Microsoft executes on this vision will make all the difference, the excellence of the vision notwithstanding.

The other highlight of WPC, and Microsoft’s enterprise apps in general, is CRM. The product is moving online, it’s becoming a platform, and the CRM sales team is nailing down some major accounts – they now have a handful of deals in excess of 5000 seats. While the focus in on SME, the impact will continue to be heard up and down the CRM market.

Now for SAP. There was a lot of evidence that the Business Objects acquisition doesn’t just make sense, but has the potential for giving SAP a much needed leg up in its battle royale against Oracle. Two major highlights from the BOBJ side: the get-Hyperion strategy is looking like it’s working (which means it’s now Oracle’s turn to prove that it’s not working), and the ability of SAP to go after non-SAP accounts through a variety of mechanisms – BOBJ offerings and the BOBJ sales teams, SAP’s market-leading GRC offerings, SAP’s market-leading and very anti-Oracle in-memory database technology, and its strong industry focus – is making SAP look very competitive these days.

Highlights from the other day spent interrupting my vacation –SAP’s SME summit – show a company that is doing a lot more than just trying to build a brand in SME. While SAP has a liberal definition of SME that extends up to $1 billion in revenues, if you look at the number of customers for its two principal SME brands – BusinessOne and All-in-One – the total is over 32,000. Strip out the approximately 25 percent that are at or near that $1 billion mark, and you’ve got 24,000 SME customers. That’s a very legit number, and gives SAP the street cred to claim a significant share among the “non-other” vendors in this market (“other” being the perennial number one winner in the SME market.) And that’s without a Business Objects SME customer base that numbers, at the low end, in the hundreds of thousands.

While SAP is successfully proving its place in the SME market, the cloud hanging over the SME summit was, of course, Business By Design, which has been stalled amid concerns about how to make it efficient enough to run at a profit. There were some decent reassurances about an eventual re-launch next year, which boiled down to the following statement: There’s too much invested in BBD to let it fail. While sounding more like an epitaph than a hopeful spin, I came away convinced that BBD’s technical problems would be solved, and that SAP would be back to the real problem with BBD: how to grow a so-far non-existent channel and safely build a line of business that could seriously undermine the company’s traditional direct-sales revenue model.

So, with Oracle about to play its cards, here’s the bottom line: Enterprise software’s fall race is going to be run on multiple tracks simultaneously – the SME track, the BI track, the GRC track, the vertical track, the SaaS track, and the CRM track. On each of these six tracks – and there will be more – the top three players have varying degrees of competency and legitimacy. What’s important is that none of the three dominate all these categories, which makes each individual race as exciting and competitive as the next. Which means one overriding thing: customer choice has never been better. And that’s what will make the coming fall enterprise software race a great one for customers and vendor alike.

I think Harry is right that Salesforce.com's success doesn't spell the success of the overall SaaS model, and I would argue that recent evidence of profitability on the part of SFDC isn't enough to keep the competitive and market forces arrayed against SFDC from eating its lunch in the next year or so. While there are definitely SaaS companies that are making money, even good money (as noted by Bob Warfield here), my sense is that pure-play SaaS vendors will "collapse" more because they are ignoring customer choice more than because they are part of a hype curve that's heading south any time soon.

As my friend and fellow Enterprise Irregular Vinnie Mirchandani points out, SaaS will survive because its customer appeal is unstoppable. The pricing, the service model, the pay-as-you-go structure are so rock-solidly pro-customer -- particularly relative to the current on-premise licensing and service models, that SaaS companies can and will thrive for no other reason than this ability to break the current customer-unfriendly model that dominates the on-premise world.

But if Harry had said the SaaS model will collapse because a pure-play SaaS model is, in the long-run, untenable, I would have to agree. These same forces for customer choice will also dictate that hybrid SaaS/on-premise business models will be the ones that truly succeed in the long-run, precisely because customers, being only human after all, want to be able to do two things that, right or wrong, mean some version of on-premise is here to stay.

Customer choice #1 is customization to fit a specific business model: while not all functions need to be customized, the ones that deliver deep competitive advantage to individual customers will not be amenable to the one-size-fits-all on-demand model. Every company has some proprietary process IP that makes it unique, and insofar as those processes are realized in enterprise software, that software will be highly customized, and therefore only available as an on-premise solution. The important trick here is that the same two functions -- CRM, HRMS, ERP, SRM, etc -- can be strategic to one division or line of business and completely generic to another inside the same company, much less across different companies. And those needs change as the business model changes. The successful vendors in the long-run will be able to handle this requirement with the fluidity of a hybrid model -- SaaS only vendors won't be able to meet these customers' needs.

Customer choice #2 is local control over data and process. While we all know the myriad reasons why we don't ever ever ever have to worry about data being stored off-premise (did you catch the sarcasm there?), there are those businesses that insist on having everything locked down inside their four walls. There are even some good reasons for this, but good or bad, if what the customer wants is local, that's the only reason I need to hear. And, because there are lots of companies that feel this way, this guarantees that on-premise won't go away. It also guarantees that the smart on-demand vendors will have a hybrid offering precisely to capture these customers and either convert them when they see the light or keep them from going to the competition.

There are other good reasons why SaaS/on-demand isn't going away -- ever -- such as what I call value-added SaaS, but I think I've made my point. Harry Debes may be right to disparage the relative success of some of the SaaS market leaders, and maybe he's just doing his job by getting more people to pay attention to him and his company than otherwise would be the case, but all in all SaaS will end when customer choice ends, and no sooner. And when customer choice becomes passe in the enterprise software market, I hope I'm long retired. SaaS isn't collapsing, it's only just getting started.

The gist of the article is contained in the following statement:

“Shipping a standard 40-foot container from Shanghai to the U.S. East Coast in May cost about $8,000, vs. $3,000 eight years ago, when oil was around $20 a barrel.”

This little nugget contains the essence of a potentially enormous shift in the U.S. manufacturing economy that may effectively reverse the decades-long practice of off-shoring. And in the process the article signals why enterprise software is going to do very well over the next few years, regardless of when the current recession wanes or even if there is ever a massive shift back to on-shoring that the USA Today article postulates.

The amazing thing about this almost three-fold increase in shipping costs is not that it’s happening, but that it’s coming in the context of two other factors that are tending to push manufacturing back to the US: The first is the growing inflation in less-developed manufacturing countries that has begun to push labor and other costs higher, making off-shore manufacturing less cost-effective than it was when the trend started. Simultaneously, the disastrous quality issues that emerged in the off-shore manufacture of toys (leaded, despite policies and regulations to the contrary) and drugs like heparin (contaminated, despite polices and regulations to the contrary) have spurned more than a few manufacturers to reconsider the cost of off-shoring in light of the costs of quality control and the risk of a fatal loss of customer satisfaction.

What is clear is that with shipping costs increasing, quality threatened, and manufacturing costs rising in less-developed countries, off-shoring is starting to look less like the no-brainer it seemed to be at the outset of the trend. Or as USA Today puts it:

“… the calculations that drove a doubling in global trade volume since 2000 and the establishment of far-flung supply networks might require rethinking. Orders might be placed with factories closer to home. Shuttered assembly lines could be given new life. And suddenly, the confident claims of globalization's cheerleaders that distance doesn't matter would ring hollow.”

So, what’s the impact of this. First is that U.S. manufacturing looks like it will be a major beneficiary of this change in the value equation of off-shoring. Spurred by expensive oil – and reinforced by quality and inflation problems in offshore countries – companies all over the world may look to bring manufacturing closer to the world’s largest market. This boost to U.S. manufacturing may take some time to have an impact, but, with oil prices not expected to go back to the glory days of sub $100 per barrel, time is on manufacturing’s side.

The second beneficiary will be the enterprise software vendors that build the supply chain, logistics, and ERP systems that optimize manufacturing strategies. The shift in the value of off-shoring will engender a major analytical push by manufacturers to ensure that product X is being built with the lowest possible energy – and while we’re at it, carbon – footprint. This means building more sophisticated enterprise transaction and analysis systems in order to make the strategic decisions needed to know when to offshore and when to onshore. It’s going to be a major boost for a software sector that has thus far weathered the current recession well, precisely because of its ability to assist in optimizing the use of resources in the enterprise regardless of which way the economic wind is blowing.

Meanwhile, this trend may also help get US manufacturers out from under some of the moribund policies that are being promoted by one of the top manufacturing trade groups, National Association of Manufacturers, which has been run over the years by a team that believes that carrying water for current administration policies trumps promoting good policy choices for its constituents. NAM’s position on energy policy is a good case in point: the organization has pushed hard for more oil drilling, first in the Alaskan wilderness, and now offshore, on the short-sighted premise that the only thing good for US manufacturing is cheap oil.

Meanwhile, as the USA Today article shows, there are actually some real net gains for US manufacturing from expensive oil, and that’s not counting on the growth of energy-related manufacturing that is based on mitigating the impact of higher energy prices. The growing use of photovoltaics and wind-based energy resources, new products that support more complex energy conservation processes, and all manners of green construction products are part of a growing manufacturing push that needs expensive oil in order to succeed. This trend has been happening in Denmark since the 1970s, and, as the New York Time's Tom Friedman reports, this energy-efficiency manufacturing sector generated $10.5 billion in export revenues last year in Denmark. Not too shabby, to say the least.

Indeed, one of the main beneficiaries of expensive oil may be the rebirth of the nuclear power industry in the US, which would portend a major building boom and would, in my opinion be worth the investment even considering the potential safety issues (which I believe are largely comparable to the problems associated with mining coal, which not only claims many more lives per year on the mining side than nuclear energy development in the US ever claimed, but also has a largely similar long-term environmental impact in the form of global warming and associated issues.) In all fairness, I should point out that, when it comes to nuclear, NAM and I agree.

Regardless of whether nuclear power makes a comeback or not, the fact is that rising energy prices are having potentially very positive impacts on the manufacturing sector. This is not to trivialize the problems of rising energy costs, but to emphasize that cheap energy – which isn’t coming back anyway – isn’t necessarily the panacea we need to strive for. Indeed, US manufacturers are going to find that there's a silver lining in high energy prices, and if they can, the smart ones will exploit it to their benefit.

The scenario is almost mind-boggling: if the upshot of higher energy (along with inflation and quality problems in less-developed manufacturing countries) results in increased domestic manufacturing, we'll emerge from the current recession stronger in more ways than we ever thought possible. And so will enterprise software, which will benefit from this boom regardless of the actual net increase in domestic manufacturing that results.

So, inside the wild ride we're going through with energy costs is a potential silver lining that may, in the long run, have a greater net benefit than anyone could have imagined. Will this benefit balance out the negatives? We'll have to see. But, with some sound policy management, hopefully from the manufacturing trade associations themselves, and some good strategy management, we may get to make lemonade out of this energy lemon yet. It's definitely possible, it's up to all of us to make it happen.

But if SAP has something to worry about in the PR department, they should look no further than their own backyard. There, smoldering like a summer fire in California, is a PR problem of major proportions, and one that isn’t likely to get under control for some time to come. A problem that, like most fires, is entirely man-made, or in this case, SAP-made, and perhaps equally avoidable.

The problem is SAP’s recent announcement that it plans to gradually increase maintenance fees up to an industry-standard of 22 percent, a move that was greeted with near universal opprobrium. Coming shortly before the announcement that SAP was killing off TomorrowNow, and today’s news of a very success quarter driven in part by a 29 percent (non-GAAP, constant currency) increase in support revenue, SAP’s move looks like nothing more than a blatant attempt to grab more revenues from customers who feel trapped into an unfavorable relationship by a greedy vendor.

It doesn’t have to be that way, but, trust me, that’s how many customers feel. I spoke to one recently who was basically furious at the maintenance hike: “We’ve already done our 2009 budget, and this sure as hell wasn’t planned,” she told me. For her company, a long-standing SAP customer that has deployed pretty much everything SAP has to offer, this change to 22 percent is not a trivial matter: “We’re talking hundreds of thousands of dollars here,” she told me. Needless to say, this user asked to remain anonymous.

While it’s specious to say that there is no way to hike maintenance without getting blasted by customers, there was another way to go about the maintenance hike, one that, while it might not have staved off all the criticism, due and undue, would have helped mightily in softening, or at least explaining the blow.

Here, in a nutshell, is what SAP should have done.

Start by defining carefully the value of the new maintenance program in terms of total cost of ownership, particularly when it comes to the upgrade process that is part of every SAP’s customer’s on-going plans. Customers I’ve talked to said they weren’t told whether there was any more value in paying 22 percent over 17 percent, though one assumes there might be something to be said by SAP about response times, more personal service, and other metrics that should be part of any discussion about raising maintenance rates. Somewhere in there could be the start of a “get more bang for your maintenance buck” discussion with customers.

Once there are some metrics on the table about why enterprise maintenance at 22 percent is designed to be better than the old 17 percent maintenance, SAP could start to talk about the value of its enhancement packs (EPs) in terms of upgrades and total cost of ownership. The EPs allow customers to perform complex functional upgrades using the much lower resource requirements typically used for more simple technical upgrades, and by doing so SAP is increasingly able to lower TCO by lowering the burden of an upgrade – the cost of which is up to the customer to bear, with maintenance fees only providing the actual software upgrade for free.

These EPs are part of a well-known SAP roadmap that should do a lot to change the TCO equation for SAP customers – and provide some strategic differentiation in the maintenance fee business: If SAP can articulate that EPs make it easier to upgrade, that might software the blow significantly when it comes to paying for a 22 percent maintenance hit.

Then SAP could look at bringing some of its partner ecosystem products into play by making them part of the maintenance/TCO equation, and thereby help promote the “more bang for your maintenance buck” notion. One company in particular, IntelliCorp, has a product set that can not only lower the cost of an upgrade but the whole life cycle maintenance of the SAP system. I’ve talked to a number of IntelliCorp customers over the last year, and every one of them tells me that this is a tool that can make a difference. The customer I spoke to whose 2009 budget just got busted by SAP’s maintenance hike is also an IntelliCorp customer, and her perspective is that this is a product that helps take the sting out of SAP’s maintenance burden.

Finally, SAP could elevate the whole maintenance issue in terms of its ecosystem and TCO, and make it more than just a service and support issue. Maintenance should be seen as much more than just a fee that pays for your support and upgrades. Maintenance is also about membership in a community – these are the dues that are paid to enjoy the rights and privileges of being in a club that, if SAP does its PR job right, has a raison d’tre that includes a whole lot more than just free software upgrades and support. I personally think its high time that this concept of membership be added to the maintenance equation. Assuming a good case can be made for the value of membership, SAP would have a much easier time justifying charging more to be part of the club.

So, touch Oracle, the amended filing looks ugly. But it's nothing compared to the friendly fire SAP laid down when it jacked up maintenance rates without spending the time and energy to make a case for an increase in value commensurate with the new 22 percent rate. The case can be made for greater value, it should be made, and then let it be judged by its merits. Because otherwise maintenance is really just a line item intended to increase shareholder value – and that’s just not good enough for SAP, or anyone else in the enterprise software industry today.

“What would it take for us to be credible?” Agassi asked me. If we had been talking face to face I might have seen him grinning ear-to-ear.

“Right now, the only company I know doing third party maintenance for PeopleSoft is TomorrowNow,” I replied. I had recently met with the company and written a column about them. At the time they had about 65 customers, including 24 of the Fortune 500.

At which point Agassi spilled the beans, under NDA, about his blockbuster announcement. The move was clearly meant to help PeopleSoft customers who might be sitting on the fence take a hard look at SAP, and to that end SAP announced a “safe passage” program whereby interested PeopleSoft customers who shifted to TomorrowNow would get a credit towards the purchase of SAP software to replace the PeopleSoft system maintained by TomorrowNow.

For the record, I saw nothing illegal or otherwise had any inkling of the issue that would embroil SAP in a lawsuit with Oracle and ultimately lead to this week’s announcement that SAP was shutting down a subsidiary that had become unsellable and unworkable as the lawsuit dragged on. TomorrowNow hadn’t invented third party maintenance – big SIs have been doing it since the dawn of time – and it seemed that SAP had an interesting, and admittedly very controversial, new way to grow its business.

The irony of Agassi’s enthusiasm for TomorrowNow is that the controversy opened up by this acquisition will hardly die with the shutting down of the SAP unit or the eventual resolution of the lawsuit by Oracle against SAP. Because the real issue at play, the proverbial Pandora’s Box that SAP opened up by buying TomorrowNow, isn’t about a little spat between lawyers about who did what to whom. The suit, which Oracle will continue to pursue until it’s wrung every drop of PR value out of it (and so far I calculate the total value to date in the 100s of millions), is really immaterial, and largely, as I just said, mostly about PR.

The real legacy of the acquisition of TomorrowNow is that a slumbering giant of a problem for SAP, Oracle, and the entire on-premise enterprise software market, was awakened: The prospect of third party maintenance undermining a very profitable, and increasingly controversial part of the entire industry’s business model.

The problem is this: With SaaS and open source offering the illusion that software can be maintenance free – bear in mind that it can’t, though both models offer a way to maintain software at a much lower cost model than traditional on-premise software – SAP, Oracle, and the rest of the traditional on-premise industry is running into a bear market when it comes to customers’ willingness to pay 22 percent per year for services that seem to return much more to the vendors’ bottom line than they do to the customers’.

This simmering controversy was joined once again last week when SAP announced it was effectively standardizing its maintenance costs to an across-the-board 22 percent, with existing customers able to pay the lower fees they contracted until they upgrade to the latest version of SAP, whereupon they join the rest of the customer base at the industry-average 22 percent rate. The announcement once again put in play the question of the value of maintenance to customers, a question that vendors have been loathe to really define.

Catalyzing this controversy is TomorrowNow’s lasting legacy, and the fact that TomorrowNow founder Seth Ravin’s new company, Rimini Street, seems to be going gangbusters is proof that customers are looking for an alternative to being jacked for 22 maintenance without necessarily knowing why. I would also venture that a lot of the early interest in SaaS is predicated on the assumption that this model helps do away with the maintenance burden, though those who believe that fantasy can rest assured that most SaaS vendors are busily making sure their fees are also turning maintenance into a healthy margin business, just not as overtly as their on-premise rivals are doing.

The problem with maintenance in general, and SAP’s announcement that it’s raising its prices, is that the value of paying 22 percent maintenance has never been well-explained by SAP or anyone else, leaving it wide open to some justified criticism. And some that’s not justified.

In the unjustified category, SAP has been working hard to vastly simplify the upgrade process, and in doing so has come up with what it calls Enhancement Packages. These are mini-upgrades that are extremely simple and easy to undertake, using a fraction of the resources that a major upgrade requires, and the customers I’ve spoken to who’ve done EPs universally speak of them as non-events. As opposed to the typical upgrade event, which is a resource hog of monumental proportions, making the fact that the software itself is free as part of maintenance a trivial cost savings.

SAP’s EPs represent an increased value for SAP’s 22 percent maintenance fee, insofar as the total cost of an upgrade goes down significantly using EPs. This might help SAP explain why it’s asking all its customers to pay the 22 percent fee, and it would definitely help SAP justify its fees vis--vis the competition, none of whom have anything like EPs.

Sort of. Because these fees exist in a larger context of vendor-centric, instead of customer-centric, pricing and contracting that belie the perception that vendors are mostly interested in “partnerships” with their customers. They’re interested – as the law demands – in maximizing shareholder value. Working on long-term customer satisfaction can definitely do that, but raising maintenance rates is a lot faster and cheaper.

With Pandora’s Box now open, and SaaS and to a lesser extent open source providing an unflattering perspective on 22 percent maintenance fees, it’s safe to say that the acquisition of TomorrowNow was a rare strategic blunder for Shai Agassi. Getting rid of TomorrowNow won’t make the problem go away, nor will resolving the Oracle lawsuit. The real problem is that the maintenance issue in on-premise software is broken, irretrievably, and it will be up to SAP and its competitors to fix it, or face the consequences. The time to change it is now.

The reason that I now am a believer in the inevitability of Vista -- or its successor, Windows 7 -- is all about the inevitability of a desktop "standard" that, with the demise of new XP sales last month, has become the defacto choice for the enterprise desktop. And, having heard some of Microsoft's partners wax eloquent again about the advantages of using XP to build "cool" new apps, I'm also convinced that the advanced display capabilities of Vista will make for some impressive, must-have enterprise applications in years to come.

While Linux penguins and Macintosh fanatics all think they have a better desktop environment than Vista -- and maybe they do -- neither OS is going to make major in-roads into the enterprise just because of a little problem with Vista's user acceptance. After all, what does user acceptance have to do with anything? Enterprise IT has never run a popularity contest, and if you doubt that just look at the unbelievably crappy user experience that has dominated enterprise software since the dawn of time. IT runs an increasingly cost-conscious effort aimed at trying hard not to pay too much attention to worrying about how much its users are actually loving their software. IT wants efficiency above all, and will always opt for expediency over technical "correctness", which means that Microsoft's incumbent position on the desktop -- combined with the significant cost-differential between a Mac and a Window PC -- isn't going to be usurped just because Vista sucks.

Or should I say sucked. There's some evidence that the new service pack has sucked a lot of the suckiness out of Vista, and it seems that Vista is a whole lot less sucky than when it first came out. Thank goodness for small favors.

But what's more important is that Vista won't suck forever, and Microsoft's desktop monopoly will endure. And PCs will continue to be cheaper than Macs. And ISVs will continue to write cool apps that need a Vista-like environment to really show their stuff. And so the march of Microsoft will continue, and Vista will one day dominate the enterprise the way that XP does today. If for no other reason than the fact that when corporate IT next upgrades its PCs, none of them will come with XP -- and if that ain't proof that monopolies lead a charmed, if unpleasing, existence, nothing is.

I can't say that this strategy is the best way to win the hearts and minds of the user community, or IT management, but why should Microsoft be any different? If you look at how enterprise software vendors have traditionally dealt with upgrades to their software products, the general tendency has been to put the vendor's interests well ahead of the user. Upgrades to enterprise software tend to be expensive, complicated, buggy to a degree that makes Vista look like a rock, and, by the way, force-fed on an often reluctant user base to boot.

Of course, this kind of to-heck-with-the-customer attitude could never fly when it comes to consumer products (except for the pass that Apple gets about non-removable batteries and no cut-and-paste function in even the new iPhone), and, as a consumer stuck with a Vista PC at home, I want to say categorically that I'm sorry I bought it. But enterprise IT is not a beauty contest, nor is it the place where bold moves and dramatic gestures are made. Which means that one day, like most everything else Microsoft does, they will get Vista right enough to rightly take over the largely great XP mantle. And IT, as it makes its next big waves of PC purchases, will be buying Vista machines by the millions, mostly because they won't have any other choice. Whereupon they may even discover a business case for having a high-end visual experience on their users' desktops, thanks to a new wave of emerging apps that require the resources of a Vista to be cool enough.

It's a helluva ugly way to win the latest battle of the desktop. But in the end there's going to be something in Vista's ascendancy for users, the IT department, and corporate productivity. And once that latter issue is settled, we'll all have forgotten how much we hated Vista when it first came out. To be sure, by then, there'll be some else we'll all love to hate, and the cycle will repeat itself once again. Plus ca change, as Steve Ballmer said in his WPC keynote, plus c'est la meme chose.

The needs of deskless workers are manifold, and only growing as traditional back-office enterprise software reaches out to the masses of workers traditionally underserved by the ERP and CRM systems of the world. So the concept -- if not the buzz term -- is a good one. But Microsoft's initial concept of what could be useful to these workers in an online fashion -- even at a measly $3 per user per month -- is sadly off target.

Basically, what Elop proposed is a set of online services that provide read-only access to email, calendars and Sharepoint portals -- giving employees "read-only access to important information such as company policies, training, and benefits."

The reality is that this class of information is hardly "important", especially to deskless workers trying to do real work, and constitutes a reality-gap in Microsoft's online strategy that needs a little fixing.

Deskless workers do spend relatively little time interfacing with key enterprise resources, but when they do, the needs are complex, very often mission-critical, and almost always interactive in nature. Nurses need to quickly pop over to a screen in the middle of an examination to read and update medical records, order drugs and supplies, and otherwise interact with the systems that are at the heart and soul of a hospital or medical practice. And factory workers need to be able to pop off the production line, order some new supplies or report a problem, and then get back to the business at hand. There are a million more examples about what deskless workers need, and most of them have nothing to do with terms like "read-only" and access to unimportant policy and training information.

So I have to take issue with Mary-Jo's contention that the new Deskless Online services could be bad for partners. This announcement is mostly a non-starter, and if there is harm it will come from the fact that Microsoft's Online strategy was making a lot of sense, up until this misstep.

Luckily it's just a little blunder, and the fact that the whole thing needs to be renamed anyway will offer Elop's team the opportunity to rethink just what a deskless worker really wants. Hopefully, once that exercise is underway, we'll start to see an offering worthy of the rest of Microsoft's Online strategy, which, though nascent, has been largely on the mark until now.