Adam Gifford: Gates goes after business sector

COMMENT


Prediction 1: Microsoft will sell a lot of software next year. Not just its desktop applications and operating systems, but the software businesses use to run business.

Prediction 2: By the end of the decade, Microsoft will be a major supplier of business software, if not the major vendor.

Observation: The major software vendors know this and are scrambling to find ways to remain competitive.

How else to explain German company SAP, the world's number one enterprise software company, setting up channels to compete head to head with Microsoft's Business Solutions division?

It was part of the thinking behind PeopleSoft's acquisition this year of JD Edwards, which was strong among the mid-sized companies Microsoft is pursuing with products such as Great Plains and Navision products it has acquired in the past two years.

And then, of course, there was the spectacle of Oracle - "a very good database company", as all its applications competitors say - mounting a hostile takeover bid for PeopleSoft. It was bad enough for Larry Ellison to be number two, but he hated even more being relegated to number three.

They all know that Microsoft, with its US$50 billion plus cash hoard built up from its PC operating system monopoly, its well-buffed marketing muscle and its thousands of developers, can carve out a major chunk of any software sector it decides to pursue.

Witness SQL Server. It took Microsoft a decade to move the database technology it acquired into a product large organisations were prepared to trust, but it got there in the end.

Microsoft will be buying up application companies as the market consolidates and it tries to build its Business Solutions division into a US$10 billion business by the end of the decade.

From early reports, SAP's new Business One, which it bought from an Israeli company, is an attractive piece of software. With SAP's German engineering overlaid on to Israeli innovation, the package has more features than many of its competitors at the lower end of the market. It is built for a multi-user environment, rather than being a single user product scaled up, it is reasonably intuitive so training becomes less of an issue, and it offers modules such as customer management out of the box.

For the price - supposedly less than $50,000 for a 10-user site, fully implemented - it could give Microsoft's Great Plains a fright.

SAP is courting Great Plains and Navision dealers, many of whom are disgruntled at Microsoft's channel management, which has led to multiple resellers of the same product scrapping it out for bids.

The SAP brand helps too, even if that company's core R/3 engine is nowhere to be seen. Charles Schnauer from Signwriters Supplies, the first Business One customer here, said having SAP standing behind the product was important.

He doesn't expect his three-city business will ever be big enough for the full SAP solution, but wanted something which "would meet our purposes and take us forward for the next 10 years".

SAP Australia and New Zealand general manager Geraldine McBride said 15 per cent of the company's revenue next year should come from sales of Business One and All-In-One, a stripped down version of R/3 with templates for rapid implementation to specific industries.

The rest will come from the sale of software and consulting services to larger companies, where it is business as usual. For example, $300 million is the figure now being touted around Fonterra for the total project cost of replacing hundreds of applications used by the former Dairy Board, Dairy Group and Kiwi Dairies with an SAP-driven system.

Research firm International Data Corporation estimates the total enterprise resource management solutions market in New Zealand, including hardware, software and services, was about $372 million this year, up from $348 million the previous year. Of that $100 million was software, $130 million was hardware and the balance services.

The market for customer management solutions grew from $124 million to $134 million, including $40 million of software licences, and supply chain management projects generated about $128 million in activity - $30 million in software, $48 million hardware and the rest services.

Next year, enterprise resource management is expected to be a $400 million market, customer management will consume $150 million and supply chain will be a $144 million business.

Extrapolate those figures worldwide and the prize becomes clear. The more software integration vendors can build into the package, the less they have to give away to consultants and partners.

For those doing development, Microsoft's .Net environment seemed to gain an edge over Java this year because of price, bundled features and integration with Microsoft's new server and desktop operating systems.

But Java is not going away, in part because of the adoption of Linux by companies replacing proprietary Unix systems. Linux and Windows are cheaper than older Unixes and they run cheaper hardware.

"Cheap" works for many firms. It may not be as good as the expensive one, but it does the job. Microsoft's enterprise applications may be a cheap copy, but they will bring enterprise computing to thousands of firms locked out of the game.


* Email Adam Gifford