Netsuite, one of the rising SaaS vendors, recently unseated SAP from a subsidiary of Asahi KASEI. The cost savings were huge!

The Asahi KASEI Corporation is not a small company. It’s a fairly large one, with revenues about the same as Sun Microsystems had a year ago; around $15 billion. It is a classic Japanese company, in the sense of having its fingers in more than one or two pies. It has 9 core operating companies which focus on the fields of fibers, chemicals, construction materials, homes, microdevices, e-materials, pharmaceuticals and sophisticated medical equipment.

The eviction of SAP/R3 took place in a subsidiary of Asahi KASEI Fibers in Charleston, S.C.  The company, Dorlastan, had been acquired by AKF in 2005 and produces spandex. It’s not unusual for companies to change suppliers every now and then, and hence the adoption of NetSuite at the expense of SAP might not be that remarkable, were it not for two important points:

1. A cloud ERP SaaS offering (NetSuite) evicted the premier corporate ERP package SAP. David beat Goliath.
2. The cost advantage, as calculated by David Stover, CFO of Asahi KASEI Corp.’s Dorlastan fiber division, was 20 to 1.

The Failure of SAP – The Future’s Cloudy

NetSuite was born as a cloud software company. (For a neat explanation of cloud propositions, read Why The Cloud Protects You From Technology Evolution (and Disruption). As far as a cloud service is concerned, SAP talks the talk, but so far has conspicuously failed to walk the walk. There’s a big difference between these two realities and it is worth examining.

NetSuite, founded in 1998, provides an ERP software suite written for the cloud, with base components of: CRM, order management and fulfillment; inventory management; finance; ecommerce and web site management and employee productivity. It doesn’t end there, because a software ecosystem has now formed around NetSuite, based primarily on NetSuite Business Operating System (NS-BOS) an application development platform that enables ISVs and VARs to add vertical components to the NetSuite base. NetSuite is thus an ecosystem as well as a cloud offering.

SAP AG was founded in 1972, in the mainframe era, and its software has undergone a long evolution. The first version of  SAP, R/1, a financial accounting system. This was superseded by business application software suite, R/2 in the late 1970s. That was the kernel of an ERP suite and it was successful in the 1980s and early 1990s. Then came the major upgrade to R/3, a client server version that came available around 1998. Over the years SAP has added many modules. It has also delivered MySAP, a front-end interface, which can access other systems and use SAP as “the back office.” And there is also the Netweaver platform – a development environment with multiple components.

Is there as SAP cloud offering?

SAP has been long on promises and short on delivery. Over the past 5 years, SAP has been developing a version of SAP that it hopes to be able to sell to the SMB market – a market that it has never penetrated in any significant way. This venture, named Business ByDesign, has not delivered. Seven months after unveiling it (in 2008), SAP began cutting back on development following customer feedback, including complaints of performance problems and bugs.

SAP is still waiting to come to market, while NetSuite is happily making hay. SAP’s problem is one that legacy companies inevitably suffer from with the cloud – and, in this respect, SAP is probably the biggest legacy company of all. If it delivered a compelling cloud offering, it would undoubtedly canabalize its existing revenues – and not in a small way.

It’s early days in the desktop virtualization market. This is  why:

1. There’s not much activity in this market. The recession didn’t prompt a whole series of companies to start virtualizing their desktops in a mad frenzy of attempted cost-saving, although it’s possible that they may do so in time.
2. VMware isn’t really playing in this market in an aggressive way, for two reasons. First it has better fish to fry and second, it’s VDI approach is currently quite expensive on a per seat basis.
3. Citrix did well to put its mark on this market with the acquisition of Ardence and Xen Source, and also a strong partnership with Microsoft. I thus expected Citrix to be able to defend its position against attempts by VMware to impinge on its primary market – client enablement – and it seems to be doing so.
4. However its recent robust financial health stems from its on-line services, not from client virtualization.
5. In the main, desktop virtualization still includes a fair amount of D-I-Y, requiring the integration of several products.

That final point is why I was surprised with what I saw when I was briefed recently by Virtual Bridges.

Virtual Bridges

Virtual Bridges is an Austin start-up with a desktop virtualization product that is an all-in-one package – not a broker that connects to some other virtualization capability (such as VMware’s VDI) or a VDI capability that needs a broker. It’s a full solution.

Technically there are just two parts: VERDE and SMART.

• VERDE, Virtual Enterprise Remote Desktop Environment, is the virtual desktop management software that creates new instances of desktops (from a standard image or images) and deploys them on the server.
• SMART, which stands for Self Managing Auto Replicating Technology, provides local instantiation of the virtual desktop, creating a local cache of the virtual desktop’s state and thus enabling the desktop to run in disconnected mode, for example on a laptop. SMART itself runs on the server but installs a hypervisor on the client.

So what do these two components deliver? Well, of course they’ll deliver a Windows PC (2000 or XP or Windows 7 when available) with either local storage (on the client device) or server side storage as desired. The PC is delivered as an image and, if disconnected, it will synchronize with its master image when reconnected so it remains in step with its master image.

The VERDE/SMART combination can work on any client, including an employee’s own PC and it will even work on a Netbook, because it has a low resource overhead. It can work in VDI mode where the server image is full mirror of the PC session, so if the PC fails, the session can be pulled down onto another device.

Virtual Bridges already has some large customers, including McDonalds and Radio Shack and it also has some large deployments including a Netherlands School District where 5000 desktops are deployed. 5000 is a large enough number to demonstrate scalability of client population.

The Defining Points

This is all reasonably impressive, but on it’s own it wouldn’t warrant me thinking of Virtual Bridges as a potential Citrix competitor. There are several other details that convince me of this possibility. They are as follows:

1. The Price Per User. Because of the way its technology works Virtual Bridges can sell at a very low price point – it claims to cost about a fifth of any other equivalent solutions, including those from Citrix and VMware. That’s a huge cost differential. The actual price per user varies according to the other licenses involved (particularly Windows licenses) but it is certainly low enough to make the competition groan.
2. Cloud-Based Virtual Desktops. Because of its architecture, VERDE/SMART is ideal for cloud deployment similar to the way that Desktone deploys (read this for further details), with clients on desktops and servers in the cloud.
3. The IBM Partnership. Other software companies are partnering with IBM in this area, but Virtual Bridges’ partnership with IBM appears to be very active, with IBM directly introducing Virtual Bridges to some customers.
4. The Linux Option. Virtual Bridges also partners with Canonical and can deliver Linux Desktops. Now you may be thinking that there’s not a lot of demand for those at the moment and in most cases you’d be right – but there is a demand in some specific environments, particularly in retail for retail kiosks which need to do little more than run a browser to access the Internet. There are also similar small groups of desktops in some organizations that have a similar requirement – just a browser and email, say. Virtual Bridges has a neat solution for that.

Taking these things together, I can imagine Virtual Bridges making an impact if it keeps its sales pipeline humming, and that it turn makes me suspect that Citrix may soon have a genuine competitor in desktop virtualization.

In the world of servers, the commodity Intel server is currently dominant, but not by as much as you might think. It accounts for around 50% of all revenue spent on servers. Despite predictions that the Unix server market would enter terminal decline, being overwhelmed by loosely coupled commodity Intel servers, Unix is still going strong. Unix servers, primarily running Solaris, HP-UX and AIX, still account for about 35% of all server revenues. In fact, in growth markets (China, India, Russia, Brazil, Korea, etc.) Unix has a larger share; 38% of the market compared to around 30% in North America and most of Europe.

A Tale of Three Chips

Now take a look at the graph below. It’s from IDC (with annotation by IBM) and it shows the market share movement of the big three Unix players from 1999 up to now. You could title it, the inexorable rise of IBM’s P Series. In the period from late 2000 to Q2 2009, IBM has more than doubled its market share to a level previously unequalled by any vendor. IBM is walking away with the market, while both Sun and HP shed market share in roughly equal measure.

Although it would be an oversimplification, you can look at this as the tale of 3 chips, Sun’s SPARC chip, the Intel/HP Itanium and IBM’s Power chip. Take a look at the recent record of benchmarks carried out by these vendors and the Power chip is so far ahead it’s embarrassing. Someone should stop the fight.

After the dot com collapse stripped Sun of a good deal of its revenues, it was always going to have a hard time funding the continued evolution of SPARC. In contrast, HP has no-one to blame but itself. Itanium looks very much like a failure of engineering. You either have to conclude that HP made the wrong technology bet or that IBM’s engineering team has performed out of its skin. Either way, as the graph so clearly indicates, HP has only just been able to keep pace with Sun and IBM has been picking the pockets of both vendors.

If you look at this graph, the logic of IBM’s bid for Sun was clear. It would have instantly put IBM in the catbird seat. SPARC would have been laid to rest, IBM would have migrated the Sun customer base and HP would have struggled to stay relevant. But Sun balked at IBM’s terms, and Oracle stepped in.

Automation and automated optimization are completely different things. I came to that conclusion when I looked at technology from Oniqua, a company I encountered earlier this year. The business impact of its software was what caught my attention. This is not to disparage the technology used, which was a well-engineered BI capability that integrated well with ERP environments. The software collectively optimized corporate procurement, inventory management and facility maintenance in a joined-up manner. And that was the point. You can automate  inventory management and it saves labor, but when you optimize it, it saves more labor and it reduces inventory costs in a big way.

CSC and the Cash Management Process

At the analyst conference with CSC I attended a month ago, I ran into a very similar type of application, but in a quite different area of business. CSC gave a demo of software that optimizes cash management. In effect, it does for cash management what Oniqua’s Analytics Suite does for inventory, procurement et al.

The easiest way to understand what it does is to define the primary problem it solves. Imagine that you are an accountant who is managing the cash flow of an organization. You mustn’t ever run out of cash, because that will prevent you making necessary payments. However you cannot predict precisely how much money will come into your accounts on any given day.

Currently this process in normally managed by extracting data from the accounting system and building spreadsheet models of the flow of cash. Whenever there is a shortfall it is necessary to borrow short-term money to cover the situation – and naturally that has a cost attached to it. The weakness is in the modeling.

So what CSC has done is to build a fully fledged analytics capability that looks at the historical pattern of payments, analyzes the outstanding debt and balances everything – including balancing the cash management across multiple currencies and multiple accounting systems. You need to see the software to appreciate how smart it is, but in the end I guess, it’s just well engineered analytics. The business impact is a cash management capability that is dramatically more efficient than is currently deployed by companies and which rapidly pays for itself, by collapsing the need for short term loans.

Technically this is pretty much a no-brainer for anyone that has the need, which means most companies you can think of. The bigger the company the more likely it is that its cash management is inefficient. If the company is multinational, it is guaranteed. But this is also something that small companies have a need for.

The Broader Picture

Think of it this way: Money is very much like stock. If you hold too much (as a contingency) then it isn’t being deployed where it could yield the greatest benefit. It cannot be made available to on-going projects, or marketing campaigns, or whatever. This proposition is proving so attractive that some banks are adopting the technology so that they can offer optimized cash management as a service to their customers.

Of course the technology, which CSC currently refers to as a Cash Management capability, has a knock on effect within an accounts department. If you can manage cash flow better then you can also use the same technology to manage budgets better, manage purchasing better and manage investment better. You begin to work towards an end-to-end management of money within the organization.

If you work in finance, especially if you work in banking, you should take a look at what CSC are doing here. It’s going to catch on.

The revival of the mainframe, isn’t just due to IBM’s continuing investment in it. CA is stirring this pot as well, and with a high degree of enthusiasm. But before I describe what it’s doing, let’s first review the current state of the mainframe market.

• 70% of world’s business critical data still lives on the mainframe. It never left home.
• The mainframe dominates the high-end server market with over 35% of  market share by revenue.
• More than 60% of new mainframe capacity sold since 2000 is running “new-to-the-dinosaur” workloads (i.e., Linux, J2EE, ERP, etc.)
• No matter how you count it (by MIPS or revenue or units or customer base) the mainframe market has been growing very healthily. If you count by MIPS then growth has been in double digits for over a decade. (Until the onset of the recession when all server sales went south)
• The platform has acquired over 500 new customers since 2000 following a barren period in the mid-1990s. Migration away from the mainframe has tailed off.
• The Dinosaurs are back, and they ‘re angry.

Why are the Dinosaurs so Bouncy?

The important point to understand is that the mainframe is cheap highly efficient computing. It’s as simple as that. The primary barrier to the use of the mainframe is adoption costs. You have to hire mainframe expertise and it’s a little thin on the ground. And you can’t buy entry level servers for a few thousand dollars either.

Nevertheless, every mainframe IT executive I’ve come in contact with in the last ten years that closely monitors data center costs has told me that the mainframe is by far the least expensive server computing in the data center. One company I’ve heard of – a large bank – measures mainframe cost at about half the cost of commodity Intel servers!

Mainframe Linux is also responsible to some degree for the resurgence of the mainframe. It has been a huge boon. It is possible to configure a new Linux server (virtual server) in minutes on the mainframe, whereas it can take days if you wanted a new physical Linux or Windows server. Even in virtualized environments VMware has a long way to go before it matches the virtualization management capabilities of the mainframe. More importantly, with mainframe Linux, it is possible to run all the Internet applications (web server, CMS, database, etc.) on the mainframe – which meant extremely fast communications to back end systems or applications built in J2EE.

Linux mainframe usage is growing strongly. A recent CA sponsored survey of IT executives in large companies (revenue $2bn or more) showed that 93% of these companies are growing their use of mainframe Linux – nearly half of them at an annual rate of 20% to 40%.

CA: Taming the Dinosaur

If you are familiar with the mainframe it won’t be a surprise that CA is delighted with the robust health of the mainframe. After all it has a broad portfolio of mainframe products from which it harvests maintenance revenues. However, you may be surprised at the level to which it is investing research and marketing dollars in the once moribund platform.

Chris O’Malley, EVP and GM for CA’s mainframe Business Unit has coined the term Mainframe 2.0 to describe teh mainframe’s resurgence. Mainframe 2.0 is like Web 2.0 only a little more Jurassic. He speaks confidently about CA delivering mainframe products that are “best in class quality, support and platform exploitation.” There is some justification for his confidence.