Tuesday, June 17, 2008

News Analysis: Multiple Factors Lead to Shifts in Oracle List Prices

Dollar Based Pricing Drives the Bulk of Recent US Based "Price Increase"

On June 16, 2008, Oracle updated its localized price lists and software investment guide. Applications previously priced at $3995 per user rose 13.1% to $4595 per user in US dollar terms. Database pricing increased 18.75% from $40,000 per CPU to $47,500 per CPU. Other price increases approximate 15% on average. Despite Oracle’s role in vendor consolidation, increases during an impending economic downturn appear illogical. Recouping for dollar devaluation is the main rationale behind the recent price shifts for the following reasons:
  • Oracle offers one single global price list. Unlike many vendors who account for global currency fluctuations with country, region, and industry specific uplifts, Oracle maintains consistent pricing in dollars. The dramatic devaluation of the dollar has led to a de facto discount in the 30 to 35% range for multi-nationals who purchase in Pounds Sterling, Euros, and to a lesser extent, Yen. As a result price increases mainly impact the US while other Euro zone countries will not see a major increase in real dollar terms. A closer look at country specific pricing for Germany shows that the Euro price has not changed in constant Euro terms.
  • Management aims for 50 percent profit margins. During the 2007 Q4 earnings call, Oracle’s CEO, Larry Ellison, stated an overall goal of reaching 50 percent margin and 20 percent earnings annual growth. Given Oracle's global presence and geographical distribution, a large proportion of Oracle's sales and sales expenses are incurred outside of the US and the currency issue has hampered this margin objective and created pricing arbitrage. In the past, key recommendations to end users include purchasing in non-dollar currencies and take advantage of the currency arbitrage. Oracle’s pricing moves aim at mitigating this end user pricing strategy.
Other Price Shifts Reflect the Level of Market Competitiveness
Oracle typically provides pricing changes on a 9 to 12 month basis to account for iterative changes and acquisition activity. Despite dollar based pricing being the main rationale for this recent price shift, some changes reflects the level of competition Oracle faces in the market. For example:
  • Business intelligence (BI) minimum pricing cuts reflect a competitive market. Head to head competition with IBM, Information Builders, Microsoft, SAP and SAS leads to a change in pricing strategy. Financial BI analytics moved from $400,000 per customer to $5800 per application user with a 25 named user minimum purchase.. This change at list pricing reflects a minimum user drop from 79 users, effectively targeting the SMB market but raising the price for companies with more than 79 users.
  • App sever increases may reflect Oracle’s dominant market position. Acquisition of BEA puts Oracle in the dominant market position. The price for BEA WebLogic server is now $25,000 per CPU, a 47.1% increase from $17,000 per CPU. Currency fluctuations can not explain this level of price increase. One possibility could be an overall change in packaging that may include additional components.

The bottom line for end users
Contracts Must Take Into Account The Software Ownership Lifecycle

Software ownership spans across five phases of ownership: selection, implementation, utilization, maintenance, and retirement. List prices represent one part of the cost equation. Maintenance fees, upgrades, and staffing have longer term implication and should be factored in contract negotiations and vendor selection criteria. Though Oracle’s specific price changes impact US based or dollar based markets the most, Oracle clients should:
  • Never pay list price. Most initial offers for enterprise software carry a discount. While discounting percentages may vary due to revenue recognition rules, list prices rarely impact the final cost. Expect the software market to remain competitive in the US and license discounts will remain in the same ranges.
  • Focus on total contract value, not the discount percentage. Because of the dollar based price increase, discount targets should factor in the price changes. A 30.4% discount for 2008 would be required to achieve the same 20% discount in 2007 due to the list price increase.
  • Minimize maintenance fees. Maintenance represents the largest chunk of long term apps costs. Rates at 20 to 25% a year represent the equivalent of buying new software every 5 years and spending two times the original license cost over a period of 10 years. Euro zone customers who purchased software prior to 2006 should renegotiate rates to reflect the recent dollar devaluation.
The bottom line for vendors.
Like Big Oil and Petrodollars, Dollar Devaluation Creates a Silicon Dollar Effect.
Dollar devaluation not only impacts the price of oil, but now enterprise software. Expect other US based software vendors with a global presence and single global price list to make changes to the “Silicon Dollar’ equation and raise prices accordingly.

(The personal contents in this blog do not reflect the opinions, ideas, thoughts, points of view, and any other potential attribution of my current, past, or future employers.)
Copyrighted 2008 by R Wang. All rights reserved

Sunday, June 8, 2008

Order Management Hubs: 20 Steps to a Perfect Order

A Perfect Order still means many things to many people
Recent studies show that enterprises who deliver perfect orders have a direct correlation to positive customer satisfaction scores. Despite the stakes, success in consistently delivering a perfect order continues to elude many enterprises because existing systems lack the flexibility to move orders across the order management cycle.

Process views should trump functional fiefdoms
One source of confusion stems from the lack of clarity in what the components of a perfect order should entail. Confusion often stems from a functional perspective which may be predisposted from an ERP, CRM, eCommerce, or Supply chain heritage. Tossing out the three letter acronyms, order management hubs are about 4 key business processes:
  1. Opportunity to order capture - all the stuff to capture information for the order and send it on to the next step
  2. Order capture to order fulfillment - the guts and logistics of fulfilling an order from pick,pack, ship to TMS, WMS.
  3. Order fulfillment to order completion - the processes that may occur before an order is satisified such as returns, after market service, installation scheduling, and warranty claims.
  4. Order completion to order settlement - invoicing, AP/AR, financial stuff.

Moving from 10 steps to 20 steps towards a Perfect Order
The basic notion is a stakeholder gets an order and they have their expectations to have this filled every time, without question and with minimal effort. In previous discussions on Perfect Orders, 10 steps were identified. The definition has now been expanded to cover 20 key steps which include the delivery of an order:

Through any channel at any time
2 .
Multiple types of stakeholders can
3 .
Engage in a consistent brand experience by
4 .
Selecting the right product or service with
5 .
The correct quantity and configuration that
6 .
Meets the acceptable levels of quality for
7 .
The stakeholder's entitled pricing policy
8 .
Supplied from the agreed upon sources
9 .
Delivered to or installed with the right customer within
10 .
An agreed upon period of time to
11 .
The correct locations in
12 .
The most appropriate packaging that
13 .
Includes the right documentation over
14 .
The right frequency with
15 .
An accurate invoice that can be
16 .
Collected and efficiently settled and/or
17 .
Returned via any channel for
18 .
Warranty claims against defects and/or
19 .
Scheduled for repair based on
20 .
Agreed upon service contracts

The bottom line for end users
Achieving a perfect order requires enterprises to revisit how existing order processes support multiple selling channels, multiple fulfillment scenarios, across functional areas. Ultimately, these business processes must be measured against metrics and key performance indicators (KPIs) such as:
  1. Availability to promise visibility
  2. Order status across all stages
  3. Picking error rate
  4. On-time delivery percentage
  5. Cases shipped vs. ordered ratios
  6. Type and percentage of unsellables
  7. Days of supply
  8. Order cycle time
  9. Shelf level service ratios
  10. Warehouse to store fill rate
  11. Order accuracy percentages
  12. Accurate and timely invoices percentages
  13. Percentage of data synchronization
  14. Stakeholder satisfaction
  15. Lifetime monetary value of stakeholder.

(The personal contents in this blog do not reflect the opinions, ideas, thoughts, points of view, and any other potential attribution of my current, past, or future employers.)
Copyrighted 2008 by R "Ray" Wang. All rights reserved

Monday, June 2, 2008

News Analysis: NetSuite's Acquisition of OpenAir Signals Importance of Services and Project Based Businesses

Like the consolidation in the on-premise world, NetSuite's acquisition of Open Air marks the beginning of the a wave in consolidation for SaaS. NetSuite's decision to acquire OpenAir for $26M is significant for a few reasons:
  • NetSuite gains a toehold in the Services and Project Based world. The Project Based Solutions market is hot and OpenAir is one of the poster children for SaaS in PBS. In addition, NetSuite has needed critical capabilities in project management, scheduling, and related PBS skill sets. NetSuite adds a base of 40,000 active users and 300 new service customers.
  • OpenAir customers add end-to-end SaaS business suite functionality. Integration between the 2 products is planned for later in 2008. End users should expect Web services integration frameworks to allow OpenAir customers to complete end to end processes for Order to Cash, Schedule to payment, and Project Design to Completion. Services and project based companies now have a complete offering delivered on a true multi-tenant SaaS platform.
The bottom line for end users
Decision making should still be led by business drivers that may span across growth, regulatory, compliance, and strategic. Key advantages when considering a SaaS solution still include:
  • Faster deployment of critical business functionality. SaaS solutions often provide much needed "last-mile" solutions that meet pent up business user demand. More often than not, upgrades to solutions occur with more frequency than on premise offerings. Keep in mind, enterprises should coordinate with IT on long term integration requirements, canonical data model design, and deploy the appropriate ESB's or integration technologies.
  • CapEx reductions that free up much needed capital. Use operating expense instead of upfront capital and avoid the long buying cycle of board approval and IT infrastructure dependencies. Take the freed up capital and apply it towards more functionality.
  • Growing capabilities to extend solutions via partner networks and tool kits. Vendors continue to expand their Platform as a Service (PaaS) offerings to partners and customers who are looking to ultimately extend processes and apply metadata configurations to "customize" solutions. The toolkit and strength of partner ecosystems should be one of many factors in vendor selection.
The bottom line for vendors
The growing threat (see Workday Flextronics Win) of SaaS as a business and deployment model means that consolidation will accelerate as SaaS vendors aim to bulk up for scale in sales and marketing as well as partner mindshare. Should NetSuite successfully acquire and integrate OpenAir , customers will not only gain key capabilities, but SuiteFlex partners will also gain a new avenue to extend their offerings and last mile solutions on top of one of the industry's top Project Based Solutions, Open Air.

(The personal contents in this blog do not reflect the opinions, ideas, thoughts, points of view, and any other potential attribution of my current, past, or future employers.)
Copyrighted 2008 by R Wang. All rights reserved