Brian Sommer's Month in Brief – January 2019

A New Year and a new start - and already it's busy, busy, busy.

Larry’s Got a New Gig & Other Oracle News

Bloomberg Business reported that Oracle Chairman/CTO Larry Ellison is joining the board of directors of Tesla “to provide Elon Musk with more of the outsider oversight demanded by regulators”. The mental image of Larry telling Elon what to do seems humorous to me.

Other Oracle news this month was more sobering.

In this Bloomberg BusinessWeek article “Oracle's CEO Mark Hurd Sets Goal to Own Half of Apps Market, Besting SAP”, we read that:

“Today, there’s no one with more than 50 percent,” Hurd said Tuesday in an interview to air on Bloomberg Television. “In fact, the highest application percentage of any company in any segment is sort of mid-20s. This generation will see a leader that’s much more material than that, and I volunteer us to do it.” He declined to specify a timetable.”

I really want to hear SAP’s response to that. The article continues with this:

The CEO shied away from making any pronouncements on Oracle’s efforts in internet-based computing and storage, where it has struggled despite years of effort to catch up to leaders Amazon.com Inc. and Microsoft Corp. Hurd said it was important to look at the infrastructure, platform and database markets together. He said Oracle’s databases, its core product, still trounced those from Amazon Web Services.

Wall Street isn’t as bullish as Mr. Hurd, though. Barron’s reports that Morgan Stanley has downgraded Oracle’s stock over concerns about the company’s growth prospects. Barron’s excerpted this from a Morgan Stanley report:

2019 likely lacks the catalysts for a positive inflection in revenue growth investors would need to see to drive multiples higher for ORCL, as the prospects of a strong database cycle push further out on the horizon,” Weiss wrote on Tuesday. He sees only “limited operating income growth thru CY19...keeping upside in ORCL shares limited.

There’s also this bit from Bloomberg Law informing us the Oracle owes $400 million to women, black and Asian workers. The Department of Labor is pursuing a number of actions against Silicon Valley firms lately and Oracle got popped. The article has this:

Pay records obtained by the Labor Department show that Oracle paid women, black, and Asian employees less than others for similar jobs in information technology, product development, and support. The DOL said that appears to be in part because the company relied on workers’ prior pay histories to determine starting salaries. The department also said Oracle often starts women and black workers at “low-level jobs and low starting pay.

The DOL further alleges that Oracle uses a recent college graduate hiring program to bring in droves of Asian visa holders, whom the company then pays less than their citizen counterparts.

That matter is still on-going.

Will Competition in ERP Get Rougher?

As if Oracle didn’t have enough on its plate, Oracle, SAP and other ERP stalwarts might face new competition from the likes of no less than Google and Amazon. While a lot of the press regarding Google’s and Amazon’s entries into the space is speculative for now, it is a sobering bit of news for traditional players.

First, several trade pubs are wondering which enterprise software firm(s) former Oracle executive, Thomas Kurian, will want to buy as he takes Google’s Cloud Platform into a new direction. Yes, names like Salesforce.com, Workday and ServiceNow are getting bandied about but remember that Workday’s voting stock is all controlled by the two founders Aneel Bhusri and Dave Duffield. A buyout of Workday would need their okay – a hostile acquisition is not possible. Of these three, I’d say ServiceNow is the most likely to be acquired, if any acquisition even occurs. And Thomas, if you’re reading this, if you’d like some help with your shopping list, call me!

Zoho’s CEO laid out a different scenario where Amazon gets into the enterprise software space. Colleague Phil Wainewright recently wrote:

He supports the assertion with an axiomatic quote from Amazon CEO Jeff Bezos: “Your margin is my opportunity.” In other words, enterprise software margins are bloated and Amazon is about to gouge them.

There’s a lot of truth to the bloat problem. I wrote a lot about this issue just before Christmas in a piece titled: The SaaS Memo Most ERP Vendors Missed (By the way, thanks to all the readers who messaged me about that article. It was good to hear it rattled a few cages.). Vendors like Amazon and Google get it when it comes to using scale to drive up market share, reduce costs, etc. None of these skills or business disciplines are things most ERP vendors get (let alone practice).

Zoho’s CEO is correct in that a reckoning is coming for those bad acts and bad vendors out there who spend too much time trying to come up with ever more creative ways to wallet frack their customers instead of finding ways to reduce costs, use scale and deliver more value to customers.

The Data Sieve

Lack of Ethics re: Data Privacy – The rampant and shadowy exploitation of our personal data is getting out of control. This article is a stunner showing how our cellular providers actively sell cell phone location information to all sorts of individuals or companies without warrants or other valid controls. The opportunity for abuse of this information is alarming and I’d encourage everyone to read this expose:

T-Mobile, Sprint, and AT&T are selling access to their customers’ location data, and that data is ending up in the hands of bounty hunters and others not authorized to possess it, letting them track most phones in the country.

Time Magazine, Privacy and What Silicon Valley Must Do - This weeks’ Time magazine is a must-read. First, we get the legendary Roger McNamee with this cover story titled: “I Mentored Mark Zuckerberg. I Loved Facebook. But I Can't Stay Silent About What's Happening.” Roger was someone I met 20 years ago and he was an investor force then and remains so today.

In that issue is a piece by Apple’s Tim Cook on Why We Need New Privacy Laws and many other fine essays. If you have a soul, you need to get involved in pushing for better protections for all of us. And, to a famous colleague of mine who often throws his hands into the air and scolds me with the admonition that we’ve already lost our privacy, we can still take it back. I, for one, have never had a Facebook account and won’t get one until the day comes when they get new management that respects the privacy, data, IP rights and more of its users.

This Month in HR

CuroComp – Compensation management is a hot topic these days as many companies are NOT winning the war for talent. Minimum wage increases kicked in all over the U.S. at the start of the year yet fewer firms can grow their businesses because they can’t find the talent to replace recent employee losses. Compensation (and engagement, bad management and other factors) could be a reason for the lack of momentum on the war for talent.

CuroComp provides a compensation management solution. While the company is small, it is growing a lot of late. But the thing that really caught my attention were the large, substantial customers they’ve acquired (e.g., Virgin Atlantic, Panda Restaurant Group, EY, etc.). If they can maintain momentum and continue to attract big logos, they’ll become a major irritant to many HCM vendors. The U.S. and Canada markets are their new expansion targets.

iHire Study – Normally, vendor-based research has a lot of problems and I won’t use much of it. I did see this quick read from iHire that talked about the robustness of the hiring market in the United States. What I particularly liked were the five recommendations at the end of the report as they eerily paralleled what CHRO clients of mine were confronting today.

I did speak to iHire about the report as I thought the next phase of research needs to address not just the quantity of hiring underway today but the quality. Too many employers are seeking out only the youngest, cheapest and already fully employed people for job openings. And yet, some of the best talent out there is underemployed, self-employed, older, etc. The key reason many firms aren’t winning the war for talent is that: they are looking in the wrong spots for the talent; they have awful ATS technology; or, they have discriminatory HR processes. Smart firms will change their ways (and technology) if they want to grow in an out-sized fashion. Read the iHire report.

Age Bias – I often point out the ageism out there but HR vendors seem to stay away from this third rail item. This piece looked at how venture capitalists have out-of-date views re: age and are discriminating against founders at very early ages:

All told, 89% of the survey respondents said they agree that older people face discrimination in the tech industry.

I guess I’m at that age (post-29) when I should think about bootstrapping instead of raising venture funding.

Private Equity and Innovation in Software

PE buyouts hurt innovation – I’ve rarely trusted the assurances of private equity firms when they buy out companies. Yes, some will continue to invest, do rollups or other growth-oriented acts; however, far too many PE firms get aggressive with cost cutting initiatives, headcount reductions, asset stripping, high management fees and loading up the acquired companies with debt. R&D (and by extension innovation) suffers in these companies if the headcount/budget in R&D is reduced or eliminated.

A few years back, I read (with disbelief) that PE firms were enhancing innovation. However, that didn’t seem to jibe with what I saw firsthand in acquired firms. Finally, an academic group studied over 1,500 acquired firms to measure the change in patents acquired in the years following a PE takeover. In an article about this study, we see:

Public-to-private buyouts, particularly those done by private equity firms, saddle companies with so much debt that they can no longer innovate at the same rate they once did, according to a paper last month by Florida Atlantic University economics professor Douglas Cumming, University of Exeter Business School lecturer Monika Tarsalewska, and DeepR Analytics chief executive officer Rejo Peter.

It’s a sobering read and one that should give enterprise software buyers an additional reason to insist on material change of control language in any deal they do. Why? This study found that patent applications fell between 33-38% in the third year after a PE takeover. Do you really want to be using software with a vendor that isn’t innovating at the pace of its competitors?

Harvard Business Review gives us a different look at innovation in “The Hard Truth About Innovation Cultures”. This longer piece lays out five big a-ha’s regarding the design of one’s innovation processes. Here’s the headline for one of these “Tolerance for Failure but No Tolerance for Incompetence”. I like that one because there are too many people out there afraid to take risk. One thing I learned at Accenture was that you couldn’t make it to partner if you weren’t entrepreneurial and innovative (You also had to know how to manage downside risk.).

For all the enterprise software executives out there, you might want to read this HBR piece titled “Why Some Platforms Thrive… and Others Don’t”. Since most every software vendor now has a ‘platform’, logic tells you that all of these can’t become the next Alibaba, Google, Amazon, etc. So, this piece dissects the platform space to understand which ones are more defensible, vulnerable, etc.

The Capital Markets, IPOs and Investments

This month we saw Infor take an additional $1.5 billion in capital from a combination of investors. According to Infor:

Infor, a global leader in business cloud software specialized by industry, today announced an agreement to receive a $1.5 billion investment from shareholders Koch Equity Development, LLC (KED) and Golden Gate Capital. This investment builds on KED’s investment of more than $2 billion in early 2017, and it represents an important milestone as Infor considers a potential IPO in 2019 or 2020, subject to market conditions.

This is an interesting time for Infor to be making a capital play. The firm acknowledges that it is eyeing an IPO in the next year or so. The firm currently pulls in about $3 billion in revenue annually and, given its 70,000 or so customer base, shouldn’t need much capital to fuel its growth. I suspect some of this investment is a way for late stage investors to lock in a valuation below the IPO price.

The management of Infor has been rebuilding Infor for 8+ years. An IPO would make for a nice exit for them and, if they have great stock options, could make them all set for life – that is, if the IPO does get a nice pop coming out of the gate. Charles Phillips, a former Wall Street wizard (and long-time friend), knows this aspect of the finance world well. I’d suspect he’ll nail the timing and pricing of this deal whenever it happens.

Salesforce is apparently getting into the M&A act, too. Reuters reported that it’s looking to acquire Click Software for $1.5 billion.

Kyriba, a solid cloud treasury management solution, is acquiring FiREapps. This brings a foreign exchange (FX) risk technology to Kyriba’s product mix. I like this deal. According to the announcement:

“The agreement will combine two global leaders in cloud treasury and risk management, and further enhance Kyriba’s capabilities for safeguarding its clients against the entire continuum of financial and operational risk, including FX exposures, payments fraud, regulatory risk and more.

The acquisition will create a highly advanced solution for managing global FX risk, including data gathering and consolidation, reporting, analytics, decision support, payments, hedge accounting and more. The combined result is a faster, more efficient way to manage FX exposures than using old school processes involving spreadsheets and manual data gathering across multiple systems.”

Canadian-based Vena Solutions did a big capital raise picking up some $115 million:

Software-focused growth equity firm JMI Equity led the round, and was joined by existing investor Centana Growth Partners who led Vena’s $30 million financing in 2016.

As my dad would say “That’s not front pocket or back pocket money, that’s take it to the bank money”. Spend it well Vena.

Odds n’ Ends

I didn’t get to attend Zoho’s analyst event and will miss Acumatica’s Houston conference, too. The Acumatica show is always fun as folks like Diginomica’s Jon Reed and I get thanked for our leadership by lots of folks there. The Zoho event is so different from others in that the cost philosophy of the company is counter to much of what you see in Silicon Valley. I like it and wish other vendors got it, too.

Dress code

Now I know what all the great enterprise software industry analysts will be wearing this year: clip-on Man Buns. DevOps in front – party in back, Dude!

Thanks to www.FastCompany.com for tipping me to this. This is great for fighting ageism in recruiting as it covers that thinning pate so well. And, as an added bonus, I’m sure some of those analysts who’ve forgotten how to tie a necktie (and now use clip-on ties) will find this technology familiar.

Of course, this reminds of a bad Silicon Valley joke: In the Bay Area, a guy with a ponytail is a developer. A guy with a Man Bun is a CTO. And, a guy with a suit and a Man Bun just had their company acquired by SAP….

The Month Ahead

I’ll be out at the mailbox a lot this month looking for the Walmart package with my clip-on Man Bun in it. I’ll also be checking out the Asian HR software space when I’m in Singapore with several other HR luminaries. Should be fun…