The '64 Plymouth Valiant
SSA GT tries to keep 16,000 customers happy and make money at the same time.
Number Four, Number Three, Number One
Quiz: Who is the number four applications vendor by revenue and
the number two by number of customers? Who is the second or third most profitable vendor
of full-suite business applications? Who is the number one
vendor of manufacturing applications, as measured by sheer breadth
of offering?
Answer: SSA GT.
Yes, that SSA. From bankruptcy, SSA has emerged as a force in the applications market. And how has it done so? Certainly not by doing anything technically innovative. There are
no new ideas. There is no new technology. Many of their offerings
don't have a web interface. Not only that, there won't be any new
ideas. SSA GT is a company that sells laggard software to laggard
users.
And they seem to be doing quite well at it.
I'm trying to make these Short Takes shorter, so I'm going to talk
about SSA GT in two issues. The first (this one) talks about their
general strategy and the challenges they face. The second shows how that strategy has been
applied to the acquisition of Baan.
SSA is important to all observers of this market for several reasons.
First, they give us as good a gauge as there is going to measure
PeopleSoft with. Second, they are taking potential revenue from
the other large players. And third, they may represent what other
application companies will become, as their customer bases become
mature and entrenched. In both these pieces, I'll try to touch
on these larger themes.
The '64 Valiant
Let's start with the obvious.
SSA GT is not CA. Not CA. Not CA. Their aim in life is not to gouge maintenance out of customers who have little choice
but to pay. They are trying for something far more complex
and difficult, but potentially more profitable. They are
trying to keep their customers happy with their existing
applications, while nudging them slowly forward.
I used to have a '64 Valiant, a great, great car that
eventually wore out its ball joints and had to be discarded.
I can tell you that if a company had come
along and announced that they would repair and gradually improve the
Valiant, I would still own one. They wouldn't have
had to do a lot. If they could have put in a CD player instead of the radio,
seat covers when they were needed, I'd be so happy, I'd plan on owning
it forever.
Applied to software, that's pretty much the value proposition that SSA GT is offering. They've got16,000 customers whose new-car smell has long since worn off. And they're saying, "You don't need a new car. We'll keep your application working and, at some point, we'll add in some of those nifty features that have come along in the past 20 years."
In the software industry, the conventional wisdom is that any company with this value proposition will go broke. You can't keep supporting old versions of software, people say, or you'll lose your shirt on support costs and, what's worse, slow your growth because too many resources are bled off on the old products.
Mike Greenough, the president of SSA GT, disagrees.
He thinks that if you run a very tight ship,
you can make money, but still allow customers to
stay on their current versions forever. And, he hopes,
you can make a lot of money if you can a) move the
customers onto new releases, b) sell new software to them,
and c)
sell new
customers on this value proposition.
Greenough is fond of characterizing his company as the low
cost provider of applications. At the drop of a hat,
he'll compare his company to the the Sainsbury's
that moved in near his home town in the Midlands,
offered lots of quality and choice at lower prices,
and simply eliminated all the neighborhood greengrocers and
chemists. His customers, like his neighbors back then,
don't want to pay more than they have to
and like having a lot of choice in one place.
He's got his customers pretty well pegged, I think.
The question is whether he can make them pay enough to keep
his company profitable.
SSA GT
The core of SSA GT is the old SSA, once the number 2 or 3 ERP company. SSA
sold a fairly strong AS-400 based package into pharmaceutical, CPG, food, and
other process industries. They also had a foothold in discrete, especially
automotive and general industrial. The company had a huge worldwide presence:
offices and distributors everywhere and translations and support in as many
languages as SAP.
SSA fell on hard times when it tried to build an open systems version
that would be released in time to solve the Year 2000
problem for its clients. The product never worked properly, and the few
customers who installed Version 6.0.03, instead of sticking with
good old reliable Version 4.7 ended up with huge consulting bills and
(often) new CIOs.
Nothing about this was pretty. The company severely mischaracterized
its software and capabilities, and those of us who were burned
by the, er, mischaracterization, were not sorry to see
the company fall into bankruptcy and (we thought) oblivion.
SSA was rescued by Cerberus Capital, who installed Greenough.
(A later investment was
made by General Atlantic Partners.) I would have said
that Greenough had dragged a corpse out of the water,
but, as in any good B movie,
just as the smart guys were saying that all was lost,
a flicker of a heartbeat was heard.
Pretty soon, more than a heartbeat. Over the next two years,
SSA GT bought some 15 other distressed software properties, including
all the old CA packages, Ironside, Infinium, EXE, and Baan. They now
claim to have $600 million-plus in sales, 16,000 customers, and
profits.
SSA GT is a private company, so there is no requirement that
they open their books. They do release financial information
from time to time, partly because their customers require it,
but there is rigorous external scrutiny of this information, and
there is no requirement that
all the facts be disclosed. So you can be sure
that what they do say about themselves puts SSA GT in a favorable light.
If this were the old SSA management team, much skepticism would be warranted.
But it appears that
the information they are providing is reasonably accurate.
It is internally consistent and also consistent with information I get
from other sources.
SSA GT's basic plan with these 15 properties is to do two, quite
contradictory things:
- Keep on supporting every customer on the version of the software
that they are on.
- Create an upgrade path for every customer and persuade them
to follow that path.
Eventually, SSA will consolidate the core packages into
three product lines: an SSA/i-Series product line, a Masterpiece
product line, and a Baan/Unix product line.
The non-core packages—Ironside, EXE, the old Berclain from Baan,
CAPS Logistics, etc., etc.—will be integrated with the three core
product lines and back-integrated with as many older versions as
make sense. Because they're integrated, the argument runs, they will be the packages of choice when
customers decide they need an SCM package or a transportation
package or a warehousing package.
Before I went to the SSA User Conference in September, I can't
say I thought much of this plan. You could see that it would be a lot of work. My rule of thumb: if it looks like a lot of work, it probably is. I remember back when some
idiot here in Boston said, "The plan is eventually to solve all of our traffic
problems by building a tunnel underneath downtown and routing the
freeway through the tunnel." Nobody said, "Gee, that's a really big tunnel you want to dig." But they should have. You could go downtown any day of the week and see how big it was.
At the conference, I lost some of my skepticism. Yes, it's a great big plan. But it turns out, nobody is in any great hurry to get it done.
Right now, they're busy providing relatively straightforward
upgrades and technology upgrades to a customer base that hasn't had
any for quite a while and providing a few integrations where
appropriate. There is no timetable for anything else, and no customers seem to be champing at the bit.
The bar, in other words, is not very high. SSA can keep its SSA customers
pretty happy by putting out a release 8 and a release 9, promising a
plausible release 10, and helping everybody to upgrade. At the conference,
I had a chance to review the 8, 9, and 10 releases in some detail,
and the plans are very good. A lot of holes have been filled, and
there is something for everybody. The customers like the idea of an eventual grand amalgamation of AS-400 based products, but no one was too worried that it wasn't here.
The worries, in fact, were more practical; for many a user of SSA 4 or Baan 4, even an upgrade will be a challenge. At one session, for instance, an SSA 4 user talked about their upgrade to 8. Their old version, alas, had been
so customized that the upgrade was really a re-implementation. They had put in a lot of work so far, so much that the upgrade seemed as much act of faith as it did something with
immediate ROI. How true this is of the entire customer base
probably no one knows.
Strengths and Weaknesses
SSA GT is lucky in having deep, private pockets. Cerberus is definitely
willing to fund new acquisitions, and they're definitely willing to believe
in the vision of low-cost software and gradual consolidation of legacy systems.
And for right now, those private pockets have nothing to be unhappy with. If SSA
is to be believed, there is growth and profitability, even though SSA GT is
managing not one, not two, but 15 different code bases and customer sets.
Still, this doesn't strike me as a stable situation. Some of the money that's coming in is a windfall from instituting a rigorous audit program. (JD Edwards did this a few years ago, and it is one of the things that kept their revenues up.) So it's unclear what the real base revenue is.
To justify their current cost
structure, they'll have to keep that base, keep on increasing the amount of maintenance, and develop a growing stream of new revenue from cross-selling and from new customers.
All possible, but all difficult to do. Build the wrong things; fail to persuade the customers to upgrade; fail to
sell across the customer base; and you will start losing money for your venture
backers.
To these problems, however, SSA does bring certain clear (and unusual) strengths.
- The organization is highly disciplined. Management tries to exert a high
level of control over its many different organizations through extensive
use of metrics. They know if they're not making money.
- SSA GT is good at acquisitions. They have moved quickly, for instance,
with Baan; at the same time, they found a number of opportunities there
that would have eluded most other people.
- They are able to act on their beliefs. They have, for instance,
a belief that development can be leveraged by employing a design-once,
build-many-times paradigm. They acted on this belief by very quickly
incorporating key Baan product designers into the core development team.
- Within their core markets, there is a good deal of pent-up demand
and a real willingness to listen to their message. Just as PeopleSoft was
able to capitalize on the real attachment their customers had for them, so
SSA seems to be able to appreciate (overall) the needs of their previously
neglected customers.
- SSA GT started out as a global organization. When acquiring US-bound
companies like Ironside, they can (relatively) easily open up global markets
for them. When acquiring global companies (Baan), they can quickly gain economies
by consolidating offices, consolidating support (it's easier to teach Baan to
Portuguese-speaking SSA experts than it is to teach Portuguese to
English speakers who know Baan).
At the same time, these strengths are probably not enough. To do what
they want to do (and provide a real, long-term menace to the other
application companies), SSA GT has to do still more.
- First and most important, they have to figure out how to sell to
customers from a Chinese menu of products.
With software, having a lot of products to sell isn't necessarily a good
thing, unless the salesperson can help the buyer figure out what he or she
needs. I think I know a lot about software, but it would take me a long time
to learn the SSA product line well enough to be able to go into a company
and figure out what I should sell them.
Most acquirers of distinct brands solve this problem by separating the sales
forces. When Ford bought Jaguar, they didn't close all the Jaguar dealerships
and have Ford salespeople sell Jaguar. Microsoft doesn't force all the Great
Plains distributors to distribute and sell Navision. But with SSA, the economic
model depends on being able to sell more products into the same company.
- Second, they have to develop a much better understanding of their customers
and customer base.
A besetting problem for software companies is that they develop enhancements that
their customers don't need or want and don't want to pay for. I don't know about
the current SSA, but I know that both the old Baan and the old SSA were unusually
bad at this. In Baan's case, they didn't even keep very good track of their
customers. I think that most of the application companies will have to move to
a customer profiling system, where they keep constant track of exactly what's
installed at a company and exactly what their current and future needs are. (No,
they don't do this now in any coherent, disciplined way.) Given the complexity
of their customer base, SSA ought to be a leader in this area, but they're not
on track to do it now.
- Third, they will have to get much better at developing-once, building
many times.
The long term health of the company depends on their being
able to distribute the necessarily limited efforts of their development team to the
maximum number of customers. But the technical problems associated with
doing this are formidable, and so are the practical problems. SSA GT now spreads
across so many industries that most new development will have only limited
applicability. The new Baan LeanWare product just doesn't have much use at
big SSA installations like those at Glaxo Wellcome.
They don't have to do all this at once. The bar is not, as I said, very high.
At the same time, one should recognize that there are very few instances in
the history of application software where any company was able to accomplish
even one of these three things.
The Moral of the Story
Readers should be struck by the similarities between the PeopleSoft acquisition
of JD Edwards and the SSA acquisition of Baan. If SSA's problem were just to
bring Baan into the fold, they would clearly be doing better than PeopleSoft. They
paid a much fairer price. For their money, they got
a smaller company, which is easier to digest. Their digestion process has
been remarkably quick. And their bar is far lower.
Remember that with Baan, there is simply no requirement
that they sell Baan aggressively
to new customers in order to maintain a publicly-set sales target. (With PeopleSoft,
they either have to keep JD Edwards sales up or else sell PeopleSoft into
companies that would previously have bought JD Edwards.)
SSA thus has considerably more latitude than PeopleSoft does. And
finally, with Baan, SSA got several products that are easily separated
out from Baan and are natural candidates for cross-selling: Baan LeanWare,
CAPS Logistics, Berclain, and a PLM product.
But when you look at the overall challenges facing SSA, you may
begin to wonder whether PeopleSoft took on the more manageable task.
We will not know for several years. But in the meantime, an SSA/Baan
that is alive and kicking is not good
news for the other application companies. For many years, there has
been talk in Redwood City, Pleasanton, Denver, and Walldorf about
picking off the SSA (or Baan) customer base. In my view, that train has left the
station. If you now want to replace somebody's SSA installation, you
may be able to do it, but not without a battle and not without a
fairly compelling argument against doing what you want.
Even where the field is open, SSA has a story that should do well.
In all probability, they'll do what QAD is doing: selling strongly in
Asia, where the small, cheap solution plays well and selling new
installations at companies where the product is already installed at
several plants. In this climate, it's clearly a strategy that works.
Of course, the devil is in the details. When I'm talking about SSA doing
well, am I talking about the old SSA, about Baan, about Infinium, or about
Masterpiece? To the outside world, it's easy to present yourself as a single, unified company. But the fact is that there are a lot of moving parts within SSA, and they will all have to be well oiled.
SSA, in other words, had better focus on internal operations. Not living inside this company, I can't tell how effective Greenough and Company are. But they do tell the right story.
In the process, they are also telling a story that other software companies should pay attention to. They're saying that it's possible to run a software company that allows customers to stay on a version forever. That it's possible to run a software company that makes money because it's disciplined. That it's possible to run a software company that measures customer satisfaction and insists on getting it. That it's possible to run a software company that doesn't spend more money than it has to.
It may not be possible. But if SSA GT does succeed, then it will establish a precedent that all the other big application companies will have to pay some attention to.
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