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The Art of Our Necessities

SSA is literally taking CA's place as a landlord of old application properties. Back from bankruptcy, claiming to be profitable, with very substantial revenues, they can't be ignored just because they are out of fashion. Their success—and here, survival is success—reveals some weaknesses in their competitors and shows us all that that even the triedest of truisms sometimes aren't true.

The Facts

We had two substantial conversations with SSA last week, and we were surprised. A company that other application vendors refused to buy, even for their customer base, now lives on as a private company owned by Cerberus Capital Management. It has kept much of its customer base, acquired several new application properties, and is releasing a new version of its core product, BPCS 8.2.

The money is good. The books they're showing to the CFOs at large customers have FY 2002 revenues as somewhat worse than QAD's. Their earnings are considerably better, in fact, eyebrow-raising.

This new SSA is essentially a CA for the new millennium, a holding and development company for blast-from-the-past technologies. Most prominent among these is SSA itself; others include CA's ERP products, Pansophic and Manman (the old MK Group) and Masterpiece. Recently added to the mix is Infinium (small/mid-market financials).

Growth is substantial and not just through acquisition. If what they tell me is true, 2003 pre-Infinium, they will pass well beyond QAD in top-line revenues, and Infinium adds another 30%.

The revenue split is heartening for a company of the CA type: 44% maintenance, 35% software, and the rest services.

The Company

Much of the operational management is from SSA, not necessarily a good thing. My past dealings with SSA have taught me suspicion. And these days, talk about harrowing times, expressions of contrition, and promises to do better in the future tend to remind me of Trent Lott.

Still, no one in the current management was in any way responsible for the problems I've personally had with SSA. And the current EVP of sales and marketing, Graeme Cooksley, has a refreshing, New Zealand frankness about him.

Let it also be said that this new management team is exploiting some strengths that only an SSA old-timer might have appreciated. They have recognized, for instance, that it is both possible and reasonable to keep the old SSA installations at large companies alive and running—and even paying maintenance. They have also been able to keep or resuscitate a network of SSA global channel partners, the people who at one point in the past made SSA the best known ERP company in many parts of the world. Finally, they have been able to recognize the value of being an AS/400 (now i-series) solution.

Beyond that, they have been able to disentangle the technology mess that SSA's transition to open systems created and come out with a rational, if not heartening, product story. The new version, 8.2, will run on the i-series, will incorporate the new functionality that accidentally slipped into the product during the second coming of Covey, and will provide a reasonable, if difficult upgrade path even for Version 4 users. I would have said that the technical barriers to this were nearly insuperable, but they tell me they have supered.

Go to Market

The old SSA was always strong in process industries (especially pharmaceuticals) automotive, and general industrial. They were a good global company, because they had local support everywhere, even though they didn't necessarily handle the needs of a global company that wanted to operate as one.

During SSA's time in purgatory, one might have thought that these positions would be relinquished to any of the many companies that refused to buy SSA in order to get hold of its customer base. Au contraire, when you look at the market landscape, these strengths remain.

The new SSA thus has a platform to stand on. From there, it has organized itself around two goals: keeping the large global customers (Nestle and Glaxo were two I personally had dealings with), and selling the suite of products in various SMB (small and medium business) niches around the world.

With the first goal, the idea is to keep people paying maintenance, get them to upgrade, and then sell in other products that are closely tied to SSA. With the second goal, the idea is to sell a functional and well-supported product into markets that don't have pre-conceived ideas about what to buy. The tens of thousands of new manufacturing businesses in China or Eastern Europe, the hope is, might like the price point and the local distributor. It gives me pause to think that there are still PRMS users out there, but those people—and they know who they are—are just the sort to appreciate the merits of this kind of value proposition.

Possible new products for these people are Masterpiece and Infinium, obviously, a newly acquired warehousing package, and a portal product. In areas like SCM and analytics, SSA partners with Logility and Cognos, respectively, promising to front-end the support and the interface and providing integration. This approach was pretty much discredited by the failure of Oracle CPG, but time passes and people try things again.

Neither of these two enterprises (keeping global accounts and selling to SMB niches) is for the faint of heart. But of the two, the attempt to keep global accounts of greater moment to the industry as a whole, so we talked to their President of Global Accounts, Rick Gonzalez about how they were doing.

Nurturing the Customer Base

The picture that Rick gives is of large infrastructures still committed to SSA who are embedded in companies that do not or cannot enforce any corporate commitments to other software vendors.

One such company is Glaxo Wellcome, now Glaxo SmithKline. When I last talked to Glaxo (before the merger), they had decided to dump SSA and replace it with SAP. This was a big sale and a big deal for SAP back in 1998. And the project has indeed taken hold and continued, even through the merger with SmithKline Beecham. But it still hasn't achieved its goals. (I thought it was a bad idea; events show that this opinion was probably too strong.)

Where does this leave SSA? According to Rick, many, if not most, of the old SSA installations at Glaxo are still there, maintenance has been picked back up, and the SSA group inside Glaxo is making decisions now about upgrades.

I think this is probably typical. According to Rick, 51% of his global accounts now have SAP projects going. But they are not exactly rolling SSA up. In fact, at Pfizer, it's going the other way. The SAP installations are being replaced.

But won't SAP eventually take them out? It's not entirely clear that they will. To see why, let's continue with the pharma example. A big issue these days is compliance with new electronic signature requirements. Pre-SSA emergence, companies like Glaxo had a Hobson's choice. One, convert to SAP, get a product that works less well, and hope that e-signature compliance is adequate. In the meantime, spend a lot of money. Or two, try to put in an e-signature customization into SSA. (Also a lot of money.) SSA thinks it's getting traction at places like Glaxo by providing a third alternative: renew the SSA relationship, upgrade to 8.2, get e-signatures, and reduce the total cost of ownership of running your old BPCS 4.

This third alternative is not necessarily obviously better, especially if you have corporate rules around standards. But if you have confidence in SSA and your budget is being squeezed, it's certainly a reasonable choice.

I can't say how much confidence is warranted. But assuming that the contrition is real and the reforms appropriate, it's not a bad story. And if SSA can build confidence, there are some consequences for the market as a whole that are worth reflecting on.

Truisms Tried

I said at the beginning that success at SSA calls into question some truisms about the software industry that almost all my readers accept.

The first truism is that the only thing to do with old software companies is to milk them dry. CA provided the model: you buy them, you squeeze the installed base hard, and then you discard the husk. SSA is trying something quite different, trying to build out a portfolio and get some leverage from it. (Interestingly, Gores Technology, another of the CA-like holding companies, was part of the SSA deal with Cerberus, but then dropped out.)

With any number of small or medium-size software companies due to go out of business next year, this attempt is worth watching, if only as a guide for people who want to profit from the value those companies provided. SSA claims that it will develop these properties and simultaneously converge the technologies; I think that's really tough, but even a pseudo-convergence (similar wrappers around dissimilar technologies) may prove compelling to some.

The second truism is that the ERP industry will consolidate, leaving two or three vendors as the sole suppliers. I wonder. None of the four majors (JD Edwards, PeopleSoft, Oracle, and SAP) shows signs of collapse. There's a new big player (Microsoft). And there are still any number of second-tier players that still have legs. SSA is the newest on the list, but Baan, QAD, and even Glovia show no signs of disappearing.

Maybe this is a more heterogeneous market than our categories (ERP, SCM, CRM, etc.) allow us to suspect.

The third truism is that the installed bases of outdated systems are ripe for the taking by more modern systems. Ed McVaney, former CEO of JDE, used to say that the replacement rate for ERP systems was about 7 years. The investment in R&D by the major ERP firms seems to assume something like that rate (a subject for a different Short Take). But SSA has been in trouble for 3 years, and nothing like that replacement rate has happened, that is, half their installations are not gone.


So why has the replacement rate been so slow? You can say that it was just a pause, while everybody took e-pills, followed by a reluctance to invest at all. But then you would be missing an important part of the story.

The plain fact is that the large SSA clients are natural targets for SAP. In many cases, SAP is the corporate standard at these companies and is already partially installed. In many cases, I would guess, the seats that the old SSA users would occupy have already been paid for. Still, the replacement hasn't happened.

I have not talked to SAP about this (though I've asked for the time), but on the face of things the facts suggest that SAP's ability to penetrate its customers has significant limits. Clearly, the total SAP value proposition—the integration that it offers (more or less), the superior functionality (in some areas), the lower cost of ownership, the new products (in CRM, SCM, and analytics), and the more modern approach to interface and connectivity—are not compelling even to many customers who are, right now, incurring no inconsiderable risk by standing pat.

I've been saying for some time that the extension and infill markets are big ones for SAP, but that they're not gearing up to take advantage of it. This new data about SSA not only supports that position, but also suggests that there are time limits. When SAP doesn't finish off competition as weak and vulnerable as SSA, there is a risk that the competition will recover and fight again.

The Art of Our Necessities

Now, about that title. When King Lear finds shelter from "cataracts and hurricanes" in an abandoned hut, then searches for a little dirty straw, he says, "The art of our necessities is strange/that makes vile things precious." A few years ago, SSA would have been ashamed to be seen as a latter-day CA. They thought they were much better than that. But now, they've picked themselves up, at least found a shelter from the storm and are scouring the world for new customers. It is strange, but it is not to be sneered at.

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