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Will Software AG Survive until 2019? - Revisited

I am not happy to Revisit a Vendor Survival post saying that my prediction that a vendor will not survive was correct (for example, SUN).

If a vendor is not a monopoly, I am not happy to find that the probability that it will survive is lower than it was (Apple, HP etc.).

Even if it is a monopoly in specific markets and not a monopoly in others, I am not happy to find that its Survival probability is lower than it was (Microsoft). 

The reason that I am not happy is that competition is good for my customers: They can buy better products and pay less.

This post is out of the ordinary. The probability that Software AG will Survive is now higher than it was when I wrote the post: Will Software AG Survive until 2019? 
  
Software AG's Business Lines
In my previous Vendors Survival post on Software AG, I analyzed its two major Business Lines:

1. Mainframe DataBase, Development and Integration products

2. BPM and SOA products

I will repeat only the main point:
Software AG's Mainframe Business Line is gradually and slowly declining.

If another vendor will acquire Software AG, it will acquire it because of the BPM and SOA Business Line.  

Positive Indicators
A company could be an Acquisition Target but it also could vanish due to inability to compete.

It looks like Software AG is not a potential failing or vanishing company. 

It is a big, solid and stable company.
The following indicators support my view:

 1. Software AG has more than 5,400 employees in 70 countries that serve 70 percent of the Global 1,000. (The information is updated to the end of 2012). 


2. 1,047.3 million USDs revenues in 2012 


3. Consistent revenues and earnings

4. According to the WikiPedia: "The company is the second largest Software vendor in Germany and the fourth in Europe and among the top 25 globally". 


Transformation is the Name of the Game
In order to Survive and/or grow the company's difficult task is to transform itself from a Mainframe Software Vendor to Multi-Platform BPM and SOA Vendor.

There are two challenges types:  

type 1: The Mainframe Software Business and Business models are unique
The Mainframe software uniqueness is hilighted in the following bullets:


  • A limited number of customers and potential customers
  • The customers are Large Enterprises, so each customer pays a lot more than a typical Open Systems customer
  • Higher prices than prices in other software platforms. The minimal Software Products prices are tens of thousands USDs. Usually, DBMS's prices, such as Software AG's flagship product ADABAS prices are hundred thousands USDs.  
  • The Software prices are based on Site Licenses or on Computer models Groups. Larger Mainframes (more CPU MIPS) Groups prices are higher. Usually Capacity grows and new Mainframes with larger Capacity are included in larger Software Groups. The result is higher Software Products prices. 
  • A limited number of competitors. The main competition is IBM with its DB2 database and COBOL and Java programming languages. CA is another important competitor.
  • A very limited number of new potential customers. Migration to Mainframe is unusual. There are few new Mainframe sites.  

type 2: Competition in the BPM and SOA Markets 

In a Press Release Software AG wrote: "Software AG's  strategy has been strongly focused on growth in the Business Process Excellence (BPE) business line since 2012. AS a consequence, the company heavily invested in new products and the expansion of its sales teams." 

The Business Process Management (BPM) market is a lot different. The following bullets highlights the BPM market:

  • Growing. The BPM market is growing rapidly. The annual growth rate of Leaders could be two digits growth rate.  
  • Immature. Read my post: BPMS Next Generation: IBPMS and you will understand. It is a market that from time to time a new Use Case shakes the market. This time it was Intelligent Business Operation (IBO). Software AG was one of the Vendors, which were moved from Gartner Magic Quadrant Leaders Square (BPMS Magic Quadrant) to the Visionary Square in the IBPMS Magic Quadrant. Software AG was not alone: only three Vendors appear in the Leaders Square of IBPMS. Previous Use Cases added and changed vendors position, were Case Management and Human Processes.    
  • Crowded. In 2013, Forrester Research identified 52 different vendors competing in the BPM broader market (The Forrester Wave: BPM Suites , Q1 2013). Compare 52 to 2 (The significant competitors in the Mainframe DBMS market).
  • Competition. The competitors include Mega Vendors (IBM, Oracle), Pure BPM companies (Appian, PegaSystems) and Integration Vendors (Tibco, Vitria). I named only few strong competitors. Each of them has its Advantages (as well as Considerations) over other competitors, including Software AG.  

Evaluating Software AG's Transformation
As stated in the title of the previous paragraph: "Transformation is the Name of the Game". In the following sections I would try to evaluate Software AG's Transformation efforts.

Business Lines Contributions to Revenues
Software AG's revenues for 2012 were 1,047 Million USDs. The three major Business Lines contributions were:

Business Process Excellence 547 Million (52%)

Enterprise Transactions 375.2 Million (0.36%)

IDS Scheer Consulting 125.1 Million (0.12%)

The raw data was retrieved from Software AG's Annual Report 2012.  I calculated the percentages.

Roughly, Business Process Excellence is BPM including  SOA. 

Roughly, Enterprise Transactions is Mainframe and Database, Development and Integration.
The ADABAS D and Natural business on other platforms is not significant.  

Roughly, IDS Scheer Consulting is Business Process Analysis (BPA). BPA is a part of the BPM Life Cycle, so IDS Scheer Consulting is included in the BPM and SOA Business.

Conclusion: in 2012, BPM and SOA Business Lines revenues are more than 60% of Software AG's revenues. Mainframe revenues are more than 30%. 


The Bottom Line: Software AG transformation from Mainframe Software company to BPM and SOA company was successful. It still has significant but gradually and slowly declining revenues from its Mainframe Business Line.

Acquisitions
Acquisitions are complex you have to chose a suitable Acquisition Target and you have to execute the complex merging process. The complexity includes  Organizational issues, Organizational Culture differences and Technological issues.

The wrong acquisition of Compaq by HP, many years ago, still hurts HP business.

You can also read my post: Acquisition is not simple: SAP-Sybase acquisition agreement, in order to understand the issues facing a company acquiring another company.

WebMethods acquisition was the first significant Software AG's acquisition. It looks like a plausible acquisition, because WebMethods was a Leader in the BPM, SOA and Integration markets.
Software AG branded its SOA and BPM suite as WebMethods and kept key WebMethods employees.

IDS Scheer was the second significant acquisition. A German company (Software AG.) acquired another German company (IDS Scheer). IDS Sceer's ARIS is a leading BPA product especially for ERP suites. 

In order to improve its position in the new Intelligent Business Operation Use Case, Software AG acquired two companies:
Jackbe provider of Mashups and Real Time Business Intelligence platform and Apama a Complex Event Processing company. I already discussed these acquisitions in my post: IBPMS: BPMS Leader Software AG attempting to lead in IBPMS.  

Bottom Line: Reasonable acquisitions and adequate merge execution.

Technology
WebMethod and Software AG products overlap: both companies had SOA products. However, Software AG did not develop a BPM solutions. The decision was to base the suite on WebMethods products. 
Software AG's leading SOA Registry and Governance product: Centrasite (co developed with Fujitsu before WebMethods acquisition), is the Registry used in WebMethods suite.  
After IDS Scheer Acquisition, its BPA products replaced WebMethods solutions. 

The two BPM suites (WebMethods and IDS Scheer) were not integrated to a single suite, but tied the environments together. The quality of the mechanism of using artifacts from one environment in the other environment is good.

The Bottom Line:The technological decisions and implementations are reasonable. 

Implementing BPM 
In a previous post, I explained why SOA is implemented by more enterprises than BPM. 
Few years ago, more than 50% of enterprises adopted SOA according to surveys results.
According to Forrester's survey results, only 26% implemented or expanding Business Process Management tools in 4thQ 2012. 

According to The Forrester Wave: BPM Suites , Q1 2013, "Best Practices dictates that to get a good return on your BPM investment means scaling from project to program."   

Program includes many Projects, is more strategic and more tightly coupled to Business.

SOA is not a Project it is a Program (or Initiative or a Journey). You may find positive correlation between SOA as a Project and failure in implementing it or not achieving enough Value for justifying the SOA effort.

Starting SOA or BPM by a project addressing a Pain Point is a good practice, however afterwards you should build a Program and not execute isolated and uncorrelated projects.

The main difference between SOA and BPM is the approach. SOA Program could be relatively slow and gradual. According to Best Practices, in BPM Program execution, shortening the time is more important than reducing costs.

The reason is that benefits could be realized quickly when the lack of Process Visibility is replaced by Process Visibility inherent in BPM.

As BPM will mature expect more BPM Programs.

According to Forrester Software AG major strength is  "Software AG strikes good balance between project and program". 
If other vendors will not catch up in "good balance between project and program", Software AG Market position could be improved.  
  
My Take
Software AG's long transformation from Mainframe Software company to Business Process Management and Service Oriented Architecture was successful.

The largest Business Line in terms of revenues is BPM and SOA.

The company positioning in the crowded BPM market is good.

The Mainframe Software Business Line is declining slowly. Rapid decline could reduce the revenues significantly. 

The company is one of the top 25 global software companies i.e only Mega Vendors can afford to acquire it.

The combination of all the factors cited in this paragraph is higher Survival probability in comparison to 2009.   

However, inadequate strategy or inadequate execution could hurt its stability and profitability and reduce its survival probability. 

It should be remembered, that even if Software AG will be as successful as it was in the last years, that does not guarantee that it will not be acquired. 

Mega Vendor could acquire it. As long as the Mainframe Business Line is viable, it is unlikely that a Mega Vendor will do this. 

For the Long Term, it is a possible scenario. If Software AG will become an Acquisition Target, I guess that the potential acquirer will probably be SAP.

 

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More Stories By Avi Rosenthal

Ari has over 30 years of experience in IT across a wide variety of technology platforms, including application development, technology selection, application and infrastructure strategies, system design, middleware and transaction management technologies and security.

Positions held include CTO for one of the largest software houses in Israel as well as the CTO position for one of the largest ministries of the Israeli government.