SCO’s end is surely approaching

(By Philip Carnelley, 21 Oct 09 16:00) It was revealed this week that SCO Group’s combative CEO, Darl McBride, has been'terminated' and the CEO role 'eliminated.' Although this is not the end of the company, this further nail in SCO Group’s coffin will come as some slight relief to software developers using Unix – and particularly to IBM and Novell, both being sued by SCO.

For those who don’t know the whole tortuous story, but want to, we recommend Wikipedia. In a nutshell, about a decade ago a company called Caldera, a Linux distributor, acquired various rights to Unix properties and changed its name to SCO Group. It then decided (back in 2003) that others were infringing IP it now owned. You can’t accuse it of timidity: it then went on to try to sue IBM for $1bn, and demanded that all Linux users should start paying license fees. It even tried to sue former customer DaimlerChrysler. SCO has not won anything yet, and a court has declared that Novell retained the rights to the disputed IP. But SCO has continued to battle on against Novell and IBM, despite going into Chapter 11 in 2007 – where it remains. Litigation is now almost its sole business.

This cloud over Linux and payments has been around for so long now most people have just got used to it, or forgotten about it. But for end-users and software developers alike an end to the story will be welcome. Ownership and licensing of Linux code and variants is complicated enough as it is.

Yahoo stabilising - but Microsoft surely worries

(By Philip Carnelley, 21 Oct 09, 09:00) Yahoo’s Q3 results yesterday were in some contrast to Google’s upbeat results last week (see Google Powers On). Yahoo’s revenues were a little better than the markets feared, and profits much better. But even so, revenues were down 12% year on year, at $1.6bn, though flat sequentially. (It’s now approximately one-quarter the size of Google). Excluding divestitures and currency, that's down 7%. However search and display revenue is falling (search down 19% year-on-year) and the gap with Google widening. The company claimed on the earnings call that things are ‘stabilising’ – but that’s not as good as ‘improving.’

Immediate implications for IT markets are that Google is growing its relative power, gaining even more freedom to forge ahead in other spaces like operating systems, enterprise search and hosted applications. Microsoft must be doubly worried, about Google’s power and about the Yahoo partnership. Its own Bing search usage continues to rise, but slowly and from a lower base. In September “Comscore” search rankings for the US, Yahoo fell to its lowest share ever: 18.8%; Google rose half a pp to 64.9% and Bing rose from 9.3% to 9.4%. Even combining Yahoo+Microsoft scores, they fell and Google gained. The gap remains huge.

The UK software industry - a “significant investment opportunity”

Despite numerous claims to the contrary, the UK’s software industry is a thriving and highly profitable business. With the top 50 companies reporting revenue growth of 20% and operating profit growth of 25% last year, it is also a significant investment opportunity for those willing to take UK software to the world stage. These are the findings of a comprehensive report into the UK software industry by TechMarketView, the leading analyst firm focused on the UK software and IT services market.

“There is a tendency to write-off the UK software industry because most of the familiar software companies are in the US. That would be a big mistake,” states Richard Holway, Chairman, TechMarketView. “A combination of organic and inorganic growth has resulted in the top 50 UK headquartered software companies growing c20% in the last year. Perhaps even more surprising, to an ever sceptical British audience, is the c70% of revenues that the UK software industry earns abroad. Indeed, the UK is not that far off earning as much from overseas markets as we buy in. Currently £4.6b plays £5.6b with the gap narrowing each year.”

While the report paints a more positive picture of the UK software industry, it highlights a number of “national failings” that have prevented the UK from producing global software giants the likes of Microsoft, SAP or Oracle. “The problem for the UK software industry has never been the quality of its people or its innovation,” argues Holway, citing the following factors as holding the UK back:

* Lack of available financial backing: In comparison to the US, it is much more difficult for UK software developers to gain access to venture capital funding.

* Lack of marketing expertise: Many of the UK’s best developers simply fail in explaining how great their product is to investors and to the market.

* Local not Global: Many of the UK’s software companies focus mainly (if not solely) on products geared to the UK market.

* Lack of ambition: Many UK software companies are run as ‘lifestyle’ businesses. Very few UK software entrepreneurs seem prepared to risk the Merc for the seemingly scant possibility to become a global player.

* Lack of management skills: Growing from a small enterprise to medium-sized is hard enough – but not a fraction as hard as that required to grow to be large. Few founders are up to running large, global organisations; even fewer are prepared to step aside!

* Easily pleased: UK software companies have a long history of being other nations’ ‘acquisition fodder’. Founders seem to want to ‘take the money and run’ rather than take the risk of growing to something larger.

“The UK software industry is often dismissed as an insignificant player in the global market. Our analysis shows that it is thriving as much as it ever has, but most companies fail to break out of the confines of the domestic market,” states Phillip Carnelley, TechMarketView software research director and lead analyst on the report. Anthony Miller, Managing Partner, TechMarketView explained why. “This situation is not due to a lack of talent – we estimate over 40,000 UK nationals work in the US software industry. It’s more a lack of ambition and a nurturing capital structure. The global software industry is a £150b market opportunity. We have the talent and the innovation, but with the right investment, appetite for risk and management panache – all of which are readily available to leading venture capitalists – there should be no reason why the UK cannot capitalise on the opportunity to produce if not the next Google, then at least deliver significant returns for those willing to take the risk.”

For further information, please contact TechMarketView on info@techmarketview.com or +44 (0) 117 230 1796.

TechMarketView launches new Software research programme

We are proud to announce SoftwareViews, a new research programme led by TechMarketView software research director, Philip Carnelley, specifically directed to companies and investors involved in the UK software marketplace.

We are launching SoftwareViews with our inaugural UK Software Industry Report, which provides a detailed analysis of the UK software industry – its structure, characteristics, size and profitability. In this report we take a critical look at all of the leading UK-headquartered software companies, both publicly listed and privately held. We review the market positioning and prospects for many of the UK’s top software companies, and call out who we see as the ‘Rising Stars’.

The UK Software Industry Report includes rankings of the Top 50 UK-headquartered software companies by revenues, margins and other key financial metrics. We also look at the valuations of the 122 software companies listed on London’s public markets and call out the best – and worst – stock performers so far this year. Finally we analyse recent M&A activity to see who is buying – and who is selling – UK software businesses.

The UK Software Industry Report is just the first of a regular series of reports and research notes on the UK software marketplace from TechMarketView. Subsequent publications will cover market forecasts, market trends, industry dynamics and sector valuations. This information is simply not available from a single source anywhere else. Frankly, SoftwareViews is essential reading for anyone with skin in the UK software game.

The UK Software Industry Report is downloadable TODAY for TechMarketView subscription service clients. And if you are not one already, you’d better be contacting Puni Rajah (prajah@techmarketview.com) pretty smartly.

Windows 7 - Make or break for Microsoft?

(By Richard Holway 21st Oct 09) Tomorrow, Microsoft’s Windows 7 hits the shops so the news media is full of reviews. Indeed I note that I was quoted in the The Times today giving my views. Windows 7 really is ‘make or break’ for Microsoft. It’s admitted what we all knew for years – Vista was a flop. But that needs a bit of further explanation.

If you bought a brand new, top spec PC or laptop which came with Vista installed, it was fine. We have such a machine and I can’t fault it. But we have quite a few other machines. Firstly we have a clutch of relatively old PCs which work fine with XP but just don’t have the power to run Vista. So we, like the vast majority of others in such a situation, have not upgraded. We then have several netbooks which, although new, have Intel Atom chips which again can’t really run Vista.

Now, here’s the rub. I know that Windows 7 will run on both older/less powerful PCs and on netbooks. Indeed, if I was buying a new netbook today I’d probably opt for Windows Seven. But will I upgrade from XP?

The reviews say that an install from Vista takes about an hour. But that’s not the case from XP where you have to do a ‘clean install’. In other words, you then have to re-install your application programmes and data. Reinstalling applications is a nightmare – mainly because I spend ages finding the discs and then they tell me I’ve used them too many times and I have to go out and buy a new version – which quadruples the cost of installing Windows 7 in the first place! And I bet our various iPods won't work once I reinstall my huge iTunes record collection. Multiply this dilemma in a few hundred million other users – individuals and corporates – and you have a lot of extra hassle and expense.

But there is another dilemma. As you can see from Golden Apple’s wondrous results yesterday, more and more people are saying “to heck with this, if I have to change anyway, I’ll move to Apple Mac”. Of course, you can now substitute Google Chrome too.

Windows Seven is a step forward for Microsoft. But whether it will ‘stop the rot’ is another matter altogether.

Maxima loses QAD distribution rights

(By Anthony Miller – Tuesday 20th October 2009 6:30pm). In a totally unexpected blow to mid-market software and services company Maxima, US-based manufacturing sector ERP player QAD has just announced it is to sever its relationship with Maxima from Feb next year and will service all UK clients itself. Maxima has been QAD’s sole mid-market UK channel for 23 years and is QAD’s largest channel partner worldwide. QAD already services larger UK ‘enterprise’ customers directly and is one of Maxima’s four key ERP partners (the others being Microsoft, SAP and Oracle).

The cost to Maxima is likely to be some £1.3m in lost profit this FY (to May ’10), representing over 15% of last year’s adjusted EBIT. The longer term impact is unclear, though executive chairman Kelvin Harrison told me he expects existing QAD implementation projects to continue, along with some support contracts. Just a couple of months ago Maxima announced a ‘major’ QAD contract with Scotland-based soft drinks manufacturer and distributor, AG Barr.

This news will come as a setback for Maxima’s new management team, especially following its recent upbeat trading statement (see Sales up at Maxima). Frankly, it makes you wonder what’s going on at QAD, as I understand Maxima is not the only partner to have come under the cosh. If QAD believes it can service mid-market clients from its existing ‘enterprise’ sales and support base, it may be in for a bit of a rude awakening. More likely, these are desperate measures in response to pressures from Microsoft squeezing QAD from below and Oracle and SAP squeezing them from above. It goes to show yet again, how very tough it is out there in the mid-market – both for software players like QAD, and systems integrators like Maxima.

Tech Mahindra hits BT watershed

(By Anthony Miller – Tuesday 20th October 2009 2:30pm). For the first time ever, less than 50% of Indian-based Tech Mahindra’s revenues were derived from top client – and 31% shareholder – BT. But only just. At 49.8% of Tech Mahindra’s Q2 10 revenues (to 30th Sep.) BT spent about £72m with Tech Mahindra in the quarter, down 17% yoy and 6% lower than the prior quarter (in £s). Nonetheless, this is still more than double the £32m we estimate BT spent with Infosys, for whom the UK telco is also its largest client. BT has cut its spending with all its key IT services suppliers, though remains a significant client for many of the major India-based players.

Beyond BT, Tech Mahindra Vice Chairman Vineet Nayyar talked about “a global recovery at least in sentiment”, saying that they saw “definite signs of revival” in the business. Tech Mahindra was responding to more RFPs than in the past few quarters though Nayyar was still cautious as to when any of these would turn into orders. Indeed, he commented that customer decision-making has not gained pace. Like most players, Tech Mahindra has dropped prices in exchange for committed business. They have negotiated such a deal with BT, wrapping together a couple of its core contracts in order to “assure volumes” though at a discounted price.

Not much news on the Mahindra Satyam front – indeed, management seemed to take umbrage that I even dared ask the question on the concall! The restatement of Satyam’s accounts is still “another four or five months” off, but meanwhile they say customer attrition has stopped and they are winning new clients. I still believe this was not a marriage made in heaven and I really get the feeling that Tech Mahindra management sees Satyam as ‘something that’s happening over there somewhere’, which hardly inspires confidence. Given that Mahindra Satyam is likely similar in size – perhaps even bigger – than Tech Mahindra’s ‘core’ business, you’d think management would have a little more to say!