Jay,
I don't think that the buyer automatically waits for SAP's product. Sure he's got SAP up and running (if it is running as last time I ask, most SAP installations were still being installed in the U.S.) and it's one stop shopping. But what this misses is that he has no a major incentive to wait until year-end to start making comparison of the products (assuming that SAP delivers on schedule). Why you say? The economics are too compelling to go ahead and install now. This explains why the length of the sales cycle is dropping like a rock from six months to currently four months for both MANU and ITWO.
The reason that supply chain software is a potential gorilla category is because the paybacks are so quick. I2 Technologies states in its prospectus that its goal is "generating more than $50 billion in total value for its customers by the year 2005 through growth and savings." Now I don't understand how they calculate this number. But internally they believe they have already resulted in $30 billion of the $50 billion in value creation.
Now, this is a company that has only sold about $400,000,000 in software and services in its entire history. If you place any credence on the value creation numbers, installing the software has a 75 to 1 value creation payback. So if you wait a year on a $600,000 system, you probably miss that much and more in your first years cost savings. Further, are you really going to wait and possibly find out that SAP is a much inferior product when it's introduced? And by year-end, when SAP rolls out its offering, the tornado may have already installed ITWO or MANU as the industry standard.
So, I don't think you can draw an analogy to MSFT and NSCP.
One last point on this. I continue to be amazed by the performance of Dell's stock. Last time I looked it carried a multiple of about 50 times trailing earnings. They have nothing proprietary about their product. It is a box that you could make in your garage and start selling. So why are they so hot. They are hot because they are good marketers and they have completely automated the manufacturing process. Intel's recent announcement on its declining revenue was, I think, in part attributed to Dell reducing its inventory (correct me if I'm wrong here). So, part of Dell's success is because it has achieved scale economies through automation. They are one of the low cost producer. What software helped them get that way. That's easy. They installed ITWO.
Regards,
David
|
