The Database Report April 2011

Another quarter has passed and it is once again time for us to examine the activities in the database systems market. During the first quarter of 2011 we have had acquisitions and lawsuit news; employee news and hacking; and, as usual, we’ll take a look at the financial performance of the Big Three DBMS vendors. So without any further ado, let’s commence the quarter’s edition of The Database Report, and review all of the news that’s fit to review within the realm of data and database systems.

Muglia Out at MicrosoftOur coverage starts in Redmond, Washington, where it was announced in early January that Bob Muglia, president of Microsoft’s server and tools business line, will “step down” later this year. Muglia has been with Microsoft for 23 years in various capacities, including overseeing the development efforts for Windows NT and Microsoft Office.

The news was announced by CEO Steve Ballmer in a memo issued to Microsoft employees: “Bob Muglia and I have been talking about the overall business and what is needed to accelerate our growth. In this context, I have decided that now is the time to put new leadership in place for STB. This is simply recognition that all businesses go through cycles and need new and different talent to manage through those cycles.”

And then in early February, Ballmer announced that Microsoft was appointing online services veteran Satya Nadella to head the Server and Tools division. Nadella is referred to by many as “Mr. Bing” because of his role leading the research and development for the popular search tool.

In the same missive, Ballmer announced the departure of Amitabh Srivastava, the head of Microsoft’s Azure cloud platform business. The smart guess here is that Srivastava, who joined Microsoft in 1997 and was considered by many to be a possible successor to Muglia, decided to exit the company when Nadella was promoted.

Defacing the Web? Also early in January it was reported that the IBM Developer Works website had been vandalized. IBM Developer Works is a technical resource and professional network for the developer community that has been online since 1999.

Hackers defaced the site by replacing some of the content with ones containing their own messages. Although IBM quickly restored the original pages, copies of the compromised pages were reposted on other sites, for example at http://zone-h.org/mirror/id/12878142.

Although no data was lost or exposed as a result of the hacking, this story further depicts the potential of data breaches. If a company the size of IBM, with its messages of data protection, can be exposed, who among us is safe?

Watson Wins on JeopardyBut there was much more positive news for IBM this quarter in the form of its super computer and analytical software package named Watson. Over the past four years, a team of IBM scientists worked on building a computing system that could rival a human’s ability to answer questions posed in natural language with speed, accuracy and confidence.  Over the course of three days, that computing system, named Watson, competed on the Jeopardy game show against the show’s two most successful and contestants – Ken Jennings and Brad Rutter – on February 14, 15 and 16, 2011.

The IBM team decided to use Jeopardy as the challenge for its super computer because the clues in that game show involve the analysis of subtle meaning, irony, riddles, and other complexities in which humans excel and computers traditionally do not. But Watson won, handily defeating the best human contestants in Jeopardy’s history. Watson finished with $77,147; Jennings came in second place with $24,000 and Brad Rutter came in third place earning $21,600.

It was apparent that the computer would win even before the final Jeopardy round. It was fast and very accurate. To everyone’s amusement, Ken Jennings wrote, “I for one welcome our new computer overlords,” along with his answer in the final round. It was funny, but not quite accurate. Computers are still far from perfect, as Watson made abundantly clear by answering “Toronto” to a question asking about cities in the USA. Few human contestants would make such a mistake. So Mr. Jennings can relax; computers are nowhere close to being mistaken for a human and they are not yet close to being capable of becoming self-aware.

So what was this Watson project good for? Well, it bought IBM a bunch of fantastic publicity. The company took over one of the most popular game shows on television for three entire days; and there were thousands of articles and blog posts written about Watson’s achievements.

That is all great, but the next phase of Watson’s development is the most important one. It is perhaps the next step in business intelligence and analytical query capabilities. Imagine a version of Watson that understands your business. Wouldn’t your company executives like to have a Watson that could answer your questions, posed in native English language, about business conditions, product planning, strategy, and so on?

How IBM fares on moving Watson from the labs into corporations will write the final chapter on Watson’s eventual success.

On the Acquisition Wire this QuarterLet’s turn our attention to the acquisition related news for the first quarter of 2011. Although there were several interesting moves made this past quarter, the most intriguing ones were not made by the typical protagonists. We start our coverage with a company not often involved in data management acquisitions, Hewlett Packard (HP).

In the middle of February, HP announced its acquisition of data analytics provider Vertica. Terms of the deal were not disclosed, but it is expected to close in the second quarter of 2011. Vertica, with North American headquarters in Massachusetts, was founded in 2005 and began selling its analytics platform two years later. Vertica is used by more than 300 customers across a variety of industries worldwide, including Twitter, Verizon, AOL, Bank of America, BlueCross BlueShield, Sunoco, and Comcast.

Vertica’s analytics platform helps customers analyze massive amounts of data quickly and reliably, resulting in “just-in-time” business intelligence. The company touts its analytics platform as being able to deliver real-time insight into customer data, allowing users to consume, analyze, and make informed decisions “at the speed of business.”

By acquiring Vertica, HP broadens its capabilities for information optimization, adding sophisticated, real-time business analytics for large and complex sets of data in physical, virtual and cloud environments. “In today’s highly competitive environment, customers need the ability to manage the increasing amounts of data and growing streams of information with more flexible, more dynamic architectures,” said Shane Robison, HP executive vice president and chief strategy and technology officer. “Vertica’s unique platform combines simplicity with industry-leading performance, allowing HP to leap ahead of the industry in the race to analyze massive amounts of data.”

Well, it is a nice step forward into the data analytics realm for HP. The company has acquired several data management companies recently including Fortify Software (compliance), ArcSight (security) and 3PAR (data storage). Look for HP to look for synergy between these parts and to continue its acquisitive ways if it wishes to challenge IBM and Oracle, the leaders in the data analytics space.

Then later, in early March, we saw another acquisition made by someone other than the regular Big Three players. This time it was Teradata announcing its intent to acquire Aster Data Systems. Last year, Teradata had already acquired an 11% stake in Aster. The company announced that it will fork out an additional $263 million to acquire the remainder of Aster Data. The expectation is for the deal to close in the second quarter of 2011.

The acquisition gains Teradata Aster Data Systems’ Aster Data nCluster, an analytic platform, combining a massively parallel (MPP) row and column database with an integrated analytics engine. Recall that IBM acquired Netezza last quarter for a very similar type of technology (as did EMC with its acquisition of Greenplum, also in 2010).

Teradata is already a well-established player in data warehousing, but recent market movements and trends seem to justify Teradata’s addition of the Aster Data technology to its portfolio. Teradata acquired Kickfire, yet another data warehouse appliance vendor, in August 2010.

“We are excited about the big data analytics market opportunity that Aster Data brings to Teradata. This, coupled with our recent Integrated Marketing Management acquisition with Aprimo, and our increased investments into our core data warehouse business,  provide three best-in-class platforms to fuel future growth for Teradata,” said Mike Koehler, president and chief executive officer of Teradata Corporation.

The term “big data” is gaining traction in the world of data management, but what does it mean? Generally, “big data” refers not only to the scope and amount of data and information being managed today, but also to the presence of both structured and unstructured data having complex interrelationships that cannot necessarily be analyzed using traditional techniques. Look for most acquisitions in this space to mention not only advanced analytics, but also “big data” when the acquiring company is looking to justify its acquisitions.

The question that looms here is how will Teradata go to market with its existing solutions and the Aster Data solution? Will the company look to integrate the solutions, or will they remain independent offerings?

And what acquisitions will follow in the near future in this space? There are only a few independent companies with competing technology. Perhaps, one or more of the following advanced analytics vendors will be the next to be scooped up: Calpont, Infobright, Kognitio, ParAccel,  and Sand Technology.

Finally, do not for a second think that Oracle was dormant on the acquisition front this quarter. In the middle of February, Oracle announced that it was acquiring select intellectual property assets of Ndevr, a certified Oracle business partner that had been providing greenhouse gas and environmental solutions for Oracle JD Edwards EnterpriseOne and Oracle E-Business Suite customers.

Ndevr developed a unified solution across ERP and BI systems that is integrated to existing business processes and systems. With Ndevr products as a part of Oracle, the company expects to deliver an improved ability to accurately model, capture, cost, analyze and report on carbon and environmental data, delivered as an Oracle product. The combined solution is expected to provide customers with the ability to easily track emissions and other environmental data against reduction targets for both voluntary and legislated reporting schemes, and further extends Oracle’s solutions for sustainability.

Financial details of the transaction were not disclosed.

Let’s Look In on that SAP – Oracle Lawsuit!It is time, once again, to take a look-see at the ongoing legal battle between Oracle and SAP. Last quarter we reported that Oracle had prevailed in court. The lawsuit, which was filed originally in 2007 and alleged that SAP stole confidential materials from Oracle, ended with the jury awarding Oracle $1.3 billion.

I won’t go into all of the details of the allegations of the lawsuit, but you can read the entire complaint online at http://www.oracle.com/sapsuit/complaint.pdf if you so choose.

Okay, so why are we still talking about this? Well, $1.3 billion is a lot of money and it looks like SAP will be appealing the judgment. Just before the end of 2010, SAP hired four additional attorneys from the San Francisco firm of Durie Tangri LLP. According to the “practices area” section of its website, this law firm “focuses on diverse areas of complex civil litigation including intellectual property (patent, trademark and copyright), professional liability, contract and commercial matters and class actions.”

In SAP’s fourth quarter earnings announcement, made in late January, the company set aside the full amount of the judgment in reserve pending its final outcome. Here is what SAP had to say:

“SAP has great respect for the US legal system and Court decisions. However, SAP believes that the amount awarded by the jury in Oracle v. SAP / TomorrowNow is disproportionate and wrong. After the Court has entered final judgment SAP intends to file post-trial motions in the coming weeks asking the Court to reduce the amount of damages awarded, or to order a new trial. Depending on the outcome of the post-trial motion process, SAP may consider an appeal. Because the motions have not yet been filed and the outcome of the motions remains uncertain the amount by which the jury award would be reduced cannot be reliably measured at this time. Therefore, SAP has based the provision on the jury award. SAP will consider all new information and developments emerging over the coming weeks to determine the appropriate provision amount for SAP’s final full year 2010 financials. Therefore, SAP cannot exclude the possibility that the final provision differs from the preliminary amounts presented in this earnings release.”

So this case is not over and done by any stretch of the imagination; SAP will not just write a $1.3 billion dollar check to Oracle and go away. Oracle, for its part, is now looking for interest to be added to the amount as the clock keeps ticking away.

At this point, the onus is upon SAP to file an appeal, which it is likely to do soon.

What About that Other Oracle Lawsuit?Oracle also has an outstanding lawsuit against Rimini Street, a provider of third-party support for Oracle and SAP applications. Oracle contends that Rimini Street “typically logs on to Oracle’s password protected Technical Support websites using a customer credential, then downloads Software and Support Materials in excess of the customer’s authorization under its license agreement. Sometimes Rimini Street will download hundreds or even thousands of Software and Support Materials at a time, relating to entire families of software (e.g., PeopleSoft, JDE, or Siebel) that the customer does not license and for which it has no use.”

If you followed the SAP – TomorrowNow case this should sounds familiar. At any rate, it would seem that Oracle thinks so. The company has subpoenaed more than two dozen Rimini Street customers. Basically, the subpoenas are looking for information on the credentials used by Rimini Street and what was accessed. Another familiar aspect is that the subpoenas seek to determine “…how Rimini provides software and support materials to that customer, whether Rimini uses unauthorized crawlers or scrapers to obtain Oracle software for that customer.” This was a major point of contention in the SAP  /  TomorrowNow case.

At any rate, Rimini Street continues to do a healthy amount of business. For its fourth quarter, Rimini Street boasted completing more than 30 transactions and exiting the quarter at more than 200% of plan. For the quarter, the Company delivered a record $47 million dollars in sales bookings.

“Rimini Street continues to execute to its global business plan, and is dedicated to providing the most innovative, cost-effective and most responsive enterprise software support in the industry,” said Seth Ravin, CEO, Rimini Street.  “Our record client contract renewal and satisfaction rates this year attest to our clients’ success with our industry-leading support model, ultra-responsive service and high-quality deliverables.  We are pleased to end 2010 with a record quarter and record annual results; and we will continue to execute to our business plan in 2011 and work towards a potential IPO in 2012.”

Well, I think that will depend on how this lawsuit plays out. Good times for Rimini Street if they prevail; better times for Oracle (and other large vendors looking to protect their support revenue) if Oracle prevails.

By the Numbers: Quarterly Financial Results of the Big ThreeThis quarter we will begin our financial results coverage with Oracle. The company reported better than expected results for its 2011 fiscal second quarter. Earnings per share came in at 49 cents, a 32.4% increase over the 37 cents earned during the same period last year.
Total revenue increased by 47% growing to $8.58 billion. New software license revenues grew by 20.9% to $1.999 billion from $1.653 for the same quarter last year. Software update and product support revenue increased to $3.645 billion from the same quarter last year which came in at $3.247 billion.

The all important “database and middleware” revenue category performed well too, growing at 17%. Total database and middleware revenue came in at $3.863 billion versus $3.306 billion for the same quarter last year. When viewed through the lens of the mid-year point, database and middleware new software license revenue was up 25% for the first half of the fiscal year over the same period last year.

Oracle’s application revenue grew, but not as rapidly, from $1.594 billion in the second quarter of 2010 to $1.781 billion in the second quarter of 2011. This represents a 12% growth rate.

For the Sun watchers out there, Oracle’s hardware systems revenue posted $1.11 billion, which was in line with the company’s expectation. And Larry Ellison keeps on promoting the Exadata database appliance claiming that the pipeline is “approaching $2 billion.” Of course, business in the pipeline is not closed business and Oracle will have to start closing that business to make it really matter to investors.

Next up we have Microsoft, which in late January announced it had achieved a record second quarter revenue of $19.95 billion. Operating income, net income and diluted earnings per share for the quarter were $8.17 billion, $6.63 billion and $0.77 per share, respectively. Evidently the holiday season was good for Microsoft as folks loaded up on Windows 7 systems and XBoxes.

“We are enthusiastic about the consumer response to our holiday lineup of products, including the launch of Kinect. The 8 million units of Kinect sensors sold in just 60 days far exceeded our expectations,” said Peter Klein, chief financial officer at Microsoft.

But what about the database related revenue at Microsoft? The Server & Tool division, which includes Microsoft SQL Server, grew from $3.98 billion in revenue in the second quarter last year to $4.39 billion in the second quarter of this year; this represents a solid 10% growth. Of course, this is for the entire division, but Microsoft asserts that SQL Server premium revenue grew in the double digits. Keep in mind, too, that the Server & Tools division represents 22% of Microsoft’s total revenue.

Finally, let look in on IBM, which also posted impressive numbers for its fiscal fourth quarter. The company posted record revenue of $29.0 billion, up 7% as reported and adjusting for currency. Earnings per share came in at $4.18, up 16%. Net income also set a new record up 9% at $5.3 billion.

“We completed an outstanding year, with record profit and free cash flow, and exceeded the high end of our 2010 earnings per share roadmap objective,” said Samuel J. Palmisano, IBM chairman, president and chief executive officer. And IBM is bullish on its future: “As IBM enters its second century, we will continue to focus on our long-term strategic initiatives – growth markets, Smarter Planet Solutions, cloud and business analytics – as we drive to achieve our new roadmap target of operating earnings per share of at least $20 in 2015.”

For the entire year, diluted earnings per share came in at $11.52, up 15%. This represents the 8th consecutive year of double digit earnings per share growth. Revenue came in just shy of $100 billion at $99.9 billion, up 4%. Net income of $14.8 billion was up 10% and the company’s gross profit margin was 46.1%.

While Windows and gaming systems helped Microsoft to record earnings, the mainframe helped IBM. The mainframe’s impact on the quarter was significant, with System z revenue up 69%. IBM first announced its new enterprise-class computing platform the zEnterprise System in July, and it was formally made available to customers in September. Customer adoption has been aggressive, with 450 systems totaling 1.5 million MIPS already shipped at fourth quarter 2010 – a MIPS growth rate that was the highest in more than a decade.

Overall software revenues came in at $7 billion, an increase of 7% quarter over quarter. Revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Lotus and Rational products, were $4.7 billion, an increase of 13%.

Information Management software revenues, which include DB2 and IBM’s other database software, increased 10%. Revenues from the company’s business analytics operations increased 19%.

So it looks like all of the Big Three DBMS vendors are continuing to chug along posting healthy earnings.

Product NewsIt was a bit quiet in terms of significant database product announcements this past quarter, but there were a few. First up, in February, we have Oracle announcing their Database Firewall offering. The Oracle Database Firewall is designed to defend databases against SQL injection and other attacks.

“Evolving threats to databases require enterprises to look at new security solutions,” said Vipin Samar, vice president of Database Security, Oracle. “Oracle Database Firewall offers organizations a first line of defense that can stop internal and external attacks from reaching databases. Easy to deploy and manage, Oracle Database Firewall helps reduce the costs and complexity of securing data across the enterprise without requiring any changes to existing applications and databases.”

The product will compete against others in the rapidly growing Database Activity Monitoring (or database auditing) field.

In early March, Oracle also announced a new application, PeopleSoft Mobile Inventory Management. The application extends Oracle’s PeopleSoft Enterprise Supply Chain Management solution, a suite of applications that optimizes supply chain decision-making, to mobile devices.

And speaking of ERP solutions, Microsoft previewed its “new generation of enterprise resource planning solutions” in early January. Code-named Microsoft Dynamics AX “6,” Microsoft intends to introduce significant architectural advancements that will enable independent software vendors to bring solutions to market faster. A Community Technical Preview of Microsoft Dynamics AX “6” was delivered in February, with general availability planned for the third quarter of 2011.

SummaryAnd so ends another edition of The Database Report. The data and DBMS marketplace continues to be a vibrant one with acquisition and new product releases, healthy earnings and lawsuits, and even the occasional game show appearance! And 2011 promises to be another exciting year for database professionals. So make sure to check in with us next quarter (and every quarter) to review what happens next with your favorite database software and companies.

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About Craig Mullins

Craig S. Mullins is a data management strategist and principal consultant for Mullins Consulting, Inc. He has three decades of experience in the field of database management, including working with DB2 for z/OS since Version 1. Craig is also an IBM Information Champion and is the author of two books: DB2 Developer’s Guide and Database Administration:The Complete Guide to Practices and Procedures. You can contact Craig via his website.

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