With the third quarter of 2013 behind us now, we begin to enter the home stretch of yet another year in the always interesting and entertaining database industry. So let’s pause and take some time to review what happened in the database systems market during the past quarter. As usual, we will take a look at the acquisitions, lawsuits, quarterly financial results, and announcements that highlighted the third quarter of 2013. So without any further ado, let’s dive into this quarter’s edition of The Database Report.
What Is Up at Microsoft?
The logical place to start this quarter is with our microscope tuned into Microsoft Corporation. Quite a bit of activity has occurred at our favorite Washington-based software vendor this quarter. And the activity is not likely to diminish for some time either. Why is that?
Well, let’s start with Steve Ballmer, the soon-to-be erstwhile CEO of Microsoft. In late August, Ballmer announced that he would be retiring within the year. Ballmer joined Microsoft in 1980 as the company’s 30th employee. During the course of the next two decades, he served a variety of roles before he was appointed CEO in January 2000 after Bill Gates retired.
The announcement came as somewhat of a surprise. In past statements, Ballmer had indicated that he was likely to continue on as Microsoft CEO until the last of his children had gone to college (see http://www.informationweek.com/windows/operating-systems/microsoft-ceo-steve-ballmer-to-step-down/208402027). That would have meant sometime around 2018, so the announcement that his retirement was imminent – within the year – was surprising.
However, in May 2013 ValueAct Capital Management bought in to Microsoft announcing that it felt the company was undervalued. So what? Well, ValueAct also targeted Ballmer as part of the problem, so he had been under some pressure since then to act. Of course, this was not the first time that an investment group or analyst had accused Mr. Ballmer of being a drag on Microsoft stock. But ValueAct’s position in Microsoft seems to have made it possible that the organization would seek a seat on the Microsoft board, turning up the heat on Ballmer.
Add in the market failure of the Microsoft Surface tablet (so far), the tepid reaction to Windows 8 (so far), and the current massive reorganization that Microsoft is undergoing, and perhaps Ballmer (or the board of directors) decided that it was time to change things at the top.
Of course, these are all just conjectures on the ultimate reason that Ballmer decided, or was forced to, moved on. Ballmer wrote a retirement letter and shared, in his own words, his thoughts on his retirement. You can read it at http://bgr.com/2013/08/23/steve-ballmer-retirement-microsoft/, but I think the most interesting part is that it reads like someone who does not want to leave.
So, realistically speaking, how good (or bad) of a job did Ballmer do at Microsoft? Well, since he took over the reigns as Microsoft’s CEO the company’s stock has trailed the S&P; 500 and NASDAQ averages. Even so, Ballmer became CEO at the peak of the tech bubble, so it is probably unfair to judge him solely on the performance of the stock. Consider that Microsoft’s increased from $7.9 billion to $21.8 billion under Ballmer; that is a 180% increase. Not bad, until you also consider that the PC market increased 210% during that same timeframe. So maybe Microsoft performed at the same rate as the PC market because it supplied the OS? Strategically speaking, Ballmer was probably lacking. During his tenure Amazon, Google and especially Apple clearly bested the company in terms of innovation. Consider Zune vs. iPod… Surface vs. iPad…
The bottom line, though, is that Steve Ballmer’s 13 years reign as CEO of Microsoft will soon be over. And Microsoft must figure out how to continue as the IT industry appears to be on the cusp of a migration away from the desktop PC to the world of tablets and smartphones. And the market seemed to like the idea of a Ballmer-less Microsoft, as shares of the company jumped by almost 9% or so in pre-market trading immediately following the news.
The Microsoft Board of Directors has appointed a special committee to direct the process of finding a new CEO. This committee is chaired by John Thompson, the board’s lead independent director, and includes Chairman of the Board Bill Gates, Chairman of the Audit Committee Chuck Noski and Chairman of the Compensation Committee Steve Luczo. The special committee is working with Heidrick & Struggles International Inc., a leading executive recruiting firm, and will consider both external and internal candidates. But the company may have re-acquired the leading candidate for the job just a couple of days after this announcement (more on that coming up).
I don’t want to veer too far away from the world of data and databases, but Microsoft, as one of the Big Three DBMS vendors (IBM, Oracle, and Microsoft) is undergoing some additional changes that warrant at least a mention.
In July, Microsoft announced “a far-reaching realignment of the company” with the goal of enabling the company to innovate with greater speed, efficiency and capability in a fast-changing world. In other words, they made some changes to the executive team. Now remember, this was before the Ballmer announcement. They named the realignment “One Strategy, One Microsoft.” Sounds good, but it kind of makes you wonder how many strategies and Microsofts there were before the announcement.
The basic idea behind “One Strategy, One Microsoft” is that the company will move forward with a single strategy as one company – not a collection of divisional strategies. That is difficult to do for a company the size of Microsoft with the portfolio of products that it offers. There are now four engineering areas: OS, Apps, Cloud and Devices. And the company will consolidate its technologies into these groups, pulling together some things that have been spread out.
The net-net of it all is that three former executives are “out”: Kurt DelBene will be retiring from Microsoft; Craig Mundie gets moved to the dreaded “special project”; and Rick Rashid moves away from running Microsoft Research into a new role in the operating systems group. The new Microsoft executive team is as follows:
- Operating Systems Engineering Group: Terry Myerson (all OS work for console, to mobile device, to PC, to back-end systems, including the core cloud services for the operating system)
- Devices and Studios Engineering Group: Julie Larson-Green (all hardware development and supply chain)
- Applications and Services Engineering Group: Qi Lu (applications and services)
- Cloud and Enterprise Engineering Group: Satya Nadella (back-end technologies like data center, database, enterprise IT and development tools)
- Dynamics: Kirill Tatarinov (CRM)
- Advanced Strategy and Research Group: Eric Rudder
- Marketing Group: Tami Reller
- COO: Kevin Turner
- Business Development and Evangelism Group: Tony Bates
- Finance Group: Amy Hood
- Legal and Corporate Affairs Group: Brad Smith
- HR Group: Lisa Brummel
Then, in early September, the next bombshell dropped. Microsoft announced that it would be acquiring Nokia’s smartphone business for approximately $7.2 billion. Actually, Microsoft will pay 3.70 billion Euros for Nokia’s devices business (approximately $5 billion is U.S. dollars) plus an additional 1.65 billion Euros ($2.2 billion U.S.) for the rights to Nokia’s patents. As part of the acquisition, Microsoft will gain around 32,000 Nokia employees.
Exactly why Microsoft is purchasing Nokia is somewhat of a debatable question. It can be viewed as a defensive move to prevent Nokia from switching its allegiance to Android. Or perhaps it was made to stave off a potential Nokia bankruptcy. Neither of those two options would have been palatable to Microsoft. Of course, it could also be viewed as an opportunistic acquisition to quickly create a devices division.
While this acquisition is not necessarily notable for its impact on the database market, it is quite noteworthy in terms of its impact on Microsoft. With this acquisition, the company becomes a full-fledged competitor in the hardware market for smartphones and tablets. The pairing of Microsoft and Nokia makes some sense. Nokia is the largest manufacturer of smartphones that use Microsoft’s Windows 8 phone operating system – and Nokia is the only smartphone manufacturer that used the Windows OS exclusively in its top-of-the-line devices. Even so, Microsoft has yet to gain a significant share of the smartphone market as the Apple iPhone and Android devices dominate.
“We are excited and honored to be bringing Nokia’s incredible people, technologies and assets into our Microsoft family,” said Microsoft CEO Steve Ballmer. “Given our long partnership with Nokia and the many key Nokia leaders that are joining Microsoft, we anticipate a smooth transition and great execution.”
So this is obviously another step in Microsoft’s plans to morph the company as the post-PC era dawns. Microsoft now can seriously market itself as a “devices and services” company with the Nokia smartphone product line and the Xbox. Even so, Nokia is not a leading provider of smartphones with most of the devices it sells being at the low end. So a combined Nokia and Microsoft will have just as many challenges as they did as partners.
Another intriguing aspect of this acquisition is Stephen Elop, Nokia’s CEO and former Microsoft executive. Elop would seem to be an ideal candidate to replace Ballmer when he exits the company within the year. Elop left Microsoft’s Office division in September 2010 to take the head honcho job at Nokia, so he has experience with and understands both businesses. Elop is slated to take over the expanded hardware division (assuming that he is not appointed as the next CEO).
Elop was quoted in the Microsoft press release announcing the Nokia acquisition, where he says: “Building on our successful partnership, we can now bring together the best of Microsoft’s software engineering with the best of Nokia’s product engineering, award-winning design, and global sales, marketing and manufacturing. With this combination of talented people, we have the opportunity to accelerate the current momentum and cutting-edge innovation of both our smart devices and mobile phone products.”
Of course, Microsoft could still choose to go with another inside candidate for the CEO position, such as Satya Nadella (who leads the Cloud and Enterprise Engineering Group) or Qi Lu (an ex-Yahoo who leads up Applications and Services Engineering Group). But there is probably no chance that Bill Gates will step back into that role, given his focus on charity work since his “retirement.”
And Elsewhere on The Acquisition Front…
Though not as flashy as the Nokia acquisition, Microsoft also reached agreement to acquire the InRelease business of InCycle Software, a Canadian provider of release management solutions. The acquisition of the continuous deployment solution, InRelease, will add Release Management capabilities to Microsoft’s ALM and DevOps solutions, helping customers deliver applications faster, better and more efficiently.
“DevOps is an increasingly important part of ALM and a growing area of interest to chief information officers as businesses are pressured to develop and deploy quality applications at an increasingly faster pace,” said S. Somasegar, corporate vice president, Developer Division for Microsoft. “The InRelease continuous delivery solution will automate the development-to-production release process from Visual Studio Team Foundation Server, helping enable faster and simpler delivery of applications.”
“InRelease was designed to build upon the existing features in Visual Studio, and we’re excited it will now be part of an integrated ALM solution bringing value to Visual Studio customers everywhere,” said Claude Remillard, president of InCycle Software.
Under the terms of the acquisition agreement, Microsoft will acquire the business unit of InCycle Software that provides its InRelease automated deployment solution. InCycle Software, a Microsoft Gold Certified Partner, will remain a separate entity focused on Application Lifecycle Management (ALM) consulting.
Even though it made the most visible acquisition of the quarter (Nokia), and also grabbed up InRelease, Microsoft was not the only company being acquisitive in the third quarter of 2013. Notably absent, however, was the usually voracious Oracle, which made no acquisition announcements this quarter.
IBM, on the other hand, was quite active. In early July IBM announced a definitive agreement to acquire CSL International, a provider of virtualization management technology for IBM’s zEnterprise system. CSL International is a privately held company headquartered in Israel. Financial terms were not disclosed.
The acquisition bolsters IBM’s mainframe cloud capabilities by offering simplified management of the virtualization environment. CSL International’s CSL-WAVE software enables companies to monitor and manage their z/VM and Linux on System z environments via an easy-to-use interface. The software provides drag-and-drop simplicity to instantly create, discover, visualize and connect virtual servers to resources allowing clients to free up more skilled staff to address other business challenges.
“As clients create smarter computing environments, they are looking for ways to manage IT costs and complexity without sacrificing security or the ability to scale,” said Greg Lotko, IBM business line executive, System z. “The response by clients to the advantages of Linux on System z have been tremendous, with the shipped capacity nearly doubling in 1Q13 year to year. With the acquisition of CSL International, IBM expands its cloud virtualization capabilities, making it even easier for clients to take advantage of Linux on System z.”
And in mid August, IBM struck again, this time acquiring Trusteer, a provider of software that helps protect organizations against financial fraud and advanced security threats. With offices located in Boston and Tel Aviv, Israel, Trusteer helps hundreds of organizations including many financial institutions protect Web applications, employee and customer computers, and mobile devices from threats.
Financial terms of the deal were not disclosed, but an $800 million acquisition price for Trusteer was previously reported in the Israeli press.
As part of this announcement, IBM additionally announced the formation of a cyber security software lab in Israel that will bring together more than 200 Trusteer and IBM researchers and developers to focus on mobile and application security, advanced threat, malware, counter-fraud, and financial crimes. This lab is an addition to IBM’s existing research and development facilities in Israel.
“Trusteer’s expertise and superior technology in enterprise endpoint defense and advanced malware prevention will help our clients across all industries address the constantly evolving threats they are facing,” said Brendan Hannigan, General Manager, Security Systems Division, IBM. “Together with IBM’s capabilities in advanced threat detection, analysis and remediation, we will now be able to offer our clients several additional layers of defense against sophisticated attackers.”
SAP Trims Its CEO Count By 1
With all the hubbub about the eventual departure of Microsoft’s CEO, SAP announced it would be ending its experiment of running with dual CEOs. Since 2009 SAP has had co-CEOs: Bill McDermott and Jim Hagemann Snabe. At the time it was announced, many scoffed at the idea, but by most accounts, McDermott and Snabe did a fine job running SAP as a two-headed “monster.” In 2013 Snabe and McDermott were ranked number 2 on Glassdoor.com’s listing of the top 50 Highest Rated CEOs, based on their 99% approval rating from employees.
Nevertheless, toward the end of July SAP announced that Jim Hagemann Snabe would be stepping down. And Bill McDermott would continue on as the lone CEO.
Snabe will be shifting to the SAP supervisory board pending a shareholder election next May at the annual general meeting. No reasons were provided for the move, but Snabe was quoted in the press release announcing the move as saying: “I have decided that it is time for me to begin the next phase of my career, closer to my family.”
What About Oracle 12c?
The highlight of the new Oracle Database 12c is “pluggable databases,” which allows a single Oracle instance to hold many databases, and thereby enable more efficient use of system resources and simplify database administration and management. Oracle is also touting pluggable databases as a better way to achieve multi-tenancy for cloud applications.
Multi-tenancy in Oracle Database 12c introduces two new concepts: Container Databases (CDBs) and Pluggable Databases (PDBs). A CDB is basically a container for one or more pluggable databases. A CDB is still an Oracle database instance, so it will have its own Shared Global Area (SGA) and Program Global Area (PGA), but these memory areas will encapsulate the SGAs and PGAs of multiple PDBs. Additionally, the normal background processes like CKPT, DBW0, LGWR, PMON, and SMON are also shared.
Software vendors, particularly SaaS providers, have used multi-tenancy at the application level. Multiple customers share a single application instance while the data remains separated. With Oracle Database 12c, multi-tenancy is pushed down to the database layer, which can potentially offer advantages such as easier administration, lower demand for computing resources, and improved security.
Of course, multi-tenancy capability is sold as a separate option, and will not be provided as part of customers’ regular annual maintenance fees. So if you want it, it will cost you! According to the price list (see http://www.oracle.com/us/corporate/pricing/technology-price-list-070617.pdf) a processor license for Enterprise Edition is $47,500 per processor with the multitenant database option priced at $17,500 per processor.
According to Andrew Mendelsohn, senior vice president, Database Server Technologies at Oracle: “The new multitenant architecture makes it easier for customers to consolidate their databases and securely manage many as one. It also offers customers other capabilities for cloud computing such as simplified provisioning, cloning and resource prioritization without resorting to major application changes.”
Of course, multi-tenancy is not the only new feature in Oracle Database 12c. Other new features include:
- Automatic Data Optimization, which helps customers efficiently manage more data, lower storage costs and improve database performance. A Heat Map is provided which monitors database read/write activity enabling DBAs to easily identify the data hot spots. And smart compression and storage tiering is provided to enable server managed policies to automatically compress and tier OLTP, Data Warehouse and Archive data based on the activity and age of data.
- Additional security capabilities including redaction capabilities to protect sensitive data (such as credit card numbers) and Run-Time Privilege Analysis to identify privileges and roles actually being used (so you can revoke unnecessary privileges and enforce least privilege).
- High Availability improvements including Global Data Services for load balancing and failover to globally distributed database configurations, Data Guard Far Sync for zero-data-loss standby protection at any distance (not limited by latency) and Application Continuity to mask application failures from end-users by automatically replaying failed transactions.
- Simplified Analysis of Big Data comes to Oracle Database 12c with enhanced in-database MapReduce capabilities for Big Data through SQL Pattern Matching that enable immediate and scalable discovery of business event sequences such as financial transactions, network logs and clickstream logs.
These are the highlights of the new release, but there is a lot more to learn. However, in-depth technical discussion is beyond the scope of The Database Report.
By the Numbers
And that brings us to the financial section of The Database Report. As we do every month, we will take a look at the numbers of each of the four primary players in the market: IBM, Oracle, Microsoft, and SAP.
- IBM’s Fiscal Q1
The first quarter for IBM was not overly impressive, with the company reporting net revenues of $23.4 billion with $3.00 earnings per share. Revenue was down 5%, however earnings per share was up over last year by 8%. And Q1 net income was $3.0 billion, down 1% year-to-year.
“In the first quarter, we grew operating net income, earnings per share and expanded operating margins but we did not achieve all of our goals in the period. Despite a solid start and good client demand we did not close a number of software and mainframe transactions that have moved into the second quarter. The services business performed as expected with strong profit growth and significant new business in the quarter,” said Ginni Rometty, IBM chairman, president and chief executive officer.
Revenues from the Software segment were flat at $5.6 billion (up 1%, adjusting for currency) compared with the first quarter of 2012. Revenues from IBM’s key middleware products, which include WebSphere, Information Management, Tivoli, Social Workforce Solutions (formerly Lotus) and Rational products, were $3.5 billion, up 1% (up 2%, adjusting for currency) versus the first quarter of 2012.
Information Management software revenues (DB2, Informix, and IMS revenue is reported here) decreased 2%.
- Oracle Fiscal Q4 Oracle Corporation announced that fiscal 2013 Q4 total revenues were unchanged at $10.9 billion. Software license updates and product support revenues were up 6% to $4.4 billion, while hardware systems products revenues were down 13% at $849 million. On the bright side, new software licenses and cloud software subscriptions revenues were up 1% to $4.0 billion.
“A record level non-GAAP operating margin of 47% in FY13 enabled us to generate over $14 billion in operating cash flow during the year,” said Oracle President and CFO, Safra Catz. “We returned almost 90% of that to shareholders through dividends and share repurchases while increasing the cash on our balance sheet to $32 billion. Consistently increasing our margins, cash flow and cash balance has allowed us to double our current quarterly dividend.”Unfortunately, Oracle no longer breaks out its database revenue from its other software revenue, so there is no data to report regarding Oracle’s database software sales for the quarter.
- Microsoft Fiscal Q4 Microsoft Corp. reported quarterly revenue of $19.90 billion for its fiscal fourth quarter ended June 30, 2013. Operating income, net income, and diluted earnings per share for the quarter were $6.07 billion, $4.97 billion, and $0.59 per share. These financial results include a $900 million charge, or a $0.07 per share impact, related to Surface RT inventory adjustments. In addition, these financial results reflect the recognition of $782 million of previously deferred revenue related to the Office Upgrade Offer.“
While our fourth quarter results were impacted by the decline in the PC market, we continue to see strong demand for our enterprise and cloud offerings, resulting in a record unearned revenue balance this quarter. We also saw increasing consumer demand for services like Office 365, Outlook.com, Skype, and Xbox LIVE,” said Amy Hood, chief financial officer at Microsoft. “While we have work ahead of us, we are making the focused investments needed to deliver on long-term growth opportunities like cloud services.”Server & Tools revenue grew 9% for the fourth quarter and 9% for the full year, driven by double-digit percentage revenue growth in SQL Server and System Center.
- SAP Fiscal Q2 SAP’s double-digit growth momentum continued in the second quarter with software and software-related service revenue increasing 10% to 3.35 billion Euros. Software and cloud subscription revenue in the quarter increased 7% to 1.17 billion Euros. Operating profit reached 1.22 billion Euros in quarter, a 10% increase.“SAP had a solid overall performance in the second quarter.
We remained focused on operating discipline, resulting in double-digit growth…We improved the profitability of our core business and see good traction in the cloud on our way towards building a profitable cloud business”, said Werner Brandt, CFO of SAP.SAP HANA, the company’s in-memory database platform for real-time business applications, continues to be a major growth engine with 102 million Euro software revenue contribution, growing 21% year-on-year. SAP expects HANA software revenue of 650 – 700 million Euros in 2013.
So all in all, mixed financial results for the quarter. Some good news, some not so good news… as the big DBMS players continue to sell a lot of software.
Order in the Court! Order in the Court!
This brings us to the legal wrangling component of our quarterly examination of the database marketplace, starring, as usual, Oracle Corporation.
In late July Oracle continued its on-going legal campaign against third-party support providers, this time targeting organizations offering support for the Solaris operating system. The company sued two IT services providers, Terix and Maintech, alleging that the companies have “engaged in a deliberate scheme to misappropriate and distribute copyrighted, proprietary Oracle software code.” Sound familiar? It is. Remember Oracle’s legal action against Rimini Street and TomorrowNow (acquired by SAP) for similar activities albeit against Oracle’s applications (instead of its operating system). Oracle won that lawsuit. The issues here are similar, but perhaps different enough that the outcome here is not a given. It will be interesting to keep an eye on it.
Additionally, this quarter Oracle settled a lawsuit with CedarCrestone, also regarding its third party support practices. The lawsuit, which was filed last September, claimed that CedarCrestone used Oracle’s tax updates but told customers it had developed them independently and wasn’t in any violation of intellectual property.
But we do not really know how the companies resolved this one. The company stated that “Oracle America, Oracle International Corporation, and CedarCrestone, Inc. announce that they have amicably resolved the litigation between them.” And furthermore stated: “The terms of the settlement are confidential.”
Finally, in June, Oracle won a copyright infringement lawsuit against ServiceKey, managed service provider, and its CEO, Angela Vines. In a suit filed last year, Oracle lobbed multiple claims at ServiceKey and its CEO, including that it had infringed upon Oracle’s copyright and had violated the Computer Fraud and Abuse and Lanham Acts.
ServiceKey admitted that it illegally and without authorization downloaded, copied and distributed Oracle’s copyrighted Solaris Operating System, including Solaris software updates and patches.
As part of the judgment against ServiceKey and Vines, the Court issued an injunction mandating that ServiceKey and Vines may not “give, receive, sell or otherwise provide to anyone any Oracle/Sun software and/or support materials, including any updates, bug fixes, patches, media kits or other proprietary software support materials, and including any patches, bug fixes or updates to the Solaris Operating System.” The injunction also prohibits ServiceKey and Vines from falsely advertising that they can provide Oracle-branded support.
So evidently Oracle is super serious about protecting its services and support revenue.
…And in Other Database News this Quarter
- In late June, Microsoft and Oracle announced that Oracle Database, Java, WebLogic and Linux will be supported on Windows Azure, Microsoft’s cloud platform. It is interesting for both companies, who are big competitors, but also partners. The bottom line is that by making Oracle software available on Windows Azure both companies will be providing their customers with improved choice and a wider number of deployment options.
- Also in late June, SAP announced that Sybase IQ achieved a Guinness World Record for loading and indexing big data. Sybase IQ is a column-based, relational system designed for business intelligence and analytical processing. SAP Sybase IQ 16 achieved an audited result of 34.3 terabytes per hour, surpassing the previous record of 14 terabytes per hour achieved using an earlier version of SAP Sybase IQ.
- In early July, Actian Corporation announced two new big data management platforms: the Actian DataCloud and ParAccel Big Data Analytics Platform. These platforms are the results of its recent acquisitions including ParAccel, Pervasive Software and Versant Corporation. Actian DataCloud can be used to integrate cloud and on-premises applications while providing data services. ParAccel Big Data Analytics Platform offers real-time analytics without the need for deep data science skills.
- In July, Oracle announced that it will halt development on its Virtual Desktop Infrastructure (VDI), Sun Ray Software and Hardware, and Oracle Virtual Desktop Client product lines. Obviously, some Oracle partners are not happy with this change. Oracle plans to continue supporting existing software and hardware as well as renewing licenses. But the writing is on the wall for this technology…
- In late August, SAP announced new high availability, disaster recovery functionality for its SAP Business Suite running on Sybase ASE. The new capabilities comes via log-based transaction replication technology in SAP Sybase Replication Server can help to avoid the cost and risk of downtime by keep a secondary site (or more) at any distance from the primary site without degrading the performance of the primary site. Users can distribute and synchronize data across geographic locations to multiple systems, thereby providing improved availability and recoverability.
- In early September, the Wall Street Journal reported about IBM’s plans to move approximately 110,000 retirees off its company-sponsored health plan, instead giving them a payment to buy coverage on a health-insurance exchange. IBM expects the move to reduce its costs. It remains to be seen how the move will impact the health care of IBM’s retirees.
- And in mid September, Dell (owners of Quest and their database tools software) went private again. Dell shareholders approved a $24.9 billion buyout of the company by founder and CEO Michael Dell and investment firm Silver Lake Partners. Shareholders will be paid a total of $13.88 per share. The move comes after a long fight with some of its largest shareholders (including Carl Icahn), who believed the offer to be undervalued.
Summary
