Wednesday, May 22, 2024

Enterprise Software Overnight Success Stories Pure Fiction

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It’s always interesting to investigate the truth behind the headlines, and even more interesting when you find out that there is no truth at all behind the curtain. This was my recent experience in looking at a company called Embarcadero Technologies and a headline that read “Informatica shares tumble on worries over outlook.”

The Reuters article, published in mid-March, quoted an unnamed financial analyst as saying that Embarcadero’s new data warehousing tool was taking market share from industry veteran Informatica. “There’s been some talk about them losing some of their data warehousing business to a company called Embarcadero,” Reuters quoted the analyst as saying. Some talk and not a shred of truth.

You’d think in this post-Enron, post-dotbomb era that self-serving speculation by financial analysts and naive, sycophantic publishing of that speculation by journalists would be a major no-no. At least I’d expect the journalist to bother doing a little fact-checking before attributing such inflammatory speculation to an anonymous source.

As for the financial analyst who made this claim, we’ll never know why he or she did this, but the direct result of this statement — a 19% drop in Informatica’s stock price — makes it easy to speculate that the analyst was either shorting Informatica or buying Embarcadero.

So I did what someone should have done in the first place, I called Embarcadero and asked for a briefing. What I got was the low-down on their new ETL tool and how they were positioned to be a low-cost alternative to Informatica. But stealing market share from the market leader? Balderdash. Embarcadero has somewhere between two and five customers for its ETL tools, which have been on the market less than two months. Informatica has over 1,300 customers.

Embarcadero acknowledges that its price point and current sales efforts make it primarily a departmental-level product. Informatica sells big enterprise-wide engagements. Embarcadero couldn’t even tell me whether they had actually won any business from Informatica — though they thought it might be possible. Informatica tells me they have never seen Embarcadero in a competitive engagement.

And so the briefing went. It was clear when I was done that someone had misled someone. Embarcadero does have a new product that might compete with Informatica, but any statement about the incumbent taking market share away from the market leader was simply false, or worse.

I wish I could say that I was shocked, shocked at this behavior, but I’m not. This kind of nonsense goes on all the time, and makes it hard for anyone to believe what comes out of the financial analyst or journalist community with regard to enterprise software.

Go back and read some of the financial analyst reports on such fallen wunderkinder as Ariba and you’ll see a similar pattern. Software executive makes statement that may or may not be true regarding market opportunity. Financial analyst takes statement and runs with it. Reporters on deadline print it. Stock moves up (or down) without regard to any actual facts. Investors (those that don’t have inside knowledge on how big a lie just got told) get fleeced. And everyone’s credibility — financial analysts, software executives, journalists, and even industry analysts such as myself — goes in the toilet.

It’s hard to say this gently, but these speculative monsters should never leave Dr. Frankenstein’s castle. No one — journalist, analyst, investor, software buyer — should believe any pie-in-the-sky, rabbit-out-of-a-hat story. Ever.

The world of enterprise software has some immutable rules, and one of them is that industry leaders are never dethroned overnight by upstarts. Enterprise software is sold the hard way — by real companies with real track records for product development, implementation and service. New gee-whiz technology — or pricing — can’t replace an entrenched market leader in a matter of weeks. Eventually, yes. But it takes hard work and many quarters to establish a new entry into a market and begin to have an impact.

So next time you read about some company you’ve never heard of pulling off a stunning coup de market against a brand name market leader, do what I do. Pull on the hip waders and start heading for the high ground. The credibility, reputation, and money you save may be your own.

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