Mystery of slow software sales still unsolved

By Reuters

The mystery of what went wrong for the software industry in late June when sales stalled at more than 20 brand-name companies is not even close to being solved although the third quarter is nearly halfway over.

Software company executives at a CIBC World Markets conference in New York have a laundry list of external reasons for what went awry, from record oil prices to steep software discounting and regulatory distraction on accounting deadlines.

Officials at the conference from Veritas Software, FileNet, BMC and Computer Associates have given investors no assurances that they are fully caught up on deals deferred in June.

"There's no silver bullet here," Ed Gillis, chief financial officer of storage management software supplier Veritas Software, said in a keynote speech Wednesday. "There's no sense that we have a single-point problem that we can go off and correct."

FileNet agreed. "I wish we had a magic answer for what happened to 24 companies. I don't," FileNet Chief Executive Lee Roberts said. "When we went into Q2 (the second quarter), it looked like it was going to be the greatest quarter we ever had."

Reasons abound.

The revelation in early June that Oracle had offered discounts of up to 90 percent to some customers was cited by many companies as chilling their own sales, whether or not they compete directly with Oracle.

Regulatory compliance tied to meeting an upcoming deadline for chief financial officers to certify their company's accounts is delaying software sales cycles.

Each explanation has a self-serving element that minimizes a company's own problems and maximizes external factors in the industry or the wider world, but the sheer breadth of issues points to something deeper and more worrisome.

"While what's going on remains a mystery, the bulk of it is macroeconomic," CIBC software analyst Curtis Shauger said. "The economy is exacerbating company-specific problems."

Add to that deep structural changes reshaping the industry as customers become less and less willing to pay multimillion dollar software license fees up-front, opting instead for incremental subscription services. Open-source software is also making inroads across the market.

"We didn't lose any deals to the competition," said FileNet's Roberts, referring to its main rivals, EMC's Documentum, IBM and Open Text. "We lost a lot of deals to 'no decision' or to 'deferred decision."'

"It was the jumbo mega-deals that didn't close," Roberts said in explaining the company's second-quarter shortfall. FileNet counts $5 million to $10 million deals in this category.

But by no means everyone is suffering.

The big get bigger as many large companies report grabbing market share from struggling second-tier players.

Some small, well-positioned players in fast-growing software niches also see solid growth ahead.

"Whatever was going on out there hasn't hit us yet," supply chain software maker Manhattan Associates Chief Financial Officer Edward Quibell told Reuters.

"June was tough. July was no better. But August is shaping up as our biggest quarter ever," said Matthew Townley of Longview, a privately held supplier of corporate financial management software eyeing an eventual public offering.

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