Benioff Calls for 'the End of Maintenance'

CEO Marc Benioff is well-known for brash pronouncements and on Tuesday delivered his latest, calling for "the end" of traditional software maintenance fees.

In an internal e-mail to his management team Tuesday, Benioff described a conversation he had with an Oracle Siebel CRM (customer relationship management) user at a recent event.

"This customer currently uses Siebel software to run her call center. She pays more than $15 million a year for the privilege of having to implement the updates that Siebel sends her," he wrote in the e-mail, which was seen by IDG News Service. "That does not include backup. Or disaster recovery. And of course, it does not guarantee that she will be using the latest technology. The maintenance agreement only assures her that her outdated software will continue to work."

The unnamed Siebel customer, Benioff said, "is paying tolls on a road to nowhere."

Salesforce.com's on-demand CRM model can provide that customer and others "much more for a fraction of what they currently pay in maintenance," Benioff added.

While at heart, Benioff's remarks aren't radically different from Salesforce.com's long-time marketing mantra, "the end of software," the e-mail comes at a time when enterprises around the world are looking to pare back wherever possible on IT spending, with reducing maintenance costs a top priority.

Meanwhile, rival vendor Oracle and its customers are currently in the throes of end-of-fiscal year contract renewals. And SAP, which announced a richer-featured but more expensive maintenance service last year to outcry from many customers, has been working with user groups on a set of KPIs (key performance indicators) meant to document the new service's value.

In his e-mail, Benioff characterized traditional maintenance, paid as a percentage of total license costs, as far inferior to SaaS (software as a service) like Salesforce.com.

"Maintenance fees cover updates that are mostly patches and fixes, but they stop far short of the kind of innovation every that enterprise needs to survive," he wrote. "We sell our customers a service and every customer is able to use the latest. Innovations are included. Upgrades are automatic and invisible. ... The service gets better, not just less buggy."

Benioff's remarks may not contain many new talking points but they do signal Salesforce.com's intentions to attack on-premise vendors' enterprise installed bases, according to 451 Group analyst China Martens.

"How do they grow to the next billion [in revenue], that's what everyone keeps asking. I don't know if he thinks this kind of grandstanding is one way to do it," Martens said.

And Benioff's critiques should be taken in the proper context, said Forrester Research analyst Ray Wang.

First of all, Salesforce.com's prices take the cost of customer support into account, he said. Second, while in some cases, SaaS may be cheaper for customers than on-premise software, it may not be in all, according to Wang. "It depends on how much you use it, how many people are using it."

SaaS is "really a lifestyle decision" for companies that don't want to deal with the hassle of maintaining infrastructure, he added.

Also, while SaaS vendors have been able to deliver on the promise of easier upgrades and faster innovation, there's no guarantee that this will be the case uniformly or forever, according to Wang. "We could be in the same boat one day, where SaaS vendors' margins are squeezed, and instead of doing four releases a year, they do one."

Overall, however, companies like Salesforce.com ought to offer compelling savings over on-premise software because of their built-in cost advantage, said Frank Scavo, managing partner of the Irvine, California, consulting firm Strativa, via e-mail.

"A large part of the so-called investment that traditional on-premise software vendors, such as SAP and Oracle, make in product development does not go toward new products or new functionality," he said. "Rather, it goes into porting and regression testing every product change against myriad combinations of databases, versions, server and desktop OS releases, middleware, and third-party products."

SaaS vendors can avoid many of these costs because they only need to write to their own platforms, and "therefore, they ought to be able to deliver the same functionality for lower cost," he said.

Sun Micro loss deepens prior to acquisition

Computer server maker Sun Microsystems Inc reported a wider quarterly loss as sales fell because of lower technology spending and uncertainty over the company's future.

Analysts said Sun's business was hurt in the last few weeks of the quarter by news that it was in talks to be acquired by IBM (IBM.N), prompting some customers to hold off on making purchases until they knew the outcome.

Oracle Corp (ORCL.O) later swooped in and agreed to buy Sun for more than $7 billion, a deal that was announced April 2.

Revenue fell 20 percent to $2.61 billion in Sun's fiscal third quarter ended March 29, compared with the average analyst forecast of $2.85 billion, according to Reuters Estimates.

Businesses were hesitant to buy Sun's computers out of concern that it might not be around to service that equipment if the unprofitable company failed to sell itself, analysts said.

"There was probably some pressure from the IBM saga that impacted the top line," said Cross Research analyst Shannon Cross. "It would have made it hard to close the quarter."

Excluding restructuring charges and related impairment of long-lived assets, Sun lost 21 cents per share in the quarter, compared with the loss of 19 cents a share expected by analysts, according to Reuters Estimates.

Computer sales dropped 29 percent to $1 billion, while storage equipment sales fell 20 percent to $425 million. Software sales rose 27 percent to $187 million, while services revenue fell 13 percent to $1.1 billion.

Gross margin shrank 2.2 percentage points from a year earlier to 42.7 percent.

Sun reported a net loss of $201 million, or 27 cents per share, versus a year-earlier loss of $34 million, or 4 cents.

The shares of the Santa Clara, California-based company were quoted at $9.14 in extended trade, down slightly from their Nasdaq close of $9.16.

Shares of Redwood City, California-based Oracle were quoted at $19.66 in extended trade, down from their Nasdaq close of $19.74.

Oracle spokeswoman Deborah Hellinger declined comment on Sun's results. The company is not holding a conference call with analysts.

Company pulls plug on `Fallujah' war video game

The publisher behind a video game based on one of the Iraq war's fiercest battles has pulled the plug on the title, called "Six Days in Fallujah."

A spokeswoman for Japanese game company Konami Corp. confirmed Tuesday the company is no longer publishing the game, which was set to go on sale early next year.

The game, which was still in development, sought to re-create the November 2004 Fallujah battle from the perspective of a U.S. Marine fighting against insurgents. Fallujah had been an insurgent holdout until U.S. forces stormed it in one of the war's most intense ground battles.

"Six Days" was developed by another company, Atomic Games, with input from more than three dozen Marines. Before deciding not to publish the game, Konami had advertised it as a realistic shooting game "unlike any other," combining "authentic weaponry, missions and combat set against the gripping story of the U.S. Marines on the ground."

But the game was criticized by some veterans, victims' families and others who called it inappropriate.

Konami did not give a reason for its decision to cancel the game.

Atomic's president, Peter Tamte, said the company was surprised.

Video game publishers don't always shy from controversy, which can even boost sales, especially if the game is of high quality. The "Grand Theft Auto" series from Take-Two Interactive Software Inc., for example, has long been under fire for its violent content, but it brings in the bulk of the company's sales. It is more common in the current economy for companies to pull the plug if the game is not going to be a hit.

Konami is known for other war games such as the popular "Metal Gear Solid" series, as well as "Dance Dance Revolution," in which players dance on a mat in synch with music.

Other titles by Atomic Games include the "Close Combat" and "World at War" series. The company also develops training systems for military and intelligence organizations

Twitter users not sticking around

More than 60 percent of Twitter users have stopped using the micro-blogging service a month after joining, according to Nielsen Online research released on Tuesday.

"Twitter has enjoyed a nice ride over the last few months, but it will not be able to sustain its meteoric rise without establishing a higher level of user loyalty," said David Martin, Nielsen Online's vice president for primary research.

Martin, in a post on the company blog, said that more than 60 percent of Twitter users fail to return the following month.

"Or in other words, Twitter's audience retention rate, or the percentage of a given month's users who come back the following month, is currently about 40 percent," he said.

"Let there be no doubt: Twitter has grown exponentially in the past few months with no small thanks to celebrity exposure," he said in a reference to new users such as US talk show host Oprah Winfrey and promoters such as actor Ashton Kutcher.

"People are signing up in droves, and Twitter's unique audience is up over 100 percent in March," Martin said.

"But despite the hockey-stick growth chart, Twitter faces an uphill battle in making sure these flocks of new users are enticed to return to the nest," he said.

"A retention rate of 40 percent will limit a site's growth to about a 10 percent reach figure," he said in a reference to the number of potential users.

Martin said that when Facebook and MySpace were emerging networks like Twitter their retention rates were twice as high and they now have retention rates of nearly 70 percent.

Martin did say that Twitter's current 40 percent retention rate was better than the 30 percent it enjoyed pre-Oprah.

Companies mine Web clues for signs of pandemics

Weeks before the Centers for Disease Control and Prevention and the World Health Organization alerted the public to a growing number of swine flu cases, a startup based in Seattle's suburbs already had a hunch something was up.

Veratect Inc., a 2-year-old company with fewer than 50 employees, combines computer algorithms with human analysts to monitor online and off-line sources for hints of disease outbreaks and civil unrest worldwide. It tracks thousands of "events" each month — an odd case of respiratory illness, or a run on over-the-counter medicines, for example — then ranks them for severity and posts them on a subscription-only Web portal for clients who want early warnings.

Internet abuzz with swine flu chatter

Swine flu chatter has been criss-crossing the Internet as the global spread of the virus became the hottest subject at micro-blogging service Twitter.

By Tuesday afternoon, Google's trend-tracking website rated swine flu a "spicy" Internet search topic due to a sudden spike in interest that earned it a spot in a Top 10 online Hot Trends list.

Meanwhile, a Google Flu website designed to use search query data to map the spread of influenza virus in the United States indicated the respiratory illness did not appear to be spreading rampantly there.

"Current estimates of flu activity are still generally low across the United States, as is expected given the confirmed swine flu case count," Google.org said in a message atop its Flu Trends home page.

Google's Flu Trends map indicated that influenza activity was "low" in all US states except Hawaii, where activity was rated as "high."

"Hawaii is a challenging model, but we aren't terribly surprised that it's marked 'high' on Flu Trends," Google.org said in response to an AFP inquiry.

"The state government says they tend to see flu year-round because of the tropical climate and tourist populations."

Swine flu chatter was rife on Twitter, as people shared news stories, headlines, fears, perceptions and misperceptions.

"Overheard in a bar: Swine flu is the new Susan Boyle. Still chuckling but I'm not sure why," tweeted a Twitter user by the online name CBCType."

Scottish singer Susan Boyle, who became a sensation after appearing on a television program "Britain's Got Talent," was the hottest topic on Twitter before being bumped from the throne by swine flu.

The US Centers for Disease Control is using Twitter to send real-time alerts and updates regarding swine flu. CDC Emergency had 37,431 followers on Twitter as of early evening.

The United States cautioned it may soon see its first deaths from the virus, which thus far has proved fatal only in Mexico, where more than 150 people are believed to have died from the flu.

"Yikes!" wrote Twitter user xenon21. "They are expecting people to die of swine flu in America."