Technology One to zap SAP and go global says boss

Stan Beer
Friday, 27 February 2009 11:09

IT Industry - Market

State governments, however, have been problematical for TechOne because of their closed long term contracts with large multinational suppliers.

"We tell them that to have a long term contract with one supplier is crazy - many of them go back 15 years before we were a viable alternative," says Di Marco.

"They should have what the Federal Government has - a panel with competition and let the best product win. If they opened it up and had a competitive environment we would win substantial amount of business from all the state departments because there are so many departments that we talk to that have had a gut full of Oracle and SAP. The costs are huge and what they give you is not that great."

So what's the cost differential between TechOne and its multinational rivals? Enormous, according to Di Marco.

"Over seven years, we're talking hundreds of percent difference. Not from a license fee point of view but the running cost of the environments. Our upgrades are free. If you buy a Technology One product, you pay an annual license and you get upgrades for free. With Oracle and SAP, every five years they hit you with a huge upgrade fee. And then when you get the upgrade, you've got the implementation costs to reimplement the system - they're huge.

"So what people are saying is that they can either upgrade their Oracle or SAP system or for the same price they can put in Technology One and never again have to do that because we give them new releases every six months with new features and new functions and they just work."

Di Marco predicts that the chickens will come home to roost for Peoplebank, J D Edwards and Siebel acquirer Oracle in particular when it releases its new generation product.

"Customers don't like to be taken advantage of; they've had a gut full. People are saying that they pay all this annual license fee and then when there's a new generation product they want us to re-license and pay the implementation costs to re-implement. When Oracle ships Fusion it's going to be a bloodbath out there. The customers are just going to walk."

While TechOne has set its sights on taking on SAP and Oracle, Di Marco admits that the company has geographical and market segment limitations in the scope of the business it intends to capture.

"What we have done is picked verticals and they are where we have got our products working really well," he says.

"Local, state and federal government, education, asset intensive industries such as water utilities is a big market for us and that will move into other utilities, not for profits are the major markets for us, financial services is also a new market for us. We're not into retail, distribution and manufacturing. Our clients are government or services related."

On the overseas expansion front, TechOne has likewise limited its aspirations to English speaking markets, starting with the UK, and later expanding to places like Canada and finally the US.

"The UK should be bigger than Australia for us over the next five to ten years. In the next five or six years we'll be a true global company. Our product suite today is among the broadest in the world."

Perhaps a sobering thought, however, is that at the time of writing, as good as its performance has been, Technology One has an ASX market cap of just A$188 million (US$121 million). For companies like Oracle, which paid US$10.3 billion cash four years ago to take  Peoplesoft off the market, or Microsoft, which last year was prepared to blow US$40 billion on a failed bid for Yahoo, picking off a profitable company like TechOne at today's prices would barely involve raiding their petty cash reserves.

If TechOne continues on its current success path, the question on the lips of many pundits going forward is likely to be when the hostile take-over bid is going to come. The problem for TechOne stalwarts like Di Marco is that if Australian IT history is any guide the company is likely to become a victim of its own success - especially if it continually takes business off its likely acquirers.

Di Marco and all supporters of home grown Australian IT companies no doubt hope that day never comes.