Vendor Ratings, VDR Debra Curtis, Theresa Lanowitz, Frank DeSalvo

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1 Vendor Ratings, Debra Curtis, Theresa Lanowitz, Frank DeSalvo Research Note 14 February 2003 Vendor Rating: Compuware Most Compuware product revenue comes from mainframe software, but with limited growth prospects there and little new software license revenue from the distributed market, Compuware receives a caution rating overall. Compuware Corp. Overall Rating: What You Need to Know: Compuware s strength is in its installed base of mainframe customers. However, the market for mainframe software from independent software vendors has been consolidating for many years and is under attack by IBM and others. A strong, clear corporate strategy and a demonstrated ability to execute in the distributed software market would upgrade Compuware s vendor rating to promising. Analyst Comments: Despite the breadth of Compuware s products across application development, testing and management, we rate it a caution overall because of our concerns regarding its dependence on mainframe revenue and lack of a comprehensive corporate strategy. Detailed Rating: Corporate Viability Strategy Financial Marketing Organization Product/Services/ Technologies Product/Service Technology Pricing Customer Service/ Product Support Sales/Distribution Support Services Initiative Rating Strong Negative Promising Promising Positive Positive Corporate Viability: Compuware is a $1 billion company with more than 10,000 employees and an installed base of approximately 23,000 customers. Compuware s installed base is beneficial for ongoing maintenance revenue; however, it creates a challenge because of the preponderance of conservative Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 mainframe users. Although the revenue derived from Compuware s mainframe installed base has the potential to fuel investments in future markets, Compuware has not exploited this resource, which could have been used to establish early leadership in emerging opportunities such as development and the management of Web-services-based applications. Strategy: Compuware is a bifurcated company. It stands with one foot firmly planted in the mainframe world and another in distributed environments, where Compuware is struggling to find similar success. Compuware has not articulated an overarching strategy to leverage its vast stable of products and move into the future. As a result, Compuware does not present one unified face to its constituents. This is problematic for customers who want to build a long-term relationship with Compuware, but are unaware of Compuware s product and service depth and breadth. Chief executives need to understand the vision and road map of the software vendor they are evaluating. These executives are not concerned with the individual features and functionality of a product; rather, they look for the business benefits of a vendor relationship. Compuware acquired many of its products and services. Recently, the company has not been as effective in using acquisitions to plug strategic holes in its portfolio, such as lack of software configuration management and no application design tool. A logical strategy move would be for Compuware to fill in distributed product gaps and leverage its coverage of the entire application life cycle from application development (AD) through production operations. Delivering this message in a unified fashion would have the added benefit of moving Compuware higher into a customer account and communicating with the CIO. The office of the CIO has responsibility for both AD and operations, as well as understanding the necessary symbiotic relationship of the two sides of IT. Gartner believes that Compuware s ongoing legal battles with IBM for allegedly misappropriating Compuware intellectual property in IBM s mainframe testing products may be distracting Compuware s attention from the development and execution of corporate, product and marketing strategies. Few personnel resources are dedicated to the litigation. However, as with many legal actions, the impact is broader because of the time and attention that must be given to the issue during discussions with prospects and presentations to the market. Financial: Compuware reported $1.7 billion in gross revenue for fiscal 2002, which ended 31 March 2002 approximately 50 percent from products and 50 percent from services off more than 20 percent from the peak of $2.2 billion for FY00. Compuware continues to recognize approximately 80 percent of its product revenue from mainframe software. Despite ongoing corporate goals to expand distributed systems market share, revenue from distributed products has generally grown less (or declined more) than revenue from mainframe products. Maintenance fees are making up an increasing portion of Compuware s declining product revenue, hitting a new high of 60 percent for the first six months of FY03. A lower percentage of new software license revenue means a reduced base for future maintenance. Compuware s current cash and investment assets, which total approximately $520 million, and the absence of long-term debt put a more promising spin on its financial position. If Compuware can define a viable growth strategy, it has greater execution flexibility because it does not have to match its short-term revenue stream to debt commitments. Marketing: Compuware has done little in the past several years to modernize its image. Organizations that know Compuware view it as a mainframe or legacy company, or perhaps a professional service company. Compuware has little exposure to the decision makers in the world of distributed systems. Until recently, Compuware has been reticent to engage in partnerships with complementary technology companies. Compuware has finally embarked on partnerships with Microsoft, Sun Microsystems, SAP 14 February

3 and Oracle that, although not exclusive, begin to raise Compuware s visibility among enterprise buyers. Compuware must embark on a full-scale marketing campaign to freshen its image and articulate a strong corporate message by 2004 or risk slipping into the category of legacy vendor only. Organization: Compuware is a publicly traded, global company, headquartered in Farmington Hills, Michigan. Founded in 1973, it had its initial public offering in Peter Karmanos Jr., a co-founder of Compuware, is the chairman of the board and CEO. Joseph Nathan has been the president of Compuware since 1994, and he has been with Compuware since Compuware s senior management is closely identified with its mainframe history and past successes, which creates further challenges to creating a new strategic vision for both employees and customers. Basing the company in the Midwest insulates Compuware from the day-to-day challenges visible in moreactive technology centers. Closing its operations in the San Francisco Bay Area (the previous headquarters of some of its acquired companies) has succeeded in reducing turnover dramatically. However, Gartner believes that the loss of innovative, entrepreneurial talent from employees who left during the Silicon Valley dot-com boom or simply did not wish to relocate when Compuware consolidated staff back to headquarters has strong negative consequences given the fast rate at which distributed products must change to remain competitive. In response to Compuware not achieving its growth goals, the company has implemented a new organizational structure based on four stated cornerstones: One Company, Process-Driven, Customer- Facing and Employees = Assets. The new structure has been helpful at putting in place consistent and measurable processes across Compuware worldwide and driving a renewed customer focus. Products/Services/Technologies: Product /Services: Compuware states that its four strategic product areas for future investment and business growth are: Compuware Application Reliability Solution An application quality assurance solution combining Compuware people, processes and tools OptimalJ An integrated development environment for Java Near Shore Development Center A skilled workforce based in Canada that delivers a costeffective alternative to offshore development Vantage A suite of tools for network, system and application performance and availability management Vantage is the new brand for the distributed network and systems management products that were formerly sold under the EcoSystem name. A collection of point products, some of which arrived at Compuware through acquisition, Vantage addresses network, system, database and application management and includes application profiling and network growth planning/prediction. VantageView and Visualizer allow the user to visually integrate various reports and results. Actual back-end data integration and correlation are planned for a future Vantage version. OptimalJ is a solid product, but Compuware is late to the Java tool market. Marketed as an AD environment shielding users from the complexity of Java, it has demonstrated little traction in a market increasingly dominated by three or four large suppliers (see Services-Oriented Development of Applications and the Integrated Services Environment: SODA With ISE Rules Web Services! ). 14 February

4 Developers have made their choices for this generation of projects and are unlikely to abandon preferred tools and processes for a new tool. Compuware has product gems such as Application Expert and Fault Manager that provide solutions to problems with which many IS organizations are wrestling. The DevPartner family of products is an untapped opportunity to be part of every developer s workbench. With the DevPartner family of tools, Compuware offers a vendor-neutral solution to quality assurance for today s environments of.net and Java. Because of Compuware s limited exposure, especially on the distributed systems side, these products are overlooked or simply never put on the shortlist for evaluation. The lack of product penetration in modern IS organizations is inextricably linked to Compuware s lack of a corporate and channel strategy. Technology: On the mainframe side of the business, technology is seldom an issue. Compuware customers have been using its mainframe tools for more than 15 years and are satisfied with the rate of enhancement, depth and breadth of the offerings. On the distributed platforms, Compuware is not necessarily viewed as an innovator. It adds features and functionality to its products at a reasonable rate, but it is slow by comparison to smaller, best-of-breed, startup competitors. Usually, Compuware is not considered by early technology adopters (Type A enterprises); rather, it is embraced by the late majority (Type B and Type C enterprises). Compuware has formalized a quality assurance process across all of its product development centers. Additionally, Compuware s Technology Organization s Testing and Implementation Center has achieved Capability Maturity Model (CMM) Level 2 certification. Pricing: Although Compuware reports a more than 90 percent renewal rate for its mainframe products, Gartner consistently receives inquiries from enterprise purchasing departments wanting to exit their Compuware contract and bring in a competitive product line for a wholesale substitution. Aggressive competition from several vendors, including IBM, in the mainframe market segment has forced deeper discounting and more-aggressive contractual commitments to avoid losing market share. In January 2003, Compuware began providing its revamped price book to its customers after years of elusiveness. This has been well-received by customers and, in Gartner s opinion, adds credibility to its negotiations. However, it will take time to restore Compuware s contract negotiation reputation after years of pricing secrecy. On distributed platforms, Compuware s prices are often half of the market-leading competitor s prices, indicative of its underdog market position. With the current economic conditions, competing on price is a reasonable tactic for Compuware to pursue. Customer Service/Product Support: Sales/Distribution: Compuware continues to have challenges in its distribution channels. Its previous direct sales model worked well for mainframe accounts, but doesn t provide assistance in expanding its distributed product market share. Two years ago, Compuware made a significant commitment to broadening its distribution strategy. Although Compuware is now included in the portfolio of a number of value-added resellers, distributors and systems integrators, its products are generally not the lead offerings, which limits Compuware s ability to execute outside of mainframe accounts. Compuware s most recent reorganization focused on broadening the scope of its sales force, reducing product specialization and increasing account focus. The Automated Software Quality team, which calls on the AD side of the IS organization, is responsible for its quality assurance center, OptimalJ and 14 February

5 NuMega lines the AD tools that were formerly represented by separate account managers. The Performance Management team, which calls on the operations side of the IS organization, is responsible for Vantage and PointForward the operations tools that previously had separate account managers for each of the individual EcoSystem products. Although one local sales manager is responsible for managing all of the sales activities for a single account, this approach does not bode well for Compuware trying to capitalize on the opportunity to sell across the silos of AD and operations. Additionally, there is a separate mainframe sales team. Gartner research indicates that the old guard account executives tend to rest on their mainframe laurels and don t exhibit much commitment to selling or even discussing distributed solutions. Compuware is a large organization, so it takes some time for the changes to be realized across the entire company. Furthermore, now that Compuware is the target of strong mainframe product competition from IBM, its lack of visibility to chief executives is particularly devastating. Although some Compuware product features and functions may surpass IBM s on a case-by-case basis, IBM has brought the competitive playing field to executives doors. Most strategic decision makers will accept small product deficiencies for the more significant benefit of dealing with a single vendor that can articulate an overall product strategy conforming to customers long-term directions. Compuware has not demonstrated an ability or willingness to compete in this realm. Support Services: Compuware s technical product support services are consistently ranked high by its customers. These products work well and customers experience few severe technical difficulties. The mainframe mind-set of customer service is evidenced in Compuware s customer support. Related Research and Ratings: Magic Quadrant: Testing Tools for Distributed Platforms Hierarchy of Network Management Tools and Processes Rating Definition: Strong Positive Positive Promising Solid provider of strategic products, services or solutions. Customers: Continue investments. Potential customers: Consider this vendor a strong strategic choice. Demonstrates strength in specific areas, but is largely opportunistic. Customers: Continue incremental investments. Potential customers: Put this vendor on a short list of tactical alternatives. Shows potential in specific areas; however, initiative or vendor has not fully evolved or matured. Customers: Watch for a change in status and consider scenarios for short- and long-term impact. Potential customers: Plan for and be aware of issues and opportunities related to the evolution and maturity of this initiative or vendor. 14 February

6 Strong Negative Faces challenges in one or more areas. Customers: Understand challenges in relevant areas; assess short and long term benefit/risk to determine if contingency plans are needed. Potential customers: Note the vendor s challenges as part of due diligence. Difficulty responding to problems in multiple areas. Customers: Exit immediately. Potential customers: Consider this vendor only if there are no alternatives. Core Topics Application Management ~ Enterprise Management Infrastructure Management ~ Enterprise Management Measuring, Operating and Maintaining Applications ~ Application Development Compuware Corp. Headquarters: Farmington Hills, Michigan Web Location: 14 February