The TSC Streetside Chat: Tech Consultant Joshua Greenbaum

Enterprise software companies left a major train wreck in this latest round of earnings, with disappointments littered around the tech landscape. Amid the destruction, Joshua Greenbaum, a technology consultant and principal at Enterprise Applications Consulting in Daly City, Calif., works in the software trenches, helping customers choose the best products to buy and consulting software vendors on technology development, marketing and strategy. Greenbaum has worked in the software industry since 1983 and in Silicon Valley since 1986.

We talked with him to find out what trends he's seeing in the software market, when it might rebound and which companies may emerge in a position of strength. He has provided consulting services to most of the companies he talks about.

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TheStreet.com: Many software companies reported disappointing financial results for the past quarter, including giants Oracle(ORCL Quote) and PeopleSoft(PSFT Quote). Are you seeing any sign of business picking up for these enterprise software makers?

Joshua Greenbaum: Definitely the end of Q1 caught a lot of companies off guard, and I'll admit it caught me off guard, too, to a certain extent. People were pretty optimistic going into the quarter but really waiting for that big sign in the sky that it was safe to come out, and I think everybody got cold feet and decided to hold back one more time.

The money is there. The interest is there. The buyers are still being a little conservative. I think, considering that we're seeing some very positive economic signs coming into this quarter, my feeling is there is going to be a nice pickup in business in Q2 as that conservativism fades and money starts getting released for purchases.

Deal size is not going to go up, certainly not, in my opinion, in the next two quarters.

Let's talk about the top three or four enterprise software companies -- SAP(SAP Quote), Oracle, and PeopleSoft to begin with. All three of those companies have big installed bases that are poised for a major upgrade and that have been holding back for various reasons. The momentum will pick up for this upgrade business. In general, I would suspect there's going to be an uptick on the revenue side for these vendors coming in the next year.

In the long term in general, the sector is going to continue to see relatively lower size and relatively more volume as the modus operandi going forward. Companies like i2 Technologies(ITWO Quote) are having a lot of trouble with the combined requirement of lower deal size and higher volume, simply because they have less in their portfolio to sell.

One of the things I'm planning for early this year and next year is there's going to be a lot of consolidation. There's going to be a lot of middle-sized companies and former struggling companies that get bought up.

The sector is going to be more and more defined by the small start-ups -- the companies that have just emerged out of the private equity markets in the last year or two -- and the very big vendors. The middle ground is going to be a hard place to be in 2002.

TheStreet.com: What types of products are customers showing the most interest in buying these days, and which companies seem to be best positioned to respond to that demand? Maybe you could start with customer relationship management, or CRM. 'The money is there. The interest is there. The buyers are still being a little conservative.'

Joshua Greenbaum: CRM is clearly one of the areas that is still looking good. There's a nice sort of ROI model that can built around CRM software, and I think a lot of companies are seeing that value.

J.D. Edwards(JDEC Quote) is a perfect example. They made a CRM acquisition last year. Right away CRM rocketed to their fastest-growing area. They made real money selling CRM within weeks of the acquisition, and that's to an installed base of mid- to upper-market manufacturers who held back on the first wave and now want to get in on the second wave of CRM.

TheStreet.com: Any other areas?

Joshua Greenbaum: Certainly, supply-chain management is a big one for companies. The problem with the sector in general -- I think i2 is sort of the poster boy of supply-chain management -- software companies have approached this with an increasingly big bang approach. i2, prior to its troubled times, was doing average deal sizes over $1 million on a regular basis. That deal size is hard to get through; that complexity of solution that i2 typifies is hard to get past the board of directors, much less the IT department.

When I look at the supply-chain sector, I see a big opportunity for what I call focused solutions that really pick apart part of the supply chain ... and solve a concrete, very discrete problem with a relatively well-designed, highly integrated solution that gets things done and gets them done quickly.

Retail is a sector that I think still has some money to spend. Aside from some of the leaders such as Retek(RETK Quote), there's a whole crop of smaller companies that are getting into the retail optimization space.

TheStreet.com: There's been a longstanding debate between best-of-breed and suite vendors. Which best-of-breed vendors are standing out?

Joshua Greenbaum: Blue Martini(BLUE Quote), though it's company still in the struggling category, made a compelling argument for selling to a very high-end, strategically focused CRM-type customer.

One of the best-of-breed areas I'm still very focused on is analytics. It's one that still benefits from a best-of-breed approach because the applications base in most large companies is still very heterogeneous. Companies like Informatica(INFA Quote) have been trying to pioneer this position, to get out in front of the market with a big broad set of analytics. And that's a company I'm watching throughout their year. As their fortune goes, so will the whole analytics sector go. 'The middle ground is going to be a hard place to be in 2002.'

TheStreet.com: Where does Microsoft(MSFT Quote) fit in enterprise software? Who is the company threatening, and where does its future lay?

Joshua Greenbaum: That's the multibillion-dollar question in the market today. For the most part the Great Plains acquisition was a singularly brilliant move on Microsoft's part, (a) because they bought an excellent company, and (b), they bought a company that's very much in the part of the market that makes the most sense for Microsoft right now, and that is the small enterprise market.

I don't think Great Plains threatens any of the top-tier ERP or enterprise software vendors right now. They really are only focused on the small to medium enterprise.

TheStreet.com: Any other up-and-comers that investors may want to investigate?

Joshua Greenbaum: Manhattan Associates(MANH Quote) is one. I hear more and more good things about them, and I've been running into some of their partners in the market.

TheStreet.com: Should investors be concerned about the fact that Kmart (KM Quote) is one of their customers?

Joshua Greenbaum: I don't know what percent of their revenues come out of Kmart. Kmart is a potential one-of-these-great-moments for software vendors where you're either going to be a hero or a goat, and it's not necessarily going to be in your hands at all. If Kmart pulls through -- and I sort of believe that they ought to in at least some fashion or another -- then everybody that sells software to Kmart is going to claim, obviously, that they were the ones that made it happen. I don't think Manhattan Associates necessarily is going to get tarred with that brush.