“The worst threat for a good plan is the dream of becoming a perfect plan” – Carl von Clausewitz.

On July the 29^th, Day Software (SIX: DAYN) published quite impressive results for the first half of 2009 and actually that was the 2^nd quarter which was impressive as the first one was not better than 2008’s 1Q. (Read my blog post, the paragraph about Day). Therefore, even if I am a little bit paranoiac by definition of my job, I just tried to find out how they have been able to use their 4Q results – quite bad – to make the 1H looking better by “making it even worst” (e.g. there is often some revenues you can postpone and charges you can anticipate) but I can’t really see how, at least significantly, as the nice part of the semester... is the second quarter. So in conclusion, Day, for me, just made an excellent quarter, really. And that’s good news both the open source and for the WCM industry.

Considering the huge investment done into their new product and its release date (4Q08), it is not such a surprise but, in 2009, it is still excellent news. Of course one good quarter does not mean so much – neither a bad one does – but we can hope Day will make too a decent, good or even maybe excellent 2H and it would be a – bad – surprise – if there second half would be not showing some bright colours again. Indeed, the main new push is given by the release of their new product and, I hope, by the top management, who changed one year ago. Last and not least, the global economic context should not really get worse worldwide (can it really be worse btw? !). So, to me, there is no challenge to make a second good half, it looks to me to be more a “duty” for their sales team! (Yes I am putting here some pressure, I hope the Day’s sales team will appreciate :) ).

So what are really the main challenges of Day for 2010?

Not surprisingly, Day points out the necessity to invest in sales and marketing. But this is a fragmented market, both big and small. It is big when you take the sum of its small independent and fragmented markets. But indeed small and fragmented into regional markets, e.g. a German country manager will not sell easily, far from that, to a French client or conversely. And building a country’s network/reputation takes often time, especially when you are just a few months ahead of opening new premises locally. Day has invested already into countries’ developments and Day’s visibility is quite good, as they are targeting majors companies and already broadly covered by analysts. So the main issue seems to me for the next months to be able to develop new markets thanks to the existing local sales team and those likely to reinforce the sales group. Even if Day is giving public numbers on sales & marketing costs, the efficiency of these investments would not be easy to evaluate as there is, so far, no breakdown by country publicly published. If I were a shareholder of Day, I would ask for it and will demand how much will come from the business development program compare with the existing and recurrent market where Day’s reached the “critical mass” to develop itself given the local team, local clients in production and skilled local integrators, but that’s another story.

Of course for the mid term and as usual, Day will have to be again very creative about the product like any similar vendor. That’s their reputation so this is a challenge which does not concern me too much. The main challenge is overconfidence, Day has had several years not so successful, and strangely it keeps you away from overconfidence. Several successful quarters would not mean they don't not need to reinvent everything again. This business is to be good at changing, evolving, and anticipating and even the more modest can forget it when success is coming.

But Day’s ability to create value for their shareholders seems trickier when you have a closed look at the company’s history. Their accumulated deficits – not only during the crazy years of the dotcom burst even if it makes the biggest part of this cake – are really huge. Day has very few debts but has burnt so much cash of its investors in the past that it must now prove its ability to create value from it. The recently appointed CEO is very experienced, and will have to demonstrate the ability of the company to invest wisely without losing the strong creativity skills of its engineers. Obviously, and they cannot be blamed for that, there are very proud of their product, they may now need to become proud of their company’s financials.

Day is indeed famous for having heavily invested into open source projects – given back to the community - and is definitively a key player for several very promising initiatives. It would be great seeing Day’s results in the future again profitable and its benefits regularly growing. Very few open source companies are publicly listed, and the private ones have often a corporate communication far from being transparent. So such performances would show, based on facts, the financial advantage of the open source business and the Day R&D team could be extremely proud of that.

Nice challenge for a skilled manager like Mr. Hansen and his team, and the success will be easy to evaluate.

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