Large Enterprise On Demand comes to SAP

Most of my 2007 was spent working on the foundation of SAP’s large enterprise on demand strategy, so it was gratifying to that John Wookey was brought on to lead the effort.  His mission will be to organize SAP’s on-demand product road map for large enterprise customers under a single strategy.  It is always nice to see something concrete come out of one’s work!

I had heard the rumors for a while, but confirmation just came last week.  Josh Greenbaum’s take (here) is as good as any I’ve seen.  I like that he redirects folks away from the technical challenges of the cloud — which are real, but trivial (in the technical sense of “hard, but knowable and solvable”).  My take parallels Josh’s: the product portfolio challenges will be the hard bits.

The most telling section of Josh’s piece has nothing to do with On Demand/SaaS per se.  For me, the Wookey “acquisition” is a signal about SAP’s optimism about the future.  The current cost-control measures get the headlines, but:

SAP clearly sees that there’s no time like the present to invest in the future, and bringing John Wookey on board is a remarkable vote for future success that SAP is willing to make at what otherwise might look like a pretty bleak hour for the global economy. 

This downturn’s test for SaaS/On Demand

This almost-inevitable downturn will answer one of the open questions about SaaS/On Demand: How “recession-proof” is Saas, really?   Already, an number of SaaS vendors have seen their forecasts taken down, just like normal enterprise vendors (here and here, for example). 

Of course, many still believe that SaaS is recession-proof (see Jeff Kaplan posts and comments here and here).  I certainly don’t believe that as a blanket statement.  In fact, I believe that on demand vendors that focus on edge processes will be in deep trouble.   That’s because one of the benefits of SaaS to customers is the ability to stop consuming whenever they like — and edge applications will get stopped first. 

It is funny how we don’t hear about the benefits of “consumable” services now that consumability doesn’t exactly match the “SaaS is immune” narrative.  Per my earlier rants on this topic (here and here):

The ease with with one can consume services — which certainly does promote usage — is matched by the relative ease with which one can stop consuming services.  If one can get in easily, one can get out easily…. Also, trying to mitigate that risk by locking-in revenue with longer subscription periods sounds good, but it makes SaaS/On Demand too strongly resemble an On Premise relationship.

That last sentence is one example of the On Demand catch-22: as SaaS gets more embedded in the enterprise core, the more it behaves like on premise (e.g., SFDC’s lengthening sales cycles). 

Maybe Harry Debes isn’t so crazy after all (here and here)!

SAP Current Performance and Strategy Presentation

I forgot to post this quick shout out to SAP’s investor relations folks.  They do a great job pulling together recent presentations by SAP’s executive team — the main page is here

The best strategy summary presentation I’ve seen recently was given by Werner Brandt to a Deutsche Bank conference in June (here).   It does a nice job pulling together how our current established business both serves as the foundation for of our business and as a platform for expansion (slide 18 outlines how the transition works over time).

Of course, Henning is talking to a Citigroup conference tomorrow, so I’ll have to check back in after vacation.  Now it is off to get bookcases!

Good article on SAP CEO transition

I liked Carter Dougherty’s recent article (here) on the pending handover from Henning Kagermann to Leo Apotheker.   Most of the focus is on Henning and the tone is casual and chatty, befitting a successful exiting CEO.  For the most part the facts, spin, etc. appear correct.  It’s also useful to remember that Henning did lead sales for a bit; he isn’t simply a coder. 

There is one bit of emphasis I’d like to add to this paragraph:

There is some truth to the tale being told in the markets, but the reasons run deeper than a mere change of chief executives. The company is indeed shifting its focus more toward the bottom line,…

Definitely agree so far.

… and less on the multibillion-dollar investments in technology that helped make it the market leader in the lucrative field of business software.

Don’t agree here… in fact, my take is that we’re being more careful about how we spend our R&D dollars.  The intent is to focus the development portfolio on initiatives that are true game-changers or keep us on top of the current game, which usually aren’t small potatoes.

For more on this, my own comments when we announced the new R&D targets are here, along with some from Dennis Howlett (here) and Larry Dignan (here).

On Demand — is it just “one damned thing after another?”

The struggles of on demand make that old Churchill chestnut seem appropriate.  Especially since they’ve made it to Business Week (here), which should be a buy signal according to my “Business Week Reverse Lock” theory.  It is a Sarah Lacy piece, so I figure that it has to be somewhat plugged-in to the Valley’s, ummm… wisdom.  And I sure have my doubts that on demand/SaaS will “immamentize the eschaton” as well (here, here, here). 

However, while this news isn’t “news”, there was one passage that struck me as telling:

Not every startup has the patience—or funding—to stick on demand out for 10 years and $100 million-plus in sales. Those mid-slog are feeling it acutely.  [Bruce} Richardson {of AMR] says he increasingly hears about “founder fatigue,” entrepreneurs being ground down by the endless travel and ever-ballooning marketing costs. It’s worse for the publicly traded companies constantly under Wall Street’s what-have-you-done-for-me-lately scrutiny.

An “aha” moment (for me at least).  How many entrepreneurs — never mind SV folks — have the patience for a ten year “Long March“?  On demand places such a premium on execution that it seems unlikely that the very same “swaggering, elephant hunter-style salesmen [who] would drive up in their gleaming BMWs” could wait out on demand’s growing pains.  No wonder they’re fatigued…

Your Platform-as-a-Service Racing Form

Well, not really, but Charles has next best thing: a strong post Handicapping PaaS.  If you’re into noodling about the future of the on-demand “great game,” it is worth a close read. 

Go to the comments as well, some good back-and-forth as well as my take (comment five).

SaaS/On Demand not immune to the downturn

Per Joe Panettieri’s article (here), I’ve never agreed with analysts who believe that the SaaS/On Demand players would somehow be recession-proof (read my earlier rant here).  There’s a lot about the business model that’s compelling, but not this.

The ease with with one can consume services — which certainly does promote usage — is matched by the relative ease with which one can stop consuming services.  If one can get in easy easily, one can get out easy easily (sure, there are caveats, especially if one has been hooked for a while).  Also, trying to mitigate that risk by locking-in revenue with longer subscription periods sounds good, but it makes SaaS/On Demand too strongly resemble an On Premise relationship.

I agree with Joe that this period will shake out the SaaS/On Demand players.  Those who don’t have a truly “sticky” value proposition will be gone or acquired.

Enterprise SW value, complexity, and R&D

Dennis Howlett’s extended response (here) to Vinnie Mirchandani’s post demanding more simplicity — or begging Steve Jobs to find it — in enterprise apps (here).  Dennis effectively boils down Vinnie’s argument to this:

Why is it that despite all the interest in SaaS and Enterprise 2.0 that the industry offers so very little apparent bang per buck for business as a whole?

Way too much to comment on comprehensively, but here are three:

  1. Behind the simplicity of iTunes lies the complexity of SAP ERP.   Every time you hit iTunes, you’re hitting SAP ERP.  Tell me again that the iTunes/iPhone model would work without ERP and that Apple’s not getting value out of its investment. 
  2. Enterprise software is modeling a business in real-time — a non-trivial, complex task that evolves in time.  Per Dennis’s comment about the process approach, once you try to take enterprise SW beyond implementing functions you’ve gotten into the business process management business whether you like it or not.
  3. Brian Sommer‘s comment is spot on: modern portfolio management is just getting introduced to the SW business.  Perhaps it should be a bit more ruthless.  Vampire/zombie projects, rampant cross-subsidization, and derivative products litter the R&D landscape in both commercial and in-house software development. 

Closing the Hire-to-Fire HR loop

Nice to see that innovation is still coming out of Yahoo (here).  Or at least out of Yahoo’s struggles.

Is this the next HCM on demand opportunity?  You’d think SuccessFactors or Taleo would have this nailed, but maybe there’s still time to dust off the ol’ elevator pitch…

HT: Fake Steve Jobs Jerry Yang

SAP R&D Spend, Frugality, & Innovation

I don’t have the stats handy, but SAP has sunk a lot into R&D over the last five years.  I think we’re up to about 20 percent of revenue (2 billion EUR +) from about 15 percent in the early 2000s.

This sustained investment makes some of the recent headlines decrying reduced innovation a bit ludicrous, frankly.  Dennis Howlett is more on the right track calling it a culture change (here).  Larry Dignan post (here) on Leo’s meeting with the Enterprise Irregulars gang has the money quotes from Leo:

We’ve announced a price point [$149/user] and now we’re working backwards….  What we did discover in the last five or six months is that while we made progress on our TCO model we’re not where we wanted to be (a 10 times TCO reduction).

It seems like the SAP solution portfolio will be subject to the same rigor as our sales pipeline — if we can’t make money on the product, we aren’t going to release it and declare victory.

Also, isn’t Jeff Bezos — from his Business Week interview here — right that a little hunger is needed for true innovation?

Q: The company has a reputation for frugality. Does that apply to the way you innovate?
A: I think frugality drives innovation, just like other constraints do. One of the only ways to get out of a tight box is to invent your way out.

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