What is behind SAP’s ‘go-slow’ on SaaS?

There have been many reports recently on the problems with SAP’s Software as a Service (SaaS) offering, Business ByDesign – see for example the article by Timothy Morgan here.

To summarize, SAP is backing off its initial, bullish claims on SAP Business ByDesign, saying that it is now going to proceed at a much slower pace than originally planned. Of course, the SAP trade show Sapphire, which is being held this week, might provide more info, but I somehow doubt it.

So, what is going on? Why the sudden backtrack? After great trumpeting 18 months ago from SAP about Business ByDesign being the magic bullet for SMEs, offering the ability to run remote copies of SAP applications on a per user basis without having to cough up for a full license, why the hesitation?

I suspect the truth of the matter may be partly political, partly execution oriented and partly financial. There are those who would argue that SAP does not really WANT a SaaS market for its packages to come rushing into existence. After all, from a supplier point of view wouldn’t you prefer to sell more expensive licenses that lock the user in rather than a cheap usage-based service that the user can walk away from at any time?  So the conspiracy theorists would say SAP deliberately tried to freeze the market for SAP SaaS offerings to discourage competition and slow down the emergence of this market.

On the execution side, perhaps it is possible that SAP did not realize that selling SaaS solutions is a world away from selling large application suites directly to big companies. SaaS solutions are low-cost high-volume as opposed to high-cost low-volume, and hence need much more efficient and layered distribution channels – and SMEs are used to picking up the phone to ask someone whenever they have to change something, not a great strength for SAP’s support structure.

Then finally, the financial side. Many SaaS suppliers have discovered an uncomfortable truth – while in a license model the user pays a substantial sum of money for purchase followed by maintenance, in a SaaS model the risk position is reversed, with the supplier having to put the resources in place up front to support the POTENTIAL usage of the infrastructure by all those signed up users and then receiving revenues in a slow trickle over time. Is it possible that SAP just didn’t like the financial implications of having to continually invest while looking at payback times of years? Did they therefore decide to deliberately throttle the number of new customers, giving them a chance to make some money before making more investments?

Maybe SAP will tell all at Sapphire … or maybe we will just have to keep guessing.


SAP takes a hammering in 1Q 2009 results

SAP released its first quarter results today – and they do not make pretty reading at all.

Although overall revenue was only slightly down overall it is the software license figures that are so alarming, crashing by a third compared to 2008. This may seem not to be important since the software license numbers are only a relatively small part of overall revneues, but in fact it is the software license performance that drives a lot of the other related activities, so weakness here will feed through over time. SAP points to the fact that 1Q08 was before the global problems had really taken hold, but while I think this is partially true, I think there is another problem evident here.

Companies are still investing in IT – there have been enough results in the last few weeks that show great growth for some, with Pegasystems and Sybase being two particular examples. However, the SAP results seem to show a greater weakness in the application package market – and this is only to be expected. The problem is that while companies like Pegasystems and Sybase are looking to help companies get immediate return through doing things differently (using BPM and going mobile respectively), SAP packages are SAP packages. They do what they do, and although it is generally a good idea to keep updating them and spreading them more widely, these tasks are

  • Very time-consuming and costly
  • Not exactly urgent

On this basis, most companies are electing to stick with what they have at the moment on the packages front, while concentrating on other areas of more immediate return in the infrastructure like BPM and Business Events implementations. This gives SAP a real headache in the near term. Eventually, once everyone is spending again, companies may well return to the question of their SAP application package portfolio, but at least in 2009 I suspect this will be put on the back burner. I guess that for SAP, 2010 can’t come soon enough.


Why Tibco won’t be bought next

Ranadive, CEO of Tibco, has announced that Tibco board would of course consider offers.

And after the recent news about Business Objects and BEA, such offers may seen inevitable.  Jeff Schenider of MomentumSI for instance argues that we have entered a period of inevitable consolidation.  While I certainly think we are already in an era of big-4 and the rest, that does not necessarily mean that every ‘small’ software company (and remember these are only small in comparison to the giants) must be bought.

The Reuter’s piece covering Ranadive’s statement comments that “Analysts have said suitors for Tibco could include IBM (NYSE: IBM), Hewlett-Packard (NYSE: HP), Sun Microsystems (NSDQ: JAVA), and EMC (NYSE: EMC).”

I personally wonder.  On the one hand you could ask why not?  Tibco has excellent top tier customers who use its long standing messaging products for core business processing.  It also has some of the best SOA products in its BusinessWorks portfolio – combining enterprise grade reliability with good tooling.  However, I think you need to look a little deeper about the two acquisitions which sparked this consolidation talk:

BusinessObjects is in what should to be the hot growth area over the coming years – business intelligence – and thus is perfect for the vendors who want to find a new thing to sell to their customer base or a new way to justify their existing product line (by adding a BI layer on top).  Business Objects should have been a target for IBM and Oracle as well as SAP.

BEA was generally believed to be a long term target for Oracle – BEA had after all used the application server wave to capture business from so many of Oracle’s enterprise customers.  Oracle first took quite a while to take application servers seriously and then took quite a while to become competitive.  Buying BEA finishes the job off quickly and gets back ownership of all those straying BEA customers.

With Tibco, there is no obvious buyer (as Oracle was with BEA) nor is there a neat fit into one of the majors (as BusinessObjects was with SAP).  Of the 4 listed by the “Analysts” quoted above, only IBM would make any sense.  And Oracle, except that it is busy trying to eat BEA.  Therefore, I don’t see Tibco being bought except unless it is Skyped (bought for over the odds to avoid somebody else buying it).


SAP buys Business Objects

It was announced yesterday that SAP is acquiring Business Objects for $6.8billion in what is described as a friendly take-over (and leaked out a couple of weeks back as reported here ).

On the product side, the benefits are obvious from SAP perspective – although there will certainly be some integration and overlap issues for SAP to deal with (covered well by Forrester here).  Clearly, it also brings a large number of new customers to SAP – although it will be a long term project to bring them over to other SAP products.

From the vendor perspective, it reduces the choice for ISVs wanting to partner with a Business Intelligence vendor.  This should make Cognos (now the only significant independent BI vendor) in particular happy.  However, the big question is will IBM grab Cognos now to fill its own BI gap before Oracle gets there first.  Of course nothing may happen – Remember the speculation around Informatica and Oracle after Ascential was bought by IBM a couple of years back?

And finally… For the customers of BO, it will take a while for the smoke to clear.  However, SAP paying that amount of money should make BO customers very confident that their software has a strong future.  What it means to users of SAP’s existing BI product is equally obvious:  While it is very likely the products will be supported for a long time, it is equally very likely that they will not be the basis of SAP’s BI strategy going forward.


SAP relies on SOA to meet top customer need

SAP recently delivered a new wave of enhancements to its suite of business solutions, but as CNN Money points out, it is using service-oriented architecture (SOA) to address the top customer need of being able to bring new functionality on stream without impacting current workloads.

The point is that many companies use SAP packages to power their businesses, and anything that threatens to disrupt these key operations represents a major source of risk. So the problem becomes – how can you take advantage of new technology advances without jeopardizing your mission-critical operations? The traditional answer is to rely on extensive testing, both of the new function and, more importantly, regression testing to ensure existing workloads continue to function as expected. But the problem is that with large-scale deployments, such as often found with ERP packages like those provided by SAP, this testing cycle has to be so extensive that migration to a new product release can take years.

SOA offers another answer, as SAP has realised. Using a service-oriented approach, it becomes possible to handle migration activities in a piece-by piece mode. New functionality can be deployed, and new applications can take advantage of it, but at the same time these applications can drive functionality in the existing implementation ‘transparently’. Also, as existing applications become ready to exploit the new advances, they can be changed bit by bit rather than lock, stock and barrel.

I expect SOA to become used more and more by package vendors in particular as they strive to address what is often the top user requirement – don’t screw up my current operations.


Will SAP buy IDS Scheer?

I notice that the relationship between SAP and IDS Scheer, the purveyor of the popular ARIS process modeling solution, continues to get tighter.

This is good news for SAP users – the ARIS tool is powerful and one of the leaders in the market, and aligning it as closely as possible with the SAP application suite will make it easier for SAP users to implement business process-based integration solutions, as I discussed recently in my review of SAP’s SOA-based process-integration approach, published at Lustratus.

However, it does raise another more provocative question in my mind. The two companies have such a tight relationship, they are both based in Germany, and process modeling and BPM in general are likely to continue to grow in importance to SAP in the future. IMHO it would make sense for SAP to acquire IDS-Scheer – it looks a good fit, both from a solution perspective and culturally, and would protect what might become a core competency for SAP. One problem might be that ARIS is used by many solutions as a process modeling environment, and it is possible that if it were owned by SAP then this might make it less attractive for an SAP competitor to use it. However this seems a minor drawback. Of course, it wouldn’t be cheap, but IDS Scheer continues to perform well….

Anyway, regardless of whether such a thing were to happen, it can only be good for SAP users to have the relationship continuing to strengthen.