Yesterday, SAP announced its intention to acquire business-to-business (B2B) integration provider Crossgate http://www.sap.com/index.epx#/news-reader/?articleID=17515. This was no great surprise, as SAP was already a part-owner and worked closely with the company in product development and marketing and sales activities. SAP will be able to offer a much better ePurchasing solution to customers when it has integrated Crossgate into its business, because supplier connectivity is currently a significant weakness. As I’ve written before (So Where Were The Best Run Businesses Then?), many SRM implementations rely on suppliers manually downloading PO from supplier portals or manually extracting them from emails and rekeying the data into their own systems. Not only does this cost the suppliers lots of money, it creates delays and errors that discourage users from adopting SRM.
SAP doesn’t intend to use Crossgate only for transactional processes; it also wants to develop support for wider collaboration between its customers and their supply chain partners, both upstream and downstream. That’s a sound objective, although not an easy one for SAP to achieve, because its core competence is in rigidly structured internal processes and it hasn’t done a good job to date with unstructured processes, nor with ones that go outside the enterprise’s four walls. Buyers who think they can force suppliers to comply with their edicts, just like employees do, soon end up wondering why no-one is using their ePurchasing solution.
What does the acquisition mean for sourcing professionals who are wondering where Crossgate or its competitors fit into their application strategy? My take:
At the Hot Chips conference last week, Intel disclosed additional details about the upcoming Poulson Itanium CPU due for shipment early next year. For Itanium loyalists (essentially committed HP-UX customers) the disclosures are a ray of sunshine among the gloomy news that has been the lot of Itanium devotees recently.
Poulson will bring several significant improvements to Itanium in both performance and reliability. On the performance side, we have significant improvements on several fronts:
Process – Poulson will be manufactured with the same 32 nm semiconductor process that will (at least for a while) be driving the high-end Xeon processors. This is goodness all around – performance will improve and Intel now can load its latest production lines more efficiently.
More cores and parallelism – Poulson will be an 8-core processor with a whopping 54 MB of on-chip cache, and Intel has doubled the width of the multi-issue instruction pipeline, from 6 to 12 instructions. Combined with improved hyperthreading, the combination of 2X cores and 2X the total number of potential instructions executed per clock cycle by each core hints at impressive performance gains.
Architecture and instruction tweaks – Intel has added additional instructions based on analysis of workloads. This kind of tuning of processor architectures seldom results in major gains in performance, but every small increment helps.
A recent RFP for consulting services regarding strategic platforms for SAP from a major European company which included, among other things, a request for historical and forecast data for all the relevant platforms broken down by region and a couple of other factors, got me thinking about the whole subject of the use and abuse of market share histories and forecasts.
The merry crew of I&O elves here at Forrester do a lot of consulting for companies all over the world on major strategic technology platform decisions – management software, DR and HA, server platforms for major applications, OS and data center migrations, etc. As you can imagine, these are serious decisions for the client companies, and we always approach these projects with an awareness of the fact that real people will make real decisions and spend real money based on our recommendations.
The client companies themselves usually approach these as serious diligences, and usually have very specific items they want us to consider, almost always very much centered on things that matter to them and are germane to their decision.
The one exception is market share history and forecasts for the relevant vendors under consideration. For some reason, some companies (my probably not statistically defensible impression is that it is primarily European and Japanese companies) think that there is some magic implied by these numbers. As you can probably guess from this elaborate lead-in, I have a very different take on their utility.
Cloud computing continues to be hyped. By now, almost every ICT hardware, software, and services company has some form of cloud strategy — even if it’s just a cloud label on a traditional hosting offering — to ride this wave. This misleading vendor “cloud washing” and the complex diversity of the cloud market in general make cloud one of the most popular and yet most misunderstood topics today (for a comprehensive taxonomy of the cloud computing market, see this Forrester blog post).
Software-as-a-service (SaaS) is the largest and most strongly growing cloud computing market; its total market size in 2011 is $21.2 billion, and this will explode to $78.4 billion by the end of 2015, according to our recently published sizing of the cloud market. But SaaS consists of many different submarkets: Historically, customer relationship management (CRM), human capital management (HCM) — in the form of “lightweight” modules like talent management rather than payroll — eProcurement, and collaboration software have the highest SaaS adoption rates, but highly integrated software applications that process the most sensitive business data, such as enterprise resource planning (ERP), are the lantern-bearers of SaaS adoption today.
Since Oracle dropped their bombshell on HP and Itanium, I have fielded multiple emails and about a dozen inquiries from HP and Oracle customers wanting to discuss their options and plans. So far, there has been no general sense of panic, and the scenarios seem to be falling into several buckets:
The majority of Oracle DB/HP customers are not at the latest revision of Oracle, so they have a window within which to make any decisions, bounded on the high end by the time it will take them to make a required upgrade of their application plus DB stack past the current 11.2 supported Itanium release. For those customers still on Oracle release 9, this can be many years, while for those currently on 11.2, the next upgrade cycle will cause a dislocation. The most common application that has come up in inquiries is SAP, with Oracle’s own apps second.
Customers with other Oracle software, such as Hyperion, Peoplesoft, Oracle’s eBusiness Suite, etc., and other ISV software are often facing complicated constraints on their upgrades. In some cases decisions by the ISVs will drive the users toward upgrades they do not want to make. Several clients told me they will defer ISV upgrades to avoid being pushed into an unsupported version of the DB.
Oracle announced today that it is going to cease development for Itanium across its product line, stating that itbelieved, after consultation with Intel management, that x86 was Intel’s strategic platform. Intel of course responded with a press release that specifically stated that there were at least two additional Itanium products in active development – Poulsen (which has seen its initial specifications, if not availability, announced), and Kittson, of which little is known.
This is a huge move, and one that seems like a kick carefully aimed at the you know what’s of HP’s Itanium-based server business, which competes directly with Oracle’s SPARC-based Unix servers. If Oracle stays the course in the face of what will certainly be immense pressure from HP, mild censure from Intel, and consternation on the part of many large customers, the consequences are pretty obvious:
Intel loses prestige, credibility for Itanium, and a potential drop-off of business from its only large Itanium customer. Nonetheless, the majority of Intel’s server business is x86, and it will, in the end, suffer only a token loss of revenue. Intel’s response to this move by Oracle will be muted – public defense of Itanium, but no fireworks.
SAP Has Managed A Turnaround After Léo Apotheker’s Departure
In February 2010, after Léo Apotheker resigned as CEO of SAP, I wrote a blog post with 10 predictions for the company for the remaining year. Although the new leadership mentioned again and again that this step would not have any influence on the company’s strategy, it was clear that further changes would follow, as it doesn’t make any sense to simply replace the CEO and leave everything else as is when problems were obviously growing bigger for the company.
I predicted that the SAP leadership change was just the starting point, the visible tip of an iceberg, with further changes to come. Today, one year later, I want to review these predictions and shed some light on 2010, which has become the “Turnaround Year For SAP.”
The 10 SAP Predictions For 2010 And Their Results (7 proved true / 3 proved wrong)
It's nice to see that SAP has managed the turnaround to leave the recession behind and pick up growth again. The company reported a strong 34% SW revenue growth in Q4 2010 as compared with the previous year - "The strongest software sales quarter in SAP's history" as stated by Co-CEO Bill McDermott. However, one has to keep in mind that one year ago SAP was in deep crisis and reported a YoY -15% SW revenue decline in Q4 2009 followed by the departure of CEO Léo Apotheker in February 2010 and other subsequent executive changes.
Indeed Q4 2010 was the strongest SW sales quarter in SAP's history but the fourth quarter is always the strongest in SAP's annual sales cycle. Actually Q4 SW revenue declined for 2 years since 2007 (€1,4 billion) to 2008 (€1,3 billion) to 2009 (€1,1 billion), and it was about time to turn around the curve again. While Q4 2010 was the best SW revenue quarter, the full year 2010 was still not the best in SAP's history. In 2007, SAP reported total SW revenues of $3,4 billion, followed by 2008 (€3,6 billion), 2009 (€2,6 billion), and now total SW revenue 2010 with €3,3 billion – SW revenues are still below the level of 2007! While total revenue (€12,5 billion) looks to be back on track, net new SW license revenue still remains a challenging point in SAP's balance sheet!
The new Q4 2010 revenue announcement is a very positive and promising signal, but the company needs to continue to innovate its portfolio to accelerate again new SW revenues for long-term sustained growth.
SAP customers shouldn't worry about the financial hit. SAP can pay the damages without having to rein back R&D. The pain may also stimulate it to greater competition with Oracle, both commercially and technologically, which will be beneficial for IT buyers.
Was the award fair? Well, IANAL, so I can't answer that. But my question is, if the basis of the award was "if you take something from someone and you use it, you have to pay", as the juror said, does that mean SAP gets to keep the licenses for which the court is forcing it to pay?
The $1.3 billion verdict in the Oracle v. SAP case is surprising, given that the third-party support subsidiary of SAP, TomorrowNow, was fixing glitches and making compliance updates, not trying to resell the software. The jury felt that the appropriate damage award was based on the fair market value of the software that was illegally downloaded, rather than Oracle’s lost revenues for support.
A news article by Bloomberg provides further insight into the jury’s thinking and the legal process. Quoting juror Joe Bangay, an auto body technician: “If you take something from someone and you use it, you have to pay.” Perhaps SAP should have made its case more in layman’s terms.
SAP is in a very difficult position, in that it faces the same threat of revenue loss from third-party support. It was unable to convincingly defend its entry into the third-party support business for fear of legitimizing a business that poses a similar threat to its lucrative maintenance business as to Oracle’s.
What happens to the third-party support business going forward? The size of the award potentially dampens customer interest in moving to third-party support, particularly with another case pending of Oracle v. Rimini Street. The SAP case, however, does not invalidate third-party support as a business. Third-party support, if carried out properly, offers an important option for enterprise application customers that are looking for relief from costly vendor maintenance contracts.
For SAP, the verdict is not only painful, but it prolongs the agony, because it is compelled to appeal the verdict. SAP certainly has the financial wherewithal to pay the damages but was hoping to put this embarrassing debacle behind them.