To paraphrase Charles Dickens, Q2 2010 seemed like the best of times or the worst of times for the big software vendors. For Microsoft, it was the best of times; for IBM, it was (comparatively) the worst of times; and for SAP it was in between. IBM on June 19, 2010, reported total revenue growth of just 2% in the fiscal quarter ending June 30, 2010, with its software unit also reporting 2% growth (6%, excluding the revenues of its divested product lifecycle management group from Q2 2009). Those growth rates were down from 5% growth for IBM overall in Q1 2010, and 11% for the software group. In comparison, Microsoft on June 22, 2010, reported 22% growth in its revenues, with Windows revenues up 44%, Server and Tools revenues up 14%, and Microsoft Business Division (Office and Dynamics) up 15%. And SAP on June 27, 2010, posted 12% growth in its revenues in euros, 5% growth on a constant currency basis, and 5% growth when its revenues were converted into dollars.
What do these divergent results for revenue growth say about the state of the enterprise software market?
I joined an impressively large crowd at SAP’s World Tour event in Birmingham,UK, last week and was able to spend an hour with Tim Noble, head of SAP’s UK and Ireland business unit, and Chris McLain, who leads SAP’s team focusing on its 150 largest accounts in EMEA. I'm writing an update of my 2007 report "Effective SAP Pricing And Licensing Negotiation" and wanted to know what they thought about the clash between traditional deal-based sales incentives and Forrester’s clients’ need for commercial flexibility and more recognition, by their key software providers, of the wider relationship. It’s a topic I’ve raised before (http://blogs.forrester.com/duncan_jones/10-03-19-open_letter_season_sap), and I was very pleased to hear some things that SAP is doing to reduce this conflict.
I explained why, from my research, software vendors’ insatiable craving for recognizable license revenue at the expense of creating shared incentives for success is damaging to customers and to the vendor. Both Tim and Chris clearly understand the problem. Tim keeps reps on the same accounts for several years and rewards them for metrics such as customer satisfaction to avoid the revolving door sell-and-run approach that characterized software selling before the advent of SaaS. Chris has a team of Global Account Directors that works with local sales, pre-sales, and delivery teams to provide the holistic view that Forrester clients want and struggle to get from SAP’s competitors.
We just published a new report entitled "The Evolution Of Cloud Computing Markets". It recaps many of the cloud computing market observations from the last two years and categorizes the business models in a consistent taxonomy. Basically all current offerings from pure Infrastructure as a Service, in the upper left, via virtualization tools up to SaaS applications can be categorized by this. We explain the key characteristics of each business model and give vendors guidance to position and communicate their cloud service.
Beyond the preview on this blog, the full document predicts the future market momentum around:
Informatica is one of the traditional leaders when it comes to data quality and data integration. More than 4,000 customers trust Informatica's software products globally and drive more than half a billion dollars in revenue. Informatica solves many of the traditional data integration challenges, for example, between custom developed apps and packaged ERP solutions. As a result, IT operations professionals and enterprise architects are well aware of Informatica’s solutions. However, what has gone under the radar so far is Informatica's cloud computing approach. For about two years now, Informatica has provided www.informaticacloud.com, a cloud-based integration offering, for customers. Informatica recently announced a new version of this service, and Forrester had the chance to talk to the vendor prior to the launch. The new solution offers an improved service for data quality, B2B data transformations, and a number of continuous improvements. But what really caught my attention is Informatica's well-kept secret of a sophisticated agent technology.
Back-office managers and European customers have ignored the message — until now
Some days ago at Forrester’s IT Forum in Lisbon (June 9-11) I gave a presentation together with my colleague Andy Bartels on the IT market recovery (we predict a 9.3% IT market growth in 2010) after two economically challenging years in 2008/9. In fact, we were making the point that the market rebound we currently see is not simply a recovery but the beginning of a new IT hyper growth phase fueled by a new wave of innovation.
A strong driver of this innovation is what we call Smart Computing at Forrester: the integration of physical world information into intelligent IT-supported business processes in 4 steps: Awareness (via new sensor technology), Analysis (with advanced BI solutions), Alternatives (including rules and process engines) and Action (in industry business applications), plus a 5th feedback loop of Auditability for tracking and learning.
A well-known example of smart computing solutions is smart metering in the Utilities industry. In another presentation in Lisbon, a colleague asked the audience, a room full with all the leading IT service companies, who all had an initiative running with smart metering – everyone in the room raised their hands. Then he asked who actually had more than 1-3 (pilot) projects running – and almost no one raised their hand.
Is smart metering just hype that everyone is jumping on or what is the reality of the lighthouse example of smart computing at this point in time?
TECH DEVELOPMENTS: I have been re-reading Clayton M. Christensen’s The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail in preparation for a session that Chris Mines and I are running on adapting to the Next Big Thing at Forrester’s IT Forum 2010.* Last week, I attended SAP’s SAPPHIRE NOW conference in Orlando, listened to co-CEOs Bill McDermott and Jim Hagemann Snabe, and met with McDermott along with other Forrester colleagues. The juxtaposition of the book and the event caused me to wonder: is SAP like one of the highly successful companies in Christensen’s book that failed to adapt to disruptive technologies? As Christensen noted, “the managers of the companies studied here had a great track record in understanding customers’ future needs, identifying which technologies could best address those needs, and in investing to develop and implement them.”
Everything that McDermott and Snabe said was consistent with these characteristics. They talked about how companies were facing a world of mobile, empowered customers; their need to be connected with each other to optimize the value chain through to the end consumer; the desire for new process flows; and the importance to them of fast decision-making. They identified a combination of on-premise, on-demand, and on-device solutions that SAP will be offering to meet these needs. They discussed SAP’s investments and new offerings in these areas, including its acquisition of Sybase for its mobile solutions and real-time analytics capabilities.
In addition to my software pricing and licensing research, I also study use of technology to improve procure-to-pay (P2P) processes; so, I'm always interested in customer presentations at software company events, in case I can spot some new best practices or interesting trends. This week I’m at Ariba LIVE in Orlando, but last week I was at SAPPHIRE NOW in Frankfurt, where I attended a presentation by a project manager from a large German car manufacturer talking about his rollout of SAP’s SRM product. Given that it wasn’t in his first language, the presentation was very good, and quite humbling to an anglophone, even a relatively multi-lingual one. (I can say “two beers, please” in eight other languages, but wouldn’t dream of presenting in any of them).
However, the overall case study was disappointing. I won't name the company, but I’ll just say that the SRM implementation didn’t look to me like as good a “leap forward through technology” as I expect to see in a showcase presentation. In particular, I was disappointed to see that this company is:
This year SAPPHIRE officially changed its name and became SAPPHIRE NOW. Why? Different answers from different people. Those that should know said: "The new name stresses the urgency." Urgency for whom, SAP? And will the next SAPPHIRE be named SAPPHIRE THEN? Never change a successful brand.
Another premiere for SAPPHIRE was the simultaneous show in Orlando, US and Frankfurt, Germany. With 5,000 attendees in Frankfurt, 10,500 in Orlando and 35,000 online participants, this was the biggest SAPPHIRE event ever. I must admit I was concerned going to Frankfurt while everyone in Walldorf desperately tried to escape to Orlando. Who wants to attend a second-hand event? But now I’m a believer. SAP managed to balance the important parts of the show between Orlando and Frankfurt. Keynotes were held simultaneously in both locations via virtual video connection and speakers in both cities. In general I never had the feeling I would miss anything important in Frankfurt simply because it was the smaller event overall. It didn’t make a difference if I couldn’t attend another 400 presentations in Frankfurt or 800 in Orlando from the total of 1,200+ presentations – I had a packed agenda and got all that I expected and needed, including 1:1 meetings with SAP executives like Jim Snabe. The simultaneous, virtual set-up not only helped to save a lot of cost, it created a sense of a bigger virtual community and underlined SAP’s ambitions for more sustainability. To all that traveled intercontinental: Shame on you, next year stay in your home region!
Like every show SAPPHIRE 2010 had its stars as well:
Today, Google announced Google App Engine for Business, and integration with VMware’s SpringSource offerings. On Monday, we got a preview of the news from David Glazer, Engineering Director at Google, and Jerry Chen, Senior Director Cloud Services at VMware.
For tech industry strategists, this is another step in the development of cloud platform-as-a-service (PaaS). Java Spring developers now have a full platform-as-a-service host offering in Google App Engine for Business, the previously announced VMforce offering from salesforce.com, plus the options of running their own platform and OS stacks on premise or in virtual machines at service providers supporting vCloud Express, such as Terremark.
What’s next? IBM and Oracle have yet to put up full Java PaaS offerings, so I expect that to show up sometime soon – feels late already for them to put up some kind of early developer version. And SAP is also likely to create their own PaaS offering. But it’s not clear if any of them will put the same emphasis on portability and flexible, rich Web-facing apps that Google and VMware are.
So Google aims to expand into enterprise support – but will need more than the planned SQL support, SSL, and SLAs they are adding this year. They'll also need to figure out how to fully integrate into corporate networks, the way that CloudSwitch aims to do.
Here at the European half of SAP’s global customer event, I had a chance to ask some questions of one of SAP’s co-CEOs, Jim Hagemann Snabe. Unfortunately I didn’t have time to ask for some advice to my country’s leaders on how to manage a two-party government, because it seems like he and Bill McDermott are very happy with their own coalition.
It's very encouraging that Hagemann Snabe, along with other SAP executives I’ve met here, acknowledge that SAP has made missteps over the last year or so, although they are still very confident that they know how to fix the company’s problems. There’s a thin line between positive spin and misplaced over-confidence, so hopefully, in private, he recognizes the challenges he faces. Still, I’d like to see more willingness to accept that SAP doesn’t have all the answers and to get advice from outside the organisation, to help it become customer-centric instead of sales-transaction-centric
Both CEOs want to talk only about new revenue opportunities: increasing SAP’s addressable market, the potential of new on demand products including Business ByDesign, and mobile solutions based on the proposed Sybase acquisition. I asked Hagemann Snabe to explain how he’d improve the value for money that existing customers will get for their maintenance revenue. He mentioned the introduction of customer choice between the Enterprise and Standard support offerings, although that isn’t much of a choice since CPI increases on the latter make it cost almost as much as the former. He also stressed the importance of the ‘Innovation without disruption’ enhancement pack system, which will now be delivered in one simultaneous release each year, across all product lines.