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.
Recently, SAP announced a definitive agreement to acquire Sybase for $5.8 billion, at $65 a share, a 44% premium over the share's three-month average price. The transaction is expected to close during the third quarter of 2010. Sybase will operate as a standalone unit under the name “Sybase, a SAP Company,” and be run by Sybase’s management team.
Although execs from SAP and Sybase have stressed mobility, real-time information, in-memory, and analytics benefits that come from this acquisition, the increasing pressure from Oracle cannot be undermined. Oracle’s stronger focus of stack level integration and selling around applications, middleware and database, and recent acquisition of SUN has put pressure on SAP.
SAP-Sybase Deal Offers A Lot Of Synergies
SAP and Sybase offer many benefits ranging from in-memory technologies, databases, analytics, and data integration to mobility and ILM.
Most of us have already heard that Sybase will become part of SAP — or, to be more precise, that SAP and Sybase announced that SAP's subsidiary, SAP America, Inc., signed a definitive merger agreement to acquire Sybase. When this acquisition takes place, there will be various impact areas across SAP and Sybase’s combined portfolio. Rather than discussing this big picture, I would like to focus on SAP for Banking.
Finally, SAP Is Acquiring (At Least A Mobile) Middleware
SAP’s customers and the analyst community have been speculating about the possibility of SAP acquiring a middleware company for a while. After it had missed out on acquiring one of the heavyweights like BEA and hesitated over TIBCO and Progress Software, SAP and Sybase agreed yesterday on the $5.8 billion transaction.
Sybase used to be a database, but its database’s visibility in the market decreased so dramatically that, in a recent Forrester survey, it wasn’t considered to be a primary database choice by any application domain. A good share of the 4% of open source databases used in the ERP space are actually SAP’s open source MaxDB (based on SOFTWARE AG’s original ADABAS D), which is a default for SAP systems if a customer doesn’t provide a third-party database like Oracle or DB2. SAP is unlikely to replace this default database with Sybase. This would be an even less important database than MaxDB, which integrates well with NetWeaver. But different analysts have different opinion and you might like to look for Boris Evelson's take on the impact of Sybase's database. If SAP runs a careful post-merger process, it will recognize Sybase’s database knowledge and employ all the engineers who have already developed in-memory database capabilities to bring Hasso’s idea from the Palo Alto “garage” to full product availability. While SAP has deployed in-memory capabilities in its analytics technology stack, the in-memory capabilities for transactions are still in the lab.
For those of you unable to attend, I will summarize some of the content that I presented on SAP’s overall growth and innovation strategy. SAP has a double-barreled product strategy focused on Growth and Innovation.
The Growth strategy rests heavily on the current Business Suite, which includes the core ERP product that is used by approximately 30,000 companies worldwide. SAP claims that it touches 60 percent of the world’s business transactions, which is hard to validate but not all that hard to believe. The main revenue source today is Support, which comprises 50% of the total revenues of the company at more than 5 billion Euros annually, and it grew by 15% in 2009. Other growth engines include:
Hopefully you’ve all read SAP’s co-CEO’s open letter to you (http://ceos.blogs-sap.com), and also some of the great responses such as this one: http://bit.ly/b5foPD . With all these open letters flying around, I thought I’d write a slightly different one. Unlike most of my fellow commentators, I’m not going to tell SAP how to run its business. Instead, I’m going to give you, its customers, a suggestion on how you can cut the cost of your SAP environment. You ready? The answer is “buy less stuff from them”.
Actually, it is not as facile as it sounds. Many companies that I speak with automatically favour their incumbent vendors for new projects, while their IT vendor managers complain to me about their negotiation impotence. You won’t be able to get the contractual protection you need, such as limits on CPI maintenance increases, unless you make them a condition of future purchases. Large software companies such as IBM, Oracle and SAP focus predominantly on license sales. It wasn’t customers’ unhappiness, resulting from the Enterprise Support blunder, that caused SAP to fire its CEO and rethink its approach. It was the fact that you showed that unhappiness by voting with your purchase orders, delaying projects, going to competing vendors, and causing SAP’s license revenue to plummet. When Jim and Bill promise to “accelerate the pace of the innovation we deliver to you”, the d word is a euphemism for ‘sell’.
Sikka made two comments that indicate how he's thinking about the NetWeaver portfolio.
1. In response to my question about whether SAP is concerned that Oracle's ownership of Java will put it at a disadvantage, Sikka started by highlighting SAP's work on Java performance, but then noted the availability of good open-source Java software to support the requirements of SAP customers.
Hi, I'd like to share part two of a recent discussion that I had with Martin Schindler, Editor of Silicon.de. See part one here in case you missed it.
Martin Schindler: You indicated earlier that interest in third-party maintenance has increased since SAP wanted to make its Enterprise Support basically mandatory. Is this just excitement or real demand?
Stefan Ried: Yes, interest has increased. We're also seeing that from the vendor side. In addition to Rimini Street, which already offers maintenance for SAP systems, there is also Aptech, netCustomer, the Spinnaker Management Group, and Versytec, which are today limited to PeopleSoft, JD Edwards, and Siebel. The vendor space has developed further, and the list of SAP-supporting vendors will soon become longer. Finally, it makes sense to ask the larger systems integrators, such as Wipro, Tata Consultancy Services, IBM Global Services, and Siemens (SIS), which are also the largest SAP integrators, to quote for offering SAP third-party maintenance.
Martin Schindler: This is interesting. We've read little about such offers.
Stefan Ried: These integrators naturally don't make a lot of noise about these things, as they also have a partner relationship with SAP, of course. At the end of the day, the demand will be balanced with the supply — and if more customers request SAP maintenance from their systems integrator, they will start to offer it.
Martin Schindler: Is this profitable for integrators?
I'd like to share a recent discussion that I had with Martin Schindler, Editor of Silicon.de
Martin Schindler: There are experts who talk of a non-existing market when it comes to SAP third party maintenance. Is that correct?
Stefan Ried: You could have the impression, especially for Germany, because companies remain very close to SAP and many have decided for a Single-Vendor-Strategy. But in other countries it is much less the case. However the price politics of SAP in the last year and now the slow innovation speed has raised the discussion of alternative maintenance model again.
Martin Schindler: Are there German users with real interest in obtaining maintenance for their SAP system through another company?
Stefan Ried: Yes, there is definitely interest.
We regularly make, and particularly in the last year, sample calculations for users (as well as for system integrators) if it is worth going for third-party maintenance. It depends on various factors, whether it is worth it.
Martin Schindler: What do these factors look like?
Stefan Ried: Companies must check, for example, how much "know-how" exists in-house. Third-party maintenance can work very well, if not everything from SAP-Maintenance is needed. This is for example the case, when parts of the SAP-System are regarded as frozen, small legal changes follow, or to repair a bug. With this technical problems, compatibility with operating system patches, performance problems within an established system can be addressed and the system can operate securely with very little change. So, third-party maintenance vendors can, especially for older SAP systems, work very well.
After the recent board changes the strategy will change too
After the recent board changes at SAP the message we could read in most news was like ‘new board – old strategy’. Along with the board changes SAP did not announce (yet) any significant strategic changes. But what good is it to change the board and leave everything else as is?
The recent SAP board changes are just the visible tip of the iceberg of much deeper changes SAP will and has to go through to renew itself as a leading IT vendor. Below are 10 predictions for changes in SAP’s strategic direction I expect within the next 10+ months:
1. More SAP Board Changes Will Come
Additional board changes will further strengthen the product & technology focus and competence within the SAP board. See also Forrester’s blog on the recent SAP board changes: SAP CEO Resigns – Long Live The Co-CEOs
2. Business ByDesign Will Get Back Into SAP’s Strategic Center
Business ByDesign will become again the corner stone of SAP’s growth strategy and the successful introduction will mark a ‘make it or break it’ milestone for SAP.
3. SAP Announces The Next-Generation ERP
SAP will announce a next-generation ERP solution to regain leadership in its core business area and it will likely be based on the ByDesign platform.
4. SAP Changes Its Cloud Strategy
SAP will rework its whole On-Demand strategy and will unify and align all components based on the ByDesign platform. See also Forrester’s recent blog on SAP’s On-Demand strategy: SAP Is Skydiving Into The Clouds.