A few months back I attended BusinessCloud9, a really excellent event run by my old mate Stuart Lauchlan, looking at cloud-based business applications. It was the least dorky Cloud show I have been to by some margin- the room was chockful of suits, with budgets.

Anyway – one story really stuck with me…  because it utterly nails the benefits of the Cloud model for business applications.

Zack Nelson, CEO of Netsuite summed up the value of the model: Value Added Tax or VAT.

During the teeth of the financial crisis the UK government cut VAT by 2.5% to stimulate businesses. For companies running traditional on premise business applications this was a total nightmare. Didn’t matter whether you were a small business running Sage or a FTSE100 firm running Oracle Financials this was a painful change to make. Retailers were in a tough spot. How were they supposed to make all their systems compliant with the rule change.

Unless, that is, they were using hosted Software as a Service (Saas) applications. With the cloud, a change like this can be rolled out to every customer overnight- as easily as Google rolling out a new service.

So next time someone asks what’s the Business Value of cloud you can just say read my lips – Some. New. Taxes.

My efforts at cloud definitional work began with 15 Ways to Tell its Not Cloud Computing. In the intervening time the forces of complexity and, yes, pragmatism have triumphed. We’re now making the long transition from simple and public to complex and private – hopefully some simplicity will make it through the process.

Talking of simplicity, one of the problems in any tech wave is the problem of language. Cloud, like SOA before it, suffers from being everything and the kitchen sink. Funnily enough my name is an anagram of Removes Jargon, and in that spirit I just wanted to amplify some home spun wisdom from our very own Michael Coté.

The other day I was reading some of his notes and came across this line of beautiful simplicity.

a simple mapping:

• IaaS = servers, storage
• PaaS = middleware
• SaaS = applications

There now, that wasn’t so hard was it? Now that is what I call a burger. The next time someone tries to take you through 30 slides explaining the cloud you can just nod sagely, and say… “ohhhh. you mean servers, middleware and apps. Yeah I get it.”

I just got back SAP’s Influencer Summit for 2009 in Boston. The company seem to be finally emerging from what can only be described as an annus horribilis. 2009 was not a good year for SAP. Sales are down, perceptions are more negative than they have been in a long time because of potential maintenance fee hikes, and Cloud looks like a weak spot because the firm still hasn’t driven any volume through its Business ByDesign platform.

To be fair to new CEO Leo Apotheker he was dealt a pretty tough hand – who wants to take the reins just as the world economy goes into meltdown? That said a more consultative, less confrontational approach to discussions about the maintenance changes could have paid dividends. So what’s been happening?

SAP has been reengineering its operations and focus after the Business Objects acquisition, with the rise and rise of the a free-wheeling culture of information integration and analytics. The most obvious signs of change are new company leaders – at board and VP level.

Things have taken longer to shake out than I expected when I wrote “There’ll Be More Change at SAP in the Next 6 Months Than The Previous 30 Years”. But shake out they have.

SAP wants to get into situational, unstructured apps that cross boundaries but it will need a new mindset to get there. The company doesn’t currently think in terms that allow for uncertainty- every process must be tightly bound. But managing knowledge is an inexact science.

Marge Breya is now executive VP and general manager, Intelligence Platform and SAP NetWeaver Group. Think about it. A non German woman is running Netweaver. I love the fact she does all her down demos. No need for Ian Kimbell. Here is a video interview:

Another executive that has been repeatedly promoted in a very short space of time is Jonathan Becher, now EVP of Marketing. Jonathan is a very different animal from your normal Walldorf marketer. I should point out that I consider him a friend, as well as a client, if I am to say good things about him. I mean how many analytics marketers do you know that would argue against collecting more data.

We have descended into measurement madness using the motto “you cannot manage what you cannot measure”. Our obsession with metrics means we’ve lost sight of business outcomes. “Not everything that counts can be counted and not everything that can be counted counts”. Perhaps organizations would be better served to focus on what they are trying to achieve than to just keep score.

Not your granny’s SAP then. So what is the lanyard thing in the photo? Its a weird device called an nTag for conferences. It can be used for spot polls during sessions, or to track which sessions are attended, or to swap contact details. What made me chuckle though was that SAP chose not to enable the nTag web site for data sharing due to privacy concerns. The device seems like a great metaphor for the old SAP. Proprietary, heavyweight (seriously, the thing weighs a ton), a data roach motel. Some potential for innovation but too much of a closed network to really do the business. Vinnie likes to think he has a nose for innovation, but the nTag is not it.

Build a web app next time, chaps. Use PhoneGap (client) so you can write an app that runs on Blackberry, iPhone or Android. Lets take the millstone off our necks and start innovating.

I am on the record as saying SAP Business ByDesign, the company’s SaaS suite for medium-sized businesses is going to be a huge success, a somewhat contrarian position.  Three pieces of news from the Summit confirmed my thinking

• Blades powerful enough to run the system at reasonable cost are now available
• SAP has decided to get into bed with Microsoft and an army of .NET developers and VARs by tightly integrating ByDesign with Visual Studio.NET for model-driven development and UI work and customisation. Think about it – SAP now sees Microsoft code as part of its Platform as a Service play for ByDesign, extending the Java/Netweaver based back end and creating margin opportunities for firms that want to sell, say, Carpet retail apps, or other micro-verticals.
• SAP is now finally saying multi-tenancy is solved.

Everything is in play. We’re likely to see a new Information Worker brand, and product set. Netweaver is now just plumbing. A means to an end.

Meanwhile John Wookie, ex-Oracle, is running SAP’s On Demand offerings play. He is not focusing on plumbing, but business apps.  SAP made some big claims for this business, so I need to drill into the customer base, but the new blood has brought a lot of confidence to SAP’s play here. And what a wasted opportunity by IBM- I always felt On Demand was a brilliant play. I mean do business people want to hear about “Cloud” or On Demand? I think the latter.

I am not saying the 2010 is going to be a bumper year for SAP, but it at least feels like some hygiene factors are being worked out, and there are some cool new products to sell if SAP can work out the business model.

There is more to say based on the summit, but for now, that’s a wrap.

SAP is a client, and paid T&E for the event. Microsoft is also a client, as is PhoneGap.

I went to an SAP event last week to hear what some SMB customers had to say about the vendor. I was pretty impressed with their openness in talking about experiences using SAP products including BusinessOne, ByDesign and All-In-One (you didn’t expect SAP’s portfolio to be elegant, did you?)

Dennis Howlett did a great summary job on his his own own blog, and on ZDNET.

Could SAP be right for you?

SAP’s brand recognition across Europe is a lot stronger in the SME market than I thought. It is often a significant determinant when making a purchasing decision

The ability to become part of the SAP ‘family’ matters in some industries where large business partners may be SAP customers

Fast track implementation is possible. It doesn’t need to take forever nor does it necessarily imply an army of consultants if you make good use of best practice templates in SAP vertical market industries

Our Key takeaways – For many European small businesses running SAP is something they aspire to. These shops want to run SAP so they can sit at the same table as their bigger customers. “The best run businesses run SAP” – seems to have sunk in, in Europe at least. Considering how angry some major European SAP customers are over recent hikes in maintenance fees it makes a lot of sense it makes an awful lot of sense to focus attention on a new market segment without the negative baggage, and without the traditional packaged software license/maintenance model!

SAP and SME’s: an update

• Yes, you can buy it – I’ve met ByDesign customers who are in production on the service.
• Yes, SAP has scaled back its marketing efforts for this product line significantly.
• No, you can’t just walk up to SAP and get it. SAP has 45 reference customers and wants to reach 100 reference sites before hitting the marketing and selling gas pedal. It therefore qualifies in the kind of customer it wants during this slow burn phase.
• Yes – SAP still has technical issues with the service that keep its TCO higher than where it wants to be but that is improving.
• Yes – the product is getting better. The release of FP2 shows significant enhancements, the GUI looks great and screen performance, even on poor networks is impressive. It is a world apart from where they were when ByDesign was originally launched and should be a strong contender.

Reporters love a negative story,  as do many enterprise software analysts, and together they seem only too ready to label SAP’s Business ByDesign suite a failure.

Me? I suspect Dennis may be closer to the truth.

ByDesign is setting a benchmark for what it means to acquire, configure, implement and run 21st century software and that will, in the long term, impact all of SAP’s product and service lines as well as the ecosystem. However, I believe the market is so large for what they are attempting to do in this segment that naysayers will end up eating their own words. The fact ByDesign (and to a lesser extent All-In-One) is reaching many more users in an organization than the Business Suite should be telling SAP and its detractors something.

What you have to understand about Business ByDesign is that its not just salesforce automation – its an end to end, fully integrated Financial and Resource planning suite- its got everything that an export-driven mid-sized German process engineering company might need to run its business. Order to specification- sure. This is not case and salesforce management. Its an extremely complex product. I think ByDesign could even begin to swallow R/3 implementations, just as R/3 replaced R/2 – although both were originally intended for different target markets. Of course its not just outsiders that are down on ByDesign – there are plenty of people within SAP that have now decided ByDesign is a failure. Me? I think that’s a failure of nerve, and imagination. SAP has taken on a major engineering and management challenge in making the software consumable as a service. That is, ByDesign is the very much the new R/3.

The High Cost of Low Volume.

R/3 eventually displaced R/2 because it was a volume product. With its channel, product, services ecosystem R/3 was very much as Architecture of Participation. Business ByDesign takes some of that thinking forward for the net age (well without the Big Consulting channel obviously, and problematically).

I can’t understand why SAP isn’t making more noise about quick and dirty integration with the likes of Google, Navteq and Hoovers. Web service integration out of the box for the win. API participation is one way to drive a platform. Just ask Google maps…

But what about volume? That seems to be where the SAP model is falling down badly. While I fully agree that a managed roll out makes sense for the product, SAP appears to be drawing the wrong conclusions from its own rollout. The software giant’s current top argument for not rolling ByDesign out more quickly is that its not clear how to drive down total cost of ownership far enough to drive margins up and make the product profitable.

There is a certain irony in SAP not being able to externalise the cost as it did during the SAP R/3 wave, when we all knew implementation services would cost the customer at least ten times what the software cost. With ByDesign in stark contrast, SAP has to swallow that cost, and not pass it onto the customer this time around.

So we end up talking about TCO in relation to multitenancy and the cost of virtualisation software. Note to SAP – there is some really good open source virtualisation software out there. How do you think the Web companies do it? Ah yes- how do you think the Web companies do it? One answer is using open source. Another is volume. The weirdest number I heard at the event came from Rainer Zinow, Senior Vice President Business ByDesign – he said SAP pays $5k per server blade.

I can only assume this was a mistake, because if not- that’s just crazy. No wonder total cost of ownership doesn’t make sense. Is SAP paying list price to Fujitsu or something? Are the blades made out of platinum or something?

So list price at low volume is of course going to make a service look expensive to run. If on the other hand SAP was buying low cost vanilla blades price could come down. And if SAP sold at volume, then the price would obviously come down dramatically.

My point is this – SAP can’t take advantage of volume and commodity IT economics unless it rolls the service out in volume, and it can’t roll out the service in volume until it takes advantage of volume economics. Basically SAP needs to think more like a VC-funded startup in order to get through this impasse. Without volume of course it can’t bring cost down.

What is GA, Anyway?

A few words on GA before I wrap up. While SAP says BusinessByDesign is already Generally Available (GA) in six countries, in fact this is a managed, pre-qualified rollout. Customers have to be willing to be public references, and SAP is being quite choosy about who it lets in.

Rather like Apple with the App Store, SAP wants to closely manage the experience, and who can blame the firm (well apart from the volume economics issue laid out above). I find it hard to criticize SAP for its approach, but the name doesn’t seem quite right either. ByDesign is not in alpha or beta mode. It has been launched. It is in that sense GA, just not GA as we normally think of the term. If you have a better term for a managed rollout please let me know.

Update- saw a tweet from David Rosenberg today that stood up my argument with some benchmarking data. Apparently the margins only really kick in once a SaaS vendor reaches a $25m runrate….

disclosure: SAP is a client.
photo courtesy of Mike Lao on Flickr, creative commons attribution 2.0 license

It has long been my contention that IBM wasn’t taking enough risks when it came to creating new markets. Everything always had to be all about the The Companies Who Run The World, the Fortune-We-Don’t-Use-37Signals-Hundred. IBM wasn’t going to invest in things without a guaranteed payoff- R&D becomes a purely customer-led and paid for phenomenon.

Clearly I was dead wrong. Check out the New York Times:

I.B.M. reported a solid 12 percent gain in net income for the fourth quarter, bucking the trend of steep declines for many technology companies amid the economic downturn and surprising Wall Street. The company is seen as a bellwether of global technology spending among corporations. Yet its strong performance in the fourth quarter, analysts say, mainly points to the success of its strategy in recent years of tilting toward higher-profit software and services and reducing its reliance on the computer hardware business, which suffers more in down economic cycles.

IBM has heft and fat and weird bumps all over it – its like an Elephant rather than an Intel thoroughbred.

Last week, the chip maker Intel reported that profit fell 90 percent in the fourth quarter.

When you’re hunting the Savanna for water in the dry season follow the Elephant every time. Specialisation is evidently not such as a good place in a down economy. IBM isn’t a bellwether, its far more than that. Big Blue is a major economy in its own right- and an unusually successful one.

IBM’s current financial performance almost seems freakish. We’ll see if it can sustain its good run through this depression- but I do know IBM, like Cisco, is viewing the current situation as an opportunity. If IBM didn’t get the respect it feels it deserves on the way up, its going to make damn sure it gets it on the way down. We can expect more acquisitions, lots of hardcore plays against competitors and so on.

But don’t discount the company’s organic portfolio either. Lotus is the latest IBM software brand to get an extreme makeover. This is a long time project, almost Quixotic in nature. That is – Lotus is the brand everyone loves to hate. People that used Notes in 1995 are still bitching about the experience But IBM’s collaboration tooling is reaching a very interesting place right now:

Here’s the deal: whenever a vendor does something that I think is, all around, a good idea, I start to get suspicious of myself. It’s that demo glow thing. Worse, when they start finally doing something they should have been doing so long ago, but haven’t, that you’ve given up believing that they would actually do it…you’re sort of all screwed up in your head in this analyst business.

That, dear readers, is my reaction at 20,000 feet (literally and figuratively) to this year’s Lotusphere. IBM actually released an application that ends in a .com. They’ve got SaaS, friends, and they’re not ashamed of it.

IBM’s new mashup server tools rock, frankly. If the company can get people over the brand hump (Ed- wait, is this an Elephant or a camel?) it will do well in the Enterprise 2.0 space, which some even argue will subvert the nature of the Firm. I wanted to be at Lotusphere this year because I knew all this cool stuff was coming. I had to follow it on twitter instead. As my man John Simonds says:

we are using twitter @lotusphere to follow all the traffic. More tweets than blogs this yr, a social shift

Lotus headbanger Ed Brill makes much the same point.

While I have tended to say things like Facebook for the Enterprise… is Facebook (cheers Den!) or wonder how to integrate enterprise directories with web social networks IBM keeps replicating the cool stuff with enterprisey bells and whistles. Bluehouse, now called LotusLive, is the latest example of same. Soon enough IBM customers will be playing with a rebranded BlueTwit, IBM’s currently internal Twitter clone.

Unlike web companies IBM does its “perpetual betas” behind the firewall- like I say heft makes a lot of difference, if it means a user population of 330k+.

So IBM is a follower, a second or third or fourth mover advantage kind of play, but it does have some increasingly hot software platforms. I like everything about Jazz.net for example, except for the sticker shock and the license model.  Can IBM grok the new world – that is no longer the question. The question now is can everyone else survive while we remake the world?

As I have said before IBM is quite serious about the Smarter Planet. When Barack Obama talks about creating 4m new jobs in 2 years he has IBM data to back him up. Never mind chasing the New New Thing this is about getting paid in the New New Deal.

I used to think Stephen my business partner was a little too cautious. Now I am just really happy we have zero debt and money in the bank. I am sure there are a lot of people at IBM feeling the same way right now.

My advice to large enterprise customers- check out the new Lotus tools, they might surprise you. And you know IBM isn’t going anywhere. IBM’s competitors meanwhile- check out the rear view mirror – the Elephant may be closer than you think.

disclosure: IBM is a major client.