When news first rolled in, back in December, that SAP was going to acquire SuccessFactors my first reaction was – makes sense, that brings them some much-needed scale, with 15k customers and the potential for volume economics. And of course an aggressive sales force that lives and breathes cloud deals.

But then a week or so later at SAP’s annual Influencer event something began to nag at me. You see- the SAP cloud story was finally beginning to look pretty solid. The company has adopted agile development, and even some user centric design, to make its products more appealing to the end user, rather than the IT department or Big LOB. SAP’s cloud products actually seem to make a virtue of usability.

LOB Sales On Demand
Sourcing On Demand
Career On Demand
Travel On Demand
Carbon Impact On Demand
Environmental Health and Safety on demand

Given the subject in hand, lets look at Career On Demand, which is a lightweight, social-oriented human resources app. The demos I have seen so far indicate software that SAP should be able to sell pretty easily into the “Talent Management” software market. But – and this is the kicker – it would take a long time to get critical mass by building tons of tiny deals.

Just after the SuccessFactors acquisition was announced some developers I know popped up and said how much they hate SuccessFactors. It gets in their way, its an end of the quarter or year budgeting app that they don’t like to use. This isn’t end users choosing platforms, this is top down stuff. It was just like hearing complaints about Oracle Expenses from the business people I spend time with.

The final question in my mind after two days at the Influencer summit, was – would SuccessFactors get the nod from the new cloud savvy SAP if it was an internal product? I suspect not.

Given this thinking, and I make no claim to be a Talent Management industry analyst (I leave that to vendorprisey) I found this post from Jason Corsello very interesting indeed – The Biggest Misperception in Talent Management.

Jason says:

“We are starting to witness separation in the [$4.5bn Talent Management] market where size, scale and financial viability is essential for long-term survival. Market share will ultimately be determined by three factors: 1) strong ORGANIC growth, 2) continued innovation in existing and new products, and most important, 3) happy customers.”

So far so good. But then using Oracle’s Siebel acquisition as an argument from history, Jason says:

“As ERP vendors begin to “bolt on” talent management, in a mix of cloud and on-premise models, IT is likely to return as the primary decision-maker. I have yet to run into any HR professional that wants to hand the keys of the car back to IT.”

Jason argues the market will bifurcate into large ERP vendors selling their stuff through IT, and cloud talent management vendors selling directly to this business. My question then is – which one is SuccessFactors? The acquisition’s tagline is Business Execution Software. rather than Helping Employees Flow or something more human and maybe fluffy, but its precisely the fluffy stuff, the consumerisation of IT, the copying of Expensify features for the SAP’s new Expenses On Demand that marks out where the ball is going to land. The future designs for the human, rather than just the organisation. So is SuccessFactors the new Siebel, in Jason’s terms, or something else?

Salesforce.com just a couple of weeks later jumped into the market and acquired Rypple (tagline Work better, together), which talks to Social goals, and has a customer base of next generation web companies.

Once again I should stress I don’t know SuccessFactors that well (I am generally an infrastructure guy, though web app curious), and it could be that most people feel that using SuccessFactors is like breathing fresh air.

But I am left wondering whether the deal is really just about cloud scale, rather than humanisation of IT, which is where the real value is beginning to be felt. I will know more once the deal closes, and or I take a deeper look at SuccessFactors.

I am listening to developers, and we all know they can be squeaky wheels – but they also understand the value of flow better than anyone.

disclosure: SAP is a client and paid T&E to Boston for the Influencer Summit. Salesforce is also a client. Siebel is not.

I seem to only want to blog about emails at the moment, which I guess is OK. One of the mails I have in my hopper comes from the SAP Community Network (SCN). It’s an invitiation from Chip Rodgers, SCN vp and COO, to a call about a forthcoming platform migration for SCN. Now I should say the current state of the art is not so great – blogging on SCN can be a real pain in the ass.

So you would think that the community would just be happy to see an upgrade. To have something Better, Faster, Stronger.

But of course that’s not how people work. We may say we like change, but it always freaks us out.

But I have to say I am hugely impressed with the stepwise consultative approach my client SAP is taking to managing its community interactions. You see a lot of people use SCN- hundreds of thousands, or perhaps millions if you believe the marketers. The fact SAP is pinging me, a non-employee, as a stakeholder in the ecosystem platform is just excellent.

SAP has talked to the developers, mentors, partners, customers and stakeholders that matter about the forthcoming change. Nobody is going to get blindsided. Which means SAP has broughts its community along for the ride.

Developers is particularly important- they are the ones that use SCN every day. So involving them is just good business sense.

Its hard not to draw a contrast with SAP’s arch competitor Oracle, which doesn’t seem to believe that a consensus-driven approach pays dividends. While Oracle’s financials are fantastic, it has certainly stored up some ill will with recent changes, particularly in open source communities.

Large scale consultations with communities is hard, and I would just like to commend SAP right now for the approach. There is enough agression and complaining out there already. Here is to no drama. And here is to the new platform.

On that note I should also maybe say cheerio to Craig Cmehil, one of the leading lights and most loved guys in that ecosystem. Of course its adieu rather than Goodbye, but all I know is the SAP community ecosystem will miss the guy, for his skills, his passions, and his taste for jagermeister.

Kind of struggling to work out the key narratives from Sapphire this year. Well other than the fact that SAP really doesn’t like not having nerds in charge. Leo Apotheker was SAP’s first ever CEO without a development background… he lasted less than a year before getting nuked by Chairman Hasso Plattner.

The geeks are definitely and defiantly back. As I said yesterday on twitter:

I think it goes further than that. [CTO] Vishal Sikka is newly minted as hasso’s rep – the strong voice of SAP geekery

Sikka is clearly Chairman Hasso Plattner’s voice on the ground and he took an active role in the press conference that kicked the event off- he didn’t wait to be asked to answer a question – if he had something to say he jumped right up and said it. Sikka is not the voice of the customer, he is the voice of the technologist, and strong technology has always been the basis of SAP’s success.

The key technology we’re going to hear a lot more about is In Memory database – the price of RAM has cratered and servers are now packing absurd amounts of memory. Memory is the new disk, etc, which creates new opportunities for real time data analysis across huge datasets.

I won’t be here for Plattner and Sikka’s dorky keynote tomorrow, but I will certainly be watching the replay with interest. What I want to know is whether SAP is paying attention to the outside world, and the NoSQL and Hadoop/Mapreduce worlds. SAP tends to have a Not Invented Here culture, which frankly makes no sense in the age of Enterprise/Web company co-innovation. Buying Sybase certainly won’t be enough to win in the Big Data era. You can’t compete against open source and the Web. With $5.8bn SAP could have bought everyone in NoSQL a hundred times over and gone balls out with an Oracle offload play. But the street wanted to see big deals, so a big deal they got.

disclosure: Cloudera is a customer. SAP is a customer.

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

At Sapphire last week the bloggers had a great session with Timo  Elliot, one of the influx of Business Objects talent at SAP.  I was pleased that the green shoots of enterprise unstructured/social tooling progress I identified in depth last year had not been stamped out during the long night of the short knives that marks any software M&A.

No siree BOBJ.  Timo pointed to the Business Objects Relationship Analysis Server (still a prototype not a product) – which takes information from LDAP directory, applications, databases, etc… and visualises it. Quite nice actually.

Certainly the Adobe Flex front ends the Business Objects people are using are lovely enough to annoy some of the SAP not invented here old guard. As I said on twitter during the demo

SAP is going to get fresh. expect the old farts to fight back http://www.sapweb20.com/blog/

I thought it was kind of funny, though obviously not surprising, that one of the reasons SAP has been slow to turn the prototype into product is European data protection law. While American firms would consider metadata about employee interactions to be company property, under German law that is certainly not the case – no, in Germany it would be called spying.

But what entertaining spying it might be. Can you imagine the insights generated watching employee interactions during a major acquisition? How does someone come out on top in a scenario like that?

Don’t worry: there will be more analysis to come from Sapphire. This is just a warm up.

disclosure: SAP is not currently a subscription client although we are doing some project work with the firm.

I haven’t written much in the way of news from Sapphire08 in Berlin so far, except for this short piece on green process innovation or the lack of it, but one comment has really stayed with me – the quote I used for the title of this piece. I am not going to name the executive that said these words, but its clear major change is now. For SAP these will be interesting times, in the Confucian sense. The wall is coming down.

SAP traditionally stands for continuity and third mover advantage. Its a very German company with a strong culture of consensus – can you imagine a Silicon Valley firm with a co-CEO setup? The contrast with Oracle’s top down command and control approach could not be any starker. But the purchase of Business Objects may have finally tipped the balance away from the German axis that has controlled the firm for so long. 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. IBM is creating a new brand, Infosphere, to sell into the same space after its acquisition of Cognos (of which more here… For Mash Get Smash)

Some old hands such as Peter Zenke are taking a step back from active day to day management, while other new players are jockeying for position. Zenke I should add has evidently done a more than solid job with SAP’s BusinessByDesign SaaS platform. We were somewhat skeptical at first, but evidence is slowly mounting SAP has built something powerful, with social characteristics that take advantage of the network just as a SaaS app should (the community-based help functions, for example, look promising.) The beta program is being very closely managed by SAP, but early customers like what’s been delivered. [I was going to link to a piece I thought Dennis wrote on the subject of customer adoption but Goog didn't find it].

SAP had three different power centers- Israel, Palo Alto, and Walldorf, but Business Objects brings a cadre of people in San Jose, strengthening the West Coast connection. Ex-CEO and chairman of the supervisory board Hasso Plattner also maintains a fiefdom in Palo Alto focusing on driving design thinking into SAP apps.

In meetings in Berlin you could feel that things had changed. Executives were less relaxed than they had been recently. Some were putting themselves forward more aggressively. Its not clear how everything will shake out, but I tend to agree with the quote: SAP is set to go through a period of substantial and rapid change. The German contingent won’t be taking August off this year…

What does all this mean for customers? Not a whole lot at this point. Don’t expect any sudden product or strategy changes, though there will almost certainly be some changes of personnel before the Autumn.

disclosure: SAP is a customer, and paid for travel and expenses to Berlin. IBM is also a client. Oracle is not.

Picture of where the Berlin Wall used to be courtesy of Nigel James, ace PHP and ABAP developer, currently looking for a position.

SAP has long been associated with complexity and high end software, but as the IT industry reboots around hosted Software as a Service models (SaaS), the German software giant sees an opportunity not just a threat. Salesforce.com has changed the game, but that doesn’t mean SAP can’t play under the new rules.

The result – BusinessByDesign- an end to end business application suite, designed from the ground up to be hosted. The goal – delivering SAP business application functionality to smaller businesses at around a tenth of the cost of its more traditional on premises software. The suite is specifically designed to not be customised. It also shows SAP in horizontal, rather than vertical mode.

SAP now has a portfolio with multiple entry points for customers.

SAP Business Suite           greater than 2,500 employees

SAP Business All in One    less than 2,500 employees

SAP BusinessByDesign      100-500 employees

SAP BusinessOne              <100 employees

Jason sees portfolio overlap issues.

SAP is expecting 10k customers a year to be coming online from 2010. That is some serious growth. Maybe investors will be excited after all, Dennis. In fact for the business to be sustainable SAP has to sell that many seats. Its a lower margin business model.

The Concept Car approach

SAP designed to build from the ground up – to create a “concept car”. Software development for the suite was model based, running on NetWeaver. All componentry is isolated with message-based integration. SOA meets SaaS.

It seems to me that SAP still needs to get over its Not Invented Here mentality though. It built its own tools for AJAX support on the front end, for example, rather than looking to open technologies such as the Dojo toolkit. Even Apple takes advantage of open source and other people’s technology in its products, even if it hides them well…

But then like Apple, as far as SAP is concerned black boxes are ok. Its all about interfaces, not code and implementation details. Frankly, much like Apple, SAP doesn’t want third parties to build on the platform. It needs to closely control the environment to offer the right quality of service to customers. Whatever the eventual channel model- QoS will be key to BusinessByDesign success. No customisation. No platform choice. Just application services.

Or at least that was how I understood it initially. During the launch announcement it became clear that customisation may still be a big part of the BusinessByDesign story. [I need to dig into this. more later.]

Built in analytics- SAP is not going to be selling any Oracle database licenses this time around. But then again, some SAP partners, let alone competitors, may be a little uncomfortable with SAP as a hosted model. IBM’s iSeries business, for example, could see a material impact.

iSeries is an interesting platform to look at, because the target customer for BusinessByDesign is exactly the kind of shop that would traditionally buy a packaged application running on an AS/400. The kind of customer that would forget about its server and put it behind a drywall…

BusinessByDesign will effectively offer Master Data Management for SMBs out of the box. I was surprised it wasn’t positioned thus.

One interesting approach is to drive Community collaboration as a core element of the platform. SAP could learn from Spiceworks here. SAP would like to customers to help each other with tech support and business issues, which will lower its own costs. SAP also plans to minimise training cost with online help and user community interaction.

Missed Opportunities

The UI represents a missed opportunity, in my opinion and shows how SAP’s Not Invented Here approach can cause problems for the firm. I kept wondering where is the real AJAXy goodness? Hitting F5 repeatedly is hardly the key to few clicks.

i was surprised to see a search for a particular report require the user to hit the search button. Why not just have interaction between front and back end, and pop up the report names as the user types? Frankly I would love to work with SAP on this- it could take a lot of clicks out of the system.

To be fair the drag and drop modeling looks pretty solid and the ability to step back and look at all of the processes a business is using is quite interesting.

Customer Feedback

One customer said they had budgeted far higher to retool their IT infrastructure before they came across the product. Once he had gotten over the concern about outsourcing key functions they were able to deploy a “tremendous amount of capital to other areas”. Very happy alpha customers.

One classic moment came when a customer explained that he first considered BusinessByDesign when an SAP executive acquired a plane from them!

SAP has 20 customers live so far, and there were 40 in the pilot.

QuickTake

I am pretty positive about BBD’s chances in the market, and it looks a powerful set of apps for $149 per month per user. I do however feel SAP could have really smacked the ball out of the park had it driven harder on Web 2.0 front end interaction. Time for SAP to get Javascript religion.

Final Note to SAP: Take a look at Zimbra‘s demo and borrow from it. There is on need to open new browser windows all the time. Punching through contexts within one pane of glass makes apps powerful.