I didn’t catch the SAP 4th quarter earnings announcement this week because I really didn’t pay attention to it. Larry Dignan makes a very good point about the trends behind the miss, a point that I have made repeatedly on this blog, most recently here and here, and in fact, the very reason I left SAP.
Big enterprise executives keep missing the point, their business model is not about a technical platform anymore but a goto market platform.
SAP and Oracle both still think it’s about market domination when in fact they should be driving consumption of their software services through any channel that gives them that opportunity. This doesn’t mean you give up on the license business, in fact there is still a lucrative business built around that insofar as it is an annuity, but the overwhelming evidence supports my case: this is GDP plus a couple of points growth and because it’s a mature market the share slices are hardened, which equals the unavoidable conclusion that any reliance on the “global 50,000″ is going to result in a long term slide in share valuation.
This also implies they have to rethink their channel strategies and they do because SMB, for all their hornblowing, is still not a major growth engine for SAP or Oracle. If your channel strategy relies on a VAR or SI taking your product off the shelf, adding some integration, and then delivering the product to a SMB customer, well you are dooming yourself to failure in light of how big the opportunity is and how constrained you have made your delivery vehicle. SAP says they have 10,000 BusinessOne customers globally yet there are 90 million small businesses in the U.S. alone when you go down to 10 employees and less. Okay, so maybe that small isn’t a target for any services automation outside of marketing and sales, but the addressable market is still 37 million businesses when you go up to 100 employees as a floor. These businesses don’t want and will never invest in significant on premise IT because they just shouldn’t.
Back on the technical point for just a minute, I wrote earlier that this future we are finding ourselves in is not about technology but about a business model. To be more direct, it’s my opinion that SAP and Oracle should be in a race to commoditize NetWeaver and Fusion Middleware respectively by giving it away to everyone – and I mean everyone – that wants it. This implies open sourcing it as a means of kicking distribution up, but whatever the vehicle it’s second order to the primary goal of making it broadly available for free. Ismael Ghalimi wrote a post last year that went into exquisite detail on why SAP should do this, you could substitute “Oracle” for “SAP” and it would still hold up.
I’ll be the first to admit that there is a tremendous amount of complexity in enterprise IT but you simply can’t avoid the point that making a smaller version of a complex product is not the way to deliver a more simple version for a market that rejects complexity and cost. I also dismiss the notion that a business is held hostage by the business model they have when in fact it is really the failure of leadership to embrace the business model that a market(s) wants.
Zooming the picture out a bit Barnicle notes that new technologies are working against both SAP and Oracle. “On-demand solutions, open-source applications and service-oriented architecture (SOA) are all working against SAP and Oracle. With SOA, enterprises can more easily build custom applications and are less dependent on packaged applications from SAP,”