SAP, Oracle under the SOA, on-demand gun

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.

» SAP, Oracle under the SOA, on-demand gun | Between the Lines |

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,”

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13 thoughts on SAP, Oracle under the SOA, on-demand gun

  1. You hit it on the nail. The enterprise software industry is in denial about the need to really focus on SMBs. What’s preventing the big boys from making an affordable Model T for the new class of buyers? You say it’s not about technology; it’s about the business model. I agree.

    Now changing business models has always been hard. Digital never adapted to the PC world. United is still struggling to embrace the lean elements of the SouthWest model. Yet, in a way, this problem is even bigger than a business model change.

    Having been at Bell Labs before, I have seen how past success can become an enemy of change. In the enterprise software industry, success has been based on a technology-push mindset. What’s now needed is a customer-centric approach. Changing legacy mindsets is even more difficult than changing business models. So, unfortunately, much more pain is in the future for these firms.

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  3. Jeff, why would anyone want to do anything with NetWeaver or Fusion except for current SAP and Oracle customers respectively? Nobody else wants it. They might as well charge for the folks who need it.

  4. Samir,
    I disagree that outside of the customer base nobody wants it for the simple reason that there is a lot “there” that is not readily available in the LAMP middleware stacks. I can recall dealing with partner and portfolio companies (when I was with Ventures) that practically begged for it but could not justify the cost or deal with the complexity of it, which are not unrelated issues.

  5. Hmm… I’m trying to think which of the NetWeaver components would people most want and why. The Java app server is pretty bad. BW is decent, but only because it has good connectivity to the schemas of the SAP apps. I am not sure if Exchange Infrastructure would be used for anything other than connectivity with SAP apps. My feel is that the only reason people would want to use NetWeaver components is to connect better with SAP systems.

    Would you agree?

    If so, then it makes sense that if SAP makes easy connectivity to SAP apps free (by giving away NetWeaver), it could build up more innovation within its ecosystem, as compared to – say – the ecosystem.

  6. Yes, the business model needs to change to a pay-as-you-go model. I agree that the vendors need to shift their business mdoel but I think the product issue is no less important. Its almost chicken and egg. In the SMB space, you are talking about competing with the likes of Intuit (for Financials). It would be eaiser for Intuit to move up (adding complexity is easier than simplifying) than for large enterprise vendors to move down. The path to these markets may eventually come via acquisitions of the likes of Salesforce and NetSuite, or perhaps even Intuit itself. The Cisco model may be most apt here. Cisco acquired LinkSys and is now better positioned in the SMB space.

    Almost the same problem exists with emerging economies. The ‘simplified’ large ERP systems are just not suitable for a large portion of the emerging economies. You will see local players emerge, grow and the get bought out at sky high valuations in 2-3 years.

    (The opinions expressed here are my personal views.)

  7. Samir,
    your argument is paraphrased as “because SAP apps are built on Netweaver only SAP customers will want it therefore it’s only valuable in the context of SAP interoperability” but that argument fails when you consider that any application vendor could build an app that not only leverages the enormous community of SAP developers and customers but can scale from a systems management perspective. BTW, that is precisely what SAP customers are doing with Netweaver today, building applications that support their businesses whether or not they integrate with SAP’s apps or not. When you consider that big SAP customers like Coca Cola, Unilever, P&G, and many others have more developers on staff than most medium sized software companies, this is not insignificant.

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  9. HI Jeff, off topic question: do you remember that enterprise sales cycle model evaluation tool you were discussing last year:? it had many “loops” in it that you could use to see if a start up was going to hit its targets by looking at all the assumptions and feedback lags etc. I am giving a presentation and it would be a handy example. Apologies for the butt in. Kind Regards.

  10. Hi Jeff, I’ll ping a couple of friends whose companies run SAP for the type of in-house apps they are building on NetWeaver and get back to you. In my ignorance, I haven’t bothered to ask them in the past, of course. 🙂 If you have any cool examples of apps built that use more of the infrastructure and less of connectivity to the backend, please share them also.

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  12. It could be a fear that if Netweaver or Fusion is sold seperately then the main business of these companies are lost.
    But definitely a rethink in strategy is required that too with the market climate having changed over a period of time. The strategy employed even 5 years back is not effective in todays market.

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