As I watched a Twitter conversation recently discussing SAP’s cloud strategy, I was reminded of the old story of the blind men and the elephant. While there are different versions, the upshot of the story is that each blind man “sees” something different because each is only touching one part of the elephant. Without sharing their experiences and collaborating nobody gets the full picture.
Doug Henschen, executive editor of InformationWeek, sparked the discussion with his article SAP Clings To A Dated Cloud Apps Strategy. Doug writes, “As cloud vendors Salesforce.com, NetSuite and Workday look toward larger companies, SAP courts small and midsize firms.” Doug was at the same event I attended last week, SAP’s SME Summit. So yes, the message being delivered by SAP at this event was one targeting SMEs (small to mid-size enterprises). His article mentions both SAP Business One which is available through on-premise and Software as a Service (SaaS) deployment models and SAP Business ByDesign, an exclusively SaaS offering.
However, two weeks prior to that, I also attended SapphireNow in Madrid. In a cloud strategy session there, I heard SAP Financials OnDemand, which is a derivative of SAP Business ByDesign and therefore an important element of SAP’s cloud strategy, was targeting medium to large enterprises. Does this mean the folks at SAP are not collaborating and instead are giving different and conflicting messages? I don’t think so. I think it means the same product can serve different markets and can be presented differently to different audiences.
Second question: Does this mean the target for SAP is different than the target for the likes of Workday, Salesforce.com and NetSuite? Not necessarily. Some will argue that the “large enterprise” play for Financials OnDemand is limited to subsidiaries of large enterprises. First of all, this a similar message conveyed by many solution providers citing “2 tier ERP strategies.” But often that is the very definition of a large enterprise: a collection of smaller business units or subsidiaries. Not only do these subsidiaries roll up to corporate financials, they often must deal with the same complexities as their corporate parents. Some deal with those issues better than others.
So in many ways, all these solution providers are attacking the same market. SAP is just coming at it from a different direction. While the solution providers noted (all of which started out as SaaS vendors targeting small and/or midsize enterprises) have been coming up-market, SAP has been moving in the opposite direction. SAP is best known for its presence in the largest of large enterprises and nobody would argue that market is quite saturated. Real growth potential lies in the small to midmarket space. Whether one direction is any easier or more difficult than the other, the challenges are definitely different.
In coming up market, these pure SaaS vendors need to add features and functions required by large multi-national enterprises. In coming down market, SAP needs to eliminate a combination of real and perceived complexity. Indeed back in 2007 SAP admitted it started by building Business ByDesign from scratch primarily to reduce that complexity. And yet as smaller and smaller companies began operating globally, the complexities associated with multiple currencies, multiple languages, multiple legal entities, increased regulatory compliance requirements and global trade needed to be addressed even in smaller companies. The upstarts had the advantage of simpler solutions to build upon and SAP had the advantage of design teams that had been routinely addressing those needs for many years, particularly in terms of finance and accounting.
In his article, Doug even mentions that, “…CEO Aneel Bhusri said Workday’s Human Capital Management apps are already capable of handling the largest companies in the world, like Hewlett-Packard and DuPont, both of which recently signed enterprisewide deals with the company. Workday’s financial apps are currently suitable for use by midsized companies, Bhusri said, but by the end of next year — after investments in cloud capacity and app resiliency to sustain high-scale transaction processing — they’ll be ready for Fortune 1,000- or even Fortune 500-sized companies.“
That’s the market where SAP made its name and asserted its dominance.
But in determining strategy, here’s the big question: What will move to the cloud and what will remain on-premise (and is SAP’s strategy well aligned to that)? Many seem to think everything will steadily progress towards cloud-based and SaaS solutions, eventually replacing all on-premise solutions. I think it will take a very long time to get there. My latest survey on “Understanding SaaS” indicates that about 17% of business applications used today are SaaS-based and in 5 to 10 years that percentage will (just about) double, with 33% projected to be operating in a SaaS deployment model.
Is that because there is reluctance to accepting the SaaS model? No. It is because there are so many on-premise solutions that would have to be replaced. ERP and accounting solutions running large enterprises today might in fact be the least likely of these to be replaced, simply because of the cost and effort expended in initially getting them implemented. While that cost and effort has steadily decreased over the past 10 years, that doesn’t change the fact that these large enterprises spent a whole lot of time and money getting them up and running and the prospect of going through that again is not too appealing.
Yet installing a new cloud-based solution for a business unit or a subsidiary that is not currently fully supported by the corporate solution may indeed be very appealing. For a large enterprise with an existing SAP solution, Financials OnDemand or even the entire Business ByDesign solution may be a very good option for a subsidiary, business unit or remote operating location. Once a large enterprise has done this one or more times and the cloud-based solutions are feeding the corporate solution, perhaps it will pave the way for a transition to a 100% cloud solution in the future. If so, which cloud based solution do you think might make the transition the easiest? Do you think SAP might have thought of this too?