Sooner Than Expected: Léo Apotheker gets Replaced

For quite some time, speculations were flurrying around that Léo Apotheker’s agreement would not be extended. Customers did not like him, few if any SAP employees had confidence into him, user organisations were not fond of him – but recently he tried very hard to improve his image. He used quite soft tones at the German user group conference, he dramatically increased the frequency of personal interactions with SAP employees – not only his direct reports, but also when walking around in SAP’s facilities. Recently, he was able to report better than expected numbers and he recently appeared, together with Bill McDermott and Werner Brandt, on a photo in a very positive attitude proclaiming the restart of the world economy.  In an attempt to appease one of SAP’s largest shareholders, he even replaced a manager with somebody he had previously fired.

All this apparently was not good enough to convince the supervisory board that the company was on the mend.

Among other things, Léo has been criticized for the following:

• Increasing maintenance charges by 30% without delivering value
• Ruining SAP’s culture
• Inability to launch Business by Design
• Arrogance to SAP customers.

None of these points have their origins in the 7 months that Léo was at the helm. They were part of a development that set in after the founders had left. Léo certainly did not fight any of these points but it would not be fair to attribute them entirely to him.

The board appointed Jim Hagemann Snabe and Bill McDermott as Léo’s successors. This is a dramatic step – but not a sustainable solution. For a few months, the search for a replacement for Léo was on – but without tangible results. Now, it appears, the board had to act.

The move puts Hasso Plattner into a key position – a position that he actually is not supposed to have, As the chairman of the supervisory board, he must not engage in daily business activities.

SAP’s new management is facing four important challenges:

• Re-establish the support of its customers
• Create a new corparate culture
• Transit to a new business model and sell it to the stock market
• Master technology transition

Bill McDermott is known for a relentless focus on short term business while Jim Hagemann Snabe is appreciated for his realism. Both capabilities have value – but they are not adequate for what is at stake.

There will be more changes, for sure. We are getting into a very interesting period and it may end with SAP changing ownership. Time is of the essence.

Beyond Analytics – SAP Gets into Collaborative Networks with 12sprints

Late last year, the news went out on 12sprints, developed by SAP’s Business Objects Division. It sure looks like Google Wave and it certainly shares a number of elements. It’s not anything like the software you are used to seeing from SAP – it is not even software. It is cloud stuff. And it looks cool.

It is aimed – of course – at the enterprise. Is that very different from Google? Maybe in marketing – but probably not in reality. The nature of collaboration calls for linking up users regardless of enterprise boundaries, if required.

And it will be required, for sure. It will challenge SAP’s own view of the world – 12sprints (or whatever it will be called after general availability) is touted as being open to all important data sources, portals, e-mail systems and whatever other interfaces might be required. It will also have to follow pricing schemes that are particular to this part of the world where SAP is a stranger.

Compare this to SAP’s core business: charges for interfaces, technical user charges, pricey maintenance, complex upgrades, no possibility to adjust usage downwards – looks like a different century. And it probably is: the technology and the commercial terms of SAP’s on premise offerings have their origins in the past century. Social networks, Web2, and 12sprints definitely belong to the current century.

That looks like a cultural challenge and it defintely would become one, if 12sprints would not only be open but also equally integrable into process management and GRC frameworks. Similar to 12sprints, these cannot be limited to the footprint of a single application suite – they are part of the middleware that forms the underpinnings of the emerging post-ERP world. I am not sure if SAP actually understands what kind of momentum can unfold here in a short time.

SAP needs to take these issues into account – and it may very well be better positioned to do this than Google. The limiting factors for SAP are its own inertia caused by the huge investment into a last century paradigm and the growing awareness of customers for any lock-in. The latter aspect may eventually apply to Google, too. In a world that develops so fast, users need to be constantly on the watch.

see also related articles:

http://tinyurl.com/yega9zt

http://tinyurl.com/yhpyb3n

SAP and the Midmarket: Full Thrust for Channel Sales – Again?

It might actually be a smart move: give the channel a larger part of the pie. Why?

Here are the pros:

• partners have a higher customer intimacy – an asset at a time when there is frequent turnover in SAP’s own direct sales organization
• partners selling standard support get a margin part of which they can pass on to customers
• most customers are less upset about partners than they are about SAP
• partners have a more flexible salary structure and can cope with lower margins than SAP.

And the cons? Where are the challenges?

• partners need a margin and SAP has to accommodate this in its pricing
• there will be more partner conflicts that need to be resolved
• SAP has to be prepared to fill voids in an uncomplicated and reliable way without upsetting partners (historically always an issue)
• SAP needs to be more efficient in handling partners to guarantee a net margin that is in line with its own goals (i.e. increasing its own margins, even when having to the total margin with a partner)
• vendors like Oracle that go into the opposite direction intensifying direct sales may be able to offer higher discounts.

It is not clear though for how long SAP will stick to this new direction. Partner management positions at SAP have been among the most volatile in the past and that is not likely to change. This frequently has caused partners to be more reluctant with their investments. It might be time for the partners to get more organized voicing their interests vis-a-vis SAP – with a larger share of the pie SAP may have to lend them an ear. This may be a way to counterbalance the ups and downs in SAP’s partner management and to allow for more sustainability making investments on the partner side more predictable.

(see also related article:   http://tinyurl.com/yef387y)

SAP Maintenance: Standard Support is Back, Enterprise Support becomes an Option – and you can switch!

Once more, SAP has written to its customers. Now, customers can select between Standard Support and Enterprise Support. The selection has to be per “application/agreement landscape” – an interesting term acknowledging that some enterprises have consolidated agreements while others do not. Mixing support is not possible.

Customers have to give written notice to SAP by March 15, 2010 on their preference. SAP will then submit a new offer.

This may give customers an opportunity to cancel their agreement and use third party maintenance instead.

If, however, a customer wants to continue using SAP support, he can

• Take Standard Support at 18% of license agreement value. Should the customer have agreements with a higher price (be it Enterprise Support or Standard Support), he will enjoy a reduction to 18%. In the last 24 months, many customers have bought software with an extra 23% discount in attempt to fight the absolute increase of the support bill. When switching to Standard Support, their bill will drop by another 23%. Not bad. The catch: should the customer want to upgrade to Enterprise Support at a later point, he can do so with 90 days’ notice to the then following month. The rate, however, will be 22%.  As long as the customer stays on Standard Support, he can purchase additional software and get Standard Support for (as of now) 18%. In all likelihood, the new Standard Support agreements proposed by SAP will contain the CPI. CPI will be enforced starting 2012.
• Take Enterprise Support at 18.36% climbing to a maximum of 22% by 2016 in annual increments. You can switch now for a modest increase and get back to Standard Support per January 2011, if Enterprise Support does not convince you. Not too big a risk – but not necessarily a compelling proposal.  If you want to upgrade to Enterprise Support after March 15, 2010, SAP penalizes you for this decision by charging the full 22% right away. Any additional software a customer may purchase will also have a 22% support price tag – no gradual increase possible. A strange way of marketing.

What should a customer do?  Select Standard Support if

• you do not plan to upgrade to Business Suite 7 or ECC 6.0 any time soon. You will not be able to enjoy the advantages of Enterprise Support
• you plan to purchase significant additional licenses
• you can cope with the current support quality.

Consider Enterprise Support if

• you can get the environment that allows you to reap the potential benefits soon
• you do not plan to purchase a lot of additional licenses
• you run older SAP versions such as 4.6c, 4.7 or mySAP2004 and you are charged or will be charged for extended maintenance (the details here are sufficiently complicated to warrant in detail scrutiny).

SAP still appears to be convinced that it can make customers switch quickly by refusing to offer the stepwise increase to later Enterprise Support migrants.  My take on this is

• SAP will provide more incentives regardless of what they say now because it is the largest source of additional profits later, if not enough customers switch;
• customers with Standard Support can find enough quality and capacity for additional services from partners at a lower price and apply them selectively;
• customers with older software should look into alternative maintenance.

Customers that have enjoyed special conditions such as Product Support for Large Enterprises (PSLE) are not affected by this new offer.

Two important issues remain. It is very difficult to accept the CPI. Such indices are meant to cover cost increases. In a business scenario, where 85% of the support revenue is profit, most of the CPI goes into securing SAP’s bottom line. Companies that adopt such business practices put on fat – not a good investment for customers. Hence, the CPI should be, as a minimum, be capped.

The other issue is rightsizing. SAP still is not inclined to accept any partial maintenance cancellations. If you switch and you receive a new maintenance agreement, it will be for all of your licenses. Reducing your agreement to reflect actual usage– fewer transactions, fewer employees, winding down a business, switching to other software, changing your business, going with a third party provider – will not be allowed by SAP. And, how about shelfware? Well, of course, you will have to pay support for these licenses, too – until the end of time. A fairly unbearable situation.

Related blog:   http://tiny.cc/I98hC

Oracle Gets OK from EU on Sun Aquisition – and Sues Rimini Street

The EU did not impose any restrictions on Oracle with regard to the Sun takeover – Oracle’s word to continue the open source mySQL database was good enough.

Having one thing less to worry about, Oracle was quick to focus again on other thorns in the flesh. Just as Rimini Street spread news that they had almost tripled revenue in 2009 and doubled headcount, Oracle filed a law suit gainst Rimini Street alleging that Rimini Street has infringed on Oracle’s intellectual property and caused massive support service disruptions by using bots to download support materials from Oracle’s support servers.

Whether or not these charges will hold water remains to be seen. From my interactions with Rimini Street (and with Seth Ravin in particular) I know that Rimini Street is fully aware of the IP landmines. A lot of care is being applied to not infringe on any vendor’s rights when distributing fixes and legal updates.

Rimini Street is using a very particular business model that actually positions Rimini Street personnel as an agent of the customer – very similar to the consultants many users have employed when originally installing the software. In this role, Rimini Street typically brings user installations to the last and best maintenance level the user can legally obtain under his original vendor support agreement. As many installations have a maintenance backlog, this procedure can cause significant traffic and it is likely that Rimini Street has developed procedures to automate this. To my mind, this may be to Oracle’s chagrin, but it does not appear to be illegal.

For as long as Rimini Street can prove that break fixes and legal updates distributed by Rimini Street do not infringe copyright, it will be difficult for Oracle to prove the point.

Another aspect of this may have to do with the pending TomorrowNow lawsuit that may be resolved later this year. If Oracle succeeds with RiminiStreet, it may help to win the case against SAP TN. Oracle may want to use the filing to at least reduce the growth of Rimini Street in a time when customers are getting smart – may be too smart for many a vendor’s taste – on support costs.

But it all could develop into a different direction. Didn’t we have similar situations in the automotive industry – proprietary interfaces, vendor controlled entry barriers, artificially inflated prices, declining quality? That is over – vendors have to disclose technical specs, have to accept quality third party maintenance, cannot pull out of warranty clauses any more when you have a third party oil change. The software market is way behind – it is not open at all.

What we need, is a general change of directions. If a vendor offers maintenance, then he should have to disclose enough information to allow other interested and qualified parties to compete. Such a change would dramatically impact the market – bye, bye to many facets of lock-in.

Sure enough, such a ruling would also reduce the lead Rimini Street has over any other competitor. Anti trust authorities have not yet understood the nature of this business well enough and nobody has appealed to them to go into such a direction. Not yet – but it may happen one day. There is no reason fort customers to have to pay maintenance fees that yield 80+% margins for ever – without even the possibility to get unused portions of their license out of maintenance.

The only group that would love Oracle and SAP to persevere with inflated maintenance are the cloud vendors. The higher the maintenance and other TCO elements, the better for them – especially if customers could force vendors to accept partial maintenance cancellations.

Management Changes at SAP: Major Reshuffling Ahead?

After running SAP Germany for 2 ½ years, Volker Merk resigned and is being replaced by Michael Kleinemeier, who held this position before he left SAP in 2008.  Michael always has enjoyed the support of Dietmar Hopp. He never was on very good terms with Léo Apotheker. I see his return to SAP as a sign of increasing influence of the supervisory board attempting to affect a return to the cultural values that once made SAP successful.

It will take a lot more than this step and only a few of the old tricks will work. But it is a start and 2010 will certainly see a lot more interesting changes at SAP.

SAP Budges: Tiered Support Model offered and Lower Prices for Enterprise Support

In December, SAP indicated that it was ready to rethink its maintenance offerings. As of today, SAP has put standard support back on its price book with a portfolio of extra services that customers can purchase if required. Enterprise support prices remain frozen at 2009 levels.

What made SAP change its view? Was it the user organizations, the press, or even influencers like us (albeit without SAP’s official “accreditation”)?

More than anything else, it was the direct response that SAP got from its customers. CIOs from SAP’s premium customer network gave feedback that is hard to print and by November, SAP was facing a certain maintenance income loss of over 200 million Euros for 2010. The list of accounts that SAP in an internal analysis marked as “maintenance at risk” was long, much longer than anybody had expected.

I think that this is only the first of a number of corrective steps that we will see in 2010. While these steps are urgently required as a means to improve the relationship with its customers, this correction will not turn back the clock. Too much thinking has occurred among customers; too much analysis of SAP’s maintenance performance was conducted. Over 80% margin is not what recession stricken customers can handle.

The genie is out of the bottle: SAP’s decision to backpedal may very well mark a point of inflection for the software industry as a whole. Negotiating maintenance down is “in” – it may very well become a key topic at golf courses.

The topic has already spread to parts of SAP’s ecosystem: some software vendors that supply add-ons to SAP reportedly have been pressed by customers to reduce their maintenance bills and are quietly cursing SAP for putting this topic on the agenda.

I can very well imagine Oracle being forced to take corrective actions, too – Larry certainly would have liked SAP to stay with the increase to 22%.

SAP: No Minority Stake in Software AG – for Now

Software AG stock has been a real joy for its investors: since August 2008 it went from 30 Euro to now more than 80 Euro. This has apparently put SAP’s plans to acquire a minority stake from the Software AG Foundation to a grinding halt – at least for now.

This is the second time that SAP has tried, albeit without result, to directly invest into Software AG: 18 years ago, SAP seriously considered buying Software AG as a whole – for a price that very well might have been significantly below the 10% share that SAP was planning to buy now.  (See also Michael Kroker’s blog http://tiny.cc/Mb5Sn)

2010 – New Acquisitions?

Organic growth is not in the cards for SAP any time soon. Despite all the problems around license and maintenance revenue, the company has rebuilt a sizeable war chest in 2009 and will be able to consider a larger acquisition in 2010.

That may be more difficult than it looks. First, going out and buying another company when so much work is pent up at the ranch may not be wise. It takes good management operating from a solid platform to master takeovers. Second, just buying a little revenue and securing margin is not going to cut it – synergy is of the essence and that requires a clear and executable vision on all levels. I hear that the board of supervisors has slammed the brakes on any such plans for as long as there is more fog than vision. If so, it is probably the wisest action in a long time of that board.

SAP’s Q4 is Almost Done: No Hope for Good Numbers – Time to Change Management?

2009 will be the year with the worst license business in SAP’s history and a year that in all probability marks a turning point when it comes to software maintenance.

That does not bode well for the current management. Rumours abound that Léo Apotheker will be replaced in Q1 right after the 2009 results are published. Jim Hagemann Snabe is, so the rumour goes, likely to succeed Léo. Bill McDermott will be replaced by Michael Kleinemeier who left SAP a few years ago.

I think that SAP needs a management change and I am also convinced that there will be one in 2010. This company needs to re-invent itself. Hasso Plattner reportedly has contacted a number of CIOs from SAP’s Prime Customer Network soliciting feedback about SAP. The results must have been devastating  urging the board of supervisors to consider drastic near term actions.

This is not an easy task – too much damage has occurred already. It does not look very likely that Jim and Michael have the caliber to turn the situation around. If the company were in better shape, they might succeed. Here, we have a very difficult case in a very tough economic climate with a market that is just about to understand that classical ERP is a legacy.

It will be hard to determine were to start (I’d start with customer relationship management – but that is probably the hardest part). Easy parts are eliminating manager boondoggles such as excessive use of the corporate jet or too liberal use of corporate credit cards.