While SAP in their latest press statements attempts to convey the impression that the world has fully embraced Enterprise Support (note that such endorsement lacked conspicuously the endorsement of the increasingly watchful Geman-speaking DSAG user group – actually the word’s largest SAP user group…), SAP is silently starting to address two cases that are less to the vendor’s liking: users without maintenance and users with third party maintenance.While both of these groups are still very small, SAP is starting to treat them specially acknowledging reality.What does SAP do? For one thing, they are staring to distribute more compiled ABAP as part of the enhancement packages. We expect this trend to become even more pronounced making it harder (but not totally impossible yet) for third party providers to supply maintenance.SAP is also creating a “special corner” in its service marketplace for non-SAP serviced installations (at this time, due to SAP’s refusal to accept partial maintenance cancellations, there are no customers who belong in both camps – without SAP service for some of their installations and with service for others). Customers on third party maintenance will still be able to solicit new license keys from SAP and they also can see the headers of the posts relating to fixes but do not have access to the full text.User organizations such have started to take notice of this change and they are realizing that this boils down to a reduction of users’ options, increasing lock-in. At this time, it is not clear how customers will react – a few certainly will start carefully scrutinizing any maintenance, enhancement or upgrade they consider applying for such unwelcome side effects.

The new thing among managers and middle-class business owners is to have their “own”, bespoke app. They want it and they could care less what their IT department thinks about this – all this dull and complicated language they use (firewalls, standards, interfaces…) – they want the app that they are craving for.

We all know that sooner or later IT has to care about this. And, in this context, the Sybase acquisition makes a lot of sense: it gives SAP shops access to a solid platform that helps integration. Of course, all this could have been achieved without SAP buying Sybase – but now the never resting SAP salesman is ready to widen Sybase’s presence.

The added value for the customer is not yet tangible – integration steps and the associated timeline has not been disclosed and, judging from the past, will be late and likely patchy.

Hence, it is hard for SAP shops to leverage this now and a few that I have asked with mobile projects on their agenda (service, healthcare) are not eager to rush matters. Even though their investments in SAP are substantial, they are quite open to non-SAP mobile middleware.

So, SAP, hurry: 2015 will be here faster than you think and 1 billion users (!) is still a far cry from what you have today!

SAP had created an equivalent to Versata’s product “Pricer” apparently without paying enough attention to a number of patents on rule algorithms that Versata owns.While this is not the first time where SAP has infringed patents (see also the out of court settlement with I2, where SAP paid $ 83 million and others (http://tinyurl.com/2d3e49l) but this is taking a different spin.

Versata claims that SAP changed its ERP-product so that Versata’s “Pricer” would no longer interface with SAP’s software. Hence, Versata has appealed to  the European Commission to look into the case hinting that it has striking similarities to Microsoft’s lock-out tactics that were subject to the EU fines in 2004 totaling 1.6 billion Euros.

The Versata case, however, may have additional aspects:

• it shows (not for the first time) that SAP has no strict policy of honoring IP. Like many other companies, SAP (unfortunately) does not even enforce this among its employees in the code of business conduct document for its employees (see http://tinyurl.com/23268fu). Oracle, having sued SAP for IP infringements allegedly committed by SAP’s TN subsidiary will certainly like this aspect
• the level of control that SAP has over its installed base and also its partner eco-system may be severely impacted should Versata get its case with the EU. That will have effects far in excess of the claims that Versata makes and it will likely reduce SAP’s bundling capabilities.

This may work out well for customers, as they may be getting more choice and fewer interface problems to worry about. As we know from Microsoft, the impact over time on a vendor’s behavior is significant – SAP could be at the beginning of a very radical learning curve.

The first criticism appeared quite quickly: SAP pays a very high price – and is it really worth that much?

That is one way of looking at the transaction. With SAP doing more than 80% of its revenue with its classical installed base, there is a more relevant question: what does it mean to SAP’s installed base that contributes (still) most to SAP’s bottom line?

Most of what SAP has bought is not of immediate interest for its installed base. The products do not run on the Sybase database products – only in the mobile area there are CRM-related solutions where SAP and Sybase have been partnering.  So you might think that there are no implications.

I suggest that the “classic” SAP customers read a little more about the terms and conditions SAP is offering or will be offering in the non-ERP product categories. Here are some interesting findings:

• Sybase has all of its pricing in the Internet and you can order from a shop
• Sybase is offering support variants that are priced per incident (and the company boasts SAP-style profitability…)
• The most widely spread SAP product is arguably Crystal Reports. You can get it without support. If you want support, you must buy it for a year. No need to renew unless you want. No penalty if you pause.

This is not an exhaustive analysis. I am sure a huge variety could be found if you would scrutinize all the terms and conditions across all product lines. Why can SAP allow for more openness and flexibility in one area and not across the board? The answer is that competitive pressure and the degree of lock-in differ significantly.

Customers need to be conscious of the salient power of competition. There is no substitute – it is at the very core of our economic system and it is well worth being preserved.  SAP user organizations will have a lot of food for thought when trying to leverage the variety that is now apparent in SAP’s portfolio. How about turning support off and on without a penalty – just as required? Or incident/case based pricing? Wasn’t that part of your recent discussions? All of this and much more can be had or will be available shortly – from SAP!

This is the second time that SAP has bought a company with large non-SAP related customer bases. This challenges SAP’s past position on openness and both old and new SAP customers should insist on a change in position. SAP itself is turning more and more into a best of breed vendor and it needs to acknowledge this. Non-SAP environments will have greater relevance to SAP unless SAP wants to alienate the newly bought customers by trying to force them into SAP’s ERP-lines. SAP will also face new challenges to comply with standards.

SAP wants to use Sybase primarily in the mobile and in-memory database areas. Here, new business models will pose a challenge. It is not conceivable that the currently prevailing terms and conditions for Business Suite and ERP will be ported to the Sybase portfolio across the board.

On the other hand, the new situation may result in customers getting SAP to loosen its grip, at least partially. Consistency and credibility are related and SAP could use more credibility quite well. Oracle is not always a good teacher.

SAP wants to become a leader in the emerging “on-device” market. This market will be served by many players and the Sybase products may be used by SAP and its competitors alike. SAP needs to become as much a trusted and credible supplier to these competitors as Sybase was. This is not SAP’s forte so far. Time will show if SAP can live up to this. Leaving the old management in place is not enough as we know from the days when Toptier was acquired. But maybe a learning curve is the next big thing.

Preparing for the upcoming Sapphire (no, it is Sapphirenow, very much like www.sapience-now.com!), SAP wants to look innovative. Dennis Howlett (http://tiny.cc/ny3s2) points to SAP flexing every possible muscle to convince the world that it is THE source for innovation.

And there is innovation at SAP. SAP invests still a reasonably high amount in R&D and it sure has a number of very bright techies – SDN is full of highly interesting contributions.

On the other hand, customers do not care too much about SAP’s innovation. SAP makes more than 80% of its revenue with the installed base and only a tiny fraction of it comes from innovations customers have bought. Innovations enter the field at a snail’s pace: it takes years – often more than half a decade – for the new products to be really shipped in volume. The DSAG surveys have complexity reduction, quality improvement, and lower cost of ownership ranking a lot higher than new functions. However, most of SAP’s R&D money is not spent in these areas – and all of this money comes from SAP’s customers.

So – why don’t SAP’s customers care more for what SAP is developing? Why are they so disillusioned? It is largely because they cannot easily put innovations to work. Often, expensive upgrades are required to pave the road for newer products, which frequently are neither intuitive nor mature enough to be real draws. In many cases, SAP tries to run before having learned to crawl.

Only innovation that gets adopted in time counts. Everything else is interesting, but unproductive. Should customers care more about SAP’s more ambitious innovations? Yes, they should – if only to protest against neglecting compatibility and upgrade path planning.

And how about Hasso’s database visions? Are they worth anything? There is no doubt that data is generated at increasingly higher speed – so processing it faster is an interesting aspect. I think that it is more the volume than the speed that will cause issues – in particular if we start to get more unstructured data into enterprise processes. Data that is generated by devices communicating through the Internet is another source. So – will in-memory databases be the silver bullet? By no means – they will help but it will take much more to tackle these issues. The whole application architecture is at stake – we are in the last chapters of classic ERP as SAP defined it. With all the focus on in-memory, SAP should not forget to address more imminent needs such as the scalability of BW. Not too hard to solve – just finish the work that was started with Teradata years ago.

SAP is in a situation very similar to the automotive industry – huge investments will be required for the next generation (the investments made into BBD can only be leveraged to a small extent)  but the current generation will only slowly fade away. But what is the difference? Well, the automotive guys know darn well what is at stake – the next chapter in their history could easily be written in China by people without the issue of a legacy product base. Didn’t Hasso say the other day how much he would prefer to run a start-up not burdened by legacy?

Is the worst over? Hard to say, but certainly SAP users are glad to get back to their old agendas – at least in part. This helps SAP to close some sales that were held back – and there must have been quite a few. We are still pretty far off the results that SAP had 3 years or so ago and it would take much more than a new management to get there. The world economy is not back to normal yet and when it will be, the economic center of gravity will have shifted considerably towards China.

SAP’s profits have increased by no less than 81% to 557 million Euro before tax. . Here, a large factor was cost cutting contributing 138 million Euro of the 250 million Euro profit increase. On the heels of Oracle, SAP could increase margin of SSRS (software and software-related service revenue) to 79.5% – an increase of 1.7 percentage points. For a minute increase of cost by 13 million Euro, SAP got a 206 million Euro SSRS increase – that is a margin of almost 1585%! Hard to beat that!

The next milestone will be Sapphire. Everybody is waiting patiently for a new vision – one that is meaty and not just another statement like “we will have a billion users by 20xx”. Let’s see!  The next Sapience event (postponed due to the air travel issues) will be June 14/15 in Cologne, and we will take the opportunity to see what progress has been made – and share the insight.

Both are chairman of the supervisory board af very large companies. Both own significant stakes in these companies: Hasso Plattner 10% of SAP, Ferdinand Piech 13.16% of Volkswagen. Both are technology freaks with mixed track records – sometimes with outstanding success, many times wasting the results of previous gains. Hasso is one of the SAP founders, a co-inventor of ERP. Ferdinand is a direct descendant of the F. Porsche, a man who has designed some of the most successful cars and many other motorized products such as tanks. They have a very similar attitude: in the end, they seek power and control, compromising only where absolutely necessary.

Here the parallels end. Ferdinand Piech is certainly more risk oriented, firmly determined to make Volkswagen into the leading full range vendor of the world addressing very diverse markets – both geographically and in terms of products.

Ferdinand Piech addresses the transition to next gen technology late, but with relentless vigor. He and his management team know what is at stake – he does not have the luxury of leveraging lock-in. The challenges are a lot more obvious – there is China, alternative fuels, and new emission legislation emerging that cannot be addressed with today’s product range. I know it – my brother works in “Piech-Land” and tight mouthed as these auto freaks are, he says that there is a super high activity rate.

There is no shying away from learning about and from other concepts. My brother recently drove a Tesla for a few days and he was super-enthusiastic about it – although he said that the car still has a long way to go until it will be something for non-freaks.

I wish that Hasso would steal a page from Ferdinand’s book. SAP could well use the same determination to get ahead. The comfortable cover of the lock-in that is so typical for part of the IT-market (I see Apple following in the footsteps of some of the most successful lock-in designers) may have protected and spoilt Hasso, but it is now time for him to realize that he has to give chase and re-invent the company and its products.

I know from my own experience that risk and age do not blend well (Ferdinand Piech is probably a very big exception) and I sympathize with Hasso when I see that preservation of his fortune is of high priority – he has been focusing on SAP stock price a lot. Continuing to do so, may well keep him from effecting the badly needed transformation of SAP in time.

Why do I mention this parallel? Well, I happen to know that Hasso actually is looking at Ferdinand Piech with more than just the occasional interest of a newspaper reader. He views himself as an icon of similar caliber.

The pending re-invention of SAP will have an immense impact on SAP customers, and Hasso’s role here cannot be overlooked. Want to know more? Stay tuned – and come to one of our events. The next one is just around the corner – April 27/28 in Cologne. Check it out – www.sapience-now.com

As of late, concern in Germany is growing about the new perils created by the Internet titans. The first mention was made by German Consumer Protection Minister Ilse Aigner (see http://tiny.cc/nlh30) when she pointed to the vast amount of personal data that can be collected (and potentially abused). A very valid point, but it should not be taken out of context: at the same time there is a discussion on how much private data governments can collect. Abuse certainly is not limited to commercial entities.

The second article was published in the print edition of manager mazin (April edition, “Im Griff der Giganten – wie Apple, Google und Microsoft unsere Wirtschaft bedrohen” – “controlled by Giants – how Apple, Google, and Microsoft Threaten our Economy”). It addresses a somewhat different topic – the impact that these three companies will have on enterprise computing because of the empowerment of the consumer and the radically different business model. The conclusion: the new wave is a threat to existing business, even for vendors like SAP. “The common problem of many German companies is that their business model is more based on the defense of once achieved market power than on clever new products.”

Manager magazin views (quite rightfully) these three players as a threat to traditional players. A wryly looking Hasso Plattner is depicted with the text “the traditional business is on the block.”  The article also points at the new lock-in strategies that are emerging. It falls short, however, on analyzing the old lock-in strategies that have developed over decades. Isn’t the issue rather to minimize lock-in?

I agree that the new players and their strategies need to be watched very carefully because they are vastly more powerful than the slowly moving classical software behemoths because they know how to leverage the net and how to take the world by surprise. Situations that are unpleasant can develop in no time. This is the time to get smart about these issues – and this is what our event in Cologne is about. I can’t wait until I hear from Kai Gutzeit on what Google has to offer to SAP (and Microsoft) customers and how he sees the danger of repeating lock-in, albeit with different means. With two of the “most dangerous” players in the agenda, the discussion should be interesting!

I have started to ask vendors whether they would adjust maintenance agreements downwards if for some reason the customer reduces usage. Generally the answer is “NO” with vendors like SAP and Oracle, “Only if we absolutely have too” – a typical answer from tier 2 vendors.

Microsoft surprised me. In Switzerland, the answer was that downward adjustments are possible after the term of the one or three year agreement has run out (they promised to give me that in writing, but so far, I have not received it) and my friends at Microsoft Germany  were not in a position to endorse this. I had dinner yesterday with Kyrill Tatarinov, who assured me that Microsoft was quite willing to look into individual cases. That may be caused by the current unfavorable economic climate.

To my mind, there is a lot more to it – even in a flourishing economy, we will see usage going up and going down as the business of users requires. Further, users may want to change vendors and technologies, they may wish to replace “buy” with “make”. All of this should be possible as it reduces lock-in, a key impediment when it comes to moving into new eras of business and technology.

If I were Microsoft, I would consider making rightsizing support a general offer – “we support what you use.”

Management is putting a lot of heat on the project. Code will be frozen by March 31st, Michael Kroker reports in his blog (http://tiny.cc/g6nkm). Apparently BBD is to become a highlight at Sapphire 2010 – again.

Will we see BBD making major contributions to SAP’s bottom line in 2010? That will hardly be possible. The deal sizes will be small, the economics of BBD were terrible and would have to improve by an order of magnitude and SAP still has to deliver on the business model. Much will depend on three critical items:

• Multi-tenancy – required to knock down costs
• Non-disruptive maintenance and upgrades – the cloud does not accept lengthy service disruptions.
• Customization – it must be safe, scalable, maintainable. Sending development requests to the labs is no solution. Leveraging the Silverlight front end features will not suffice when it comes to larger, performance critical changes that need to be made available simultaneously to a large user community. Well, that isn’t the target for BBD right now, but we all know that BBD originally was not meant to be for the very low end.

Will SAP learn how to do it with small teams? Jim Hagemann-Snabe reduced BBD staff to gain speed, but probably not enough. Brooke’s law says that more manpower delays projects because communication overhead grows at the second power and Conway’s law says that “…organizations which design systems … are constrained to produce designs which are copies of the communication structures of these organizations “. Both of these “laws” resonate very well with my own personal software development experience. BBD was plagued by both overstaffing and poor communication between Peter Zencke and Shai Agassi. Reducing staff and getting rid of the two non-communicating managers does not automatically free the BBD code from the junk that is due to both laws. It will be interesting to see how BBD performs now – maybe it is time for another Sapience shootout!