"When this product hits the market, we won't have to do a lot of talking. The product and market will do the talking for us." Those bravura claims were made by SAP executive board member Bill McDermott last week at the Citigroup Global Technology Conference in New York about the firm's Business ByDesign (BBD) SaaS offering.
Bold the claims may be, but they're also getting increasingly familiar – or perhaps repetitive? It's become almost a mantra on the part of SAP senior management that no public presentation or event is complete without a 'just you wait and see' moment in relation to BBD. It's a tactic that provides much amusement to SAP's rivals. “The gang that can't shoot straight keeps on shooting,” laughs Zach Nelson, CEO of SasS ERP firm Netsuite.
So where are we in reality? BBD was initially announced in late 2007 with bold claims that it would generate $1 billion in revenue by 2010. That particular claim has since been watered down enormously. In May 2008, SAP announced it was reducing investment in BBD by around €100m during 2008 with no further “accelerated" investment planned for 2009. It also extended the timeframe for securing 10,000 customers by 12 to 18 months.
That said, there are early customers out there using BBD in the real world. The technology is currently being used by around 90 businesses in China, France, Germany, India, the UK and the US. But at an SAP event in London last week, Rainer Zinow, SAP's senior VP of Business ByDesign, said it won't be made available to all customers until there are enough "referencing accounts" using it as part of SAP's early adopter programme.
For now, the firm continues to add features to the existing offering. “We are rolling out Feature Pack 2.0 at the moment. We're just waiting to find the right weekend for customers, we couldn't expect them all to do it at the same time,” says Zinow. “All of our customers now are in the third wave of building out systems. They all started with a fairly small footprint. Feature pack 2 is for customers who are more from a manufacturing business who wanted additions in the order to specification space. The made to stock scenario was there from the beginning which made our Chinese customers happy, but in Europe and the US customers think in smaller steps. They needed that make to specification functionality.
“From the point of view of the professional services provider customers, the key thing was to strengthen the integration between CRM and project management. We wanted be able to document a lead that someone gets at a trade show and convert it to an order, then be able to report back and do the billing, but all against the CRM order. We want the whole process to be as automated as possible. We want to have complete transparency both from the ordering perspective and to have tight integration between the CRM and the project management.”
Enhancements are being made on the basis of customer reaction to the existing offering. “One thing we have added as a result of feedback from our live customers, which frankly we didn't have on our radar, is to provide an environment for CEOs to interacts with the systems,” says Zinow. “In the larger enterprise world we're used to, when you get above a certain level of management you just don't touch the systems. But in the small and mid market firms, CEOs tend to say 'this is my system' and there is no filter layer between them and the system. So we wanted to offer full blown corporate performance management using the capabilities we get from Business Objects.”
CIOs and change
Leaving the CEOs to one side, it remains the case that some CIOs still seem to regard SaaS and Cloud Computing as a potential threat to their data centre fiefdoms and technology powerbases. “That may be the case with CIOs who define themselves in technical terms,” concedes Zinow. “But many CIOs have redefined themselves as th chief process officer. These ones couldn't care less what kind of box they use, they just want transparenc yof approach about how they envelope their processes going into the future. In mid market companies, it can be a priceless advantage not to have an IT department.
“Maybe we will have a two tier world where one part still has to have evidence of their own infrastructure. You will have larger companies where they will say that they run their infrastructure out of mega data centres. But I think we will see more companies looking more at the idea of going for a service-type of model. The extreme of that is the complete Business Process Outsourcing approach, but then you will have all the variants in between.”
“As far as Cloud Computing is concerned, the real value proposition is when I set up a plan for how large should my IT system be I need to size it to cope with the peak demand. That means a lot of the time it doesn't operate at peak. The value proposition of Cloud Computing for me is that you base your model on average loads, then you inform your Cloud provider that you have a new peak, move your slider to the right and pay for that peak. That to me is the real advantage of the Cloud. You will get some CIOs who argue that they already run a private Cloud. But if my biggest thing is running SAP and I run a private Cloud, then I would have to ask what they difference is between that and on premise?”
There are also issues of strategic and tactical thinking to be considered, Zinow suggests. “You need to ask whether it is a tactical or a strategic buy that's going on,” he says. “The tactical buy is when you have the new head of sales who comes in and asks the most trivial questions about the pipeline and gets nothing back. So he goes and talks to the CIO who says that they can sort this out and will deliver something in three years time. That's the moment that the head of sales says 'no' and decides he needs a tactical solution. So he goes out and buys in some Salesforce.com or whatever. The other sort of purchase is the strategic buy. This is where you say that we are a mid market firm in a particular business and that business is not running IT. I just want IT that helps me to run my business and to get transparency on my pipeline. These are the people who are going to buy into SaaS because it helps them to do that strategically.”
There will, he argues, be many approaches to the Cloud. “Some will take their SAP infrastructure and run it on Amazon or Google public Clouds,” he suggests. “That won't be an issue technically – we've done that. The next step might be to have SAP infrastructure running somewhere in the Cloud, but not know where it is. Those companies who were successful with outsourcing may be most receptive to Cloud Computing. Those who outsourced and were not successful will want to understand why precisely this will work better for them.”
Cannibalisation questions
There is also the question of how well the move to Cloud Computing can work for SAP itself. The firm has been open in its admission that the Cloud approach means a change to its revenue stream and business model. Zinow reckons that SAP is getting to grips with this, although he concedes that there's still some work to be done to convince everyone. “One of our customers in the US was concerned that we had our maths wrong,” he says. “He said he couldn't get an IT staff in-house for what we were charging for BBD over a year.
“But the SaaS model by definition is not commercially less attractive than the up-front model if you calculate based on a seven year horizon. Any annuity based business model has a substantial advantage built in as it can take a lot of the bumps out of the road. Can we afford to set up this new business model? Yes, but it will take five years before it is equally beneficial to us. It's a challenge that we need to manage. At the moment I am optimistic that we can afford to build up a SaaS revenue model and for now cannibalisation is not a big issue.”
That said, it's likely to become more of an issue once BBD goes on wider release. It's interesting that one thing that has changed – or is certainly being approached more expediently – is that SAP will not be open to selling BBD tactically into its existing installed base, something which as recently as this summer was said to be out of bounds. “If one of our installed base comes to me and asks me to sell BBD to them I'm not going to say no,” admits Zinow. “We know which segment of the market we should sell into and we know which of our product offerings is best suited to various customers. If company says they need to roll out a system to ten or 15 countries, then BBD is not the product for them. If a company needs deep pharmaceutical industry expertise, then I wouldn't recommend BBD. But if they're a professional services provider, such as a law firm, then I would say that BBD should be of interest.”
But the bravura claims aren't far away. “We now have a few companies who say that they are not migrating away from Salesforce.com, they are upgrading from it!” claims Zinow, who adds that SAP owes a debt to Salesforce.com, albeit not one that CEO Marc Benioff is likely to appreciate or endorse. “Those are companies who wouldn't be talking to us today if they hadn't got a few years of Salesforce.com behind them. But now they say that they've grown out of that and they want the next step. They feel that it's not just about leads and opportunities, they need more.”
