Many companies make acquisitions to diversify into new markets. Others do it to acquire revenues and customer bases. Workday has been consistent in the last few years to acquire analytical capabilities and talent especially in its back office focus areas – finance and HR.
So, its announcement today to acquire Adaptive Insights (and Rallyteam last week) does not surprise me. It follows the trajectory of its acquiring Platfora, Gridcraft, Identified and others to keep strengthening its analytical portfolio. It has also played footsy with Anaplan, Tidemark and others along the way.
Now you could ask why so many analytical tools? For as long as I have been in the industry, there has been a “holy grail” search for the ultimate “report writer”. But we have always had matrix reports a la spreadsheets, transaction reports, balance reports, queries and cubes of all sorts. In recent years we have seen an explosion in data, master data management, visualization tools, now using data to train machines. The journey continues. And nobody – not Oracle, not Microsoft, not SAP has come up with that unicorn of a single fountain of intelligence.
The price for Adaptive (which had recently filed to go IPO) at $ 1.55 billion is steep. Personally, I have been clamoring for Workday to invest more in verticalizing. After seeing SAP’s industry plans at SapphireNow last week, I am even more convinced Workday should invest more there. For now, Workday is doubling down on its back office focus. And continuing on the analytical holy grail.
During a break in his concert at SapphireNow, Justin Timberlake took a tray full of shot glasses to every one on stage. It took him a while to hand them out as he said – “we have as many of on stage as there are in the audience”. Those are his Tennessee Kids, a wide range of instrumentalists, singers and dancers. For 90 minutes, the show was frenetic as eyes and cameras tried to keep up with JT’s lips as he sang and his legs as he danced and his fingers as he played keyboards and guitar, and even more as everyone twerked and crisscrossed on stage. Lots of generations of songs from his four solo albums but alas none from his NSYNC days when I started funding his career
From where I was sitting the show seemed chaotic and a bit too loud but everyone, especially the ladies in the audience were standing and swaying, and a good time was being had by all. As I tend to do to make sure my initial reaction is not too harsh, I came home and watched Jonathan Demme’s Netflix documentary on the band during its last tour in 2016. I watched it on the biggest TV at home and at a modest volume, and I enjoyed it much more. There is definite control in that group chaos. Lots of discipline, hard work and creativity.
In many ways, the concert summarized the three days of SapphireNow – lots and lots of products representing several generations of evolution. Somehow there was control in that chaos. And definite swagger on stage. I have lots to follow up from the event (and will have some in my blog next week, and much more in SAP Nation 3.0), but the initial conclusion: SAP is back and confidently so.
There was a breakout with Dr. Hasso Plattner. It has taken an inordinate amount of time, but he is feeling vindicated people can see how over-engineered relational databases are with their rows, columns, indices and DBA effort (and we blame Germans for over-engineering!). Why we should not be storing aggregates when today’s memory allows for calculations on the fly. How HANA 2.0 and Intel’s Optane persistent memory should turbo-charge in-memory computing. HANA can boast 23,000 customers now. I am convinced it would have many more if customers were not worried about giving SAP lock-in on their IT infrastructure in addition to that over their applications portfolio.
SAP has survived the point solution cloud onslaught from Oracle, Workday, Salesforce over the last 5 years. It has a competent set of point solutions for the back office as I wrote after the briefing in New York by Rob Enslin and his team a few weeks ago. As I wrote earlier this week, I am even optimistic about the opportunity C/4HANA has in a changing CRM market.
There was a session with Sven Denecken, Ivo Totev and others on S/4HANA in the cloud. Analysts peppered them with questions on how the public cloud version is maturing, multi-tenancy issues, why more incumbent customers have not migrated. They handled the questions well, and in the end can point to fact that 8,700 customers have signed up and 1,800 are live with at least some functionality.
I have been screaming for a while that after 20 years of cloud and in-memory computing, 80% of enterprise apps, especially industry books of record remain in client/server and prior architectures. Without industry processes, customers are finding they can only attempt small d – digital transformations around their back office, horizontal processes. So, I was pleased to see SAP announce that it is
“.. is working closely with Accenture, Capgemini and Deloitte to help customers in the process manufacturing, discrete manufacturing and service industries become intelligent enterprises by implementing support for a new generation of business processes,” Franck Cohen, president, Digital Core and Industry Solutions, summarized the heightened expectations “With a user experience that no longer requires a keyboard, and manual processes that are automated with the help of artificial intelligence, our customers will be empowered to reimagine their business models while keeping cost to a minimum.”
It’s going to be a long haul to move all the legacy IS solutions to the modern world and I am not convinced SAP needs its larger SI partners for this effort. It has some of the smartest customers in each industry it can directly tap into, but I am glad to see SAP (finally) start the verticalization journey for S/4HANA. Amazingly, it can easily outrun many of its competitors who have so far paid lip service to such verticalization.
There was a lively session with Helen Arnold, who heads the SAP Data Network which helps customers create new revenue streams and new business models from data. Its Data Hub is a recognition that till they have more robust vertical processes in the cloud, only a fraction of critical data these days comes from SAP transactional engines and customers need help integrating and interpreting data from sensory, customer sentiment and hundreds of other sources.
We got a nice show floor tour of Leonardo and its cluster of emerging technologies including machine learning, blockchain, and IOT concepts. The use cases were somewhat basic (my colleague Brian Sommer and I were particularly animated with our questions), but the competition cannot do much better and it allows SAP to be “buzzword-compliant” in the interim.
There was a nice update from Rainer Zinow about Business One and Business ByDesign. Rainer toils away from the limelight with these SME focused products, but with the dedicated channels quietly keeps growing these customer bases – over 60,000 and 4,000 respectively.
I spoke to several SAP Mentors who said they felt after years, their input is being valued again. And most are still interested in ECC, BW, MII, landscapes and previous generation of SAP products and keeping the lights on. I was particularly happy to see Jim Spath’s write-up of the sessions he attended at Sapphire.
SAP generously organized a very diverse set of customers for us to talk to. I spoke to customers from Australia, Spain, Sweden and elsewhere from healthcare, sports, government and other sectors. The diversity was impressive.
CEO Bill McDermott finished his keynote with his “Top 10” list of what SAP offers customers today. That segment is in the video below. It is salesy, as you may expect from Bill, but a nice summary of the broad product portfolio SAP keeps growing.
Back to JT and the Tennessee Kids. I hope SAP takes some lessons from them.
The reality in music is there are often only 2-3 hits from every album. That does not mean your customers don’t love you if they don’t like everything you offer. With so much going well, I am hopeful SAP will be more mature about customers who have moved to third party maintenance and those it has chased for Indirect Access charges. It can offer its customers so much more as I wrote here – that is a much better way to rack up revenues than from being mean to those who go with other vendors for some components of their portfolio.
I also want SAP to behave like the quarterback JT is on stage. He prays with the Tennessee Kids before they take the stage but he is demanding of them and expects a lot. I want SAP to expect similar of its partners. I have written books about how they have enjoyed the party without contributing enough.
As expected, SAP announced a renewed focus on CRM at SapphireNow in Orlando – what it terms “fourth- generation”, not least to allow for brand rhyming with its S/4HANA ERP product it has been maturing for years now.
The reaction here has been somewhat muted. Reaction from couple of customers – “5 years too late” “CEO McDermott arrived at SAP from Siebel 15 years ago – what took him so long?” Several analysts reacted to my “Salesforce is Vulnerable” note Monday by adding “Yes, but not by SAP”. One snarkily wondered if SAP’s branding team had vetted the fact that C4 is a plastic explosive.
I am a bit more optimistic.
SAP can broaden definition of CRM
For the longest time, the definition of CRM has been frozen around the SFA, service and marketing pillars. SAP already has an edge with its hybris commerce engine, and at least in legacy world order entry engines which factor complex pricing/promotions for Consumer Products, configurators for High-tech, claims processing for Insurance etc. SAP can make the definition of CRM much more transaction-intensive and much more vertical.
It is a new world of customer data
The money quote during the Tuesday keynote came from Alex Atzberger, SAP’s President of Customer Experience - ‘Don’t be creepy’ in relation to how you collect and use customer data. The prominent security breaches at Equifax and other data custodians, recent scrutiny on how Facebook, Google and other social platforms along with the need for GDPR compliance have brought a new focus on quality of consumer data that gives SAP another reason to reopen the CRM conversation with customers and prospects.
SAP continues to have a hammer
In a press conference, CEO Bill McDermott used one of his favorite quips – customers who buy everything from SAP show better market performance. He shared that one customer told him 50% of their market cap can be attributed to their SAP relationship. It was his carrot to the continuing SAP stick of invoking its “indirect access” clause. Non-SAP CRM surround applications have been the trigger for many of those audit claims.
Couple of my concerns
It was surreal during the press conference to hear so many old names – Siebel, PeopleSoft etc. It’s almost as if SAP is chasing old ghosts. As I wrote last week, I want SAP to dream bigger. It has missed out on so many trillion dollar markets in the last couple of decades.
The blurb for SAP Nation 2.0 said “In February 2015, SAP announced its next-generation ERP product, S/4HANA. Since then, SAP and its partners have relentlessly marketed the tag word "Simple." When you factor in SAP's growing product portfolio (much acquired, but not integrated), the customizations and satellite applications at its 300,000 customers, and its ecosystem of 13,000 partners, a different word comes to mind: “Sprawl.”
A concern to me is branding risk. S/4HANA has been slow to mature and even slower to be adopted. A twin brand may face similar sluggishness. Then there is the risk of further fragmentation. Will the HR-centric solutions like SuccessFactors and Fieldglass want to be clustered into an E/4HANA? Will the supplier-centric group want something starting with V? Will the sprawl spread?
At least for now, C/4 gives SAP another talking point. You can never go wrong when you talk to executives about revenue-centric topics.
By all accounts, at SapphireNow this week, CRM will be a major focus. And the bullseye will be on Salesforce. Ho hum? Oracle, Microsoft, Adobe, Zoho and many others have been targeting Salesforce for a while. So, join the chase.
No, the biggest threat to Salesforce comes from within. Here are three angles
Economics
Several years ago, an exec at a Fortune 50 company told me he would never buy from Salesforce. “Every dollar they earn they spend 2/3 on SG&A. How exactly does that help me?” The SG&A is somewhat lower now but in some ways the perception is even worse. I have heard its customers ask in recent months about its massive new HQ, the big parties at Davos and SXSW, the big celebration that is the annual Dreamforce event. The tone is usually “how much did that cost?”
Many of its customers are in their 5th, 10th, 15th year of relationship. What is concerning is they have not seen productivity which should come from multi-year contracting. We live in a world of Six Sigma and CMM and continuous improvement. If anything customers report, the more stickiness you provide to Salesforce and partners on its platform, the more contentious are the periodic renewal negotiations.
Finally, the ecosystem around Salesforce is starting to show in bulging TCO. Salesforce has been bragging it is helping create millions of new jobs and takes credit for hoping to generate $ 859bn in GDP impact by 2022. Service partners drool about Salesforce like it is the SAP of old. Guess who will be paying for all this labor? Customers.
Product
Economics would be less of an issue if the functional footprint kept growing. In my book, The New Polymath, CEO Marc Benioff was quoted as saying “Every time someone buys a server, a switch or a data center, I have failed”. The reality is clouds have only penetrated 20% of the enterprise apps world when you add in industry applications and geographic reach. And the coverage of Salesforce and its platform partners is significantly smaller than that. Is it unreasonable to expect much more from the leading cloud apps vendors? Focus is usually commendable but you run a risk of commoditization when a whole slew of big competitors also start targeting that same, narrow space.
Social Activism
Personally I have always admired CEO Marc Benioff’s colorful personality and his zest for music, gastronomy, and other good things of life. There are a number of people who admire his repeated stands on diversity in employment. A number of publications have the company on their most “admired” lists.
Its 2018 annual report leads off with “Salesforce is a different kind of company.”
It has a whole section on some of the company’s social activism initiatives including
“We believe the business of business is improving the state of the world for all of our stakeholders, including our stockholders, customers, employees, community, environment and society. We are committed to creating a sustainable, low-carbon future by delivering a carbon neutral cloud, operating as a net-zero greenhouse gas emissions company and by working to achieve our goal of 100 percent renewable energy for our global operations. In addition, we have spearheaded initiatives to drive equality in four key areas: equal rights, equal pay, equal education and equal opportunity. We also pioneered and have inspired other companies to adopt our 1-1-1 integrated philanthropy model, which leverages 1 percent of a company's equity, employee time and product to help improve communities around the world.”
Prof. Brayden King at Northwestern School of Management has studied trends in corporate activism for a while. Activism enhances your reputation in certain consumer demographics, but it can just as easily backfire, especially in executive settings. In today’s highly charged political environment, you can come across opportunistic or even threatening depending on your politics. Often, people tune you out if they know you are going to add to all the political talk around us.
I am seeing other tech companies talk about their “purpose” and “values” but Salesforce is clearly an outlier. Personally, I think it is vulnerable to see its product messages get conflated with its social ones.
So, yes, I expect Salesforce will be paying close attention to what is announced at SapphireNow this week, but honestly it needs to look much closer to home.
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