Enterprise Software: Don’t stop thinking about tomorrow!

In my role as industry analyst, I have always pushed vendors to look ahead, rethink what they had in their bags over 5 years old and to cannibalize legacy revenues. Especially after the turmoil of the last few years. No industry or country has come out unscathed from the recent shocks of COVID, the Ukraine crisis, increasing climate change urgency and massive digital transformations. No surprise, as I wrote here, we are tracking 4 large software and services markets – hundreds of vertical “edge” applications, applications for fast-growing global economies, custom development using low and no-code tools and Generative and other AI.  

So imagine my surprise when I got from DSAG (the German speaking SAP user group) an email which led off with

“At SAP's annual press conference on July 20, 2023, Christian Klein, CEO and member of the Executive Board, announced that SAP's latest innovations would only be available in the cloud. Specifically, they are to be accessible only to customers using SAP S/4HANA Cloud, Public Edition or SAP S/4HANA Cloud, Private Edition via GROW-with-SAP or RISE-with-SAP contracts. This does not mean that on-premise solutions in general will not be functionally enhanced. But on-premise customers cannot, for example, benefit from major innovations such as artificial intelligence (AI) and green ledger. This also applies to larger function modules and extensions based on the Business Technology Platform (BTP). At the same time, SAP plans to increase maintenance fees. From the point of view of the German-speaking SAP User Group (DSAG), SAP is leaving numerous loyal customer companies in the lurch with this approach.”

And of course, several bloggers and journalists have piled on top of the DSAG reaction.

Huh? By our research benchmarks, SAP is one of the few vendors to have kept expanding its portfolio of vertical edge applications and global functionality. Try finding anything close with its on-prem or cloud competitors. In fact without the vertical and global functionality these vendor’s AI talk runs a huge risk – their machines and LLMs will mostly have access to what will increasingly be commoditized back office data. The next battle field will be around operational data, highly verticalized and regionalized.  BTW, AI will be lot easier in the enterprise as cloud data grows along with customer permissions – today, it is mostly squirreled away in proprietary data centers – highly fragmented and not easy to train machines with.

User groups play a very useful role in our industry and DSAG has faithfully represented the voice of the customer, especially mid-market ones in Europe, but this commentary sounded like Rip Van Winkle waking up, shocked after a long slumber. The enterprise world has been moving to the cloud for 3 decades now, and contrary to industry myth, SAP and its customers have been a major force in this transition. Some data points:

1. In my 2014 book, SAP Nation, I pointed out one of the most common strategies at many SAP customers was to “ring-fence” core ECC functionality with cloud solutions – 10, 20, 50 of them.
2. SAP, under Bill McDermott, Rob Enslin et al acquired a number of cloud properties in the HCM, procurement and CRM areas. The Ariba and Concur acquisitions have created one of the largest business networks in the industry – which SAP is increasingly verticalizing to include direct material suppliers. You think continuing to expand ECC or even S/4HANA would have easily accomplished that?
3. SAP has been delivering vertical edge applications in the cloud – intelligent returns around eCommerce, cell and gen therapy orchestration in healthcare, e-mobility and EV charge point billing for auto and utilities sectors among others
4. Countless customers are taking advantage of hyperscaler clouds as part of signing up for RISE with SAP.
5. In my 2019 book, SAP Nation 3,0, we had discussed the growing emphasis on cloud functionality and increasing talent challenges recruiting and retaining ECC and on-prem talent. Holger Mueller of Constellation had looked ahead and asked “Do you want to be in 2030…with an ERP system that cannot run machine learning, which does not have a good IOT story and so on?”

So, not sure I understand the DSAG surprise about Christian’s comment given all these signals going back so long.

About SAP’s economics – no CIO I have worked with pays full list price. There is no single enterprise software price point. Given SAP’s vertical investments and country presence it has a dominant position in many segments and can demand a premium. In many other segments it will not be able to do so. It has a very capable Value Advisory team which will have to help it justify its pricing.  I may be off base, but I don’t see a repeat of the customer pushback to maintenance price increases in 2008. That was boneheaded in the middle of a recession. This is aspirational and each customer will do their own value analysis and in case of AI, I am already seeing plenty of risk mitigation being factored in ROI assessments.

Not just picking on DSAG, I am also increasingly impatient with industry analysts. As I wrote a few weeks ago “I go to too many events where we still use dated TLAs (I admit I coined some of them in the mid-90s at Gartner). Two flagrant ones are ERP and CRM. Research firms have armies of analysts who still create Magic Quadrants, Waves and other tools around those TLAs and they parachute in droves to industry events. Worse, vendors spend months responding to questionnaires from these analysts to justify microscopic changes in their annual scorecards.” And “Let’s get away from umbrella, fossilized terms. Let’s talk the language of today’s business.”    

Every customer decides its own technology footprint and path. For many staying with the true and tested is the best path. But let’s not shackle our vendors to that past. Let’s push them to keep thinking about the future. The world has changed dramatically in the last few years and the pace of change will only accelerate.