deal architect

SAP Nation 3.0 Excerpts: A tapestry of customers and strategies

My new book is now available to buy here in print version, and for pre-order in the Kindle version. As with my earlier books, I will excerpt roughly 10% of the 400 page book in a series of posts on my two blogs. While there is plenty in the book about what Brian Sommer calls "shale-fracking customers' wallets" and Jarret Pazahanick calls the "Wild West" of the SAP SI ecosystem, the bulk of the book is customer case studies.

I personally interviewed the majority of executives who are quoted. They spent countless hours talking to me, reviewing their transcripts (nearly 1,500 printed pages) and their book profiles (distilled down to 250 book pages). For a handful of other customers, I extracted the text from videos of their presentations at SAP and other events or from their quotes in articles.

They are spread across 4 customer categories I used for the book - Risk-Takers, Modernizers, Diversifiers and Bystanders. They represent over 20 industries and over 15 countries, and talk about experiences across a wide range of relatively new SAP products - S/4HANA, C/4HANA, SCP, IBP, AIN and also Salesforce, Workday, Plex, Rimini Street and other surround products and services. They are balanced - critical of SAP where needed. In book, I am also critical of SAP's competitors for their own missed opportunities.

Across these and other customers I noticed a wide range of customer strategies

"Here is a sampling:

• Ring-fencing ECC with many of SAP's own cloud properties, as with SuccessFactors at Terumo BCT and components of C/4 at Pregis.
• Two-tier deployments with SAP ByD and S/4 in their subsidiaries.
• Migration from ECC to S/4 on-premise at Johnsonville Sausage.
• New implementations in the S/4 Public Cloud as at a restaurant chain.
• New implementations of the SAP Analytics Cloud as at the Executive Huddle at the San Francisco 49ers.
• Trying out relatively new on-premise, but impactful SAP functionality like IBP at Louisiana-Pacific.
• Trying out Leonardo ML pilot projects as at Costco and Queensland OSR.
• Developing new ISV functionality on SCP as Vertex has done with their indirect tax app.
• Moving to new licensing and hosting models like Bombardier with IBM.

We also are seeing blends from this growing toolbox of strategies. So, some are moving to S/4 in the cloud, and at the same time have shifted to TPM for ECC support while they gradually migrate. GEBHARDT has been implementing a variety of SAP cloud products around its ECC on-prem implementation. Additionally, it has developed a customer portal and set of predictive maintenance services using Leonardo IoT and AIN capabilities.  

Given the wide proliferation of products and terminology in SAP World, my firm, Deal Architect, recommends (and often facilitates for clients) an intense offsite meeting to help customers take a fresh look at SAP and the broader market. That confab should cover and assess the fit of many of the strategies above, while also evaluating internal and external talent and fit with emerging technology trends."

More excerpts to come over the next few weeks....

Oracle: How about an Application Analyst summit?

It's no secret. I have written in several posts that to me the highest value vendor event is an analyst summit. I feel like I am intruding on customer time at user conferences and similar events.

Workday started off the trend with its first analyst summit almost a decade ago. Since then, the quality of such summits has kept improving. Plex often combines them with customer plant visits or allows us to mingle in a Customer Advisory Board meeting. SAP recently combined their analyst summit with the Qualtrics X4 event. Other vendors have their interesting twists - lots of access to executives, customer presence, often an interesting social activity.

I raved about a cloud summit Oracle hosted four years ago. For some reason, Oracle has moved away from such summits - it has short 3-4 hour ones which seem hurried. In fairness, they may hosted longer ones I have not been invited to. Unlike other vendors, Oracle persists with a "caste system" and has different agendas for those they consider "independent analysts" versus those from my former employer, Gartner or other bigger firms.

So most of my Oracle exposure has come from OOW or its thematic events.  It would be nice if they would facilitate connecting us with customers, executives and partners at such events. That has not happened much in recent years.

As a result, I have not traveled to Oracle events in the last year. In retrospect, looking at the agenda, I should have gone to MBX/MCX events last week. Oracle suggested I at least watch 4 streamed keynotes. 6 hours is an investment I will gladly make especially if I don't have to put up the wear and tear of travel.

So, I watch the first MCX keynote here.  First 25 minutes are marching bands and cute Ann Handley talk. Then come buzzwords about the "Experience Economy". Finally after 50 minutes, there's a customer on stage. Judy Sims, CMO of Oracle does a nice job interviewing Jennifer Storms, CMO of NBC Sports Group for about 20 minutes. Then more announcements. No product demos. Not a strong start I say. My grade for this segment = C. Without the NBC Sports customer segment it would have been be a D. 

On to the next keynote - this time from the MBX track. Marching band again and introductory comments for first 15 minutes. Charlene Li of Altimeter then talks about "Disruption". She is very good on other topics, but was a bit flat here. When I hear disruption, I expect example after example a la Clayton Christensen. Around 40.00, Steve Miranda of Oracle takes over. He spend a few minutes on history of change in enterprise tech. Starts demo around 50.00 - does a credible job, but focuses mostly on digital assistants and ML. Around 60.00, Steve interviews an executive from Caesars Entertainment. Around 75.00, an Accenture partner discusses some jargon - mercifully for a consultant, he does not have 80 slides in tow. He then interviews an exec from Willis Towers Watson. Most of the focus in the session has been on hcm and financial processes. Nothing on SCM or operational processes. My score for this session = B

On to the next MCX keynote - to me, the best of the four keynotes I watched. I enjoyed the tap dancing and hand jiving that kicks it off. Around 15.00,there is some product focus with Oracle thoughts on Design. Then, it gets better. Co-CEO Mark Hurd talks about sales and marketing trends at Oracle, the 80 customer "touches" it takes to sell enterprise applications, his efforts to recruit salespeople straight from campus. He was initially mocked for the idea but Oracle has persisted and now has 10,000 such recruits, many in inside selling. That is followed by an interview with Andrew Sinclair of Motorola Solutions. Very impressive description of how the company supports emergency services around the world.

My score for this session = A-. Would have been higher with more Oracle product exposure

Finally, the second MBX keynote. At around 10.00 Willis Sparks of Eurasia Group covers geopolitical trends. He is very good. At 40.00, Mark takes over. He presents his view on the industry. Nice if you have not heard him - but I have heard many variations of this from Mark. Around 70.00 he brings customer executives on stage - Hormel Foods, Adventist Health for 10 minutes each. Again more focus on financial and hr processes. Finally, a half-hour session on digital trends by Deloitte.

My score for this session = B- . It would be even lower without the Willis Sparks segment.  

4 webcasts - little over 6 hours. Not enough product or customer exposure, a little too much time given to partners. I listen to Jon Reed and Brian Sommer's podcast and read Bob Ferrari's posts from the event. They do not appear to have picked up on much new functionality in Oracle products. Brian comments the event was "crawling with chatbots"

After my research for SAP Nation 3.0, I believe SAP's competitors need to step up. In Oracle's case I would love to see it showcase much more intensely how its applications are growing in function points across geographies, industries and processes. Mark keeps predicting 80% of production apps will be in the cloud by 2025. After 15 years of Fusion and countless acquisitions, Oracle still mostly showcases CRM, HR and financial apps. Unless this changes, it will have a very small share of what Mark is projecting for the 2025 cloud enterprise apps market.    

Oracle, how about a 2 day analyst summit focused on your applications? Focus on SCM, operational, vertical applications you are working on. Allow us to spend some time with your application visionaries and customers who are pushing the boundaries of your applications. Entertainment and partner sessions, optional. 

I will gladly travel for that. How about it, Oracle?   

Update: someone just reminded me Oracle NDAs and admin processes can be pretty onerous. I suspect even if Oracle decides to host a summit I request above, there may need to be some negotiations before analysts decide to show.

SAP Nation 3.0: Early Book Reviews

I got very nice feedback from tech executives I respect who had seen early copies of the book

"Don't be fooled by the title - the book is not just about SAP. It is about drama in enterprise computing. As Vinnie points out, few would have speculated in the late '90s that Apple, near dead or Google, not born yet would have many times revenue of SAP or its peers.  I’ve been fortunate enough to have a front row seat overlooking this market both as executive and as investor. With new startups and developer communities reshaping the industry, SAP’s opportunity to reshape itself is still on the table, but only if it is willing to take a zero-sum approach. Platform vendors have to use their market cap and sales organizations to offer new services.  Otherwise Amazon, Google and Microsoft will within a few years position to operate enterprise workloads, anywhere at any cost. Vinnie deftly brings out the trajectory at SAP and its enviable blue chip customer base, but also its many missed opportunities."

Raymond J. Lane,

Managing Partner, Greatpoint Ventures.

Previous Leadership/Board Roles at Oracle, HP, Kleiner Perkins and Carnegie Mellon U.     

“A prolific writer and prescient observer of technology trends, Vinnie Mirchandani has produced an intriguing look at the many forces shaping enterprise applications today.”

Francisco D’Souza

Vice Chairman and CEO

Cognizant

"In previous books, Vinnie has painted a rather dim view of SAP as an expensive, back-office system, grudgingly accepted by business as a necessary evil. The fast changing and rapidly expanding digital landscape in the enterprise now presents incumbents like SAP a fresh opportunity to move into front-line operations in many industries. Will they be able to dominate this new digital space or will they squander the opportunity? This book does an excellent job of examining this question, taking a somewhat optimistic tone about their chances of success supported by a number of examples. Time will tell how the story ends."

Phiroz Darukhanavala (Daru)

CTO , BP (Retired)

"We are in the midst of massive digital transformation.  Software companies are not immune.  The shift from on-premises to cloud and now the shift from clouds to data driven digital networks will leave some vendors behind as the industry consolidates and evolves into digital duopolies.  Vinnie’s book looks at the shift and asks key questions about how SAP and other software vendors will make this transition.  More importantly, he raises the question on how the software market will look like post a financial engineered world,  asking what strategies they should take, where they should invest, and whom they should partner with.  A must read for those who want to know how the software market will evolve in the next decade."

R “Ray” Wang

Founder and CEO of Constellation Research

Author of Disrupting Digital Business

As usual, Dennis Howlett was the first to publish a media review on one of my books. His summary "SAP Nation 3.0 is very much a book of its time that will surprise, delight, infuriate and more." 

Dennis did not, however, get the first review in on Amazon. Marco gets that honor.

"This is the third volume in Mirchandani’s unfurling saga of the SAP software juggernaut and its ecosystem of clients, app providers and other partners. As in the previous two installments, he manages to *animate* the enterprise computing space like no other commentator I’ve encountered. His secret weapon is that he is attuned to – and integrates throughout the book – all the key aspects of the Big Picture: the technological dimension, the business side, user experience, market behavior, vendor dynamics, etc. While this approach succeeds at dramatizing this ongoing technology/business story, and even instilling an element of intrigue – will the software giant rally and prevail? – Mirchandani does not shoehorn the narrative into any pat conclusions, but rather lets the dozens of sharp voices of the interviewees tell the tale in their own words. He subtly emphasizes what the subjects bring up, such as how SAP has or hasn’t succeeded at addressing individual vertical markets or cloud deployment and what styles the firm uses in negotiations, etc. As with any picture drawn with great detail, the eventual image is loaded with complexity and yet it is coherent. This detail is culled from many dozens of diverse participants from throughout the business and technology value chain … and for anyone with a stake in enterprise or application software, the insights they continually offer are gold nuggets. Perhaps the book’s biggest takeaway – and the main reason this work could be vital to the whole C suite, not just CIOs and CFOs – is the myriad ways that technology is driving innovation and business success."

There will be plenty more reviews. I am sure there will be reaction from SAP, its partners and its competitors.

As one of the sections in the book says "It's not your Dad's SAP". I see a lot of one-dimensional commentary on SAP - related to rumors of its recent restructuring, about its Indirect Access stance, its SI ecosystem. To me, SAP Nation is a fascinating, complex, evolving organism. It deserves a fresh look every few years. I hope I start that process this time around for a number of readers and with customer executives I advise. 

Conversations with ASUG

Merriam-Webster defines ecology as a "branch of science concerned with the interrelationship of organisms and their environments". If ecologists were to study today's software vendors they would be fascinated not just by how the core organism functions but by the tapestry of their environments. Their halo includes layers of resellers, systems integrators, hosting firms, ISV partners, platform participants, developer communities, analysts and other influencers, media and other watchers. And then you have user groups. SAP alone lists 38 user groups around the globe.

In my long career as analyst, advisor and author I have interacted with most of this "surround" environment around software vendors. Honestly, the one element with which I had the least interaction is user groups. I am on mailing lists of a few, and I periodically reach out to their leaders but never could get a continuous conversation going. I blame myself for not trying harder.

That changed last year. I approached Geoff Scott, CEO of ASUG to see if we could talk every few weeks. Geoff's wonderful assistant, Kim made sure we didn't ignore each other. She would diligently reschedule calls if needed and made sure we talked. So talk we did, openly, off the record about what we were seeing in the SAP ecology. 

As I was writing SAP Nation 3.0, I asked Geoff if he could describe from his vantage point, on the record, how SAP and ASUG have changed in the last 5 years. I liked his first draft so much that I asked him if he could reshape it as a foreword to the book. I am glad he agreed. The book is about customer conversations - 35 case studies over 250 pages make up bulk of book, so the foreword from the head of one of SAP's biggest user groups is like the cherry on top of the dessert.

Here is an extract from his section

"As SAP has changed to become more cloud-centric, ASUG has changed, too. We invested in new ways of learning and connecting like-minded SAP customers and partners, and we launched new programs and services all with the goal of helping our customers maximize the return on their SAP investments.

The process has taken time and energy, and key to it has been the involvement of our members, including our 12-person Board of Directors and more than 300 volunteers. Which leads me to an example from 2017-2018, one that is emblematic of how much the relationship has changed and how it’s benefited SAP customers. The topic? SAP licensing and indirect access (IA) of SAP software."

It went further. He introduced me to several executives from his Board who ended up describing their companies and their SAP investments. Very honest feedback about the software and the relationship with SAP - on the record, as you will see in the book.   

Tom Wailgum, part of analyst relations at ASUG, facilitated those interviews. He later told me 19 of the companies profiled in the case studies (most I had identified from other sources) are ASUG members. He also identified a few journalists I have since sent a media review copy of the book. He also shares with me periodic ASUG research like he did this week about the "State of the Community". The extract below is a small fraction of the long infograph - check here for full graph. Drill down here and you get more detail below the infographic. Even then, it is a very high level summarization of the nitty gritty of what users do on a daily basis. And the conversations they have with each other. That's what ASUG facilitates -  as their site says

"From the outside, we’re a huge organization of more than 100,000 members from thousands of companies—from global enterprises to startups—spanning traditional and emerging industries across North America. But the real power of ASUG lies in informal partnerships formed through knowledge-sharing and commitment to a common cause."

In the book, couple of CIOs talk about how they find it easier to find answers to their questions by networking within ASUG than going through their contacts at SAP. ASUG is a mother lode of information that I hope I get to mine further in coming years.

Having had this experience with ASUG, I hope I can open up conversations with some of SAP's other user groups around the world. Even more, I would love to start conversing with user groups of other vendors. That is if they can be as open as Geoff and Tom have been at ASUG.

 

Oracle Applications: a new chapter?

Steve Miranda, EVP, Applications Product Development at Oracle briefed analysts about this week's co-located Modern Business Experience (MBX) and Modern Customer Experience (MCX) in Las Vegas. He also blogged about it: "we are bringing together marketing, sales, and service with HR, finance, and supply chain, because we are seeing more and more similarities between each area."

On the earnings call last week, Mark Hurd, co-CEO of Oracle glowed about the applications business

"Fusion Apps, 35% up, Fusion ERP revenue was up 47% organically. NetSuite revenue was up 28%."

Steve is one of the nicest guys in the software industry. He is also one of the smartest application architects in the industry. Mark has run some of the most sophisticated supply chains and salesforces in the tech industry. I have talked to him about complex business processes and applications. I know they know business applications cold.  

And yet when I was researching my new book, SAP Nation 3.0, I repeatedly saw Oracle miss out over the last two decades on opportunity after opportunity to become the dominant enterprise application vendor.

"Oracle continues to dominate the database market. By many measures, Oracle should also by now be the undisputed leader in enterprise applications....Starting with the PeopleSoft acquisition in 2004, Oracle went on its own binge, claiming it was time for "industry consolidation." They made significant acquisitions: PeopleSoft for US$10.3 billion, NetSuite for US$9.3 billion, Siebel for US$5.6 billion, Micros for US$5.3 billion and Hyperion for US$3.3 billion. Other investments like i-flex, Portal, Primavera and Retek brought them banking, telecom, complex project and retail functionality, respectively.  By 2006, they were loudly celebrating that they were "halfway there" in developing their own next-gen Fusion cloud applications....For all that, Oracle has done just OK. It has seemed more intent in going after Amazon for the cloud infrastructure and platform markets ...Around business applications, Oracle has focused more on Workday and Salesforce with HCM and CRM functionality, and not so much in manufacturing or other verticals where SAP has greater presence.....While it has launched an exciting autonomous version of its database—which it calls "self-driving"—it has not brought a similar level of automation to enterprise applications. "

Mark explained during the q&a during the earnings call that he is not that concerned that his on-prem customer base is not moving to the cloud. He said "our user base actually knows our cloud roadmap. They actually have confidence in our R&D, they know we’re going to be there to migrate them when they want to be there. They actually have less of a sense of urgency in many cases to move than the (competitors like Deltek and Lawson) you’re describing, Brad, because they’re in much more desperate situations without a roadmap, without knowing how they’re going to get from here to there, knowing their competitors are beginning to move."

In the book, I  point out that after two decades of cloud applications (Netsuite was founded in 1998), we actually now have an industry crisis. CIOs are reporting it is increasingly difficult to recruit talent to their on-prem environments. The customizations and technical debt around those applications are increasingly a security and compliance risk. And they have little hope of seeing the benefits of better UX, multi-tenancy, machine learning or IoT any time soon. 

In this post I called for SAP, Oracle, Infor, Microsoft and other on-prem apps vendors to "tilt the bell curve". Of their own customers - not worry about those of competitors.

Mark also said "Our vertical revenue was up 38% and our annualized revenue in the verticals is now over $800 million." I would love to see details - to me vertical applications do operational stuff - merchandising in retail, claims processing in insurance, net metering in utilities, support robotics and wearables on the shop floor etc. If it has those, why is Oracle not aggressively showcasing these capabilities? I like the fact that they are bringing marketing and hcm executives under the same tent in Vegas, but why not operational executives in various industries? I asked Steve and he basically said the risk was the agenda would become unwieldy. On the other hand, that would hugely differentiate them from what Workday, Salesforce, SAP and others can offer today or in the foreseeable future. Also, in the last wave of ERP and CRM projects customers mostly implemented back office functionality and showed poor payback. This time around many want to start with operational areas.

Under NDA, Steve described exciting new features in the horizontal applications they will showcase in Vegas this week. Every time I listen to Steve and Mark, I get excited about Oracle's application future. 

But when I step away and look at what could have been, I turn cautious.  The industry could use a much more focused and vibrant Oracle applications business. Are we seeing the start of a new chapter with the new event format in Vegas? I hope they can turn my caution to enthusiasm.

SAP Nation 3.0: Those who ignore history.....

The book is available for advance purchase on Amazon here. I am sending out media review copies this week. Over the next few weeks, as I do with all my books, I will share about 5%  of the 400 pages in posts on this blog.

I recently summarized the book for a SAP Executive. I told him there were three waves of history in the book:

a) The ongoing turnaround at SAP since the first volume of SAP Nation 5 years ago has been impressive and in many ways unrewarded by Wall Street or analysts. Most of the 35 customer case studies talk about SAP products that did not exist/had not been acquired. Many of the SAP executives I profile in the book have a sense of urgency I find lacking in its competitors.

b) When you look at the industry from a 20 year lens, however, SAP does not look that impressive. Many, many missed application opportunities while SAP has been distracted with platforms and databases. I also cover plenty of "unforced errors" SAP has made like its Indirect Access licensing policy. As the book says "Few of us would have speculated that Apple, near dead or Google, not born yet would have many times SAP's annual revenue. The market is fragmented—waiting for fast followers who missed out on the first wave of opportunities."

c) I also profile the race in the North American Continent in the 1800s. There is plenty for SAP and its cohorts to learn from how that history evolved. Two extracts from book:

• In 1800, the United States, then the original 13 colonies, was a young, skinny country. Two-thirds of the population lived within 50 miles of the Atlantic Ocean. You could have placed bets on who would win the race for North America—would it be the Americans, the Spanish, the British, the French, or maybe even the Russians or the Dutch? Over the next few decades, Americans had the biggest market share.
• (The Louisiana Purchase) was a major risk for President Jefferson but it doubled the real estate of the young United States. What if the population had just yawned and clung to the Atlantic Coast and not moved to the new territories? That's a good analogy to what SAP faces. It has new real estate in the form of S/4, Leonardo, SCP, HANA and its cloud properties, and yet the majority of its 400,000 customers are clinging to the "coast" of legacy products. Helping them migrate is SAP's major short-term opportunity.

In 400 pages, I cover a lot of ground - actually, the customers in the case studies do quite a bit of work for me. If you want to hear gossip about SAP's recent restructuring you wont find too much in the book. Nor will you find too much adulation about the $8 billion investment in Qualtrics. Both are there as milestones in the journey.

There is plenty on how the enterprise software industry continues to morph.  And as I ask in the book

"Are they ready to issue the Manifest Destiny clarion call to go from "sea to shining sea"? The continent of enterprise computing is waiting to be tamed."  

Look forward to your input as various formats of the book become available for purchase throughout April.  

Qualtrics: Not just a shiny new object for SAP

I want to be respectful of the NDAs SAP requested during the recent analyst summit but wanted to share early thoughts that crossed my mind as we were introduced to SAP’s new acquisition.  We saw keynotes at the Qualtrics X4 conference, had a walk through of the show floor, a q&a with the management team and couple of conversations about the acquisition due diligence conducted by SAP.

a) Qualtrics punches above its weight class

Many of the customers we heard about this week are blue chip, SAP-class. The executives we met have impressive pedigree. The co-founder, Ryan Smith has been riding a unicorn the last few years. What's even more admirable from talking around is his work-life balance with 5 kids under 10 years. His brother, Jared Smith is a brilliant engineer with experience at Novell and Google (and as this story describes he worked with Kai-Fu Lee who is now funding a vast empire of machine learning startups in China). Zig Serafin, the COO ran Skype and Cortana units for Microsoft. They speak in jargon like instrumentation and conjoint analysis. Their tools are designed to turn ordinary users into data scientists. I believe they will sharpen SAP's analytical chops.

They are turning annoying survey tools into conversations. With digital assistants and real-time sentiment analysis, they are redefining how to collect experiential data. Their early focus on academia brought them users who used their tools for a wide range of scenarios. While the most common ones now are customer- and employee-centric, at the X4 event, Under Armour talked about a product engineering scenario. SAP sees a lot of promise in product centric/spend management scenarios as they look to integrate X - experiential data from Qualtrics and O - operational data from its systems. 

Rob Enslin of SAP described how he gradually warmed up to the acquisition. Abdul Razack, Head of Cloud Technology and Architecture showed us the image he doodled after his first due diligence visit to Qualtrics. Abdul said he was blown away when he was told the X4 event was attracting 10,000 attendees.  To Utah no less, not the easiest place to get to. BTW the slate for the event had heavy hitters like Obama and Branson and Imagine Dragons.

Credit: SAP

b) The bigger news is SAP's O data keeps growing by leaps and bounds

Having spent $8 billion on the acquisition, SAP could have focused the analyst summit mostly on Qualtrics. Instead, they spent most of the time talking about how the "Intelligent Enterprise" keeps expanding and maturing - S/4, C/4, cloud properties like Ariba and Concur, Leonardo ML and IoT progress, Cloud Platform, Analytics Platform all got plenty of time. To me, it was a nice summary of the products in the case studies profiled in my upcoming book.

I hope the messaging at SapphireNow is similar - lots more on the expanding Intelligent Enterprise, with Qualtrics adding another dimension which could blow people's minds. I would like to see it as the cherry on top of the dessert. I think that will resonate more with the SapphireNow audience.

c) Even bigger impact may come from spreading the Qualtrics ethos across SAP

Dennis Howlett can be a flamethrower as we saw this week in his commentary on SAP's restructuring. But in the book, he has a thoughtful section where he talks about how Qualtrics instrumentation can be used to improve SAP itself across customer, product, employee and brand dimensions.

That's it for now. More to come in the weeks ahead.

The coming Enterprise Software Hurricane

In interviewing SAP customers for the upcoming book, I ended up classifying them broadly into four groups. I termed the first three: a) Risk-takers who are trying out new Leonardo ML or IoT projects, developing new functionality with its Cloud Platform, moving to S/4HANA in the cloud; b) Modernizers who are moving to S/4 on prem, even staying with SAPGUI, others moving to cloud properties like Ariba or SuccessFactors or new on-prem functionality like IBP - relatively less disruptive changes; and c) Diversifiers who are "ring-fencing" with functionality from Salesforce, Workday, Plex or other SaaS vendors, two-tier settings with NetSuite and Microsoft and others who are trying out third party maintenance from Rimini or Spinnaker. This group also includes a growing number of customers who are moving back to SAP after trying something competitive.  

The fourth group is what I called Bystanders - and it is the biggest group - as they are not really budging or doing much. I estimated them as 60% of the SAP base of customers.  I estimate this percentage is much higher in Oracle, Infor, Unit4, Microsoft and other on-prem customer bases. With SAP, the European customer base has been especially static. On the other hand, the breadth of its developed and acquired products is much wider than that of its competitors so it has more ammunition to move its base. 

I interviewed several analysts on why these customer bases are moving so slowly. I am paraphrasing from several pages in the book: Cindy Jutras thinks it is fear whether customizations can be retired. Frank Scavo says it is business scenarios more than vendor functionality which drive such major, traumatic moves. Holger Mueller thinks end of life dates announced by vendors have some impact. He wonders how many customers would want to continue with systems in 2025 which do not support IoT or machine learning scenarios. As I wrote here, next-gen solutions have several challenges which need to be addressed before there is significant customer momentum.

The stakes are very high. There are at least a million Bystander customers across the major vendors (SAP itself has over 400,000 customers, with a large percent on ECC, BusinessOne, BusinessObjects, relational databases and other older technologies). You could cynically argue that on-prem vendors are collecting maintenance checks so are content to stay with status quo. The problem is status quo is making it difficult for customers to attract younger IT talent ( try competing for young developers for an on-prem, ABAP or Unit4 shop). Customers are struggling with older customizations. There are security and compliance challenges. There is plenty of technical debt. Their costs have been high and continue to be high. Either SAP, Oracle, Infor and other on-prem vendors start energizing their customer bases or they are creating a vacuum for a disruptive force to enter.

Who could that be? Last month, I heard Zoho executives prepare for an Amazon entry into enterprise apps. Heck, the way Zoho is going it is already a disruptive force. It could be SaaS vendors like Workday or Salesforce if they can start to grow their global and functional footprint

In the book, I point out that "tilting the bell curve of customers" to move Bystanders into the Risk Taker and Modernizer categories is SAP's big short term opportunity. The book has several ideas for SAP to do so. Other on-prem vendors have similar opportunities in their own customer bases. And, whoever does it quickly in their customer base will also have a shot at attracting Risk-takers and Modernizers from other on-prem competitors. However, as these vendors introduce new offerings and messages, SaaS, TPM and other vendors won't stand still - they will update their own offerings to remain competitive.

Image: Deal Architect

I live in Florida and have seen over and over that weather vacuums provide the seed for birth of destructive fronts and hurricanes. They are not fun and cause plenty of turbulence. In our state, we take elaborate measures to prepare for such disruptions.

I feel the same coming around enterprise software. A million+ Bystander customers not doing much is too big a vacuum. Nature hates a vacuum. Time for every vendor to start updating their contingency plans. 

Microsoft - a perennial "underachiever" in enterprise apps

It's tough to argue with Microsoft - after all, it was at least briefly, the world's most valuable company late last year. CEO Satya Nadella is getting all kinds of kudos. "Whatever they're paying him, it's not enough," former Microsoft executive Brad Silverberg told CNBC.

To me, however, they could easily go from good to great if they got serious - really serious - about business applications. Instead, they are content to sell building blocks like Azure cloud, ML and IoT services and let their customers, resellers, developer community develop business apps. At Mobile World Congress 2019 this week Nadella cited a series of enterprise use cases using products like its HoloLens glasses in healthcare, remote training and manufacturing. But are we likely to see them packaged in Dynamics any time soon?  

Five years ago I wrote

"Like the Egyptian museum I suspect from time to time we will see disorganized messes, and some areas which remain hidden in the Microsoft storeroom.  But where they get the One Microsoft strategy humming,  competitors better watch out."

I was wrong. I wrote last year

"To me, Microsoft sometimes "goes low" and focuses on tactical competition with ERP and CRM vendors, when the world around it is being defined by GE’s vision of the Industrial Internet and impact on smart products, asset management and field service, advanced manufacturing and Industrie 4.0 concepts that companies like BMW and Boeing are deploying on their shop floors and Amazon’s sweeping vision for logistics. It is one of the few vendors which can pull all kinds of capabilities together to solve grand challenges customers face."

So, I write in my upcoming book

"Looking back, it certainly had the opportunity to be a dominant application vendor. In 2000, Microsoft acquired Great Plains (they could not have anticipated this book's westward theme, and changed the branding of that product to Dynamics GP), which was then a leading mid-market ERP vendor, though primarily in the U.S. In 2002, it acquired Navision, which was a leading ERP vendor in Europe. Both of these companies had made their own acquisitions, and Microsoft found itself with four ERP products—Great Plains, Navision, Axapta and Solomon.   In 2003, Microsoft began working on an effort that was code-named Project NextGen, which later morphed into Project Green to rationalize this portfolio. Four years later, Mary Jo Foley, one of the best-known Microsoft media followers, summed it up: "Microsoft must rue the day a few years back that the company hatched the “Project Green” idea."

Microsoft has largely focused on the CRM segment of the application market, which included making a sizable investment in LinkedIn. Their One Microsoft initiative has allowed them to showcase a wide range of assets to large customers. However, they have executed inconsistently around business applications, depending more on resellers for SME opportunities."

They continue to have the potential, but honestly they have been a perennial "underachiever" when it comes to business applications.

But then again, they are successful selling grills. Why should they sell cooked food?

Next-gen Enterprise Apps

I am reviewing the latest typeset draft of my next book. While much of the content is focused on SAP, its customers and its competitors, sprinkled throughout the book are glimpses of a rapidly changing enterprise apps market.

Anshu Sharma talks about a new generation of startups being funded in Silicon Valley. Kai-Fu Lee has invested in 150 AI startups in China. Sridhar Vembu of Zoho describes how it has become easier and easier to develop new enterprise class apps. Diane Fanelli tells how ISVs develop apps on SAP's cloud platform. Thomas Grassl describes how SAP is encouraging developer communities around the world. There are plenty of mentions of Python, PyTorch and Kubernetes throughout the book.

In India and elsewhere, big outsourcers like TCS and Cognizant are offering vertical applications to insurance and healthcare. IBM with Watson, Accenture with SynOps, Uptake, C3 and others are increasingly defining apps that are more machine than human-centric. Oracle, Salesforce, Workday, Microsoft, Apple, Google, Amazon and others are not exactly sitting still.

Navigating this new world is going to be tricky for enterprise buyers. It will be trickier for vendors as it will call for Coopetition with a capital C.

And God help us analysts navigate these shifting sands. But, change cometh. That's always exciting.