SAP Announces Q1 Results & A New Plan for Enterprise Support

For Q1, SAP's total revenue came in at €2.4 billion, a decrease of 3% compared to the year prior, while software licenses plummeted by -33% to €422 million. This compares to a -12% decline in Oracle's software licenses for their March quarter, giving some credence that Oracle may have a temporary edge in selling acquired point-solutions in an economy where company's are not looking for "big bang" suites...

When looking at software licenses for SAP by region, EMEA performed "best," declining by -27%; Americas by -35%; and APAC by -50%!

Changes to Enterprise Support:

At the time of its earnings announcement, SAP also announced changes to its Enterprise Support program, where the company will prolong the maintenance fee price increase schedule by 3 years, to reach 22% maintenance fees by 2015, instead of 2012. The other added stipulation is that in coordination with SUGEN (SAP User Group Executive Network), SAP and SUGEN will be measuring 4 central business value areas (with a number of KPI's behind each) related to the value delivered from Enterprise Support, including:

• + Business Continuity
• + Business Process Improvement
• + Protection of Investment
• + Total Cost of Operations

If these KPI's are not met, the maintenance price increase will be slowed down and/or halt; it is not exactly clear how this will work until we see it in practice, but there is a cap of +3.1% increases per year. The overall strategy for SAP is to create a 30% savings around support services based on these SUGEN KPI's over 4 years, while the price increase, 30% in total to reach 22% maintenance fees, will go over 7 years.

Given the amount of recent frustration by SAP customers on the price increase (announced in July 2008), along with the economic meltdown that hit later in 2008, SAP had to do something before Sapphire... or it risked being verbally whipped by their customers in a very public forum! Now, SAP can claim at Sapphire that "they feel their pain" (SAP Americas laid off nearly 1,000 employees alone, according to the Q1 results!) and will only do price increases when a greater amount of savings is delivered to its customers. Makes sense on paper!

This should at least stave off awkward situations at Sapphire, but the true measure of success will of course come from the customers. What will the quarterly KPI report look like from SUGEN? Will customers believe it? Will customers themselves be able to see their own individual support savings so easily?

This is ground breaking territory, not only for SAP, but for the overall ERP market, since customer scrutiny of maintenance and the value that these fees bring has been on the rise, along with some very different value models such as SaaS. If SAP succeeds, they'll have happy customers and higher margins. If they fail, it could place even more pressure on the traditional "license + maintenance" software model. We'll have to wait and see on that, but SAP has taken a great first step!

IBM+SAP: Is it Possible? Some Food for Thought...

Of course the easy answer is: yes, of course... anything is possible!

With the big announcement of Oracle acquiring Sun, and jumping now into the hardware business of all things (and in the process helping to broaden its enterprise software stack, as commented on by my colleague Olivier), I began to think: This can't be it! This large of a deal, and its impact and the disruption caused to partners, competitors and market positioning...

SOMEONE ELSE is going to be tempted to do something BIGGER! But who????


Just to a few large IT players:

* HP: Fresh off announcing the HP Oracle Database Machine last year as a co-product with Oracle (a partnership Oracle needed perhaps more than HP!), Mark Hurd has got to be feeling a little bit burnt right now... And while many people try to paint him as dollars and cents, bottom-line focused chief... he's not, he's shown he's ready to move HP into to new spaces with the launch of NeoView in the data warehousing space, as well as to build out their IT services business with EDS. Perhaps HP will have an appetite for something more? Probably not... but who knows...

* Microsoft: Fresh off a -6% revenue decline in its most recent quarter, Microsoft lost its "cool" years ago to Google and Salesfore.com; while their ERP business is not losing ground, it's also not doing much either... acquiring SAP could really bring Microsoft the market they want in the long run, while helping to improve performance across the MS stack... Does this have a shot? Definitely a possibility...

* IBM: Said it wasn't playing in the enterprise application space.... then it bought MRO Software (Enterprise Asset Management), then it bought Cognos (BI & EPM software). Okay, this isn't exactly "enterprise applications" in the same sense as at SAP or Oracle, but getting pretty damn close! SAP was founded by a few ex-IBMers ... if Oracle is going to compete in nearly all fronts with IBM (with the one area of weakness for Oracle being IT services outside of Oracle products), maybe its time for IBM to bring it on in the ERP space!

* SAP: SAP has always preferred the home-grown development of its business than to large acquisitions (ehem... of course except for Business Objects). However, with so many successful (at least in the short-term) and profitable acquisitions performed by their chief rival Oracle... perhaps the company is beginning to feel too narrow? This of course is still a strength, since they are 100% focused on enterprise application (and supporting IT Services), and to the underlying middleware through Netweaver. A merger with IBM on one hand could add huge strengths to its software stack, an in-house hardware platform... and of course IBM Global Services (Did someone say profit issues with Business ByDesign???). Although, the latter could also effectively kill off a lot of collaboration with its other IT services partners... On paper, Microsoft might make the most sense. Not much overlap, a lot of complimentary software offerings... Neither Microsoft or SAP can categorize their SME ERP businesses a "success," yet with the biggest share in the large enterprise ERP space, and a co-product already out there with Duet, a combined SAP+Microsoft could have a better shot within the SME space too...


Again... I will be totally shocked if the current market positions stay as they are. While I list HP, Microsoft and IBM as the most obvious (since they have the cash, size, channels....), I can also throw in Google, Amazon, Cisco.... Dell.... After Oracle+Sun, who knows???

But I tend to think something will happen with my group of 3... why? Because all three want to secure their position to be relevant. Yes, I understand that Microsoft makes +$60 billion/year and HP and IBM bring home +$100 billion/year.... But there is also a whole new wave of computing coming in the form of the cloud; it is affecting all players, and those with the largest positions in "past technologies" tend to be the slowest to move out, as to not kill the "gravy train."

If you still don't believe me... I took a look back into the PAC archives, and I went through our supplier ranking of the top 30 Software & IT services suppliers in the U.S.... just 15 of these companies still make the top 30, or, are even in existence! And we are talking about less than 10 years ago.... imagine what our top 30 will look like in 2020!

Oracle, Sun, and the Triumph of ABAP over Java

Breaking news: Timing is not always a blogger’s best friend. I had already cooked up the following piece on SAP’s ABAP and Java strategy when Oracle’s Sun acquisition was announced. Back to the cutting room floor! As you read the following piece, you’ll see that fortunately for me, SAP’s ABAP strategy plays directly into the Oracle-Sun news. At the end, I’ll make a couple more comments about how this looks through the lens of Oracle’s pending “control” over Java.

SAP and its customer base agree on some things and not others. This is especially true when conference season hits. The headlines SAP features at Sapphire in Orlando may or may not be the same ones that customers would have chosen to feature. Unless SAP announces at Sapphire that maintenance fees will remain at 17 percent; in that case, there will be as much agreement as there was last year about Eric Clapton. Sometimes the real headlines in SAP sneak up on you. This is the case with SAP's gradual recommitment to ABAP development. Prior to the Oracle-Sun announcement, SAP's plans for ABAP had already reached a critical mass. No, we didn’t hear about it, because ABAP doesn't make for sexy headlines. Buzz-free or not, the apparent triumph of ABAP over Java has implications for those who are trying to cultivate the skills that are relevant to the next phase of SAP project work.

It's important to remember that early in this decade, the possibility that SAP's entire stack would be rewritten in Java was a looming possibility. Java was in, ABAP seemed dated, tied to legacy environments that were supposed to go away after Y2K. Many ABAP programmers bailed out in pursuit of functional work or greener development pastures. But behind the scenes, ABAP chugged along, proving to be better suited for SAP's high-volume transactional environments than Java. Yes, SAP came out with the NetWeaver Development Studio, a Java based environment, and later the Composition Environment (CE), another Java platform.

But behind the scenes, ABAP didn't go away. A good chunk of NetWeaver Process Integration (PI) was written in ABAP, and SAP's latest and greatest GUI tool, Web Dynpro, eventually got an ABAP version, known as Web Dynpro for ABAP. Java was still getting the headlines by virtue of CE and the buzz-filled world of SOA and mashups, but ABAP was there too, a trusty old friend to SAP customers who have counted on its stability from release to release.

This issue came to a head last week during a webcast on SAP's UI strategy that was presented to SAP Mentors by Thomas Jung, fellow SAP Mentor and SDN blog legend in ABAP circles (disclosure: I am an SAP Mentor). Thomas, who works for SAP Labs, is as good at articulating SAP's development strategy as anyone. You can catch him yourself on Enterprise Geeks, a weekly podcast series on SAP technical trends that features Thomas, co-host Ed Herrmann and special guests riffing on SAP "geek stuff" that most of us need to know something about in order to be effective in today's "suits needs geeks and geeks need suits" IT world.

During the UI webcast, which was supposed to be about SAP's UI strategy going forward, it became clear that a major underlying theme of the webcast was that ABAP is not only here to stay, but is now asserting its dominance. Example: Employee Self-Service, which has always been a Java-based app, is being rewritten as an ABAP-based application, likely to be released as part of Enhancement Packs 5 and 6 (details still to be decided). With Web Dynpro for ABAP (WDA) gaining traction, it's clear that ABAP is moving into territory historically reserved for Java within SAP. More evidence of this shift in emphasis: SAP has publicly stated that it is beefing up its own Web Dynpro for ABAP resources by adding ten more FTEs to the WDA Foundation team.

This doesn't mean that Java is going away. In fact, SAP Chief Technology Officer Vishal Sikka would encourage us to remember that a key to his vision of "timeless software" is moving past obsessions with a particular programming language and focusing more on supporting business processes using re-usable building blocks that are not language-dependent (see Dr. Sikka's white paper on "timeless software" in PDF format here). What we do know, however, is that SAP is pushing Java back to the "edges" of the enterprise, where other web-based standards like XML also live in order to provide SAP users with options to connect to other platforms beyond traditionally closed enterprise systems. That’s why, when it comes to combining web services from different sources into composites using the Composition Environment, we can expect Java to remain the language of choice. But ABAP is still the main tool for building Business Suite Core web services.

We could spend time debating the "whys" of these technical shifts. My own take is that SAP really did listen to its users, who were not happy about their deep ABAP investments being threatened by an uncertain Java future. SAP also realized the hard way, as in Employee Self-Service, that Java is just not the ideal language for SAP's enterprise apps. There have been rumblings that SAP is internally disappointed with the robustness of the Java EE platform.

Whatever the reason, a more important question is for those in the services field is: what does this mean for skills? What we know is that most of SAP is going to run on ABAP, but for the foreseeable future, we can still expect Java-related SAP work in Portals, PI, CE, and soon with NetWeaver BPM. And yes, for a while, we’ll have Java-related needs in ESS. But clearly, the Java-related SAP skills areas are mostly at the “edge” of the enterprise where the emphasis is on either heterogeneous connectivity or Internet-based UI experiences.

Going forward, we can expect SAP to keep Java at the edges whenever it can, and when you add the Oracle-Sun news to this mix, I would not be surprised if the aforementioned list of Java-dependent SAP apps continues to shrink. At the least, a la Web Dynpro, we can expect ABAP-based alternatives to keep coming up, including areas pertaining to web service composition. Clearly, internal SAP applications have a future that looks a lot like....ABAP. Of course, this is not your grandpappy's "R/3 version 2.0" ABAP. This is object-oriented ABAP, informed by SAP's forays into service-oriented architecture.

We asked Jung about the dilemma of the SAP programmer during the webcast, and he flat-out said, "If your programming work is Business Suite focused, you should be thinking about focusing on ABAP." But on the edges of the enterprise, where Rich Internet Applications and mashups loom, there are all kinds of opportunities to dive into the web-based programming languages that are grabbing all the headlines. Speaking of which, we'll be hearing more about Ruby within ABAP environments as the year goes on, further reinforcing my long-standing recommendation that the best SAP programmers are "hybrids" who understand both ABAP and web-based protocols. With the SAP version of Java now facing an uncertain future, Jung had a sensible piece of advice for SAP Java developers: instead of working solely within SAP Java, why not master common Java standards such as JSP and JSF? Since web-based apps are all about standards-driven development, it makes sense for those with a commitment to Java to master broader standards in addition to working in SAP's Java flavor.

In my first version of this piece, I wrote that “we're not going to hear Leo say anything close to ‘let me clarify SAP's ABAP and Java strategy’” during his Sapphire keynote. Now, given Oracle’s Sun acquisition and the obvious questions about SAP’s future commitment to Java that headline raised, it’s entirely possible that Leo may buck tradition and say something about ABAP after all. But whether he touches this hot coal or not, the “triumph of ABAP” is still a headline for SAP, even if it sometimes gets buried in the back pages of release notes.

With the latest developments tossed into the mix, we can expect customer confusion about SAP's ABAP-versus-Java strategy to continue. Firms that can explain SAP's rationale and what this means for the long term are going to have a big edge over those who have yet to wade through the implications of this steady stream of smaller product announcements. As for the future of Java post-acquisition, that’s a story we’ll have to monitor in the coming months. One thing I feel pretty certain of: somewhere in Walldorf, SAP folks who preached the gospel of ABAP-over-Java are patting themselves on the back as they read the latest headlines.

Don't Miss PAC's Next Webinar on Thurs., April 23rd: Assessing the SAP BusinessObjects Services Market

In collaboration with PAC Fellow, Jon Reed, PAC will be releasing its newest "PAC on SAP" report, covering the opportunities around the Business Objects-related Consulting Services business.

Key topics covered in the report include: SAP customer buying patterns during the down economy, IT Services suppliers keys to successful projects, market-sizing and forecasts, analysis of the SAP BI roadmap and pricing strategy

... all of which will be touched on during our webinar on Thursday, April 23rd at 11am ET.

It should be a great opportunity to get up to speed on Business Objects, right before Sapphire!

To register, please click here

UK Customers Go Live on SAP Business ByDesign

SAP in the UK announced that a number of mid-sized companies have gone live on SAP's Business ByDesign (BBD) solution. The UK companies highlighted were: Archimedes Pharma (a pan-European pharmaceutical company), Pentagon Chemicals (manufacturer of chemicals), and Red-M (a provider of auditing, integration and consultancy services).

While the uptake of BBD remains small, this will serve as a good reference to help communicate a positive message to the market and help push further business in the UK. SAP has been heavily criticised for the the lack of uptake of its on-demand solution. Moreover SAP's cut in investment for SaaS had led to increased speculation that the on-demand technology was no longer a core strategy and was over hyped in the year of its launch. However, SAP has confirmed that "the development of SAP's Business ByDesign on-demand ERP software is on track and remains a significant part of its long term strategy". They further stated that BBD remains strategic.

So far, on-demand has seen a slow take-up in the ERP space primarily due to most businesses not wanting to give up control of their servers due to security and reliability risks at the expense of reducing some costs. Benefits of cost reductions are obvious from the infrastructure point of view, however ERP implementations can be more costly depending on the complexity and size of an organisation as a result of internal business processes and reliance on custom technology that need to be integrated with ERP software.

However, SaaS suppliers are increasingly seeing the economic downturn as an opportunity to push SaaS solutions as it helps address the challenges related to:
+ large upfront investments associated with the traditional on-premise software
+ valuable resources being consumed by maintaining an in-house infrastructure

Additionally, SaaS offers faster roll out and thus, enables a quicker response to market changes. Nonetheless, while SaaS is seeing some good uptake overall in the UK, there is still a significant number of organisations that are reluctant to adopt the solution. The risks associated with network downtime, the inability to access software and information offline, and a lack of control over data storage are key areas of concern.

Businesses are expected to take a hybrid approach to maintaining SaaS and on-premise software environment and bringing together the benefits offered by both types of solutions. BBD does offer some element of maintaining a hybrid approach, where a user can do everything in the on-demand environment, but is also able to download some desktop tools (e.g. excel) or build mashups that link directly to the online data.

So far BBD has been implemented across 80 customers in China, France, Germany, India, the UK and the US. With SAP's Business ByDesign Feature Pack 2 due later this year, PAC hopes to see some significant improvements and announcements of functionality that will help drive interest in the ERP market.

A French SAP Revolution? USF Asks SAP France to Reconsider Maintenance Hike

Citing SAP's move to allow German and Austrian customers to keep their current maintenance support plans in Dec. 2008, the main SAP user group in France (USF) has asked SAP France to offer similar concessions.

Here is the article in ITR en francais, and in english

Additionally the USF has hired a law firm (Feral-Schul/Sainte-Marie) to offer contractual support and assistance to its members during negotiations with SAP France. The central point from the USF, which has been echoed by many SAP customers around the world, is that the move to enterprise support, even if gradual, is an undue burden for its customers, many of which if given the choice may wish to pass on "enterprise support" in favor of "standard support"... especially during such difficult economic times.

However, from SAP's point of view, their product set in combination with Netweaver, is quite broad and touching many third-party applications. By offering a higher level maintenance service, they can now match their product footprint. In the end, the fact that concessions were made to one group of customers, suggests that there should again be more choice in terms of maintenance.. especially those customers who really just need standard support.

Trivia Time: Test Your SAP Business Objects Roadmap Know-how

Who’s in the mood for some SAP BusinessObjects roadmap trivia?

I hope you are, because I’ve got a swell one for you today. As a PAC Fellow, I’m contributing to a report PAC will be issuing later in April on the SAP BusinessObjects market. During my research, I gathered some fun factoids that aren’t going to make the final cut in the report but are worth sharing – not just because they are, well... fun, but because they have relevance to understanding SAP’s BO product roadmap.

So here’s the trivia question:

When SAP and BusinessObjects did a product-by-product comparison of their combined offering, they chose one product at the long-term “go to” product in the combined offering in each area, with one exception. Your trivia question is: what would be that exception?

And the answer is….drumroll…..

business consolidation!

Yes, the always exciting area of business consolidation remains entertaining for SAP customers as they wade through their future roadmap options. In this blog entry, I’ll go into some detail on these consolidation apps that we didn’t get to in the report itself. Hopefully the end result will offer a little more clarity.

To get us started, let’s recall the situation that SAP customers were in "pre-BusinessObjects." Prior to May 8, 2007, SAP customers had a simpler life when it came to consolidation. Most were either running EC-CS, the SAP R/3 consolidations component previously called Legal Consolidation, or they were running SEM-BCS, the Business Consolidation product that was part of SAP’s Strategic Enterprise Management suite.

Bonus question for vendor trivia buffs (and it’s ok to use a lifeline for this one), what happened on May 8, 2007 that changed this mix?

On that day, SAP acquired OutlookSoft, a privately held integrated planning software vendor, and the business consolidations plot thickened. Then on October 7, 2007, SAP acquired BusinessObjects, and suddenly found itself with an embarrassment of riches in terms of business consolidation functionality. Customer confusion ensued!

Eventually, SAP came out with a roadmap that included the combined product strategy. One piece of that roadmap pertained to the Enterprise Performance Management (EPM) suite, which is where both of SAP’s newest consolidation products now reside. EPM is considered part of the SAP BusinessObjects suite. Along with GRC (Governance, Risk and Compliance), EPM is what SAP refers to as “Performance Optimization Applications.” These are the high end products in the BO suite.

In a PAC blog entry last November, I went into some more detail on SAP’s EPM offering.

One thing I shared in that blog entry was the EPM lineup and the origin of each product in the suite:

• Strategy - SAP Strategy Management (formally Pilot Software, an SAP acquisition)'
• Planning - SAP Business Planning and Consolidation (formerly OutlookSoft, an SAP acquisition)
• Consolidation - SAP Business Planning and Consolidation (formerly OutlookSoft)
• Financial Consolidation - Business Objects Financial Consolidation (formerly Cartesis)
• Profitability - Business Objects Profitability and Cost Management (formerly ALG Software)

As you can see from the roster, both consolidation products have made the cut going forward. Why?

Because the two consolidations products each have their own strengths, so for now, SAP will continue enhancements on both of them (though the previously mentioned SEM-BCS now falls into the “no future enhancements” bucket, and EC-CS is in “maintenance mode” as well). Technically speaking, the last functionality enhancements for SEM-BCS shipped with Enhancement Package 4 late in 2008. From this point forward, the only SEM-BCS Enhancement Package updates will pertain to legal requirements.

In this era of complex regulatory requirements and merger and acquisition mania, we can all appreciate why SAP would want to have best-in-class functionality available in this area. So what are the advantages of the two consolidation products SAP is supporting going forward?

SAP’s Business Consolidation and Planning (BPC) product is ideal for companies that need:

• Integrated financial consolidation, planning, budgeting and forecasting (BusinessObjects Financial Consolidation is NOT a planning product).

• Consolidation applications that run on NetWeaver (Business Objects Financial Consolidation does not yet integrate tightly with NetWeaver, though that it in the works)

One of the strengths of BPC over previous SAP consolidations products like SEM-BCS is that it truly is designed to be “owned by the business.” Business users can use BPC in Microsoft or web-based environments without reliance on IT for report customization.

SAP’s BusinessObjects Financial Consolidation is best for companies that need:

• A consolidations engine that can handle large multinational accounts with complex consolidation needs, or a widely-distributed consolidation infrastructure.

• The fastest processing speeds for single and parallel processing.

• The BusinessObjects Financial Consolidation contains very sophisticated financial reporting and consolidation functionality that is really designed with the office of the CFO in mind.


So with all this sophisticated functionality in these new consolidation products, will SAP customers running SEM-BCS upgrade to them right away?

The answer is: not likely. The reason? For all the functionality of these newer products, they don’t have the transactional integration with core SAP ERP that SEM-BCS currently has. SEM-BCS allows users to automatically integrate data from both SAP ERP and BW systems. However, this core ERP integration is set to be a key priority of future releases of EPM products, starting with the 7.5 versions (release dates not yet available, but the target is 2009).

When tighter integration with SAP ERP is available, we can expect these products to get a more serious look from SEM-BCS users. Those customers not yet invested in SEM-BCS are more likely consider these new products now, which presents service opportunities for those who can guide customers on the pros and cons of each EPM product for their needs and business model.

I hope that this blog entry has brought a bit more clarity to one of the more confusing areas of the combined SAP BO product line. Before I wrap, though, I have to admit that I’ve been holding out on you. Things are a bit more complex than I let on with the BPC product. Care to take a guess why? Because BPC is currently being sold as two separate products: BPC MS, a product for Microsoft environments, and BPC NW, the version for NetWeaver environments. I didn’t mean to hold out on you, but the BPC MS release is not likely to be as big a factor in SAP environments at any rate.

And hey, if you got all the trivia questions in this blog entry right, you are probably due some kind of prize. If you see me at Sapphire in Orlando, I’ll try to have one ready for you!