INDUSTRY ANALYSIS

Is SAP Really Changing Its Business Model?

I always chafe at the saying, “The proof is in the pudding” in part because it is a truncation of a longer phrase, but mostly because it means nothing by itself. “The proof of the pudding is in the eating” is how the phrase really goes, and it is the one thing that came to mind when I heard about SAP’s announcement in Germany about a new business model and new mid-market products.

Without having the benefit of a briefing from them, I am left to wonder what this all means. At its best, it could be a bold move, which sounds like it will be executed well — and that’s where the flip side engages. It was, after all, simply an announcement of an idea; I do not believe they actually rolled out the plan, just sort of a teaser.

Predicting the Future

If the best that can be expected actually materializes, then this could really be something. My interpretation is that this “game-changing approach to the mid-market” is an attempt to change the company’s business model.

As a traditional software company that trades CDs and DVDs for cash, that means the company is moving toward SOA (service-oriented architecture) — which it mentioned in its press release — and that will position the company eventually as a pure-play on-demand player.

That approach is perhaps the most viable for any traditional company confronting the end of its paradigm. It takes real vision and intestinal fortitude to pull it off because it means going to the shareholders with mixed metaphors and saying, “Look, the sun is setting on our model and if you want this goose to keep laying golden eggs, we need to do something different.”

Other approaches simply represent denial, and as Clayton Christensen amply documented in “The Innovator’s Dilemma,” denial is not a strategy for dealing with the future.

The New Plan

The way it works and the way that it appears that SAP is doing this, is for the company to spin up a new business, give it P&L responsibility, new products and of course, the new model — along with the usual encomium, go forth and … well you get the idea.

From what I have heard this is what is afoot. According to the release, “SAP detailed plans to invest in an additional business model which will operate in parallel with its established business.” Yup, “additional” and “parallel” are important words here.

Of course, there were also the usual competitive marketing things going on like the name, NETSAP. Sounds a little like NetSuite doesn’t it? Same market, same range of products including CRM and ERP, and of course, NetSuite’s major investor is none other than Larry Ellison who also heads up that other non-Microsoft software company.

Viewed this way it simply might mean that SAP is playing catch up with Ellison and his on-demand dabbling, but I think this could be more.

Last One to Leave

If SAP is to be believed, then that leaves Oracle in the funny position of trying to preserve the licensed software way of life with Fusion. No one wants to be the last one to leave the party for many good reasons though.

As a result of having bought Siebel about a year ago, Oracle is not in a bad position if it decides to be more aggressive in the on-demand world. Siebel On-Demand offers a rich set of capabilities around which Oracle could build its own on-demand presence.

However, let’s keep things in perspective. This is a mid-market announcement and an investment announcement, and while I think I can see where it’s all heading, I would prefer to see some products and some happy customers. As I alluded in the beginning, the proof of the pudding is in the eating.


Denis Pombriant runs the Beagle Research Group, a CRM market research firm and consultancy. Pombriant’s research concentrates on evolving product ideas and emerging companies in the sales, marketing and call center disciplines. His research is freely distributed through a blog and Web site. He is working on a book and can be reached at [email protected].


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