Is Enterprise Software Recession-Proof?

Amidst the PR blitz and the blizzard of 1:1 meetings that constitute the foreground experience of SAP's Sapphire user conference this week (see Larry's coverage here, and Dennis' coverage here), there's an interesting back story emerging. If you look at SAP's last quarter, and believe the formal and informal guidance they're making about the current quarter, and catch the buzz on the conference show floor, then the possibility that SAP, and much of the enterprise software market it represents, are relatively recession-proof starts gaining real credence.

While Wall Street may have panned SAP's last quarter, and there's no doubt that deals are harder to nail down than SAP would like, I'm seeing a strong software vendor leading a market that is, in many sectors, and in many examples, doing much better than expected. Much better. Greg Tomb, the new head of SAP America, told me yesterday that the pipeline is even stronger than it was last year, and using the very unscientific method of roaming the show floor in search of the buzz factor, Greg's prediction looks pretty solid. I saw standing/sitting room only talks on business intelligence, industry-specific functionality, and various SME offerings. SAP customers are definitely showing interest by putting their butts in the seats: whether that translates to spending their IT budgets with SAP is up to Greg, but the interest is tangible.

A couple of other data points about SAP. Year to year growth was strong, particularly in the key SME space. More than 50 percent of SAP's revenues in the last quarter came from net new customers, the work of a special sales force targeted at building a new customer base. This effort doubled the net new customer contribution compared to the previous year. We can assume that the Business Objects acquisition had a lot to do with this, but that's hardly dilutes its value -- on the contrary, a major goal of the BOBJ acquisition was to capture non-SAP customers, and these results make the strategy look like it makes a lot of sense.

Another data point: I talked to Eastman Chemical about what they're doing with SAP. The talk centered around a new SAP CRM deployment at Eastman, which sounds sort of ho-hum, unless you consider two things. One, Eastman is doing a pretty serious restructuring of their customer service model, based on SAP CRM, that is tied deeply to SAP's back office Business Suite. That's why Eastman went with an on-premise CRM solution, instead of going on-demand: They needed deep, reliable, and upgrade-proof integration, and SAP's ability to tie the customer experience with the rest of the suite (also SAP, as is much of the chemical industry) was of high value to Eastman.

Perhaps more important was the news that Eastman is part of a new group inside ASUG, the umbrella SAP user organization, that is trying to bring this traditionally traditional industry into the 21st century. If that group succeeds in its mission, that mission will translate to more deals like the Eastman CRM deal, meaning more incremental sales to some very big and relatively well-heeled customers. The fact these companies are thinking this way in the middle of a recession is another indication of the recession-proof nature of enterprise software.

The bottom line is that years of pushing the value of enterprise software in terms of its contribution to productivity and cost-savings is paying off once again. And years of honing a marketing message that focuses on delivering business value to line of business managers -- the men and women who are stealing the prerogative of software spending from the CIO -- is paying off in real spending on enterprise software. Especially in recessionary times, this spend to save message works well, even if it takes a little more time to make the sale and a few more layers of management to give the approval. SAP is not alone in this trend, but their example is a particularly strong one. It may be that 2008 will be a year of relative abundance for enterprise software vendors, even as belts are tightening at the very customers who are making this abundance possible.