If we are lucky in life, someone comes along who truly challenges our world view. It is annoying, frightening, exhilarating, frustrating and deeply troubling. Mostly at the same time. If you have had that experience you know what I mean and you know that something is going on, even if you can’t quite put your finger on it. That’s been happening with me recently.

It feels like forever but the last year my good friend Vinnie Mirchandani has been annoying the heck out of me with tales of where he sees the future of technology. In short he thinks that I, along with most others I guess who pursue an interest in business applications, are staring down a dead end rat hole, mostly wasting our time cogitating upon the likes of Microsoft, SAP and Oracle. Vinnie believes that whatever passed for innovation from those kinds of vendor is largely, though not completely, exhausted and that we need to look elsewhere for technology driven inspiration and lasting business value. No Timeless Software for him.

Every now and again I’d get excited about something I’d seen or heard and he’d piss all over it pointing me in a different direction. It is annoying and troubling in equal measure. Even more so that he has documented what he means in what will shortly be his second book: The New Technology Elite due out April 3rd. I’ve had the privilege of seeing an advance copy of the near final version.

If you have an open mind then this is one book you would do well to read in its entirety. If you don’t then you’ll likely throw it against a wall in anger. The book upends much of what many of us have come to believe about the supremacy of enterprise software and its place at the heart of The Business. He starts:

While the big excitement during the (CES 2011) show was around the tens of new tablets expected to be rolled out later in the year, I observed companies from just about every industry—from Walgreens, the pharmacy chain, to Nike, the shoe company, to Ford, the auto company—all were showing off technology-enabled “smart” products for the new tech-savvy consumer.

It is a really exciting time for many of these companies. For too long IT has been an expensive and low-payback back-ofce investment. Now technology in the companies’ products is allowing them to generate revenue and growth. Technology is fun and protable again…

…The more I analyzed operations of Apple, Google, Facebook, Amazon, Twitter, and eBay—their data centers, distribution centers, retail stores, application ecosystems, global supply chains—the more I was impressed with the “industrialization” of their technology. They are considered “consumer” tech, but they have better technology on a greater scale than most enterprises.

Traditional technology users are embedding technology in their “smart” products and services and thus learning to become technology vendors. Technology vendors like Apple are, in reverse, running retail operations better than Nordstrom. eBay’s PayPal unit is running better operations than many banks. Amazon is running logistics better than many distributors. Google is running data centers far more efciently than IBM’s or EDS’s. They are the new best practice leaders.

It hit me that the traditional distinction between technology user and vendor is outdated. The baseball term “switch-hitter” came to mind.

[My emphasis added.]

I understand some of what he means. I try to attend LeWeb each year as an antidote to the mega tech shows. It is always refreshing.

If that is enough to challenge your world view then the book’s 20 chapters, peppered with case material from companies we can all recognise should prove more than challenging. At the very least they should prompt us to question why many businesses continue to invest in the old.

I won’t spoil the fun by quoting from the cases Vinnie cites. There are far too many and I’d end up unfairly cherry picking. For that you might want to look among the many excerpts he has been publishing on his own site. Instead I will go to the end of the book where he says:

We live in exciting times. To some degree the current landscape is the throwback to the 1960s and 1970s, when we dreamed of competitive advantage through technology. Sabre, the American reservation system, and American Hospital Supply were spoken of fondly for changing their industries. We have a similar opportunity now, but in most organizations the IT group is much more focused on the back ofce, not on product or revenue or growth.

In reverse, we have technology vendors with an entitlement mindset. Even as Apple and Amazon have shown dramatic business model innovation, too many technology vendors continue with older business models, and feel entitled to their compensation levels. So they cling to 90 percent software gross margins, $5,000 a gallon for printer ink, and 50 percent margins on so-called cheap offshore talent. Either they learn to disrupt themselves or they will get disrupted.

When you think about it, the logic is inescapable. Every traditional vendor knows it even if they will not publicly admit to that knowledge.

In my own wee world, I have been struck by how the traditional vendors have shied away from the cloud as though it is some sort of plague like disease. In part I thought it was because of the entitlement business model to which Vinnie refers combined with the deadly embrace of Wall Street. That view has modified.

I have discovered that it is not just the outward facing business model but the underpinning compensation model that keeps those same vendors tied to their position. When presented with the opportunity to sell a one time x-million dollar license you won’t find many sellers queuing up to flog a subscription based deal. The compensation model doesn’t compute. It is the inevitable outcome of a Faustian bargain. That is in large part why cloud vendors fail to make profit at the same rates as their on-premise vendor competitors. They too are wedded to the past, not necessarily of their choosing but because of market immaturity. It explains to me why Oracle is so skittish about putting Fusion onto a public cloud even though they claim it as a deployment option.

Bringing this up to date both SAP and Oracle have made what many believe are plays into the cloud with their respective acquisitions of SuccessFactors and Taleo. Do the acquirers believe they can turn these companies into wildly profitable entities? One must assume so. How will that work given the compensation models with which their ‘bag carriers’ are familiar? Beyond price hikes to the end user, it is hard to tell. Ray Wang, in his recent analysis of Oracle’s Taleo acquisition points in that direction. In his advice to buyers and prospects the same message comes through loud and clear: if you’re going in with Taleo do it before the Oracle deal is finalised. Are we that afraid of the Big Boys that all we see is temporary reprieve? Whatever happened to believing in change?

But if Vinnie is right then those models are coming to an end. In the book, he cites company after company that are continuing to invest heavily in technology but not in the way most tech pundits see the world. We bemoan the apparently stagnant levels of visible technology spending yet are blind to the real investments that are making a demonstrable difference to our lives. Where did the HUD in the Camaro Convertible I unwittingly hired come from? Or the rear view mirror camera that guides my reversing? Thin air? Or how about the businesses Phil Wainewright is documenting that could not exist without cloud technologies. And not a mention of back office anywhere. Or what about Phil Fersht’s declaration that:

Companies buy software because they want standard process that can be automated with as little human intervention as possible.   For process flows such as recruitment, if Taleo can provide you with the steps you need to automate an end-to-end recruitment process effectively, then the only way to find more value (or dare I say “innovation”) from recruitment is in those areas that cannot be automated – such as assessing the cultural fit of a candidate, or making a judgement call that the candidate has potential which his or her former employers had previously failed to unleash.

Unless Oracle and SAP decide to enter the services game, they are not going to provide enterprises with that kind of innovation – they are merely pedlers of automation.  Once they own all the apps on the market, they will own all the automation, and my huge concern is whether there is really any more room for innovation spurred by this automation.  Essentially, have these enterprise apps pretty much reached the peaks of their capabilities now they are owned by the 1600-pound ERP gorillas?  I mean, seriously, how much further can you improve a companies’ recruiting processes by making some tweaks to the software code?  Yes, I hear all the techie purists voice their fury because all software products can have their architectures improved, but at the end of the day, most of these software apps support pretty standard business processes today.

Any good book whether fiction or non-fiction, leaves you thinking and The New Technology Elite does that in spades. I walked away from the book with more questions than answers, not least wondering how the mega vendors will survive much beyond 2015 in their current form. Why 2015? It’s an arbitrary date based on what Frank Scavo might call a WAG or Wild Assed Guess but I have this unexplainable feeling that is the year when everything that today leaves me puzzled about enterprise will come into focus. Of course like 99% of predictions, it will likely be wrong.

But above everything I learned from the book, I was struck by the almost child like wonder and excitement that oozes from Vinnie’s analysis. It has clearly sent him into another direction, one from which we can all learn. Any book that evokes those emotions while inspiring change has to be a keeper.

In the meantime I am glad there are smart people like Vinnie, Frank, Ray, Phil and many more who help me better understand the complex world in which we live.

Long story short, UNIT4, based out of the Netherlands is an ERP vendor that reported $555 million for 2010. Full year results for 2011 are due out on 22nd February but at the half year, the company reported gross revenue shading $298 million, up 13% year over year. It owns (along with Salesforce.com) FinancialForce which saw revenues more than triple in 2011. More familiar brands like CODA and Agresso are also part of the portfolio. UNIT4 has a significant and growing shared services offering that addresses the needs of public sector organisations that are mandated to reduce costs.

I first came across CODA and Agresso around 1996-7 when they were independent companies. CODA was and remains a pure play financial application designed for massive scale using the single ledger design. At one time they had a single customer running more than 400 organisations. Agresso, which again has its roots in finance but is now a fully fledged ERP system was always built with analytics in mind. In recent years, the company has verticalised its offerings counting media, financial services, retail and public sector as its main markets.

What I didn’t know until this week is that in Sweden, they have 150,000 users in 170 separate organisations of which 150 are government bodies, running ERP in a single instance. As far as I know, this is the largest full scale ERP running in this manner.

UNIT4 doesn’t see that as anything special because it claims to have been running shared services for customers since 1998. Cloud purists would call that ASP rebooted but in talking to the company’s senior management it became clear they see this as an attractive deployment option that gives their customers almost limitless expansion scope. “Customers can deploy any way they want but what is increasingly attractive is our ability to get customers, and especially public sector, onto shared services at a time when they have to cut costs,” says Anwen Robinson, UNIT4 UK MD. Is it a winning proposition?

My job at the conference was to publicly speak with customers on this topic because as anyone knows, vendors can say what they wish but it is customers who tell the real stories. I had provided the interviewees with sample questions and conducted a series of short calls to ensure they understood what I was asking but we didn’t meet until some 30 minutes before going on stage.

One example of how this works comes from GO:

The programme comprises a range of projects which will introduce shared working across the councils’ finance, HR, procurement and payroll functions.  Sharing services will enable the functions to be provided more efficiently and will therefore generate savings for all of the partners.

Rob Wood, programme manager for GO, explained that the four council initiative has required that all agree common processes, chart of accounts and the like as a pathway to concentrating on the things that matter: “Change of this kind is never easy but once people see that we’re eliminating tasks that get in the way of doing things efficiently then they appreciate that they will do a better job.”

Jeff Nielsen, Head of Procurement Cooperative at NHS Camden cited savings of £2.7 million in the first year of operating a procurement shared service. He talked about achieving operational savings in the range 20-30% plus an improvement in customer satisfaction of over 200%. That deployment is an award winner and they now have plans to expand this into a commercial offering in its own right.

Ian Coxon, head of transactional services at Xentrall said that despite its service running in the cloud, they have not experienced any security issues and that as the programme expands it brings further reduced cost. “It’s quite simple, the more users we bring on board, the lower the cost for everyone.”

What struck me in the conversations was the pragmatic nature of the deployments. Each was born out of financial pain yet the results are consistently positive. Over dinner, customer after customer said much the same thing: the way UNIT4 not only addresses functionality but actively helps customers to be successful is something they value highly. As one customer said: “Unlike other vendors, they don’t drop off a CD, pick their check and walk away. They’re with us the whole journey. That matters when you’re embarking on projects that involve the amount of change we’re all going through.”

If that was the extent to which UNIT4 is a ‘good citizen’ then there would be plenty to applaud. That alone was enough to keep me smiling as I spoke with customers. But it is also in their approach to macro market changes that the company impresses.

Last December, Brian Sommer reported on the company’s approach to business analytics:

The company is taking a PaaS (platform as a service) approach to analytics. In essence, they are building an ecosystem of business intelligence applications (not just a tool or limited application solution).

At the time, the topic piqued my interest given what we have seen going on at SAP. Or rather not going on. As a coherent strategy, they are streets ahead of SAP/Oracle on this topic. For example, they have clear plans how third parties can develop and monetize their offerings. On stage I asked Ms Robinson how that’s going to work out for buyers: “Customers can come in and try the solutions, see what works for them but it is only when they deploy that they pay for what they use.” Asked how UNIT4 will support a third party development community, the company’s product people say they will provide easy access to open APIs. Quite how that will work out remains to be seen but my advice was simple: make it free. Don’t charge for that piece of the puzzle. The company says they will be ready to go live with the solution store in the July 2012 timeframe.

Elsewhere, UNIT4 has got rid of the formal role of marketing and sales head. Instead, they have morphed the role into one that emphasizes customer advocacy. “So when you’re not making the grade then your customer officer can come back and get things actioned?” I asked. “Absolutely. If we don’t do that then we’re not delivering the service we claim,” said Ms Robinson.
As further evidence of customer engagement, the company reported that 14% of the ideas it receives from customers are either planned or in active development.

But what was especially appealing was the fact the company publicly recognizes its top contributors to the ideas scheme.

Like all vendors, UNIT4 could do better. I’d like to see them take customer advocacy several steps further with additional forums for support and debate to which customers can readily contribute and where transparency of the to and fro between customers and the company is obvious rather than implied. The sense I get is this will happen in large part because the company has to be wedded to customers, especially those in public sector where the financial pain is particularly acute.

Above everything I was struck by the humility of the company’s senior management. On stage with Ms Robinson we had Ab van Marion, group COO. His job is to deliver the company’s results. He was remarkably frank about what the company has to do as it transitions to a subscription based business model with increased emphasis on cloud services. “We are actively growing our subscription business at double digits but it is only having a small impact on revenues at the moment. We know that’s where the market is going over the long term but I don’t think anyone can say with certainty how long that transition will take,” he said.

As a side note, I saw company staff toting a variety of devices including iPhone, Nokia, BlackBerry and iPad. In a lighter moment I asked van Marion how he is getting with iPhone: “You know I prefer Nokia but it is my kids I have to keep happy,” he said with a smile. That was emphasized in his answer to my on stage ‘what keeps you awake at night’ question: “Of course it would be easy to say what’s happening for the next quarter’s results but it is the health and happiness of my wife and kids.” It is that sort of remark that provides insight into tone at the top, a crucial ingredient in shaping the way a company does business.

At shows like this, any vendor is always going to showcase the best of its customers but try as I might, I struggled to find any who were less than enthusiastic about what UNIT4 is delivering. That is a pretty solid endorsement and, in the end, the only one that matters.

Jason Perlow correctly points out that Apple is not alone:

So we should cut to the chase that Apple is absolutely not unique in having products made by workers which are paid far below that of Americans, that work unbelievably long hours in sweatshops using child labor under conditions that rival that of the worst factories during the industrial revolution in America and Europe of the late nineteenth century.

I have no idea whether there is historic truth in what he asserts and I’m not going down that road although it sounds sort of plausible. Where I am going to go though is in upending his argument about labor arbitrage as THE driver. Yes, costs are lower in China than most anywhere else on the planet apart, I suspect, from the as yet unexploited continent of Africa. But that is not the point.

I thought that in a tangental way, Perlow was going to nail it through a link to a piece he wrote back in February 2011 but even that misses the point. There he says:

How is Apple able to do this where nobody else can? It has to do with buying up the entire supply chain and being able to leverage quantity 10 Million+ manufacturing orders in advance with its partners in China like FoxConn and with semiconductor component suppliers such as LG, Samsung and Philips.

When you have 50 billion dollars in liquid assets, you can pretty much guarantee huge volume pricing discounts at that scale, as well as make those components scarce and expensive for your competitors to buy.

This ability to leverage economies of scale and large component pre-orders, enabling Apple to own all of its own inventory in advance of a major product release is something the company has been doing going back to 2001, when the first iPods were being manufactured.

Once again, while important, it is not the point. While the ability to leverage large scale for cost advantage is a clear opportunity, in Apple’s case that is only one point of reference. Dell, HP and others could all make the same kind of point.

Anyone who knows about outsourcing as it has unfolded the last 20 years knows that its success in part depends on a race to the bottom where outsourcers in low cost economies are in a constant fight to keep labor rates low. There comes a point when you run out of places to go. We don’t yet know what the long haul brings but such an approach only works for so long and that costs inevitably rise. So how did Apple really benefit where others have not done so well?

I think the best clue comes from an article I read in a weekend edition of the WSJ NYT the other week while traveling in the Bay Area. (Online version here) In the article the author tells the story of how, six weeks before the original iPhone launch, Steve Jobs tasked the team to find glass that would not scratch.

They had already looked at glass from Corning but there were technical difficulties in cutting to size. China was the only place where they could get the job done in time. In the report (as I recall) the Chinese supplier (not Foxconn) was able to provision a production line capable of delivering to Apple’s quality standards in a few weeks. The supplier, it is said, had gone to the lengths of starting to provision in anticipation of winning the order. That’s real risk taking in the supply chain. The rest, as they say, is history.

The author made the point that when Apple needs engineers, not just assembly workers, it needs them at such scale and in short order that China is the only country capable of meeting its needs. The comparison was made with the US where what would take less than three months in China would likely take 9-12 months in the US. It is those supply chain process dynamics where China has every other country licked.

This is a massively understated achievement that has resonance into software development. The other week I had an interesting meeting with a technology decision maker/buyer where he expressed amazement at how fast the Chinese are at assembling competent teams able to deliver at fractional cost yet without sacrificing code quality. For that person, China is a no brainer but a shock to the broader development community he also has to support. That is because his employed group is far more used to working at a leisurely pace. If you think that startups turn out code quickly then you’ve seen nothing. More to the point, business on both sides of the buyer/seller divide are all going to have to adjust to the new pace of innovation being driven out of China.

As a darker side note, this week I spent a fascinating hour with the leader of a large enterprise user group who visited China for the first time last year. If you think exploitation works one way then think again. This person said that the experience of being in China was horrible. Why? Taxis have no change, pretend they don’t understand what you are asking for and even though the meter might have a price, you could end up paying anything the driver chooses. The same in hotels where prices you thought were booked and confirmed suddenly escalate for a range of hidden charges. The overall cost may not be important in the scheme of things. Does it really matter if a $60 a night hotel suddenly costs $80? It is the sour taste such experiences leave. It is what my guest described as the ‘land of the scam.’

• New channel business grew 50%, grew 150% in US
• Average selling price grew 45% for the year
• Finished the year with 1,200 employees
• Added 315 new customers in the quarter
• 12,000 active companies in over 100 countries and currencies
• Grew number of OneWorld customers 30%
• 43% more deals of contract value greater than $100,000
• Signed another $1 million deal with Accenture in the quarter
• Services group now running at an operational profit

During the year, the company increased product development headcount by 40% but maintained the percentage of R&D cost to revenue in the 13-14% range. Although the company did not add much as to how this occurred, it is clear NetSuite gains from R&D investments outside the US.

Growth is anticipated to push top line revenues into the $295-300 million for 2012. In turn, the company anticipates operating cash flows in the range $50-55 million.

Nelson is of the view that the macro-economic conditions continue to favor NetSuite in the mid-market as those businesses try to rationalise their ‘hairball’ of applications into a suite of applications. “Prices didn’t go up in 2011,” said Nelson. On questions around technology used in running NetSuite he said, “We’ve been running our applications in-memory…there are lots of places to optimise performance. We’ve done lots of work in caching for the desktop. The application performs very well, delivered from California, performs great in Asia.”

Over the last year, NetSuite cemented channel arrangements with Accenture, Baker Tilly and McGladrey as a way of helping the company reach larger companies. So far, we’ve not heard a great deal of reflection about what value those partners drove. “We knew it would take time for the channel to change their business model,” said Nelson. However, Nelson anticipates that NetSuite will benefit significantly from those arrangements in 2012. “I would reinforce how well our channel is doing.”

One interesting nugget that came out of the call - most of the deals EntSuite signs are one year deals. Elsewhere, I am seeing more multi-year deals.

On this quarter’s call I sensed a change of tone. Apart from the odd mention of Microsoft and SAP, gone are many of the amusing pops at competition. That is good news. NetSuite is clearly moving into another phase of development and that is reflected in the tightly packed, fact driven call. Similarly, in times past, NetSuite would have been hard pressed to fill an hour with analyst questions. This time, and despite the softball nature of most questions, I guess the call could easily have gone on for another 15-20 minutes.

I have four outstandings from the call which it would be good to hear answered:

1. What are the data center investments looking like? Any plans to open up in Europe? What capacity does NetSuite think it will need to continue driving growth outside its native turf?
2. What is the average deal size? Saying the number has risen is useful but from what to what? Last I heard they were talking $41,000. Does that mean this year we were looking north of $65,000?
3. When does the company anticipate turning a profit? This has proven very difficult for most cloud companies but as the industry matures - NetSuite has been going 10 years - there comes a point when profit is needed.
4. What are renewal rates and is there a trend for multi-year deals yet?

Well intentioned invention stands the risk of getting hijacked for purposes it was not intended but the ever resourceful partner saves the day.

When I look through the glowing coverage of SAP’s Q4 2010 results (heck, I was on that bandwagon to some extent), the praise heaped upon the company for revitalising itself combined with excited reportage about product strategy going forward, I can’t help but wonder if everyone is missing the point.

Enterprise software is changing and in a few years time I believe it will be unrecognisable from what we see today. Right now, the emphasis in the public discourse is about features/functions/architectures located in business models that barely exist. We have a succession of buzzwords and phrases attempting to force fit ’stuff’ into concepts like social business, cloud, big data and on and on. It is the same set of arguments that have always existed but in a world that is moving away from features/functions. Or we have product based competitive analysis. Always entertaining to insiders. Very occasionally, we stray into the fertile territory of vertical markets but only when subject matter experts chime in.

Elsewhere, I notice that Vinnie Mirchandani is almost alone in wondering whether the golden age of enterprise apps is done and that customers with IT resources are less interested in turning to the mega vendors but are instead more likely to spend on things that make a genuine business difference. His forthcoming book provides many examples of the direction he believes real software investment is going. His post entitled “The new benchmarks” makes the withering comment:

I thought this WSJ article about SAP focusing on Oracle was well – so 90s. If that is all SAP is focused on, it’s already in big trouble. Because the CIOs I deal with are working with a much broader portfolio of vendors than ever before, and every $1 for SAP has to be benchmarked against cloud storage, iPads, digital marketing and so much more.

I didn’t read that WSJ piece in quite the same way but what Vinnie is seeing is typical of what I characterise as media trying to make SAP wear The Wrong Trousers. They are not understanding what SAP is doing. Not that SAP helps itself. Talk about being the No.2 database vendor by 2015 makes for attention grabbing headlines, based as it is, on the notion of kicking Oracle in the marketing nuts. But it is the wrong conclusion. It’s not asking the right question. Here is why.

I had a fascinating conversation last week with a senior executive at Workday during which he said something that goes like this: Oracle Fusion is the last enterprise apps suite that will be built on a traditional, commercial relational database. Going forward, no-one who is building 21st century applications is thinking that way. If you believe, as I do, that the applications of the future are essentially services then the database becomes irrelevant from the buyer’s perspective. It disappears, just like the operating system becomes irrelevant. Unless you’re developing for umpteen flavors of Android. When applications are services, nobody cares about the plumbing. They only care about the business led deliverables. If that was all then you’d have to shrug, mutter something about commoditisation and say: ‘So what?’ But that isn’t all. Not by a very long stretch.

The starting point is to understand that outside of upgrading or switching from clunk to cloud, no-one is ever going to buy another general purpose accounting, HR admin, CRM or other XXX system of the kind we mostly see today. Period. They may think that’s what they’re buying from a feature/function standpoint but that is not what they will buy. Those applications have been engineered for almost every occasion. When you look across all vendors, at that level, there is very little functional difference between any of them. Everyone knows this because they see a bleak new license future ahead of them, even if there is a long tail of maintenance revenue.

Everyone surmises that transitioning to the cloud, building mobile versions, adding social features or having high speed analytics represent the long term answer but they are all wrong. Those are just stepping stones. All they represent are incremental advances to the status quo. They don’t of themselves deliver new value. In order to get to higher order value, you have to think much more broadly as Vinnie suggests, and as Phil Wainewright shows:

…startup CEO Geoff Newman described how the cloud has helped his company grow from an investment of less than £10k to become a multi-million-pound business in just two years. Recruitment Genius is what I would call a classic frictionless enterprise story, finding its niche by using the cloud to take friction out of the recruitment process — its service posts a company’s job ads to a tailored selection of online job boards, filters the responses and provides an online applicant tracking system where recruiters can sort the CVs and arrange interviews.

Behind the scenes, its use of the cloud to drive its infrastructure is equally game-changing. All staff work virtually, using Gmail, Basecamp, Dropbox and Voipfone to collaborate. The company stores its applicant CVs on AWS, saves its Java code libraries on Google Code and runs its SQL database on Azure, with all files backed up to JungleDisk. It hosts its other servers on UK cloud hoster ElasticHosts, its videos on Vimeo and achieves a distinctive web presence with online fonts from Monotype Imaging’s fonts.com. Even the programmers that develop the company’s online functionality are hired on-demand using the cloud and are paid by the hour. “We’re able to scale our workforce and our cloud computing as necessary,” said Newman.

With its lean infrastructure and operating costs, and its direct connection into online job boards and social media, Recruitment Genius is hollowing out the business model of traditional recruitment agencies — as the company says on its website, “In 2009 we realised we had smashed our own recruitment agency model, but in its place was something far more exciting and effective.”

Note: no mention of systems of record, social tools or analytics but only of systems that deliver to the business model.

Back to the SAP world. In conversation with an SAP HANA customer he made the telling point that going from having the ability to build a handful of reports to hundreds of reports doesn’t help his business. More important, it hinders his ability to build a business case for further HANA investment. The glut of new information deliverable at light speed only helps if the business can ask the right questions and then implement the right processes to course correct at the speed of business. We are nowhere close to solving those problems. Instead, as an industry, we run the risk of simply speeding up and adding to the pile of crap we already have today.

Taking the social business direction doesn’t help that much either. So we have new customers, we have new ways to market, we have more pull into the pipeline, we chop out sales overhead, we market a bit more effectively, we smash the operational silos. Now what? Where are the end to end processes that ERP promised us (and never quite delivered) and how do our people fit into this equation? More to the point, how do they cope in this high speed world? What happens when we have to start handling a multitude of exceptions? In short, where are the apps that tie all this together? It may appear that we come from a functional gap standpoint but we don’t. That’s just another temporary plug in a broken, leaking dyke.

One nascent and partial answer I recently saw comes in an important addition to SAP Streamwork, its collaborative platform. Streamwork can now take HANA data/analysis and include it into Streamwork activity streams. It is early days but this is highly promising because it allows for the purposeful emergence of the right information for the right people. It goes a long way towards solving the HANA customer’s problem outlined above but doesn’t complete the picture. It is a different class of application from ERP and is, I suspect, an example of what Vishal Sikka, executive board member SAP meant when he said that HANA opens the door to asking new questions.

If you follow the logic, it makes perfect sense to see this in the context of Sikka’s thoughts during December 2010’s Influencer Summit. But in order to get there, we have to stop thinking about functions, platforms, buzzwords around which we can hang technologies like mobile etc. Instead we have to think about the business. Or, as Hasso Plattner, co-founder SAP is quoted as saying back in 2007:

“Don’t you get it? It’s not about a product now”

There was a hint of that in remarks Bill McDermott made regarding the last earnings announcement when he implied that SAP has started talking to the lines of business and that has, in turn, driven sales. You only do that when you solve LOB problems, not by trying to flog features. The importance of this statement cannot be under estimated.

In the past, SAP started its sales cycle in the C-suite but inevitably ended up holding most of its conversations with CIOs. In the last year, insiders at SAP tell me that 11 of its top customer CIOs have disappeared. Forever. Two have gone on to operational roles aligned to CFOs with no direct replacement. Others are simply not being replaced. Now switch gears.

Internally at SAP, Oliver Bussman, CIO, has deployed 14,000 iPads. iPhone is now on the approved list of devices that can be used on the corporate network. He is talking about building an enterprise resilient version of DropBox/iCloud. At a recent meeting I attended, all but one of the SAPpers was toting a Mac Air - the other was waiting for hers to be delivered. I’ve never seen that before and my last onsite with SAP was less than three months ago. What does that tell you? Slow as the SAP oil tanker might be, Bussman has done a remarkable job in getting people inside SAP to understand the world has moved on from engineering excellence as the differentiator. It is a much messier world and they have to adjust.

Michael Doane, in a revealing podcast Q&A said:

jonerp: Michael - you talk about the importance of SAP customers moving from a Center ofExpertise (technical SolMan ALM orientation) to Center of Excellence (business-driven) approach to fostering SAP competencies. Why is this distinction important and what results are you seeing in the field on the Center of Excellence front?

Michael Doane: Center of Expertise is about applications excellence but is not business centric. A Center of Excellence is about continuous business improvement and includes a business domain that the Center of Expertise does not have.

Laura Casasanto: Michael, How do project teams better communicate the value of their current SAP systems — and in measures that business stakeholders care about?

Michael Doane: Ideally, the client will have undergone a useful Value Engineering exercise as a way of establishing a business justification at the KPI level. Thus, at the end of implementation, they can measure their tangible gains in an ROI format.

Moving forward, they continue with value engineering on a business process by business process basis using KPIs as navigation and measurement for improvement.

Bullet-point “values” such as “things are better”, “we are more streamlined” or “we are faster” are not useful at all.

Nor are IT KPIs like response time or pass through time.

Doane is getting there but responding in SAPenese. I’m betting his answers will be far more nuanced in 12 months time.

Elsewhere, Sikka has talked about applications becoming much simpler:

“There is a massive simplification happening all around us. Layers are being dissolved at an unbelievable pace; people, businesses, data and machines are becoming more directly connected. This virtuous cycle of connectedness leads to disintermediation of layers, which drives end-users to become more empowered and demand better user-experience — challenging us to create more connectedness,”

When you think about the millions of lines of code, the endlessly flexible toolkit that SAP represents and the amount of customisation that inevitably hobbles innovation then Sikka’s message makes a lot of product sense. If it can be delivered upon. That has to be assumed given the speed at which HANA-isation is occurring with SAP ERP. That’s not enough.

As SAP takes HANA forward, as it thinks about re-engineering its application suites, it has to think about how its 2 million plus engineering community actively participates in developing the thousands of new applications SAP will need in order to meet business need. This is not about shifting customisations out (although that would be a welcome by-product), it’s about making the power of HANA to redefine applications universally available to all SAP customers. And there’s the rub.

While Sikka is keen on uplifting the developer community, SAP has yet to take that essential step of bringing the developer community in close proximity with the business in a purposeful way. I see pockets of folk here and there that understand the dynamics involved in making communications work between end users, customer problems and technologists. It’s not quite enough. I believe SAP needs a new type of SI. Not one that is implementing some humungous FICO/SD project. Those are done or being remediated through upgrade the next couple of years via the handful of SIs left who can execute against these projects.

The new SI has to be capable of fast tracking business solutions that may start out as a specific customer need but end up as another app in SAP’s own application store for sale to any of its 176,000 customers. It is one where business owners are an integral part of the development process. Maybe I’m not looking hard enough but to date I’ve only stumbled across one example which has yet to go public. Or maybe it is too early.

I am aware that in building this case, I am overly simplifying the issues SAP faces and subsuming the technology will not be to everyone’s taste. But I firmly believe it is the correct way to focus attention on where SAP is going and what it means for business generally.

So…if you consider I am onto something can I ask that in assessing SAP going forward, we stop trying to make them wear The Wrong Trousers? Can we please stop worrying about databases, speeds, feeds, platforms and other stuff. Sure, it is important for those who have to develop and implement but that’s not really the journey this company is taking. Neither is it the direction that businesses of the kind Vinnie and Phil are hunting down are going. Think about what’s happening to those CIOs on SAP’s customer roster. Think about what will make a demonstrable difference to business performance. Think about industry by industry challenges.

Like the rest of us, SAP is looking through the future glass somewhat darkly but the vision - when you piece it all together - is clear. It’s about the business coming together with the right developers. That’s what we should be assessing. All the rest is theater. Who knows, even the understandably jaundiced Vinnie might be interested?

Image via Wikipedia

What follows represents my interpretation of a conversation I had today with Jim Snabe, co-CEO SAP, a brief discussion with Hasso Plattner, co-founder and VIshal Sikka, executive board member plus assorted snippets of conversation with senior SAP policy makers over the last couple of days.

1. 176,000 customers on business applications means SAP does not have to move the sales needle that much in order for an uptick to show in top line revenue.
2. HANA, which is a big ticket software and services item is moving from hype to reality much more quickly than many of us thought. The introduction of modest (by SAP standards) solutions like COPA accelerator (financial reporting) on HANA will speed up (sic) sales to customers for whom HANA has been out of reach. The new revenue guidance suggests SAP is accelerating conversion, moving rapidly from 1:4/5 to more like 1:3.
3. Despite continuing grumbles around the cost of maintenance, SAP has done a solid execution job in persuading customers that 22% is a price worth paying through incremental but perceived valuable add ons. That becomes less defensible absent fresh solutions past 2012-13. Even so, when you work the numbers, it becomes apparent SAP’s maintenance stream represents a very long tail: like 10-11 years. It’s a heck of a soft, fluffy cushion when seen as a 90-95% margin line item.
4. Its ponderous foot slog towards mobile has turned out to be fortuitous. With Apple recording insanely good numbers, SAP’s reach should mean it benefits hugely via the halo effect. I have never seen so many Apple devices being toted in enterprise. There are lots of question marks around execution and SAPs ability to get partners onboarded but SAP is not having too many problems developing a healthy pipeline. It will need to push hard in this area with developers during 2012 to make that pipeline as fat as possible.
5. The real shock is that some SIs are reporting heavy demand for new SAP implementations. That is as in major upgrades coming in at eye watering numbers - think $100 million. This is a short lived benefit for SAP because regardless of what the overall top line looks like, the core Business Suite trendline over time is down, not up. Not a problem in 2012 and 2013 but beyond?
6. SAP is cautious about the impact of the SuccessFactors acquisition which is currently delayed for unspecified reasons but not connected to regulatory concerns. Flat in 2012 based upon SFSF 2011 numbers? That depends on when the deal is finally closed. We had expected the deal to close by now but the best they can say is ‘Q1.’ That has to blow SAP’s cloud plans off course a wee bit but they have factored in for that very heavily. Downside yes, but tempered by conservative planning and forecasting.
7. SAP has done a good job rebuilding goodwill with customers and, to a certain extent, developers although that last constituent could do with a good bit of love if SAP is to capitalise on its mobility and HANA potential.

What’s not to like?

SAP’s concentration on aggregated top line growth masks fundamental problems with keeping sales of the core apps moving along. Everyone knows that outside of the odd opportunistic deal or possible Oracle refugee, those deals are done. However, SAP also knows that if it is to have a credible future it needs to radically rethink business applications. That inevitably means cloud but how does it transition without giving the Street one heck of a fright? Here are two scenarios:

1. It takes itself private while making the transition and the Street can go to hell until it is good and ready to re-emerge. This is an unlikely scenario but plausible as a way forward without finding itself horribly distracted.
2. It uses the SuccessFactors acquisition as a way of setting profit expectations such that it can develop for the cloud without skittish investors punishing them too badly. Remember they are trading above the average of their peers so there is wiggle room. It is worth noting that the company announced it is deferring share buy back until it has paid down its SuccesFactors related borrowings. That sends the right signals to customers and investors that SAP understands prudent cash management. That’s the current backdrop.

The problem is - how do you get the work done? There is really only one answer which SAP has alluded to in the recent past: China. It has made a commitment to invest $2 billion in that country. That is a huge amount of money but the potential rewards are equally huge. It is not so much a question of labor arbitrage but one of development resource. SAP needs thousands of developers. They are not going to find those as readily in other parts of the world. In short, they will have to learn from Apple’s playbook. But this will only work if SAP can successfully leverage its very deep pool of engineering process experience to provide leadership and direction to tiger teams. The good news is that they’ve been here before when they transitioned from R/2 to R/3 in the 1991-3 timeframe. To date they are the only software company to have successfully made that transition. They can still lean on Hasso Plattner, one of the founders, to remind them what it takes to make that kind of change. Which leaves one more problem.

How will SAP compensate a future cloud salesforce? Every cloud vendor has the problem of not being super profitable and always appearing to live on the edge of profitability. A big part of that is the problem of compensating against revenue recognition rules that do not allow any cloud vendor to take full credit up front for what they sell while still having to set compensation based upon total bookings. There are no simple answers to this problem and in that regard SAP is not unique. In SAP’s case it represents a horribly complicated puzzle because of the big ticket adjacencies. We will have to wait and see how SAP works its way around this issue.

Conclusion

Everyone I speak with is feeling good about SAP but not in an arrogant way. The company and its top partners are keenly aware of the many challenges ahead. Most important is that customers see a way forward with the company which was hazy at best a year ago.

The co-CEOs have done everything they promised and my sense is they are sufficiently confident to deliver again. The real interest lies in the hands of Vishal Sikka’s development organisation. What they achieve in 2012 will provide more clues about how well SAP is preparing for a cloud/mobile transition. The ultimate test will be in the company’s ability to persuade its best sales people that cloud sales will reward them as handsomely as they have been in the past. Time to change the brand of champagne?

Even Angela Ahrendts, CEO of Burberry standing on stage at Dreamforce 2011 declaring that all businesses need to be social businesses in five years time did little to help me have an ah-ha moment. Even the recent realisation and emphasis upon people and ‘culture’ rather than technology only leaves me thinking ‘So what?’ Why? Because there is nothing fundamentally new or revealing in what’s been said.

For anyone with more than five minutes business experience, much of what is uttered, pontificated, PowerPointed and lauded at best demonstrates an astonishing lack of insight into how any of this ’stuff’ is supposed to work. Unless you mean blowing up established business models. Neither has anyone truly expressed an understanding of how business really ticks. Almost no-one, with the notable exception of Sigurd Rinde acknowledges that much of what makes quantum difference means dealing with messy, barely repeatable problems. That was until last week when I was briefed on tibbr 3.5 and tibbrGEO.

Disclosure: I undertook a tiny advisory project for TIBCO last year. Beyond that, we have no commercial relationship.

Concrete, complex examples

Last week, the company showed me what they are doing with geo-location as the latest big addition to the tibbr solution. This is way more than mashing up Google Maps, although that can be done. How about bring your own maps for say drilling rigs in oil fields? More important to me tibbr is rapidly evolving into a real time enterprise level problem solving solution. It doesn’t have the same grab you by the throat kudos as ’social enterprise’ but then enterprise is boring - right? Wrong. Here’s an example.

What if a merchandiser is walking through a store and sees that certain products are running low. Take a snapshot, include that as a message to the merchandising group to which she is subscribed with a request for replenishment. That might start a stock call off process either at the warehouse or at a supplier. Hang one. Doesn’t the retail inventory system handle this? Maybe and maybe not. Even if it does, how do we know the inventory held in the books is accurate? Where the heck is that inventory? What if there has been a sudden run on a certain stock and the inventory batch systems are down or not up to date? And just to add spice into the equation, what if there were clusters of similar reports coming in? How do you coordinate efficient and effective deliveries? tibbr and now tibbrGEO can start to help solve these problems at both the systems and business levels. That is because TIBCO has understood the most important insight for these styles of applications: people respond to events and it is events that need capturing, understanding, analysing then pushed back into process in whatever way needs to work.

Here’s another example. As passengers are boarding a flight, final external inspections reveal a dent in one of the wings. Is it critical or can the plane fly? Take a snapshot and broadcast to the on the ground maintenance teams for review and consideration of a possible solution. What if the dent proves critical - what do you do with the passengers? Can they be put onto another flight? Will they be substantially delayed? Can the plane be repaired in an acceptable amount of time? Where are the necessary parts and what about the availability of the maintenance crews? The answers to all these questions depend on the coordinated and collaborative actions taken between people and subjects from among cross functional and diverse groups. They all require the kicking off and execution of business processes which are barely repeatable in isolation but which impact business performance and customer satisfaction. Since tibbr takes advantage of TIBCOs many years experience in systems integration and can solicit instant feedback from other systems AND people, the likelihood of avoiding significant impact to both customers and operations is dramatically improved. Provided of course that the airline company has those systems interconnected in place. For what it is worth - that is a real life example I experienced but without the benefit of tibbr. It was pandemonium.

I could go on with more examples but you should be getting a flavor of what I’m seeing and how problem solving represents a much better way of articulating how the various so-called social technology threads are pulled together in both a meaningful and purposeful way. Is it a winning formula? On its face I’d say yes but if life was that simple the game would already be won.

Betting on HTML5

On the technology front, TIBCO has placed its bet on HTML5 but is taking a hybrid approach to mobile. The idea is that the end user sees a consistent experience through HTML5 but that for certain functions, they develop as a native application. This is sensible given that mobile resembles the early days of Unix when you had to develop for many flavors. As a side note, I asked the company whether there are discernible patterns of OS emerging among their global customer base. The answer depends on which geography you want to discuss but the overall answer is no. RIM, OSX, Windows and multiple versions of Android can all be found in clusters but among its enterprise customer base you cannot simply argue that engineering should concentrate on one or other OS. hence the decision to go hybrid. The one exception is tablet where iPad is by far the most popular choice. That does not surprise given current global sales estimates.

One million active users in a year

Last year when tibbr was in its relatively early stages of development, the company let slip that Vivek Ranadivé, TIBCO CEO thought tibbr and its direction could represent a larger revenue stream than all its other solutions. That’s a BIG statement for a company tracking $920 million in revenue. Where are they up to?

• In its first full year, TIBCO has signed some 60 customers and estimates it has around one million active users.
• It is signing multi-million dollar deals. Revenue rules do not allow TIBCO to give out precise information into the public domain. I’ll give this a shot - if they’re not close to hitting $50 million in revenue from this source, I would be surprised.
• The company is building a stand alone specialized tibbr sales force to augment the global sales force.
• It is providing the secure, socialised network application to world leaders attending the World Economic Forum in Davos.
• TIBCO has attracted 20 specialized tibbr partners who are starting to bring in deals.
• Deal cycles are relatively short compared to its traditional integration and tools business. This is helped by a free 60 day trial. In the last three weeks TIBCO activated over 1000 instances from companies as far away as Vietnam and Philippines alongside its traditional markets.

TIBCO is devoting increased resources to helping customers not only adopt tibbr but also co-create solutions that solve business problems. Many of those customers are active users of TIBCO integration technology. That gives TIBCO a natural market they can readily approach. It strikes me this is more likely to succeed than the more broadly drawn and consumer led approach characterised by Salesforce.com. It may be that TIBCO customers present problems that naturally suggest collaborative solutions. Providing an environment and support services that pulls together people and systems makes for an easier on-ramp to large scale use. Salesforce.com will argue that its partner network is achieving much the same thing through a combination of Force.com applications and its own CRM. I find that argument less convincing except for modest point solutions. There are plenty of those but are they capable of being productised? I have not seen a lot of evidence to suggest that is the case. TIBCOs history is one of application agnosticism. It is an inclusive technology. But there is something else in play which suggests much bigger things.

A tantalising future?

During our conversation, TIBCO showed me some of the leading edge work they are doing around what it calls multiple subjects. The best way to understand this is to think about holding a portfolio of customers that buy multiple products. Some of those products may require collaboration among colleagues in order to build an optimal portfolio sale. In these circumstances, decision processes will almost always require augmentation by a variety of other information and intelligence, perhaps from many systems. Pulling all that together into a real time feed that is coherent to team members and individuals is not trivial but it is something that TIBCO can manage. It means that reliance upon a CRM becomes less relevant, apart from the initial pipeline feed. TIBCO confirms that the way it sees usage reduces dependence upon traditional CRM. In other words, tibbr’s evolution is leading towards a very different view of what CRM means at the technology layer but driven by new behaviors emerging from this technology use. Think about what this means. Database driven applications of the kind we are familiar start to go away. We don’t lose the need for data but the database itself is nno longer the be all and end all of application design.

Concluding thoughts

TIBCO has always impressed me by the way it quietly goes about its business, solving big business problems with almost no marketing budget to speak of. The company prefers to devote its resources to engineering. The speed at which they are building a problem solving solution business has surprised me. They are clearly onto something that is different to the usual fare. They have understood that while people are central to the effective use of socialised applications, it is by giving equal weight to surfacing machine and systems generated data that business achieves a higher order benefit. If my assessment is correct, then TIBCO is giving us a glimpse of what the business to business market for this class of solution looks like. It is a story well worth following.

Kodak, which has just filed for bankruptcy protection missed the shift to digital photography, despite inventing key technology that we take for granted today. i2, once the master of demand planning faltered badly just at the point when it looked like it would break through the iron grip SAP had on customers needing demand planning solutions. i2 over-reached and believed too much in its own omnipotence. RIM, once the absolute master of enterprise smartphones is looking increasingly precarious having failed to make developer life easy and refusing to bend to hardware/software trends in mobile. Whether it survive and thrives is still very much an open question. No-one is immune.

SAP and Oracle

I have consistently said that neither Oracle nor SAP are exempt from the ravages of history. My view is that Oracle is the more vulnerable because its insistence on gouging customers - or at least giving that strong impression - will drive customers away at precisely the moment when it believes it is invincible. Fusion doesn’t help in its current iteration because the market assumed options for cloud delivery are not there. Hardware? Sounds like the right play but the market is not convinced. And in 2012, its database supremacy is going to start coming under real threat as business intelligence solutions built in the cloud eschew Oracle for open source alternatives. More prosaically, Oracle’s cosy deal with Salesforce.com is up for review within the next two years. Just at the time when Salesforce.com should be thinking seriously about refactoring what by then will be ancient (by modern standards) technology.

SAP’s ‘not invented here’ attitude continues to plague its ability to break away from the past. Its moves towards cloud with the SuccessFactors acquisition leave far too many imponderables for me to be sure they can transition. They’ve tried before and failed. HANA/mobile are the big unknowns. There is so much as yet untapped potential yet SAP’s track record for capitalising in good time sets it up perfectly to fail. History can be a great teacher, but it can also be a harsh mistress.

Both companies could learn from IBM’s near death experience and avoid the fate that history mercilessly doles out. But will they? Which brings us to Microsoft and Intel.

The iPad Factor

Earlier in the day, the UK BBC News talked about the challenges each of these giants face as they transition away from the desktop hegemony to systems and devices that are better aligned to a post-PC era. Twenty years of dominance, billions of dollars held in the bank and a global army of developers is one heck of an asset store. Who would bet against that? The problem for both Microsoft and Intel is the market has changed at a pace both are struggling to match. It doesn’t help that ‘conservative’ estimates put iPad sales for 2012 at a stratospheric 48 million. The emphasis in the commentary might be consumer but evidence is growing that business is prepared to pony up for large numbers of these devices. Oliver Bussman, CIO SAP has overseen the deployment of 11,000 iPads. Last July, Larry Dignan provided pointers as to Apple iPad in the enterprise market.

Microsoft

Today’s earnings announcement was a mixed bag. Much attention will be focused on the soft PC and PC related sales and it is hard to avoid the fact that Microsoft disappointed more than expected. Even so, shipping 200 million Office licenses in 18 months is hardly shabby. The problem is that Microsoft doesn’t get anything like the equivalent revenue Apple enjoys. Nor does it see the same margins when taking into account Apple’s cut from third party AppStore sales. And when you see the master cash cow slip to number three status then there is something not quite right.

Adrian Kingsley-Hughes asks the right questions about Microsoft’s transition strategy.

It’s seeing the 30-year-old reign of the x86 ‘Wintel’ architecture is coming to a close and it is preparing for this. One such step is in making Windows 8 run on the ARM architecture. It’s not the first time that Microsoft has ported its operating system to run on different platforms (remember MIPS, PowerPC and DEC Alpha). Microsoft has always had an eye on the future.

But this shift to ‘post-PC’ is dangerous for Microsoft. It’s dangerous because it’s a big transition. Windows is very much a PC product, and much of what makes Windows what it is simply won’t carry forward to ‘post-PC’ devices.

Server sales were solid but how long can this last? In order to make growth in that segment a defensible argument, you have to assume that both sales of Microsoft business solutions will see a serious uptick and that swathes of cloud developers will prefer Microsoft to other, Amazon inspired architectures. Neither of those are done deals when you realise that Microsoft’s cloud ambitions have - to date - seemed muddled and confused.

Microsoft has plenty of other assets in its store but none of them have the earnings power of the Windows/Office franchise. It’s odd for instance that while Xbox might seem to carry more or less the same or similar market presence as other gaming machines and systems, Xbox LIVE ‘only’ has 40 million subscribers. While Bing performed well, it is Google the noun and verb, which continue to dominate. And that’s despite Google’s own disappointing results.

My colleague Oliver Marks might well point to Sharepoint as the Trojan that keeps the enterprise wedded to the desktop. The last few years, Microsoft has worked this solution line into as many enterprise deals as it could muster while morphing what was once a back of bits into a solution that you can at least get your head around fairly easily. But there are too many competitors out there offering more inventive ways of collaboration.

And then there’s Skype. Nothing much is happening right now but if Microsoft decided to bundle up with OfficeLive AND solve some of its customer issues then who knows what might happen?

A company the size of Microsoft is not going to suddenly become irrelevant as some might think but there are plenty of threats and challenges that contribute to a sense of urgency. How it sets about re-invigorating and positioning itself for the next 20 years will provide the clues as to just how resilient this giant really is.

Intel

Intel surprised the market by beating expectations. Given what Microsoft reported a little earlier in the day, this should be good news. Or put another way by AllThingsD:

Yet as has been the case for the last several quarters, Intel knows the demand for its global markets, specifically Brazil, Russia, India, and China, far better than any industry analyst, and its executives, especially CEO Paul Otellini, have seemed to enjoy bursting the bubbles of the IDCs and Gartners of the world who continue to preach a catechism of PC doom.

So everything’s all right then? Not quite. During the analyst Q&A, the company talked up the market for the forthcoming Ultrabooks but it is far from certain these will be the smash hit that Intel believes. From Larry Dignan:

Intel’s 2012 roadmap may not pay off. Otellini said that the chip giant has a “tremendous product and technology pipeline.” That’s true, but there are significant wild cards to consider. First, Intel’s ultrabook efforts may not resonate with consumers and businesses. Meanwhile, Intel’s smartphone and tablet chips need to show they can push out ARM-based devices. The only sure bet for Intel is that it’ll continue to dominate the data center.

Other analysts fear that Qualcomm/ARM are indicating a better future. If, as many believe, the world moves towards mobile devices where Qualcomm/ARM play best, then that could knock a very big dent in Intel’s ability to please The Street.

But is Intel’s data center story as bullet proof as Larry D believes? You have to say ‘yes’ in the short term. But with the accelerating demand for processing massive amounts of data outstripping the availability of reasonably priced kit, you have to wonder whether Intel will be prepared to sacrifice short term high margins for volume uplift. Commoditisation and creative destruction have already made life difficult in the PC world. It is an open question whether the same will happen in the much more lucrative data center world.

Like Microsoft, a world where Intel’s influence is significantly diminished is hard to conceive. But the pressure is on the Wintel twins. The answers so far have hardly been inspiring, seemingly limited to ‘cheaper than Apple’ but with little real innovation to match what some think is a very tired play.

Whatever your position remember the history of IT and how ‘all empires fail’ seems to ring especially true in this fast moving industry.

Table 1

Top 10 CIO Business and Technology Priorities in 2012

Source: Gartner Executive Programs (January 2012)

How for example does the fact you might have mobile technologies translate to ‘attracting and retaining new customers?’ Mobile shopping? Gartner explains:

“The 2012 Gartner CIO Agenda survey results show that CIOs believe that the customer experience is the greatest opportunity for IT-enabled innovation,” said Dave Aron, vice president and Gartner Fellow. “As business executives see the potential of technology to transform customer channels and the customer experience, their view of technology has leapfrogged conventional ideas of IT.”

And where does interest in cloud computing fit with any of the business priorities? Reducing enterprise cost perhaps? Gartner is silent.

There are other anomalies. ‘Attracting and retaining the workforce’ comes in at a lowly number 8 and yet there have been strong moves by both SAP (acquiring SuccessFactors) and Salesforce.com (acquiring Rypple) in those areas. Have SAP and Salesforce.com got it wrong? From everything I see, there is plenty of activity in the HR arena.

Collaboration, bracketed with workflow comes in at number four in technology priorities but no mention of social business, adopted as IBM’s latest marketing buzzphrase. At least not in the tables:

“Mobility, social media, information and analytics can be used to re-imagine the customer experience, as well as sales and service channels. These technologies do more than automate or administer processes; they are the processes and the sources of value.”

If nothing else, tech marketers and anal-ysts appear to have done a solid job getting CIOs on the social/mobile page.

The question that really needs answering is how those same CIOs are going to find the budget necessary to deliver on business priorities. One thought is that most of the technologies they say they need are relatively low cost or at the very least lower cost than on-premise alternatives (where they exist.) What if you could release say 1-2% of total budget through the use of third party maintenance for ERP? Or what about replacing non essential storage at EMCs Champagne pricing down to Amazon pricing? Curiously, Gartner are silent on where CIOs will find those budget tweaks despite the fact CIOs rate cost reduction as their number three business priority.

Endnote: Computer Economics reckons that IT pay rates will rise 1.8-3.0% implying more pressure on IT budgets.

SAP Cumulative Revenues 2001-2011

I was traveling at the time when SAP pre-announced its Q4 and year end summary results but they didn’t surprise me. Given the fact price increases for BusinessObjects solutions had fully kicked in, that Gartner estimated that line of business around $2.4 billion at the end of 2010 and SAP could take advantage of a full year of Sybase at what must be at least $1.2 billion, topping out at $18 billion was not that much of a stretch.

There was a slight surprise in SAP reporting HANA revenue coming in at around €160 million, well ahead of its €100 million target. It is not clear how much of this represents a shuffling of the shelfware decks among existing customers, how much of development and services have been counted into this number and how much is genuinely net new deals. The mobile component at €100 million needs further explanation. All Sybase Unwired Platform and/or mobile applications? Answers will have to wait until the analyst call, scheduled for 25th January.

Before continuing, readers might want to know why these relatively small numbers are important. Who cares?

SAP has had a rough few years so the fact it has exceeded overall revenue expectations is a relief for nervous investors and customers alike. The next couple of years will see customers making buying decisions across a swathe of potential partners in circumstances where SAP should be the natural partner of choice.

So how have they really got on? Happy talk aside, a different picture emerges when you take the likely impact of the Sybase and BusinessObjects acquisitions into consideration.

As far as I can tell for 2011, eliminating BOBJ and Sybase produces a notional net revenue figure of €11.1 billion compared to the reported number of €14.23 billion. That is around 4.5% above the 2009 reported revenues. In the overall detail, maintenance represents the standout number.

SAP line of business revs 2001-2011

When you run the same elimination exercise for BOBJ and Sybase, the best position I can find is a flatlining of the core ERP license business. As things stand, it is far from clear whether HANA and mobile solutions will accelerate future growth. Here are some of the challenges I see looking ahead:

How does SAP stem the flow of business to SaaS/cloud players? SAP will argue the upcoming SuccessFactors acquisition provides the first solid plank where the SuccessFactors solution can take advantage of a large untapped market. SAP has done well at upselling in the past but this is not as simple as another on-premise add-on. When I speak with its midmarket customers who are in ’steady state’ or upgrading infrequently, almost none of them have heard of SuccessFactors. Opportunity? Perhaps. What about CRM? SAP is taking a different tack, focusing on slices of functionality where there can be quick wins. This could be a large market if SAP can convince its sales organization that $50/month/user is a price worth pursuing.

What about HANA? I give full marks to SAP for hyping HANA to stratospheric levels. Vishal Sikka, SAP executive board member’s infectious enthusiasm is genuine. Co-CEO Bill McDermott’s touting of a $500 million pipeline remains worrying. SAP should be crushing it in sales but they should still be given credit for blowing out the €100 million promised deal value, albeit with caveats noted above. Now it has to mange the downswing in sentiment with solid use case announcements that go beyond ‘feeds, speeds and business intelligence.’ Case studies are thin on the ground but CIOs are getting the message. I’ve met customers who believe HANA is transformational albeit SAP has only scratched the surface. This creates the ‘country club’ effect that helps SAP knock over sales prospects in a manner similar to the way it drove mega growth in the mid 1990s. SAP’s intention to release a HANA-ised COPA application (financial analysis) will do well across much of the portfolio. The $200,000 price point looks attractive. What’s needed are a slew of HANA-ised apps where transformative value is either self evident or point towards more than incremental advantage. Right now, much of HANA development is locked up in bespoke systems where it is not clear if SAP will have significant opportunities to productise.

Mobile is a work in progress. Applications that are ready to go are thin on the ground. (Update: John Moy provides a mobile apps map as at 31st January, 2012.) This is disappointing. Every vendor has issues around platform support (iOS, RIM, Windows, Android?) but I would have expected to see much more progress by this point in the cycle. Some customers are sidestepping SAP, preferring to develop themselves. Developers have their own issues to contend with, not least a less than fully formed on-ramping mechanism plus ready access to infrastructure. Even some of SAP’s loyalest supporters are up in arms. While there are plenty of good intentions, there are far too many holes in execution. SAP would do well to stop yapping about how it runs the Apple AppStore and concentrate on getting its own ducks in a row.

Collaboration. This is a topic where SAP has a shot at shining. What? When Yammer, Chatter, Jive and a slew of others are already established? SAP has embedded collaborative features in Sales OnDemand that make it an attractive application precisely because you don’t have to step outside the application to complete essential tasks. Take that idea into other applications and SAP offers something genuinely differentiated.

Rapid deployment solutions. SAP’s latest attempt to put the long implementation cycles and procession of failures behind it may yet yield incremental revenue. I rather suspect it will more likely turn into a Trojan Horse designed to encourage the dusting off of shelfware and so help preserve the maintenance stream. The likely impact is modest at best.

Conclusion. SAP 2011 full year earnings call will be interesting. On the one hand, SAP has done a great job managing Street expectations and generating some excitement among customers. On the other hand, it is relying on an expanded portfolio of solutions to fuel future growth. That could have a substantial sales and marketing cost impact. There is plenty of work ahead but don’t be surprised if SAP manages to pull all these threads together into a cohesive whole.