Good article and hard to disagree with your thoughts. Since I was mentioned I thought I would add some additional color to my comment ???Extending the maintenance on the Business Suite to 2020 was a very smart and strategic move, because it provides customers with some stability and removes a core argument that the SaaS vendors regularly use against big and expensive ERP upgrades. This announcement buys SAP some breathing room to update the core of the Business Suite as well as get it running on HANA." My comment was based on the maintenance extension and I will say that almost every SaaS vs OnPremise article contains mention of an expensive ERP upgrade with a case in point this one last week with Workday's Aneel Bhusri ow.ly/70dux . With many customers already on ECC 6.0 that specific argument becomes more difficult and is why I believe buys SAP some time to figure out what is next with the business suite.
I think in certain areas the software and the core is already showing its age and at 50 years old will have a serious challenge against the Salesforce, Workdays and upstart SaaS vendors starting from scratch. The future roadmap, strategy and delivery will be extremely important for SAP if they want to keep their current marketshare. On a side note although I make my living in SAP I am not always pro-SAP in my comments and given the other option of SAP keep maintenance at 2015 I think everyone can agree this was a smart and strategic decision and look forward to hearing more details.
I see Michael Krigsman has written a glowing assessment of recent policy changes at SAP regarding the business suite. He thinks this is a good thing saying:
The new upgrade policy benefits customers while helping SAP battle increasingly strong market sentiment toward cloud computing.
Extending maintenance for Business Suite is also beneficial for customers. When a vendor terminates the product maintenance period, customers must buy and implement an upgrade to continue receiving support. This forces some customers into an expensive upgrade simply to retain support, which is often essential on mission-critical software such as ERP. For this reason, support termination dates can be a contentious issue between vendors and customers.It is also worthwhile noting that extending maintenance helps SAP avoid threats from third-party vendors that provide fee-based, “unauthorized” support. When a product reaches its support end of life, some customers may turn to these third parties rather than undertake a lengthy upgrade just to continue receiving official maintenance.
When I read this I was astonished. I’m not buying this argument. Mostly.
Let’s be clear. NOTHING SAP does on the enhancement pack side of things will prevent the continued onslaught it is currently facing from Salesforce.com today, Workday tomorrow and goodness knows who in a few years’ time. Nothing, nada, zippo. If it was any other way then the ‘market sentiment’ of which he writes would not exist, let alone be flourishing.
In that I disagree with Jarret Pazahanick who, remember, earns a living from SAP HR implementations. He says that it removes a ‘core argument’ used by cloud vendors in connection with upgrade cycles. It is an argument but only one of many. What would have been closer to reality is that cloud vendors can legitimately lay claim to customers (mostly) being on a single codebase which reduces maintenance for the vendor, the benefits of which are passed on to the buyer. SAP (and other on-premises vendors) cannot make that claim.
SAP will argue that it now makes no difference because the enhancement packs are the equivalent of releases from the cloud players adding into a stable codebase. Clever when you can pull it off but is that what business really wants when all other attendant costs are not going away?
Let’s also be clear, this has little to do with being good for customers except as regards long term stability. It has everything to do with SAP needing breathing space (which Jarret points out) while SAP considers what it will do about HANA and whether that really will be the platform future for its business. A lot of people are pinning their hopes on that but it is not a done deal.
Even with the best will in the world and a super agile (as in quick) development and delivery team, it is simply not possible for the company to build a functionally comparable solution to the Business Suite in under five years. Look how long it took SAP to get Business ByDesign out the door in fit state? That’s a much simpler solution. And if HANA is going to be cloud based, then they’ll have to move sharply to get HANA multi-tenant enabled.
SAP has to hedge its maintenance fee bets because by the time 2020 rolls around, the bones of the business suite will be close to 50, yes that’s FIFTY, years old. It is remarkable that SAP’s codebase will have survived that long but the nearer term truth is that SAP has nothing fundamentally new to offer its BusinessSuite customers as a pathway to the future. Except for enhancement packs. Its Sybase Unwired Platform has yet to prove the mobile hit the company predicted and even now is attracting grumbling comment from within the SAP developer community. This post from developer Graham Robinson is particularly sharply worded.
In similar fashion, I don’t see how enhancement packs avoid expensive testing. Jon Reed, who is also quoted in the article points up the issue. I recall clearly when then SAP CEO Leo Apotheker said at a TechEd, I think in 2008 - no more upgrades. I equally remember the collective gasp from seasoned engineers around me, with one saying as regards enhancement packs: over my dead body. Enhancement packs represent new functionality. Michael should know that no SAP engineer is going to allow anything new into his carefully orchestrated environment without extensive testing. That’s a significant cost in SAP environments, only made easier by third party solutions like Panaya. Where is the magic cure for that?
Michael’s argument around third party maintenance is equally questionable. Having signaled that the BusinessSuite is now, for all intents and purposes, on life support, I anticipate this will have the exact opposite effect for those many customers who are in ’steady state.’ Why would they continue paying 22% and up for maintaining a system that may well have legs, but does not need enhancing? Put in stark terms, customers who are buying SAP now for the first time will have effectively paid for it three times by 2020. How can that truly be good for them? Why would they not consider a third party, especially if that carves out a large chunk of maintenance cost? Why for that matter would they not consider a cloud solution if that chops out cost and even if it means a re-implementation?
The days when you could argue lock-in inevitability are over for CRM, HR and soon analytics. The only systems of record where the cloud players will have genuine challenges are likely to be in the CFOs office and shop floor MRP. Even in finance I see plenty of signs that the opposite is happening. In MRP, Plex Systems continues to draw admirers. And let’s not forget the emerging Kenandy.
In the on-premises world, Oracle has managed to get Fusion out the door. Whatever misgivings there may be about the solution’s levels of integration, it is new where SAP BusinessSuite is not. For those businesses that want ‘new’ but don’t want cloud, Fusion represents an alternative. SAP sees things the other way, believing its claimed superiority in functionality is more attractive to buyers. I’m not placing any bets on that any time soon but I throw this argument in to illustrate the nature of the competitive landscape.
The argument about release cycles has merit. Getting customers used to a different release cadence has many advantages for buyers and in particular less time to wait for functionality. But again, there is no guarantee that will serve as the friendly lock-in that customers are prepared to pay for over and over again. And especially if what is delivered represents small incremental value as Jon implies.
At the last SAPPHIRE, one of the main things on the minds of DSAG, the German SAP user group was the business of extracting value from SAP investments. I am not convinced that welcome though this move may be in some circles, that there is enough to keep SAP customers loyal for the next 10-11 years. That’s the amount of time Salesforce.com has been around. Look what’s happened in CRM over that period? Does SAP think that in the next 10-11 years we won’t see more seismic shifts in the business applications landscape? Of course not.
Good for SAP? Yes. Good for customers? I’m not buying that. But it provides a useful talking point with customers going into the upcoming SAPPHIRE/TechEd in Madrid next month.
Disclosure: Jon Reed is my partner at JD-OD.com
