I have read very little of the commentary around the SAP on HANA announcement. Instead, I, along with many others was asked to render an opinion in advance of the event. To put this in context, those asked are people who are often intimately involved with SAP on a day to day basis. The cross section of ecosystem participants in the pre-event consultations is impressive with SIs, analysts, SAP Mentors and customers all part of that process. To its credit, SAP listened and acted on some of the things I know were proposed.
However, what was noticeable is that this announcement polarized opinion. On the basis of what we saw in Twitter 'sentiment' roughtly two thirds seemed to think it was a good move, one third were skeptical. Estaban Kolsky, who I wanted to get on camera (he had to leave early) was highly skeptical in some back channel conversations but started to see this as more than just a so-what incremental change. However, I did capture the views of our own Brian Sommer, Ray Wang, Harald Reiter (Deloitte) and John Appleby (Bluefin Solutions), the latter two also being SAP Mentors. The analysts were surprisingly positive and pushing SAP towards new things. The SIs were less than enthusiastic.
Elsewhere, Vinnie Mirchandani flat out dismissed it. I will not dissect his piece except to say that the arguments presented are based upon a set of myths about SAP that are rapidly dissipating - but perhaps not among the customers he sees and for which SAP has to do a much better job. That leaves me believing his assessment of this outing is flawed though not entirely fatal as will become apparent in my analysis.
While the event was in flight, DSAG (the German SAP User Group) came out with a statement where they said:
Andreas Oczko, member of the board of DSAG: "We pushed for a pricing model which is based on the customer's added value. This means that SAP customers must now upgrade only those licenses which actually access the HANA database and they do not have to upgrade the entire license agreement. As far as licensing costs are concerned, the database for the Business Suite on HANA will now cost existing SAP customers exactly the same as the conventional databases. This will give each individual customer the chance to use in-memory technology at a reasonable price.”
Marco Lenck, chairman of the board of DSAG: "SAP has adopted our proposals to setup the pricing model based on contract value and not on main memory usage. Due to the conventionally focused pricing, existing customers now have easy access to innovations in the HANA environment. SAP has responded customer-oriented to the core requirement of the DSAG. We believe that this will lead to a strong push in the adoption of the new technology."
These statements should be taken as a solid endorsement from a group that does not fight shy of voicing its adverse opinions. I will argue that while DSAG may think they have wrung 'concessions' they also missed an oportunity to drive SAP towards a different future.
The good stuff
First the good stuff. SAP is coming to market with beta customers, one of which was on stage. The product is available now. Development for Business Suite on HANA started in 2010 so to get this to the currrent state in less than 42 months is laudable by any standards. That used to be the benchmark for major releases. You can of course argue that this is little more. To do so though would be to deny the extent to which the table structures and 'plumbing' have been re-written and fundamentally simplified.
In conversations with both Hasso Plattner, co-founder and member of the supervisory board, and Vishal Sikka, executive board member and the person driving this initiative, it is clear that SAP is engineering for its future but with the clear objective of lowering overall TCO as a response to market threats. This may sound defensive but is more than that when you consider that the company is offering much more than point solutions running in a real time environment.
It is also clear that this represents a stepping stone for SAP that is similar to the manner in which Oracle is offering Fusion only in a fraction of the time Oracle took. Customers have choice, most (of the largest customers) will want to continue operating on premises for some years to come and with their existing database but when they do move to the cloud, it will be a private cloud or one managed by SAP. Me too? Perhaps but certainly something that SAP customers and especially CIOs will find comforting at a time when they are finding their carefully crafted IT landscapes being shattered by the incursion of SaaS plays.
The cloud fanatics (I am a fan but not a fanboi) will dismiss this as false cloud thinking but as Plattner pointed out in a closed conversation, the global companies that have remained loyal customers and which remain world leading brands, will not discard their investments for business critical business processes anytime soon. For which read at least five years. But that change will come and SAP has recognized it. Hence, while SAP does not say so in so many words, the company will have the BusinessSuite running on HANA in cloud environments in the not too distant future. In the meantime, SAP on HANA demolishes one of the cornerstone arguments for SaaS without requiring massive re-implementation. OLTP and OLAP now become one and real-time for the whole business transaction and output is a reality for SAP customers.
Again, some will argue 'false cloud' but for core processes, SAP is correct in thinking that the feature and function requirements are done and that for new applications, SAP only has to ensure that the data can be exposed and that ancillary systems and new applications can access that data as and when needed. This makes sense for SAP customers. I imagine similar logic makes sense for Oracle customers who are offered deployment 'choice' albeit on the Red Stack.
At this point I'd argue this describes what SAP means when it talks about the ability to move forward to a more modern architecture 'without disruption' and explains why it will prove attractive to early adopters.
Vinnie's argument about the 'Gold Stack' is half baked. I do not see a coherent assessment of the business and financial impact this architecture provides. For its part, SAP has yet to articulate clearly how simplification of the SAP landscape using HANA translates into real savings alongside Sikka's 'incredible' opportunites.
There are far fewer moving parts, it should be much more reliable, i.e. less brittle and could also mean dramatically reduced regression testing. Colleagues who have experienced the joys of Solution Manager (sic) will smile wryly but having listened to the arguments and watched the reactions of SI representatives, it is clear SAP is determined to make those benefits available to its customers. I know for instance of one SI who is talking about an average full implementation of existing large scale Business Suite customers on EhP6 making the transition in less than nine months.
This is going to be very bad news for SIs who have have been used to a diet of one, two and three year upgrades. Yes there will be hardware procurement which adds cost. Yes, there will be relicensing that will give negotiators occasional headaches. But net-net, there is no reaosn to assume that customers will be worse off financially while being in a position to reap both implementation and operational benefits along with future benefits that come from the new classes of application that HANA promises.
The super cynics will argue that SAP has not done enough to show the money on this but I have seen enough figures to at least convince me that for once, SAP is not only serious but determined to help its customers get what they were promised rather than see their landscapes ossifying. What's more, the new class of SI that HANA is attracting will outsmart and outpace the big boys very quickly. That will represent what today is an untold story but one that will bring into question the entrenched SI model.
I still push back though and say that when I see customers talking in the excited tones I hear from Salesforce.com and Workday customers then I will believe what I hear as a genuine proven reality.
Here I think SAP has an opportunity to convince customers beyond the handful of enthusiasts that SAP on HANA is worth talking about publicly. At this stage it is an incremental improvement but one where the step is much more beneficial than has been the case with recent upgrades.
SAP and the innovators dilemma - an opportunity missed
So where did SAP miss? I believe the company missed the opportunity to solve the problem of the innovators' dilemma which has been bedevilling them the last seven years. During our private conversations, the question of pricing and economics was top of mind.
Some of us are of the view that HANA as a database provides the opportunity for SAP to break the market deadlock that exists between itself and Oracle while at the same time solving the relatively slow adoption of HANA among SAPs large customer base. We are of the belief that SAP should bundle the database but charge more for the new applications and especially those that deliver quantum value. I have seen apps that I would willingly recommend carry a seven or eoght figure price tag because the use cases are so obvious and painful that the price would absolutely be justified. However, HANA is a database and while speedy, it is in a class of technology that has become commodotised. It is infrastructure the cost of which is collapsing left and right.
If you recognize that as a fact, then it is a small step to shrugging and offering customers more than cost parity for that part of their SAP landscape. SAP and some analysts say this would lead to accusations of dumping for which the company could get into trouble. On stage, Plattner said the company does not want to fall into that trap. And knowing just how powerful SAPs legal department has becomes then it is understandable that the company is shy of going down that road.
But seriously, if customers were offered that opportunity can anyone honestly see a court upholding a situation where customers pay more for something they could have bundled at a better price? That would be insane and totally undermine the concept of market competition as I understand the term. More to the point, I don't see anyone bitching at Salesforce.com's Force.com platform which is pretty much free of cost (by comparison) but which serves as a powerful on ramp for hundreds of thousands of applications in the Salesforce.com catalog. You cannot convince me that Salesforce.com does not draw a significant amount of core business uplift purely because the AppExchange provides the add on applications customers need. And what is that? A database.
SAP is naturally cautious of protecting its customer base. It has to as it finds itself coming under increasing pressure from the SaaS players and, over time from the players who offer low cost platforms. While Vinnie talks enthusiastically about Amazon economics as a proxy for pricing, he misses the fact that Amazon's cloud cannot handle large scale businesses. The comparison therefore is based upon a false premise for SAP's core customers but does not preclude SAP from taking the cost bull by the horns and swinging for the fences on this topic. However, this does not negate the subtext of Vinnie's snark: SAP needs to be much bolder. The good news is that some of its most enthusiastic 'fanboys' are pushing the company hard at very senior levels to do exactly that. And as many will know - these things take time at a company of such size.
SAP's top few thousand customers may well remain loyal in this next wave of transition but it is that vulnerable middle tier where things get really tricky. In my view SAP missed a unique opportunity to do something that would be truly disruptive and allow it to start getting serious scale for HANA adoption. Price parity for the database may be welcome and an interim necessity but it isn't enough.
Even so, I am looking forward to see how this pans out. The engineering teams should certainly be congratulated and let's not forget we are now seeing an SAP that is coming to market with new solutions and the first customers at the same time. That's something entirely new and should impress customers used to the yawning chasm that has previously existed between announcement and delivery, let alone implementation.
UPDATE: UK&I SUG commented in similar terms to DSAG as follows:
"It's great to see that SAP has listened to the feedback we provided as part of SUGEN and incorporated that into the pricing strategy. We've been used to paying for databases in a certain way, so it's great to see that SAP providing similar licensing options. In terms of the solution itself, it looks great. In the first instance I'd expect those organisations that have a real need for speed to look at migrating. I'm sure new customers will also welcome the news as it simply gives them more database options," said Philip Adams, Vice Chairman of the UK & Ireland SAP User Group.
Disclosure: SAP paid my T&E for attending the Palo Alto event