Larry Dignan pinged me to say the financial analysts are showing renewed interest in SAP with several positive comments on the likely outcome to its Q2 results, due for release on July, 29th:
That take is a mixed bag in the things are less worse camp. The biggest argument for SAP right now is that expectations are low and investors think that Oracle is taking share. If that’s not the case, SAP has some easy expectations hurdles to clear.
Even if the worst is over - and I would argue we are still too early for that to be a slam dunk - SAP will still face some (hopefully) tough questions on the earnings call and beyond. The consensus among those I speak with is that the BusinessObjects line is the only one that is selling in any quantity. That should not be a surprise when you consider the emphasis SAP has been putting on it or the current requirement for solid analytics in the teeth of a recession.
When BusinessSuite 7 launched, the Twitterverse picked up subtle signs that BusinessObjects was becoming a major part of the company's go to market strategy. Hardly a surprise when the days of the Big Bang mega implementation, if not completely over, have pretty much receded into the background. As Larry said at the time:
Simply put, customers are strapped and aren’t going to invest in big implementations. A more scaled approach with shorter time frames is the order of the day.
Where the analysts are concerned however is in determining where the next great growth spurt comes from. In my last round of calls, analysts were expressing a degree of alarm that SAP's emphasis on services mean they would lose visibility into the longer term. As I said a few days ago:
Analysts are concerned that SAP’s swerve towards on-demand services will provide less visibility into revenue trajectories so would prefer to see SAP acquire into traditional if lumpy sales opportunities. I understand why they think that but in truth they’re living in a fool’s paradise. It may be some years before saas cements its place in the enterprise space but there is too much disruption out there for it to be ignored.
Add into that, SAP's recent multiple announcements about cloud computing and you can discern there is a subtle but perceptible change in SAP's business model.
It has always been argued that SAP would have a big problem transitioning to a software as services model because of the way it de-emphasizes the mega deals the analyst community knows and loves. In essence, the discussion was all about how SAP overcomes the cannibalization problem. I would argue that as we stand today, SAP is slap bang in the middle of that particular storm so that even if, as predicted, software license revenue is down 40-45% then that's not an issue if the company can show strength in the services model and maintain margins. In fact transitioning now would not be such a bad thing because expectations are low anyway so any news on the upside is good news. At least to Wall Street.
As a maturing company but one that still needs to move with market trends, SAP will have been concentrating on managing the bottom line while it works out the 'shape' of the new market. If, as I suspect, we see more emphasis in the direction I predict then it adds weight to some of my earlier analysis about which companies SAP may seek to acquire.
Analysts will also be concerned to know whether SAP has made any substantial progress in making the new maintenance deal stick. There's a real mixed bag here with strong resistance in home markets, KPIs that have yet to roll out in full, an introduction spread running seven years and nuisances like myself, Vinnie Mirchandani, Frank Scavo and Ray Wang in particular pounding SAP on this issue. It doesn't for example go without notice that Wang, under the Forrester banner, just released an update to his enterprise Software Bill of Rights. And you'd be hard pressed to miss the number of Tweets where he talks about consulting in and around price negotiation and value for money.
No doubt questions will be raised about progress on Business ByDesign and again I would argue that SAP should push forward with bringing it to market, even if that means short term losses. the math I've done suggests the impact need not be that great but then I'm probably way out because for the life of me I don't understand SAP's approach to the economics of this LOB.
NetSuite isn't standing still:
NetSuite has become the first Software as a Service (SaaS) ERP vendor to gain a certification that will help companies doing business in Germany comply with tough financial reporting standards, according to executives with the company.
It's another jab at SAP, which is still developing its long-promised SaaS ERP application, Business ByDesign. NetSuite has pitted itself against the German vendor over the last year in an attempt to woo customers to NetSuite's products.
NetSuite has exploited the delayed release of SAP's Business ByDesign and an SAP maintenance fee increase by offering SAP customers discounts on its NetSuite OneWorld software. Dubbing the campaign "Business ByNetSuite," it promised to halve the annual bills of SAP customers running R/3 releases if they switched to NetSuite.
If SAP is not careful, it will find the market it once thought would be there for the taking has slipped between its finger.
I maintain the one area where SAP could make a really positive impact is in the learning space. While customers who know SAP love what it offers and can enjoy significant business difference, SAP remains the one company where the failure spotlight seems to shine with embarrassing frequency. If you can convince your customers that you have a solid education process and certification program in place that ensures consultants master the basics through to continuing professional education then you have the basis for: 1. sorting out the unruly SI's 2. creating an environment where SAP education has win-win-win value and 3.reducing the implementation risk.
Unfortunately, on the evidence I've seen to date, SAP hasn't got past the basic hurdle of figuring out what it wants to be in this area. It is launching Learning On-Demand which is a step in the right direction but that's an enabling step rather than a declaration of structured intent.
This may seem almost irrelevant to investment analysts but my professional background tells me that when you are known for having certain competencies and can prove it then you are usually in good shape to not only win work but charge a professional premium that reflects ability to deliver. I anticipate having much more to say about this once we get into SAP TechEd season.
All in all, the next quarter's earnings announcement will be watched with great interest. As an aside, expect some spoiling FUD from Oracle around the same time. Enterprise software is still a dirty business and Oracle is master at digging in the muck.