SAP's Bad Quarter and the Tsunami's Low Tide

While I was a little surprised to see SAP's miss its numbers -- and, let's be honest, the miss was more because of the weakness of the dollar than any other single factor -- I was even more surprised by the piling on of comments regarding the so-called strategic shortcomings in SAP's product plans, particularly around SOA. Some of my fellow bloggers gave voice to financial analysts (who are usually great at numbers, and far too often less great at understanding products and market positioning) who looked at SAP's poor showing and blamed bad positioning, poor product strategies, and a host of similar problems.

Nothing could be further from the truth. SAP in particular has an enormous opportunity in SOA -- a three letter acronym that is just well-enough understood by the financial community to be highly abused -- as well as opportunities in areas like governance, risk, and compliance, business intelligence, mid-market, and the like that most financial analysts misunderstand or know nothing about. The one analyst who seems to get it right more often than not, Charlie Di Bona, of Bernstein, had a vastly different take on SAP's long-term prospects following the company's recent warning: Di Bona still sees SAP "well-positioned" to gain market share, and based on its SOA, on demand, and other strategic initiatives. 

So why the soft quarter, if the strategies are actually on target? Here's where the difference between a financial analyst's three-month window and the industry analyst's more fluid timeframe come in to play. I think what we're seeing in SAP's case is not a strategic failing but a matter of market timing. SOA in particular is something that virtually every customer is talking about, and even doing something about. SAP's SOA strategy, and what it will be able to deliver in terms of a real model-based, SOA applications environment, is right on the money. But the money -- the customers -- are hesitant, waiting for more ROI proof points, more mature technology, and more pioneers to bear the brunt of the initial problems and pave the way for the rest. It's going to take another quarter or two, which is fine by me, whereupon the customers will start coming on board in droves. This is  disappointing to financial types that need their quarterly fix, but I'm convinced when they look at the full 2007 financial picture for SAP, they'll have long forgotten their temporary disappointment about this most recent quarter. 

The image I think of is the tsunami that first announces its giant wave by an unexpected low tide. This low tide really signals the gathering force of the wave to come, and, in many ways, this is where the current state of the market sits. Customers want SOA and the other products and services that SAP can offer, and the pent-up demand is building to a crescendo that might take another quarter or two to be heard. So be it -- we industry analysts can wait more than three months at a time for success to come knocking. SAP's prospects have never been better, it'll just take a little more patience than some seem to have. Most importantly, the customers are poised to buy, not abandoning the market. And that will be the headline that matters the most.