SmoothSpan Blog

I gave my prognostication about what it all means before the release in my post SAP A1S Brings Competition to SaaS for the First Time.  As Zoli says over on his blog, the Enterprise Software World Changed Today.  Here’s a roundup of what I’m seeing out there with a few more of my own remarks.

• Chris Cabrera, CEO of Incentive Compensation SaaS vendor Xactly had a great “welcome to the party” post.  He correctly focuses on the notions that customers have been in the driver’s seat when it comes to defining SaaS, and that SAP can’t change that, while at the same time acknowledging they provide “Big Bang Validation” to the SaaS marketplace.  Jeff Nolan writes over on GigaOm that Enterprise Software’s Future Lies With ISV’s.  With due respect to Jeff, I put Cabrera’s post first because he is right: the future of Enterprise Software Lies With Customers, not the ISV’s.  Even SAP can’t change that.  It is customers that are driving SAP to change themselves, and they will endure considerable pain to do so.

• Phil Wainewright says SAP gets SaaS.  They didn’t just try to repurpose their existing offering, they built a product ground up for SaaS.  It looks to me from Phil’s post that SAP is still waffling on multitenancy, but that they’re at least directionally correct about it.  They are striving to create a “try before you buy experience”.  This is hugely important for SaaS, and a total departure from the old SAP products.  There is deep SOA as a means of interconnecting modules and bringing in the outside world.  SAP has begun the process of creating a community around Business ByDesign, which is another impressive step forward and a must-have for SaaS vendors.  There are, of course, some challenges too.  There is an apparent lack of customizability, something that few SaaS vendors get right, and that even Salesforce is having a tough time with.  Wainewright mentions a shortage of suitable partners.  Welcome to SaaS, which can be downright partner toxic if vendors don’t take care to create value-added roles for their partners.  He also feels that the SAP execs are not coming clean on whether this product has the potential to cannibalize and whether SAP will stand behind it in times of trouble.  This is a problem nearly impossible for conventional ISV’s to come to grips with.  Cabrera mentions it in his post as well.  For the conventional vendor, SaaS is sometimes in the heading of “be careful what you wish for.”  I would mention in SAP’s defense that as a European company, they have shown a willingness to ignore Wall Street and stick to their guns when they think they’re right.  It isn’t always the happiest thing for the share price on a given day, but when they’re vindicated, all is forgiven.  SaaS has great potential to be that sort of thing.

• I’ve already mentioned Zoli’s post, but for his part, Zoli mentions the issue I brought up, which is that Salesforce and NetSuite will feel some competitive pain around this offering.  In an earlier post, Zoli predicts that after a series of stumbles and market evolution, SAP will become the dominant mid-market SaaS player.  That’s a bold prediction.  It will be interesting to see whether the schizophrenia of combining the Dr Jeckyl of SaaS with the Mr Hyde of their core business can be overcome well enough for the organization to execute at the level that is needed for such a prediction to come true.  Way too early to say.

• Nick Carr over on Rough Type flatly says he doesn’t believe Zoli’s prediction.  His post suggests SAP has unleashed a cannibal.  The company most threatened by the new product will be SAP itself.  Their problem may be the success of SaaS itself, particularly if, as James Governor suggests, it replaces the core product with 1/10 the revenue.  I’ve said it many times:  SaaS is an extremely disruptive business model.  Conventional ISV’s can’t switch over on a whim.  Making the change is much like amputating a limb in civil war days because it was preferable to dealing with the infection that might otherwise result from a gunshot wound.

• And speaking of James Governor’s post on ByDesign, he tells us such things as ByDesign was specifically designed not to require customization, and that SAP expects to add 10K customers a year to it by 2010.  He seems mostly to feel that SAP really missed the boat on their quasi-AJAX UI, which is evidently nowhere near cool.  It’s also a continuation of SAP’s “not invented here” philosophy in that they built it entirely themselves.  Perhaps things would’ve turned out better had they borrowed Flex in the same way Workday did.

• Grant Gross of Computerworld writes that SAP will invest over $400M in marketing to tell customers about ByDesign.  SaaS vendors should be sending Henning Kagerman a personal note of thanks.  Marc Benioff has been the patron saint of building the SaaS religion, and he now has more help.  If there was ever a doubt that SaaS would keep expanding its base of converts, that should be laid to rest right here and now.

• Meanwhile, Ben Worthen of the WSJ charges that this is just a too-timid toe in the water of SaaS.  He has zeroed in on the lack of true multitenancy, and the fact the everyone isn’t constantly updated to the latest version.  That’s a pretty big omission.  I can live without multitenancy per se–it largely serves to reduce the ISV’s costs and could be built later, but not keeping customers up to date will reflect negatively on their experience.  Forrester is quoted as saying it won’t matter until a few years down the road when the customer has to do a Big Bang upgrade, but I disagree.  Point revs and patches are the bigger issue.  Tech Support professionals I’ve talked to say that as many as 70% of bugs reported are already fixed in the latest version of the software.  That means a vendor that keeps everyone up to date eliminates 70% of their unhappy Tech Support calls.  Waffling on this article of the SaaS religion is one of those things that makes you wonder whether SAP will carry through on the rest if they meet much pushback from traditional mindset customers.

So there you have it.  A survey after the first day.  Clearly there are a lot of challenges for SAP.  Just as clearly, it is a watershed event in Enterprise Software History.  Time will tell how it all works out!