SAP has spent several years and several billion dollars trying to formulate a strategy that propels it ahead of an unprecedented set of market forces, and this year’s TechEd helped set the stage for a 2012 that is poised to be the year SAP finally crosses the innovation Rubicon.

Of course, as students of history will tell you, crossing the Rubicon was only the beginning of the journey that made an emperor out of the general who led his army over the forbidden river. SAP faces a similar journey – the real test will be in seeing how well SAP can marshal its technology, field sales efforts, and partner ecosystem into a fighting force ready for historic conquest. By contrast, showcasing a growing palette of innovation – which SAP did in spades this week at TechEd – is the easy part.

Because more and more the battle SAP now engages is truly epic – at least in the otherwise mundane world of technology – precisely because of the massive bets the SAP board has laid on the table: as the sole standalone enterprise software giant, SAP is fighting perhaps its greatest battle against market perceptions that bundling hardware and services is the only way to reap the margins and profitability that Wall Street believes are required of successful technology companies.

Those market perceptions have seen Oracle and its hardware focus become the standard of excellence for the sector, despite massive questions about the role of innovation at Oracle. These perceptions have also lead HP to embrace software and services, and Dell to embrace services as an adjunct to their own respective innovation Rubicons.

Meanwhile, SAP has chosen to largely stick with its software-only strategy, though more and more its offering are requiring a level of services that are making the concept of out-of-the-box functionality even more mythological than ever. Importantly, SAP’s software-inter-pares focus has made it the company to watch as Oracle prepares for its OpenWorld user conference and gets ready for a quarterly results call that will put a bright spotlight on whether Oracle can make good on Safra Catz’s promise to get the company back to software-like margins now that Sun has been fully digested.

The problem for Oracle is that SAP’s software strategy is making a lot of sense as an innovative wedge into the enterprise, one that has the potential for challenging the bundling and hardware-based low TCO strategy that is at the core of the Oracle way. SAP’s challenge is to prove that the advantages of its software innovation strategy provide a better long-term value than Oracle’s dual software rollup and Exa-twins strategy.

The potential advantages to SAP’s strategy were out in force at TechEd this year, from the gamification theme to the focus on mobility to the HANA drumbeat (actually drum and bugle corps is a better description) to the continual progress on cloud-based analytics. In conversations with customers and partners, it was clear that the top level message that SAP is innovating in areas that are near and dear to the market’s heart was being heard in all the right quarters.

The mobility and HANA stories were the most impressive to me. SAP has made it clear that its reading of the enterprise tea leaves have shown that the mobile experience is the design center for the enterprise of the future. I spent the first day at TechEd asking SAP execs of all stripes about this question, and the answer was consistent: if you are a customer or partner and want to develop a new enterprise app, your design starts with the mobile user experience. That app can use HANA, pull data from the Business Suite, and be as transactional or analytical as you would like, but if it doesn’t look good on an iPad, it’s back to the drawing board time.

This is not only consistent with where other market leaders and innovators are headed, but it also shows the recognition that even the most modern SAP Business Suite user experience pales in usability when compared to the standard mobile app: Which of course makes SAP’s Sybase investment make all the more sense. That was the observation number two from TechEd: the DNA strands from Sybase are more and more tightly interwoven with the core DNA of SAP, and the evolutionary advantages are starting to show.

Meanwhile, TechEd was HANA’s own Rubicon. SAP announced that the dream of HANA as an OLTP engine for the Business Suite was now within reach, and that the company was actively working to move several thousand SAP Business Warehouse customers off their Oracle RDBMS platforms and on to HANA. While many of these customers have to run the gauntlet of Oracle’s contract lawyers in order exit their license agreements without incurring huge penalties, SAP is busily preparing a business case for BW customers that will make it cost-effective for these customers to make the shift.

The prospect that SAP could be presenting these customers with a faster, better and cheaper way to run their data warehouses as compared to Oracle should rattle a few cages over at Oracle. And with HANA-ready apps and services, HANA as a platform play in the cloud, and other parts of the SAP in-memory strategy coming to fruition, it’s no wonder that SAP is touting HANA as the fastest growing pipeline for an SAP product in the company’s history (okay, so the bar might be set a little low, it’s still an impressive claim.)

This prospect of a major HANA pipeline – and that’s before SAP taps the multi-billion dollar BW replacement market – was a major reason for SAP’s success in its last quarter, a point emphasized by Bill McDermott when I spoke to him about the quarter in July. His other main point was in evidence at TechEd – the strategy of innovating largely around what SAP likes to call a “stable” core is one that is making tremendous sense for its customers. It was clear in every customer conversation I had that the notion of adding new functionality like HANA or new mobile or analytics apps on top of the Business Suite was making huge sense for these customers. This was the dual nature of every customer’s raison-d’etre a TechEd: keep an eye on what’s going to make the core easier and more efficient to run, while looking for the cool new apps that will make the business more competitive.

So the Rubicon has been crossed, what of the battle for the empire? The question really boils down to what the SAP board is willing to do about its innovation opportunity. The problem with SAP and innovation is twofold. The first is that the company has so much innovation going on in so many quarters that it risks drowning in the river instead of crossing it. This is of course a messaging problem for newly crowned CMO Jonathan Becher, who has the unenviable task of making sure SAP is consistently on message in the 24 industries and dozen or so major markets in which it wants to wear the innovator’s crown. This means places where SAP has been traditionally weak – like CRM and HRMS, both of which now have really nice new mobile apps in the quiver – as well as places SAP has been traditionally strong, like manufacturing and supply chain. It means taking the rest of SAP into the new markets, like mobility and financial services , that Sybase brings to the table. And it means distilling one of the more comprehensive and  complex innovation messages in the market into the SAP equivalent of IBM’s Smarter Planet, or Oracle’s Engineered for Innovation.

The second problem for the SAP board involves Oracle, and to a lesser extent IBM: how willing is the board, because in the end it’s their decision, to take on Oracle in aggressive fight for the growing pool of IT dollars that McDermott now sees as shifting towards innovation. That fight requires SAP to shift from its usual preference to play defense against Oracle to playing offense, and the stomach for this fight is the real question.

Take HANA and in-memory as the perfect example: It’s clear that Oracle will be making a major move against HANA at OpenWorld –they threw down the gauntlet here even before TechEd was over. If SAP plays its usual hand, and Oracle plays its usual hand, then Oracle will successfully steal the in-memory ball and start running for the goal line, red and yellow cards be damned, while SAP will put on a sincerely good chase. Rinse and repeat for mobile – it’s hard to imagine Oracle will let another OpenWorld go by without making some commitment to the mobility market. The only real question is what is SAP prepared to do about it.

SAP has the opportunity to fight Oracle on its home turf – SAP is, after all, now a database company too – as well as take the fight to new markets. This opportunity would involve blending a strong innovation message with a strong total cost of ownership message, and it would involve direct engagement with an aggressive and highly successful opponent. To do so might not guarantee success, but failing to do so would guarantee mediocrity, and further threaten SAP’s ability to make the case to its investors that the last standing enterprise software giant deserves to continue standing.

I have to close this TechEd rant with a note on gamification, which was one of the themes of TechEd and was the subject of an Innojam – a 30-hour coding quest – that resulted in a contest for the best gamified app (of which I had the honor to be one of the judges). SAP’s focus on gamification in the enterprise is another example of some fearless thinking with respect to innovation, but the results from the Innojam proved to me that any fear of gamification is completely unfounded.

First off, the 13 teams that made it into the final round were exemplified by an incredible energy and creativity – and excitement – that itself was innovative. The sparks in the room were palatable, and the different approaches to gamifying SAP were impressive. My own favorite – the “Do I Know You App” mentioned in the link above, which is an app that lets meeting attendees put names to faces and otherwise learn about the people with whom they are about to meet – didn’t win, but it exemplified a winning gamified “SAP” app in three important ways:

• The user experience was hip, mobile, entertaining, and in very sharp contrast to the traditional SAP look and feel, even the Business Suite at its most modern.
• The app was engaging and intrinsically as well as explicitly rewarding, and the explicit rewards of gamification enhanced the intrinsic reward of being able to have a more engaging meeting, even with people one has never met before.
• The app enhanced an important component of the kinds of people-centric business processes that SAP has to capture in order to reach its billion-user goal.

It’s easy to say that gamification is really way out there, and is something that SAP is doing just to look cool, even as it pulls on its suit and ties it tie and heads off to that staid and boring enterprise software world of yesteryear. The Innojam proved that if SAP wants to unleash gamification as one of its next waves of innovation, it will have yet another army to march across the Rubicon. Gamification may prove to be as strong an innovation play as SAP has ever made, and that’s saying a lot.

The week before Labor Day was an on-demand trifecta, a perfect storm of theory and practice on what the brave new world of on-demand software and services can and will evolve to in the coming years. It was the week of Dreamforce and the maturation of Chatter, the week that Workday hosted a group of influencers and, among other things, showed off a pretty cool iPad app, and it was the week that I decided to test drive Microsoft’s Office 365 and learned to live in the cloud happily thereafter. Not bad for the last week of summer.

The juxtaposition of these three topics isn’t just a matter of convenience for a blogger whose blogging backlog is measured in months. What struck was what these three events said about the maturity of an on-demand market that has been until this year dominated by an excess of wishful thinking about how the new technologies, work styles, and business models endemic to the hype curve of on-demand would translate into the real world – that staid and conservative workplace that we hipsters in Sillycon Valley tend to gloss over in our excitement over our new cool toys.

Looking at Chatter as part and parcel of a real business processes, Workday using the visual metaphor of the iPad to make on-demand workforce management an intuitive, interactive experience, and using Office 365 to greatly facilitate my multi-device, multi-location, almost-always-on work world made it clear that on-demand’s greatest contribution to our lives isn’t the simplistic notion of the “end of software” or that everything IT suddenly switches from from capex to opex , or even that IT resources can now be allocated in a completely elastic, transparent matter.

The real revolution of on-demand will be a combination of two factors: the first, which I’ve written about extensively in the past, will entail the development of new applications and services that simply could never be developed in the pre-on-demand world for love nor money.

The second, which my last week of summer experiences really brought home, is that on-demand – aided by tablets and other mobile devices, and benefiting from more than a decade of practical and impractical use – is revolutionizing the technology-based experiences of users and in the process vastly expanding the user base of technology. And it’s doing so by blending the old and the new, the stuff we’ve always done and the stuff we’ve dreamed – when we knew how – of doing one day.

These new user experiences are both dramatic and subtle, depending on the use case and the degree of revolutionary or evolutionary change – intended or unintended – that the on-demand software is now bringing to the table. Take Chatter/Workday: being able to approve a workflow-driven HR request inside a Chatter stream looks like such an obviously essential  function that if you didn’t know that this was new and cool you would have just assumed that had always been possible.

Or, more to the point – in an ideal world you wouldn’t have bothered with a tool like Chatter unless it had this functionality: the notion that activity streams auto-magically enhance real business processes was a key part of the above-mentioned wishful thinking that characterized the hype phase of social, on-demand software. And Chatter-as-workflow-enhancer fits both of my criteria for being part of the revolution of on-demand: net new functionality you couldn’t deliver for love nor money in the old on-prem world, with a revolutionary user experience to boot. And hidden inside the value of this net-new cool stuff is solid grounding in the past: those old tried and true business processes that need to get done regardless of the newness or coolness of the toys we have to do our jobs with.

I had a similar epiphany playing with Workday’s new iPad app: you almost have to ask why anyone would bother to rethink HRMS and human capital management without building such an app and deploying it on a platform like the iPad. Of course, this is a management-level app, meaning that much of the hairy, hard work of managing a workforce isn’t intended to be in this app (no more than the hairy, hard work of the enterprise is intended to be done in Chatter, BTW). But when you think back to Larry Ellison’s famous epiphany in 1997 that his company’s HRMS system was unable to answer the simple question of how many people actually worked at Oracle, it’s clear that if Larry asked the question today there’d be an app for that, and it would look like the one I tested from Workday. Again – cool new functionality in service of a better way to do our day-to-day jobs.

While Salesforce and Workday are using on-demand to  change the look and feel of the user  experience, Office 365 is using on-demand to maintain a familiar desktop user experience while fundamentally altering the usability of that experience.  It wasn’t easy for me to reach this stage at first – O365 suffers from a lack of concise documentation on how to migrate from an existing desktop Office experience to the O365 version.  It’s the classic backwards compatibility problem that has dogged Microsoft since the dawn of time: if you want to move your desktop Office environment to  O365, you have to not only run a confusing gauntlet of miss-matched documentation, but you’re largely left on your own to discover what the brave new world of O365 means to your workday once you throw the switch.

To be fair, the backwards compatibility problem of O365 exists precisely because it is replicating an existing work model in the cloud, unlike Chatter, which is creating a net-new user experience from the ground up, or Workday, which is deliberately trying to create a new HR metaphor. But Microsoft could, and should do better at showing how the net-new blends with the old to create a pretty impressive on-demand experience.

That experience is primarily defined by the use of an  on-demand Exchange Server to synchronize Outlook’s email, calendar and contact list with any online device that can talk to an Exchange server. The synchronization works so well and with so many devices that the result is a degree of usability that, again, seems to be exactly what all the hype about on-demand has always been about: access from any device, seamless synchronization between devices, and  largely seamless synchronization between the day to day of the work world and the hope and promise of the on-demand world. The result is a degree of connectivity between devices and those key elements of Office that has revolutionized how this road warrior wages war. It’s not about a net-new metaphor, nor about completely altering how I do my day to day: it’s about using the cloud to make what I do better. Much much better.

It would be unfair to the rest of the on-demand market to say that Salesforce, Workday, and Microsoft O365 are the archetypes of the phenomena of net-new functionality and new user experiences that enhance existing business processes. Clearly the phenomena have been in the market for some time, and both have many progenitors. But the fact that the on-demand market pioneer (Salesforce), the on-demand market fast-follower (Workday), and an old-line on-premise laggard whom many have wrongly written off (Microsoft) can all make an impressive showcase for what is not just to come in on-demand but what is here and now makes the end of summer 2011 a watershed for the market. With the promise of much much more to come.

Hewlett-Packard followed up its “demand letter” of last week with a lawsuit seeking a halt to Oracle’s de-support of HP’s Itanium-based servers, injunctive relief against more mudslinging, and unspecified damages. The suit, filed in Superior Court in Santa Clara, California, is the latest in a nine-month battle that has transformed the two former partners into bitter enemies.

The case, according the formal complaint, “arises out of Oracle’s failure to live up to a clear and simple promise to work with HP in the interests of both companies’ mutual customers.” The complaint goes on to cite a litany of problems and “strong arm tactics” that Oracle has used in its now almost nine-month old battle against HP, one that has at times taken on an exceptional and, in my mind disturbing, personal tone (in particular, the attempts to subpeona HP CEO Léo Apotheker last fall in the Oracle vs. SAP lawsuit seemed in my opinion to have nothing to do with adjudicating the dispute and everything to do with trying to humiliate and tie down Apotheker just as he was assuming his new job.)

Among the allegations in the suit is the claim that Oracle is refusing to fix “critical bugs” in its Itanium versions, bugs that HP says it has a “duty to fix”. Instead, the suit claims, Oracle is trying to force these customers on to a new version of Oracle that will also necessitate a migration away from Itanium. The suit further claims that Oracle is coupling this de-support effort with a “below-cost” offer for a new Sun server to run the new Oracle software.

Oracle has since issued a statement claiming that HP and Oracle do not have a binding agreement to support Itanium, and that HP has known all along that Itanium will be de-supported. More on these claims in a moment.

While significant portions of the complaint, as sent to me by HP, are redacted – due to, I assume, the confidential nature of the contracts that HP and Oracle have relating to support and maintenance issues – it is clear that HP has chosen to respond in an aggressive manner to a set of actions by Oracle that, on the face of it, looks more mean-spirited than grounded in good business sense.

There are some who argue that there is a hard-nosed, technical reason not to support the Itanium market, due primarily to the perception that it is based on an outmoded design that is too expensive to run compared to new technologies. Even assuming that is true, the manner in which Oracle announced its de-support and the potential disruption that such an abrupt action could entail for their joint customers will, to be blunt, stick it to a significant number of customers whose only fault in the matter is that they are – heaven forfend – running an older hardware system. Imagine all the disruption one could cause if companies like Oracle tried to force customers to only run the latest and best technology, and did so largely so they could make trouble for a competitor.

And that’s really where I draw the line: The fact that this de-support is happening in the face of a bitter, personal vendetta against HP is what makes it much too customer-unfriendly for my taste. Even if there is no binding agreement for Oracle to support Itanium, dumping its dispute with HP on the backs of customers is wrong. This is why I think the actual EOL issue is a red herring, though I am still trying to find out why Oracle believes that Itanium is being end-of-lifed when Intel says it’s not. In defense of my confusion about Oracle’s allegations, here’s a quote from Intel’s website:

As a result of recent announcements from Oracle, Intel is taking this opportunity to directly reiterate its plans for the Itanium processor.  “Intel’s work on Intel Itanium processors and platforms continues unabated with multiple generations of chips currently in development and on schedule,” said Paul Otellini, president and CEO of Intel Corporation “We remain firmly committed to delivering a competitive, multi-generational roadmap for HP-UX and other operating system customers that run the Itanium architecture.”  Poulson is Intel’s next generation 32nm 8 core based Itanium chip, and is on track to more than double the performance of the existing Tukwila architecture.   Kittson is an officially committed roadmap product for Itanium beyond Poulson and is also in active development.  

There are many details of this suit that still need to see the light of day, including more on the confidential sections and their relevance to the companies’ joint customers. But at a minimum it lends further insight into how the new HP wants to be seen in the market. By taking on one of the most legally aggressive companies in Silicon Valley, HP is sending a signal that playing the chump to Oracles’ legal and personal attacks is apparently not an option.

The show was relatively modest for the number one technology vendor, but it’s safe to say that Hewlett-Packard’s recent Discover user conference met its most important goal: showcasing the continuing evolution of a new strategy around its key enterprise and consumer markets that played to the strengths of the company’s current capabilities and aligned well with the vision of its new leadership.

In the end, while not billed as such, Discover was clearly the latest opportunity for HP to float its new strategy to its customers and test that strategy – and therefore this new overall vision – in front of its most important audience. While the equity markets continue to scratch their heads in confusion, it’s clear that, based on my conversations with customers, these early tests of a vast and unfolding strategy are earning top scores.

That new leadership is not only being tested on the technology and product front, but also on the political and legal front. With the cut-off-your-nose announcement by Oracle that it was de-supporting Itanium-based systems, HP Discover was also an opportunity to see how HP planned to respond to the kind of shenanigans that are making Oracle look silly and frivolous – if not a little scary – in the eyes of its critics.

The result was a well-orchestrated one-two punch back that, in the opinion of many (Dennis Howlett and Rob Enderle seem to concur) has the potential for turning the incoming Itanium attack by Oracle into a serious, self-inflicted wound. Unless Oracle does something about it.

First, HP lined up a top Intel executive, Kirk Skaugen, to run through a presentation to the Discover audience that included a clearly stated roadmap for Itanium. Lo and behold, it turns out that Itanium is strategic and has a future at Intel and HP. Of course, apparently everyone but Larry Ellison knew that (even Mark Hurd should have been in the know), but it was nice to see the roadmap clearly and unequivocally spelled out to the audience.

Then, HP unleashed its lawyers and sent Oracle a nasty-gram in the form of a demand letter. The letter, really a pre-cursor to a legal fight, claims that Oracle and HP have existing contractual agreements that require Oracle to continue to support Itanium. The letter demands that Oracle honor those agreements.

The letter has two impacts. The first is that it places HP squarely on the side of its customers, many of whom are both incredibly unhappy at being played by Oracle as part of its “get HP” campaign as well as scared of facing down Oracle’s massive and aggressive legal team by themselves in a one-to-one fight. Having HP offer to throw the first punch on behalf of its customers is a nice, clean, customer-friendly act.

The second impact is that the letter actually gives Oracle a semi-gracious way out of an embarrassing mistake. They don’t even have to say they are backing down because HP told them they should, they can simply announce they are changing their minds, and then issue the following statement:

Dear Itanium customers,

“With today’s announcement, we are giving customers the best of both worlds – more value from their existing hardware, which we plan to support indefinitely, and an option to upgrade to future technologies, if customers have a business case to do so.”

I personally think Mark Hurd would be a good one to add his John Hancock to the statement.

While this looks like a lot of crow to swallow, the truth is this kind of crow tastes delicious when seasoned with enough customer good will. Oracle, in fact, knows quite well the recipe for the sauce: they whipped up a big batch back in 2006 when they announced their Applications Unlimited plan, which in a similar vein promised never-ending support for a set of products (PeopleSoft, JDE, and later Siebel, among others) that Oracle had threatened to de-support in the muscular aftermath of the company’s acquisition spree.

That’s why the above statement might look familiar to anyone who has followed Oracle’s strategic gyrations: it’s a close paraphrase of the statement from former Oracle co-CEO Charles Phillips on the announcement of the company’s Applications Unlimited strategy in April, 2006.

This is hardly the only example of Oracle dining on crow, and, to their extreme credit (and this I mean with no sarcasm whatsoever), admitting failure and moving on is one of Oracle’s greatest strengths. As a 25-year Oracle watcher, the list of mistakes that the company has managed to move beyond is impressive: desktop apps in the 80s, many failed versions of Oracle Financials in the 90s, network PCs, Oracle CRM, and on and on.

The Itanium kerfuffle is another one of those moments, and HP’s letter actually gives Oracle an out that it should take if it wants to keep its relations with the 140,000 joint HP/Oracle customers on an even keel.

Meanwhile, back at the conference…..

While HP was offering Oracle a way out of its own mess, HP was also bolstering its new strategy along four key axes. Here’s my brief summary:

Converged infrastructure strategy. The strategy in a nutshell is this: HP is offering a customer-choice smorgasbord of hardware and software designed to support whatever IT scenarios a modern customer could possibly wish for. To this end HP is deploying an impressive array of computing, networking, and storage devices that can serve as a platform for a mix of on-premise and on-demand functionality. On top of the hardware HP can support industry leading virtualization technologies and deliver these capabilities in advanced data centers (including a pretty amazing, state-of-the-art, energy efficient turnkey data center.) These capabilities in turn support multiple deployment models, including dedicated appliances for messaging, data warehousing, and BI, as well as hybrid/mix and match cloud and on-premise systems.

Cloud strategy: HP demoed and otherwise discussed a number of its key cloud assets, including its CloudSystem management system. The demo of CloudSystem was impressive: a point-and-click interface for defining, configuring, and deploying an application or service-specific cloud instance that includes applications, operating system, database, web server, hardware, virtualization, network, security, etc. The instance is stored in a catalogue and can be pointed at any combination of on-premise and on-demand resources, appliances and non-HP hardware included. Against this functional backdrop, HP Finance announced $2 billion in financing for its future cloud customers.

Software and advanced analytics: HP showed off its growing analytics chops in a couple of ways. The 60-day old Vertica acquisition got some front and center action at Discover, and, while it’s clear that Vertica is going to butt heads with other similar advanced analytics platforms (SAP’s Hana being the best example) there’s plenty of runway in the big data market for Vertica and Hana to make a go of it. HP also showcased its  IT Performance suite, and demoed an analytics dashboard with over 50 KPIs on IT performance that demoed extremely well (and kudos to software exec Marge Breya for doing a live demo, something that HP isn’t exactly famous for doing.) More importantly, the analytics platform and its KPIs represent a jumping off point for a broad range of KPI-driven analytics from HP in coming months.

Security: It’s been a great month for the security business – nothing like massive data breaches being reported on a daily basis to provide the backdrop for pitching a strong security story. So having the ArcSight folks on stage to show off how prescient this acquisition has been in driving a strong security message from HP was a big plus.

Finally, there was the announcement that the HP Touchpad will come out in a couple of weeks. This not only takes some pressure off my wife as to what to get me for my birthday (assuming I can get her to read this post), it signals the beginning of a wave of consumer-side announcements that will be highly strategic to HP’s consumer/enterprise bridge strategy. The Touchpad announcement will be followed sometime later in the year by the Pre 3 release, HP’s best shot at taking on the Apple and Android markets. Whereupon HP will have the market wherewithal to start talking about what 100 million WebOS devices will mean for customers, developers, consumers, the enterprise, and those fussy equity markets as well.

That discussion about WebOS and the convergence of the consumer and the enterprise promises to be a significant one. At Discover the veil was further lifted on an emerging enterprise strategy that is looking better and more defensible with each announcement. But only when the role of WebOS and the consumer side of the business become better known and understood will the full force of Léo Apotheker’s new vision for HP see the light of day.

From what I saw this week in terms of both the enterprise strategy and the WebOS strategy, that convergence will be well worth the wait.

Following a grueling three days at SAP’s Sapphire user conference, a few lucky analysts got to travel to New York and spend a day and a half with an even luckier set of analysts (you could tell who they were because their brains were still functioning) listening to presentations about  how well the combined companies are doing , and where they plan to go in the coming years. Where SAP+ Sybase is going can be summed up in the following manner: the combination of Sybase database and mobile technology has found a perfect home at SAP, and SAP’s yearnings for a fast track to one billion users may have found its perfect home in Sybase.  The rest, as they say, is in the execution.

The solidity of the two product lines that Sybase brings to the table is augmented by a strong presence in some key markets that SAP can make tremendous use of. Financial services is the strongest, and despite the tribulations of recent years this is a sector that knows how to spend on IT. Sybase’s mobility technology promises to SAP expand in other significant markets as well.  More on this in a moment.

One of the more intriguing aspects of the new synergy is the potential for Sybase’s ASE database to unseat Oracle as the DBMS of choice in the SAP market. The announcement that ASE had been certified for SAP was made at Sapphire, and I had a chance to follow-up with the Sybase team in New York on some of the details.

One of the problems with the ASE for SAP strategy – and any rip and replace strategy – is that technological certification is only the beginning, and, in fact, represents the easiest and therefore least important of the issues at hand. Rip and replace has always been an interesting theoretical possibility that all too often falls apart in the face of reality: Assuming the technical barriers are overcome, there are still significant economic, cultural, psychological, and contractual barriers to contend with before the theory can become reality. For any company thinking of such a strategy for their Oracle DBMS, all four factors are vigorously at play.

First, SAP/Sybase has to build a strong TCO case for ASE. Sybase thinks there’s a case for making one, but until they do so the theoretical TCO advantage will probably be too theoretical for most CIOs to take action. That TCO case also has to be able to overcome the psychological inertia that looms large in any complex strategic shift: As with many high-priced IT buying decisions, the role of pure logic is usually overemphasized. Making a major DBMS shift, even if it looks good on paper, can and should be a scary prospect for any company. And fixing what ain’t broke should always be viewed through a skeptical lens. Reassuring the decision-makers that rip and replace is a really really good idea will need to be made really really carefully, or the will to shift valuable resources, political capital, and peace of mind to a rip and replace project will go absolutely nowhere.

Additionally, rip and replace strategies will have to deal with two powerful forces arrayed in opposition. The Oracle world is aided and abetted in the IT department by armies of well-paid, and relatively powerful Oracle DBAs, who will clearly play the role of fifth column against any effort to unseat the Oracle DBMS. And riding in on the vanguard will be Oracle’s lawyers, who won’t let these customers off easy if they have anything to do with it. There is a famous industry trick hidden in contractual minutia that could be leveraged against the customer who wants to rip and replace: many volume license discounts have triggers that jack up maintenance fees if pieces of the portfolio are decommissioned by the customer. I’ve seen IBM do this to its DB2 customers, and I would assume that Oracle would do the same if it could. The operative word is if:  As many if not most of the SAP customers who run Oracle actually bought their license through SAP, it may be easy enough to move these customers to Sybase. We’ll have to see: regardless of how it eventually sorts out, I’m pretty sure that Oracle’s lawyers will have their say, if not the final word, on how these rip and replace projects will go.

Sybase also has to worry that it may face a similar rip and replace onslaught against its database products, for which Sun hardware represents the number one platform. Sybase may be additionally protected by the differences between how SAP works with relational database and how ASE-based apps work with ASE. SAP basically treats the underlying database more like a data store than a full-fledged RDMS, and therefore doesn’t take advantage of many of the individual bells and whistles in the many databases that is supports. This means that, while it may be easy to move an SAP application from one database to another, in many cases it will be significantly non-trivial to move many of the high-end Sybase apps running on Sun to an Oracle DBMS. Those apps, most of them custom-built, not packaged, are deeply optimized for the database they run on. Shifting that optimization layer to Sybase would be possible, but Oracle would have to come up with a helluva better economic case for such a switch than I think it possible.

On to the mobility opportunity. The good news is that Sybase is relatively strong in the high-visibility sectors of mobility – cell phones and tablets. The even better news is that there are signs that Sybase understands the mobility opportunity outside these markets, in particular those sectors, such as health care, engineering and construction, rail transportation, and other industries where very expensive assets come with wheels and have a tendency to end up in places where they either can’t be found or are far from a wired grid.

These industries have a huge interest in managing  mobile assets in ways very similar to those in the cellphone and tablet world, with an interesting twist: Phones and tablets have a few sensors that, when added to more traditional CSR data, make for an interestingly large data stream that need to be managed by Sybase’s SUP mobile platform and its newly christened ESP complex event processing and management platform. But their data stream is miniscule to what’s coming out of much more sensor-rich, and therefore data-rich environments. Embedded sensors can send back not just telemetry data, but temperature, humidity, chemical composition, and a host of other valuable data points from the kinds of mobile assets in use in industrial settings. Connect those data to the back-end ERP system and a lot of exciting new, analytically-rich apps can be built. It’s an amazing opportunity that both Sybase CEO John Chen and SAP co-CEO Jim Snabe get.

And once they add this extended mobility scenario to the already rich cellphone and tablet opportunity, the billion user mark starts looking relatively easy. Cellphones and tablets touch every consumer on the planet, something that should help SAP with that billion user target, and extended mobility extends the operational and analytical footprint of SAP into key industries in which SAP already plays much more deeply than ever before.

Which brings us to the one big question still sitting on the table: how does SAP/Sybase monetize these opportunities? SAP clearly wants to sell enterprise-class apps into Sybase’s mobile market, but doing so at a price point that works will be tricky: the price points for consumer cellphone apps may not work for an SAP that is used to more value-based, and therefore much more expensive prices. Chen clearly has some notion of how that pricing should work, but the jury is still out on how to balance the pricing models to ensure that SAP gets what it thinks it deserves and the customers pay what they think they should be paying.

These are good problems to have in the greater scheme of things: what is clear is that the opportunities are there and the two companies are on the right track to become a cohesive strategic unit. Some glitches are bound to surface: Sybase has a set of mobile CRM apps that demo really nicely on an iPAD, so nicely that they might confuse buyers trying to decide what SAP CRM offering would be best for their mobile workforce. The user experience of these mobile apps is so different than Sales On-demand that some convergence would need to take place before they could be deployed to the same sales force. Not such a good problem to have.

But in the end, it’s a good beginning for the newlyweds, considering how recently the nuptials took place. The rest, as I said in the beginning, is in the execution.  Stay tuned.

Coming down from the dais after a panel discussion on mobility, I was approached by an attendee with the following story. He was on the IT staff at a Fortune 500 company that was a wall-to-wall Oracle shop, and his boss, the CIO, had sent him to Sapphire with the following mission: make sure that the company’s planned upgrade of its Oracle system made sense. In other words, should the company consider switching over to SAP as opposed to sticking with a massive upgrade of its Oracle software?

With that as the premise, here was his question to me  – which he half-jokingly gave me five minutes to answer: of the two companies, which is the more innovative, Oracle or SAP?

To be fair, the comparison is profoundly unfair for the following reason: Sapphire 2011 represents the easily the fifth public event I have been to that was hosted by SAP in the last year for the purpose of giving industry analysts an in-depth view of SAP’s innovation vision. That doesn’t include the dozen or so briefings I have had from SAP on different aspects of their products and strategy. Funny how all that input comes in handy when a customer wants to know the difference between a couple of competitors.

Contrast that with Oracle, which, since last fall’s Open World, has had exactly zero analyst-level events to discuss their enterprise software strategy. As for briefings – I was able to get a short update on Oracle Fusion recently, after no small amount of prodding, but there’s been really no attempt to keep me or my fellow analysts systematically up to date with the latest and greatest thinking at Oracle on what was once seemed to be a strategic focus of the company: enterprise software.

So, with that in mind, it was relatively easy to tell this customer the SAP innovation story, and much harder to discuss the Oracle story. Here were my six major points about where SAP is innovating:

1)      Hana in-memory database. SAP CTO Vishal Sikka’s Sapphire keynote on Wed. had almost an overabundance of customer testimonials on the value of Hana. I talked to a major consumer products customer who told me that with Hana he will be able to do sales analysis at the vending machine level for his products in real time, something that will make a huge difference to his company. This product is real, it’s amazing, it changes analytics for any company with a lot of data and the need to understand those data’s value in real time.  It’s not just a piece of technology: There’s a whole raft of Hana-based applications coming soon and in following years. And Hana is in a pre-beta test for a cloud deployment later this year as well. The term game-changing is one I try to use as sparsely as possible, but when it comes to Hana it seems uniquely appropriate. The buzz around Hana at Sapphire among customers was louder than any new product introduction in recent memory.

2)      Mobile. The Sybase acquisition has brought the Sybase Unwired Platform and its associated technology and applications (including a set of iPAD ready mobile CRM apps that are quite slick looking) under the SAP umbrella. Marrying the billions of mobile endpoints that can be serviced by SUP with the SAP’s Business Suite has the potential to change not just the cellphone/tablet world, but the relationship of every mobile and sensor-based device to the back-office. While the acquisition was an Oracle-like move and hardly indicative of organic innovation, SAP’s plans to marry SUP and mobility to Hana and the SAP Business will provide a platform for some truly never-before-seen innovation. That marriage will be highly innovative, and SAP gets major points from me for making the whole significantly greater than the sum of the parts. (More on this in a subsequent blog post.)

3)      On-demand applications: SAP is in the market today with its Business ByDesign SME suite, and a pending ByDesign SDK that will allow partners and customers to build unique on-demand applications that use ByDesign’s full business functionality as a set of building blocks. While this is the vision of Force.com and the reality of Microsoft’s xRM SDK for Dynamics CRM, ByDesign’s palette of building blocks is significantly broader, and can function as a platform for innovation that is, until Microsoft’s own AX ERP suite becomes similarly enabled, provides SAP with some hard-to-beat innovation mojo. SAP is also rolling out Sales On-demand:while late to market, it’s a legitimate fast-follower for the SAP customer base. SAP also has a collaborative on-demand tool, Streamwork, that is quite innovative as well. Then there’s Carbon Impact, Sourcing On-demand, and on-demand apps for travel management, talent management, and service management will be hitting the market later this year. While SAP hardly created the on-demand market for enterprise software, it’s following fast with a steady stream of on-demand applications for specific vertical industry requirements.

4)      Application deployment and upgrades: SAP’s enhancement packs, which effectively upgrade the Business Suite without actually forcing the customer to go through an upgrade, have been around for a few years and are an example of SAP’s innovation in the customer-critical application lifecycle arena. The company has followed up on the EPs with its Rapid Deployment Solutions, which, as the name implies, deliver fixed-price industry-specific functionality wrapped in best-practices that are intended to get the customer up and running quickly and cheaply.  SAP has RDS for CRM, SCM, IT management, finance, and sustainability, which more on the way. These approaches to the application lifecycle are truly innovative at a time with total cost of ownership has never been more critical to customers.

5)      Enterprise Performance Management and analytics. SAP is also pre-packaging its analytics solutions in order to make them more consumable at a lower TCO. I attended an early morning session at Sapphire with a group of customers that highlighted how valuable they think the EPM strategy is. Again, some of these products, like planning and consolidation, are the result of an acquisition (OutlookSoft, in this case) but many of the newer ones, like disclosure management, and spend performance management, are homegrown. Hats to SAP for raising the bar on delivering analytics value while minimizing the need for consulting services.

6)      The Sapphire User Conference: Then there’s the Sapphire conference itself. SAP has made a virtue out of designing a show floor and conference layout that is so impressive it deserves a special mention. The way SAP positioned conference keynotes, booth space, communications, and customer spaces was really unique, and made  for a conference unlike any other in the industry. This is the second year SAP has used this layout, and the company recently won an event industry award for last year’s show. The user experience of Sapphire represents an enormous contrast to the admittedly much larger Oracle OpenWorld, which is crowded, crammed, and exceptionally user-hostile by contrast.

I stopped at those 6: There were others, but the customer had only given me five minutes to pontificate.

What did I tell the customer about Oracle? Well, there’s the company’s new stack strategy, which is sort of innovative from the sales side (it has great revenue potential for Oracle), but I don’t believe that most companies will truly benefit from buying the entire stack from a single vendor. Then there’s Fusion Applications, which are coming out later this year. Fusion has a great user experience, and some nice functionality. But while that user experience looked good the first time I saw it more than two years ago, the time it has taken to move towards GA has taken a lot of the luster off Fusion. There is also lots of innovation in the individual components of Fusion, like Distributed Order Orchestration and Compensation Management, and the overall deployment model (on-demand, on-premise, hosted) is an innovative approach in and of itself.

That’s where I sort of run out of steam in discussing Oracle’s innovation strategy. If I dust off my eight month old notes from Open World, I don’t see a whole lot more. While it’s hard to believe that Oracle hasn’t moved the innovation needle since then, if they have they’ve told no one about it. What is clear is that the departure of Charles Phillips and the acquisition of Sun has shifted priorities at Oracle, and one of the casualties seems to be innovation in enterprise software.

The moral of the story is twofold: SAP has been doing a ton of innovation, and while it may be hard keep track of all the pieces, even for SAP, the company has gone out of its way to build an influencer program that is top notch for the simple reason that it provides an on-going infusion of updates and knowledge about what the company is up to that helps everyone – analysts, and through our myriad interactions, customers – know what’s happening.

Oracle, by contrast, may have been innovating its enterprise software strategy over the last eight months, but if it has, the company has chosen not to communicate about it. The result of Oracle’s poor dialogue with the market may be deliberate – if you have nothing nice to say, then perhaps it’s best to say nothing at all – but, knowing the people on the applications side of the house relatively well, I remain convinced there’s a there there.

But if you ask me, I couldn’t tell you. Even when if I wanted to.

It’s been a little more than a month since HP’s new CEO, Léo Apotheker, stood up in front of financial and industry analysts and laid bare his plans for the new HP he inherited from the muck and mire of Mark Hurd’s untimely departure. In that month the economy has continued its recovery, and HP’s stock price has failed to follow suit. Meanwhile, pundits have been decrying the new strategy, second guessing key appointments, continuing to speculate that HP wants to buy SAP, and otherwise conducting themselves as if Léo’s HP is doomed, new ideas and new leadership notwithstanding.

This is more than just healthy skepticism, there’s a lot about the new HP that isn’t reflected in the consensus opinions of both the punditocracy and the market. On the assumption that a little clarity might enlighten and inform, here’s my take on why, if I were to break my golden rule and buy tech stocks (my golden rule involves, among other goals, staying far away from SEC investigations), HP would be the one to buy.

First and foremost, the assets of HP are beyond compare in many domains (it’s number one in printers, in PCs, and in servers), but the domain that makes the most sense moving forward is the convergence of the enterprise and consumer markets. As this convergence gains strength, there are only two technology companies that have a brand that is equally strong in both domains: HP and another company you might have written off lately, Microsoft. Not Apple (though it’s emerging as the anti-establishment enterprise brand), not IBM, not Oracle, not SAP, not Google, not Salesforce.com.

And not, perish the thought, Amazon, which gave me rare bragging rights as a pundit by performing as I predicted two years ago when it proved unable to provide enterprise-class service to its cloud customers. More on this delicious example of schadenfreude in a moment.

While brand isn’t everything in all markets, at the convergence of the enterprise and consumer markets, brand power is what will win the day. Having a brand that commands respect and positive opinions will be an absolute requirement for the company that wants to tap into the power behind that convergence.

This is why the recent appointment of  a new CMO, Marty Homlish, is so important to HP. When I first met Marty, shortly after he assumed the role at SAP ten years ago, he forthrightly admitted he didn’t know the enterprise software market, having been at Sony for 15 years. Today, not only can Marty no longer make the same  claim, but those 15 years at Sony, instead of serving as a self-effacing liability, are now a key asset in the role he gets to play at the new HP. This is a rare opportunity to build a rare convergence around a single brand, and Marty is one of the few marketing execs who can legitimately claim to know both sides of the opportunity equally well.

This convergence of consumer and enterprise is huge, one of those only-a-few-times-in-a-generation inflection points. The trend is dictating software and hardware design, development, and go-to-market strategies, business model and business processes change, and consumer and enterprise user behavior: staying on top of a trend that is moving this fast and making these many waves is non-trivial, and indeed have a foot in both camps is a distinct advantage.

Adding Adult Supervision to the Consumer/Enterprise Convergence

Being a little old school, particularly on the enterprise side, represents another key advantage. HP today is uniquely positioned to capitalize on this issue because the convergence requires some adult supervision that is lacking on the consumer side: The anti-establishment Apple play in the enterprise, along with the enterprise play coming from the Google/Android gang, poses some massive problems in terms of IT security and standards. Same with the use of social collaboration tools, and on-demand services like Gmail and Amazon’s EC2. As these consumer devices and services proliferate in the enterprise, how a company can be sure that its IP isn’t leaking out the door, or its employees aren’t violating SARBOX, HIPAA, EU privacy regulations, etc. etc, or its service levels are unserviceable, becomes a major problem that the likes of Apple, Amazon, and Google can’t understand and won’t solve.

Long-standing enterprise-savvy players like HP get it, and know how to provide grown-up service and support for these nascent technologies. And while this convergence is so new that we don’t even know what the processes that drive the convergence necessarily are or will be, HP’s position of enterprise strength, as well as excellence in key consumer endpoints like PCs, laptops, and printers, gives it much better street cred than its erstwhile enterprise or consumer competitors in terms of making the convergence a safe, serviceable, and profitable enterprise.

The cloud has a similar need for adult supervision, as Amazon has so starkly shown us, in the form of managing the convergence of customer choice and technological progress. This is more than just a matter of SLAs:  “End of software” cloud companies like Salesforce.com like to enforce on-demand orthodoxy (Thou shalt be on-demand and multi-tenant or be damned to eternal technological obsolescence) despite serious and important differences in customers’ business and security requirements. HP’s strategy for the cloud – a strategy, admittedly, that needs to be fully realized before it can be fully judged –  is to eschew imposing technological or business model orthodoxy in favor of support whatever deployment modality the customer requires. On-premise, on-demand, managed service, hybrid: It’s up to the customer, not the interpretations of technology trends by charismatic entrepreneurs, that make the most sense for the market.

Cross-selling and Up-selling

With just these two issues – enterprise/consumer convergence, and the cloud – Léo’s chance for a quick upside are enormous, for one simple reason: if all Léo does is get HP’s famously disparate business units to work synergistically in terms of development, productization, marketing and sales, he’ll be able to engineer an enormous amount of growth for the company. Right now HP’s big three divisions – printers, PCs, and enterprise – are largely uncoordinated in every way. Cross-selling, much less cross-product development, has never been HP’s strong point, and, under Mark Hurd, compartmentalization became more of a virtue than ever before.

This is a key part of the Léo Apotheker strategy that is largely ignored today. Wall Street’s evaluation of HP has been very much at 1+1+1=3 equation, meaning the sum of the parts is equal to the whole: that’s the legacy of no upsell. If HP can start building a cross-sell/up-sell capability, there’s an enormous upside to be had without disrupting any cash cows. While that’s hardly simple and easy to do, Léo’s chops as a global sales executive are unassailable, and making this kind of shift at HP is very much within reach.

Palm is another undervalued and unappreciated asset. While there are many who think the mobile market is already sewn up (though by whom seems to change frequently – Nokia’s decision to go with Windows 7 Mobile apparently changed the game again) the fact that Palm’s WebOS will find its way  into 100 million HP devices (pretty much any printer worth more than $100, and all its PCs, and of course, phones) means that mobility is about to mean something more than just a cool cell phone and a massive apps marketplace. (Though WebOS is cool too, as unheralded in the market as it is: the only multi-tasking OS is actually one of the best, most intuitive cell phone operating systems in the market.)

This multi-touch mobility strategy has many legs, including the aforementioned convergence opportunity, as well the analytics focus that Léo is planning on bringing to HP. The company strategy involves leapfrogging several well-worn domains in enterprise software, and analytics is one of them (the other two are core ERP and the relational database: HP won’t reject them, but they’re not part of its leading edge innovation strategy).

The Analytics Opportunity

The acquisition earlier this year of Vertica was clearly a defining moment in the strategy: next generation analytic tools and services that go beyond the old-style relational data warehouse/ BI tools approach that was already old and tired at the dawn of the 21^st century. While there is much to be learned about the details of HP’s analytics strategy – it’s safe to assume that Vertica is just the first of many acquisitions – it’s clear that HP intends to take the analytics opportunity and do a much better job at driving value and controlling cost, and effectively cleaning up one of the most lard-heavy, and results and ROI-challenged, parts of the IT budget.

Marrying this next generation analytics approach to a ubiquitous mobility solution like WebOS is an important linchpin to the strategy: next-generation analytics depend on a analyzing significant amounts of data coming from myriad distributed devices and delivering the resulting information back to whatever endpoint the business user or consumer would prefer. With WebOS at all the endpoints – printers, PCs, laptops, tablets, phones – the collection of data and the delivery of information to anyone, anywhere becomes something HP could have a significant advantage in providing. Again – this a could be opportunity, one that HP still has to fully realize – but it’s potential as a game changer for the industry and for HP is huge.

Finally, there’s the services part of the HP business. This is the big question mark in Léo’s strategy: HP’s EDS unit will be able to provide a significant amount of support for the cloud services side of the business – the similarities between outsourcing and cloud services far exceed any differences – but there will have to be an acquisition or two if HP wants to build a high-level services offering that can take this strategy into the field and execute on it.

Talking the Talk

Which brings up the final reason why I’m bullish on HP. If I were to level an elevator-speech-length criticism at the old HP, it would be this: HP doesn’t have the market position that gives it a legitimate reason to directly engage at the C-level and at the business user level simultaneously. The old HP did well in the space in between these two sets of influencers, but the new HP has to do a much better job at expanding its conversations with the market to include the execs at the very top and the masses of business users everywhere else. The convergence requires it, the cloud requires it, next-generation analytics requires it, and driving synergy in sales and services require it.

Léo Apotheker’s new strategy positions HP right where it needs to be. If he can make this strategy a reality, it will be one of the great turnaround stories in technology. And stock price and critics notwithstanding, so far, so good.

I’ve just come back the Microsoft Dynamics’ Convergence conference, where the news about Dynamics’ progress in the enterprise software space can be summed up in the following manner: The company’s two flagship products, AX and Dynamics CRM, have reached a functional level that basically places them on par with the best of their respective categories.

This leveling effect gives Microsoft the honor of not only being in elite company comparable in many ways to SAP, Oracle, and Salesforce.com, but also effectively takes technology and functionality off the table with respect to its three largest competitors, at least today. This means that in all but the very largest enterprises –where only Dynamics CRM plays – Microsoft will win and lose deals based on the quality of its partner channel and their ability to provide support for local and micro-verticalized extensions of the Dynamics product line. The idea that Dynamics needs to play catch-up with its bigger brethren is no longer on the table.

That’s good enough for now, but in a couple of years the playing field will be even more different, and with that difference an important potential advantage will shift to Microsoft.  Dynamics’ promise – laid out in keynotes and one-on-one meetings over the course of the conference  – to fully support on-demand, on-premise, and hybrid deployments of AX, CRM, as well as GP and NAV, means that, starting approximately in 2013, only Microsoft will be able to offer pretty much any possible deployment model of its software from a single code-base.

This is an important distinction that may be hard for its competitors to deal with. The ability to offer customers the choice of running their deployments on premise, in the cloud, as a managed service, or as a hybridized mix of the above won’t be something that SAP, Oracle, or Salesforce.com will be able to do across their core products – never in the case of Oracle and Salesforce.com, and not for a while in the case of SAP.

While each of Microsoft’s competitors has plans for a varying mix of on-premise and on-demand products, the breadth of choice they can and will offer will be much less clean. Oracle’s Fusion will be deployable in a similar fashion to AX, with two powerful limitations: there are no plans to sell Fusion as a suite, nor will it in the conceivable future have the broad industry coverage that Oracle’s eBusiness Suite offers (or AX, for that matter.) There’s also the question of when Oracle will actually release Fusion into general availability – the official word is that there is no official word on when, leading to considerable speculation about the company’s commitment to what was to be its flagship, post-acquisition binge product.

The impact on Salesforce.com will be harder to gauge: the on-demand market leader has tremendous momentum as the original go-to company for on-demand CRM, and its pure play strategy will appeal to on-demand purists. But as multi-mode deployment options gain ground, it will be harder for Salesforce.com to insist that on-demand is the only way to offer rapid deployment and a means to shift the CRM budget from capex to opex.

SAP has a much broader shot at competing with Dynamics’ vision, though its Business ByDesign and forthcoming Sales On-demand have no on-premise deployment model, nor do any of the on-demand products under development at SAP that I am aware of. The larger Business Suite may someday become available in the cloud, but plans for such an eventuality have not been shared publicly. In short, SAP, which I believe has much a more solid cloud strategy than Oracle, will not be supporting the level of deployment choice that Microsoft has in mind.

There are many who think this breadth of deployment options is not as strategic as Microsoft or I believe – there’s a pretty formidable cast of pundits who believe this level of choice is either unnecessary or heretical or both. Time will tell, but I’m in the camp that believes that customers will prefer the multi-mode option for many of their deployments if given that option, and Microsoft’s plans to offer a supreme breadth of options is the right one for the foreseeable future.

And that choice effectively starts now – or rather later this year with the full release of AX 2012. Microsoft has promised that this version, while not the Azure-ready, dual-mode version that offers multi-mode deployment out of the box, will be readily upgradeable to the multi-mode version when it’s available, effectively allowing customers to buy an on-premise ERP system today and have the option to move it to on-demand at the next revision cycle. For the customer who prefers to sit on the fence and keep his or her options open, AX 2012 is looking good.

This in no way wipes Business ByDesign’s prospects off the map, nor does it obviate the fact that SAP has a strong product set for the mid-market – All-in-One, Business One for the on-premise customer, and Business ByDesign for the on-demand customer – that compete well against Dynamics. There is still considerable customer choice for SAP’s prospects – multi-mode deployments are possible, though from different code bases. And SAP’s willingness to put fight aggressively with its direct sales approach against Dynamics’ partner-driven model is a distinct advantage that one day Microsoft will have to do something about other than take the hit and live to fight another day.

The bottom line is that Dynamics has really hit its stride on the technology front, and now it needs to worry about how to compete in the channel. The above-mentioned problem with going indirect against competitors like SAP and Oracle that deploy direct sales forces against Dynamics in the upper mid-market and lower echelons of the large enterprise market will someday need to be addressed head-on, in my opinion. There are already Microsoft teams that call on large accounts, and then bring in partners to actually do the work of closing the deal. That may need to change as the capabilities of AX 2012 and beyond make it clear that Microsoft can play a stronger role at the top end of the market. At which point it may need a top end sales strategy to match its technical prowess. That’s the price to pay for growing up so well.

During his keynote at this week’s Convergence customer showcase, Microsoft Dynamics chief Kirill Tatarinov demoed the use of Microsoft’s Kinect interactive gaming system as an interface to the company’s AX ERP system. It was a relatively lackluster demo as far as Kinect goes – no wild gyrations, or dislocating motions, no funky music or funky moves. Not exactly hyperkinetic on the AX side either. But by the time the quick demo was over, Microsoft had set another stake in the ground as both an innovator and a company that can create synergies out of its historically disparate business units. And the cause of gamifying the enterprise was furthered once more.

The demo was a simple simulation of a shop-floor environment where a gloved worker uses hand gestures to manipulate a kanban system by pulling down menus and exposing underlying data in the kanban system. I would have made the demo a little more exciting – I honestly imagine real workers would be tempted to liven up their Kinect sessions with a little more pizzazz than we saw on stage – but the outright functionality of the Kinect-driven user experience was undeniably cool.

Does this mean that Dynamics ERP is becoming a game? Not really – the use of Kinect absent any specific game mechanics means that no real games were created in the process of making the demo. But two observations on the ensuing gamification of the shop floor: the first is that, assuming that the enormous uptake of Kinect since its inception will continue apace, it will be hard for anyone to look at this user experience and not see the gaming components that Kinect could potentially bring on board.  “Hey kids, mom uses a Kinect at work too” will actually add some unavoidable gaming cachet to the boring, old-school shop floor we have come to know and (wrongfully) vilify.

The temptation – make that the imperative – to gamify the shop floor won’t be far behind. That’s the second effect: Kinect’s presence on the shop floor will make it virtually essential that some game mechanics be added to Dynamics ERP. It was hard (at least for me) to look at the brief demo and not imagine  a little leader board pop-up that showed who was the best at making a manufacturing line lean, among myriad possibilities. That and a monthly dance contest on based on the Kinect Dance Connect game, which could do wonders for employee morale too. The ability to both improve shop floor interactions and employee engagement sounds like a win/win to me.

The interfaces for this new Kinect capability are coming out shortly, and my sense is that any customer that is looking at touch screen interfaces to their ERP or MES systems should welcome the touchless touchscreen that Kinect provides. The bonus of being set up to start the gamificaiton of the manufacturing shop floor should be tempting to any forward thinking company as well.

The fact that this breakthrough is coming to ERP via Microsoft’s gaming division is the kicker. Kirill’s number one goal when he took over four years ago was to up the value and visibility of Dynamics in the greater Microsoft. For the last few years the sell-through synergy between Dynamics and the rest of the Microsoft stack has been a vastly unheralded story. The fact that the Xbox division is working hand-in-glove (pun intended) with Dynamics is further testimony to the success of Kirill’s internal synergy strategy.

How far into gamifying Dynamics will Microsoft go? My guess is we’ll see more in the near term. Microsoft’s Bing group gets gamiificaiton as well, and was one of the key presenters at last fall’s Gamification summit. As the concept of gamifying the enterprise gains momentum, I expect to see Microsoft Dynamics, with the rest of Microsoft at its back, take a leadership position.

Les jeux sont faits.

The old canard the SAP is not an innovator took another hit this week with the partial unveiling of a new set of applications built to run on top of SAP’s Hana in-memory database system. The new apps, due out in a set of rolling releases this year, fill an important gap in SAP’s Hana strategy to date: actual applications that appeal to a line-of-business user, as opposed to Hana’s nerdy technology appeal. Not that there’s anything wrong with that, who doesn’t get all excited about a column-based, in-memory database appliance that can crunch a few hundred million records in a split second or two.

Well, actually, there was one small thing wrong with the last two year’s worth of Hana demos: after the first couple of amazing demos, a certain amount of buzz-fatigue started setting in. After all, once you’ve see the button pressed and the Explorer rows fill instantly with data from a humungous database six or seven times, the gee-whiz factor starts to lose some gee.

So, while SAP didn’t do any comprehensive demos of the new Hana-ready apps, just the prospect of a few good reasons for the line of business buyer to get excited was a refreshing sign of the potential that Hana has to rewrite the good book of data analysis in the very near term.

The Hana apps due to come out this year provide an impressive-looking range of functionality. Below is a list of the application SAP has slated for release this year, mostly in Q3 and Q4.

• Strategic workforce planning (out now)
• Sales and operations planning (due Q3)
• Cash and liquidity management (due Q3)
• Trade promo management (due Q4)
• Smart meter analysis (due Q4)
• Profitability engine (due Q4)
• Customer revenue performance management (due Q4)
• Merchandising and assortment management (due Q4)
• Energy management for utility customers (due Q4)
• Customer-specific pricing (due Q4)
• Intelligent Payment Broker (Q4)

While we only saw snippets of a couple of these apps, it’s an impressive list, and adds to SAP’s potential cred as an analytics vendor with some highly competitive functionality. This list clearly comprises eleven in-memory applications that SAP will have by 2012, as compared to all those new in-memory apps the competition has – as in none.

How broadly any of these apps will attack their specific functional domains in release 1.0 requires an understanding of the back story to these apps: They have been developed using an agile methodology that would have been heretical at SAP only a few years ago. When I asked about the 90 days that Vishal Sikka, SAP’s CTO, said it took to develop Strategic Workforce Planning, the answer I got was that SWP (as it is not known internally, I just didn’t want to have to type that mouthful again) and the rest of the Hana apps were being developed without trying to exhaustively deal with the exceptions and special cases that sop up early development resources. Rather, the Hana apps are being developed first to cover the more general-purpose use cases, with the outliers to be dealt with in subsequent releases. So, will SWP 1.0 arrive in the market as the be-all and end-all of workforce planning? Probably not. But it will be the only one in the market that can totally kill the big data problem  behind workforce planning.

Other topics of note in a day crammed with noteworthy topics: Vishal also promised that Business ByDesign would eventually be running on Hana, as would SAP Business One, though no precise timetable was given for when the Hana versions would be released. There was no word on when (not if, IMO) SAP plans to make the decision to move the Business Suite onto Hana as well.

While the full Suite’s time frame for Hana is up in the air, pretty much everything in the SAP portfolio will be Hana-ized in coming years. And those apps will be available as on-demand apps – SAP partner Medidata is already providing its clinical trial management system,running on Hana, as an on-demand application. (And doing some pretty impressive analysis of the metadata being captured by Hana.)

Also noteworthy was the announcement that SAP would be offering to migrate its existing Business Warehouse customers to Hana, a move that would not only give these customers a screamingly fast data warehouse but also significantly lower the DBA costs associated with their BW data base, especially if it’s an Oracle or IBM database. This migration also gives existing BW customers a leg-up in deploying Hana apps, as they will be able to run the new Hana apps on the same Hana engine they are using for BW. Not a bad twofer in Hana’s favor. Actually it’s a threefer:  a faster BW, lower DBA costs, and a Hana engine that can  also be deployed to run Hana apps.

This isn’t just good for SAP’s customers, it’s also pretty bad for its competitors. Especially Oracle, which has bet its business on a stack strategy that SAP is trying to disintermediate with products like Hana. In addition to the possibility that Hana will replace Oracle in the BW market, the fact that it can run on standard, multiprocessor, multicore systems means that the hardware costs for Hana aren’t just cheap, they are decreasingly rapidly as the market for commodity RAM and Intel’s multicore processors just gets better. Vishal noted that a high-end Hana machine his team built last year at a cost of $530,000 was down to $405,000 four months later. I won’t enter the comparison pricing rate race here, as I don’t have enough Hana data to go on, but these prices are likely to put Oracle’s Exadata strategy on the defensive.

In the end, while the details were sparse, there was enough meat on the bone to make it clear that Hana’s future will be targeting the LOB and CEO as much as the IT department: the prospect of advanced, in-memory analytics was always a great idea in search of a critical mass of proof points. By this time next year I expect those proof points to be well ensconced in a new market that SAP is hoping to dominate. The onus is now on SAP’s competition to provide some meaningful competition. The clock is ticking….