Racing to the Top: As PaaS and IaaS Commoditize, The Quest to Provide Business Value-add in the Cloud Intensifies

At a press/analyst meeting last spring, Salesforce.com CEO Marc Benioff was asked whether he had any plans to build out an Amazon AWS-like capability to complement the rest of his cloud strategy. His scoffing reply was right on the money. Competing with AWS and other commodity-level cloud services was “a race to the bottom,” Benioff replied. Case closed.

The cloud market has another race in the works, however, one that Salesforce, SAP, Microsoft, Infor, and others are all contending in with increasingly ambitious strategies, new services, and strategic acquisitions. It’s the race to the top of the cloud, up in the high-value business services layer where the unique capabilities of the cloud, aided and abetted by the commoditization of IaaS, PaaS, and other low-level services, can enable a set of increasingly high-value services and capabilities that render the cloud the place to be for business innovation.

This race to the top is taking two highly complementary forms. Form number one is the race to build out a business network strategy that promises to support the complex, matrixed networks of business interactions that have outstripped the inside-the-firewall, linear business processes – and software – of the 20th century. Form number two is the race to build out a set of componentized business services, cloud natives each and every one, that can be compiled into end to end services, or attached as services to the aforementioned business networks, or used to extend existing on-premise applications into the cloud. Both forms are hugely important in the quest to deliver genuine, and highly valuable, innovation in the cloud, and both are harbingers of a major inflection point in the value of the cloud in the enterprise.

SAP was the latest batter to take a swing at the race to the top. Implicit in its recent HANA Vora announcement (a name that sounds like the perfect nom-de-guerre for a beret and sequins resistance fighter for truth and justice, though I’m guessing it’s based on the latin root vorare¸ which is also the root of the word devour) was the ability of SAP to unleash a set of business services, developed in house and via partners, that will be used as building blocks for the next generation of cloud business apps. The four that SAP announced, marketing, commerce, and loyalty management services, all based on hybris, and a separate global/local tax calculation service, are meant to be the tip of an iceberg of easy to deploy and easy to consume cloud-based business services.

HANA Vora also ups the ante for developers, adding to the nerd’s dream full of dev tools that are piling up in HANA by adding native access to Hadoop and other tech wonders. This is a truly awesome milestone for HANA, don’t get my somewhat flippant attitude wrong. But tech is as tech does, and the real goal of the HANA Vora announcement is to use the HANA Cloud Platform to relaunch the composite apps market SAP tried to create back in the early days of the 20th century with NetWeaver and xApps, with hopefully much better results.

The xApps concept never took off, mostly because the complexity of supporting the necessary integration and orchestration on-premise was too onerous for the service-oriented architectures that were the basis of these efforts. Perhaps more importantly, xApps and composite apps also violated my first rule of enterprise software – the hardest thing to do in enterprise software is to ask someone to do something they’ve never done before. In this case the violation was primarily in regard to a developer community that had trouble imagining just what a set of killer composite apps would look like and do, and secondarily in regard to a user community that at the turn of the century never really understood the appeal of composite apps in the first place. IT got it, but the LOB wasn’t really on board.

Putting the composite apps concept in the cloud, by making these composite pieces universally accessible via a cloud-based set of APIs, brings composite apps back to the realm of not just possibility, but reality. At least in theory. The violation of my first rule of enterprise software still stands, as does the inherent violation of my second rule – the easiest application to sell is the sleeping pill that lets the user who’s losing sleep over a specific business problem get a good night’s rest. The problem with the second rule is that if the sleepless don’t know that there is already a sleeping pill, in this case composite apps, that will help them sleep, they can’t know to ask for them. So far, that cognitive connection has yet to be established in the market, and this makes establishing this connection, composite app as LOB sleeping pill, particularly among developers, SAP’s and its erstwhile competitors’ biggest challenge.

Of course, SAP isn’t the only vendor in this version of the race to the top. Microsoft is there as well, although it too suffers from the same sleeping pill problem. Microsoft has been pushing a broad set of componentized, cloud-based business services (albeit much too quietly and surreptitiously) via its Azure Data Market for some time. The 300-plus services in the Azure marketplace (things like HealthMethods Provider Metrics and Customer Churn Prediction) are testimony to the interest in the concept by the providers of these services, but it’s pretty clear that the developer community that in theory would be all hot and bothered by this collection is largely missing in action. At least so far.

Microsoft’s higher end cloud business services also include putting the broader Microsoft desktop and server portfolio – products like Office, SQL Server, Sharepoint, and Power BI, among others – into Azure for use as services accessible by cloud-based solutions. Dynamics’ AX enterprise software suite and its Lifecycle Services will also serve as building blocks or services destinations for new cloud-based “race to the top” applications and services. The fact that Microsoft will soon announce AX 7, which will run in Azure (as well as in private clouds and on-premise) adds some serious enterprise software cred to Microsoft’s odds.

So far Microsoft is contending only for the business services form of the race to the top. Microsoft’s plans to support complex business networks, assuming there’s some thinking going on, remain unannounced.

Infor is in the race to the top as well, squarely focused on the business network version. Its recent acquisition of GT Nexus is effectively a $675 million bet that, as CEO Charles Phillips told the analyst community when the deal was announced, “The future will belong to networked companies.”

The GT Nexus deal is an interesting one. GTN helps manage global logistics supply chains in the cloud, enabling companies to track and trace the movement of supplies from loading dock to shipping container to store shelf. They do a pretty good job of it, better than most, and are able to provide a degree of visibility, by tracking the different documents – bills of lading, customs documents, POs, etc. – that is hard to do even with a RFID tag stuck on every shipment.

More importantly, this visibility provides GTN, and now Infor, with a gold mine of data about the performance of the different players in global supply chain. Analyzing those data will allow Infor to continue GTN’s move into an important business network service that its rivals aren’t really doing as yet: trade finance. If a manufacturer can prove its bona fides as a top notch supplier trading through a highly efficient logistics network, it can demand, and receive, significantly better credit terms on the loans it needs to build and ship the products it is contracted to produce. This brings much needed capital at better rates to business network members, and should in many cases more than justify any investment in time and money that Infor customers make in signing on to the GTN story.

These kind of metadata analyses, which can only be done at scale in a business network, are a main reason why there’s so much interest in the network version of race to the top. Infor’s Phillips, whose ties to the banking and finance world are local (his New York office is a couple miles from Wall Street), knows that the current global trade financing crisis will drive a lot of net new business and net new partners to Infor and its fledgling business network.

GTN fits nicely into Infor’s Cloudsuite strategy, which is focused on providing over a dozen cloud-based suites of services geared to core industries, such as automotive, aerospace and defense, hospitality, fashion (which dovetails with the large number of fashion and retail customers using GTN), healthcare and others. The organization of cloud functionality into industry-specific offerings is a smart strategy for Infor, which needs to provide an upgrade and innovation path that is as short and sweet as possible so that the relatively few pioneers in its otherwise laggard-heavy customer base can quickly demonstrate the wisdom of moving off a legacy Baan or Lawson implementation into a sleek, innovative, rapid-time-to-value cloud solution. GTN will be a nice enticement for a broad swath of Infor’s customers that are going to have to make move, and do it soon.

While Infor is definitely contending in the business network side of the race, SAP is currently in the lead, with its Ariba Business Network strategy the most fully formed of the lot in terms of the number of companies in the network, 1.7 million, according to SAP (versus 25,000 in GTN, though GTN’s services are much more strategic than the indirect procurement that Ariba specializes in). Ariba helped pioneer the business network concept over a decade ago (around the time SAP was testing out composite apps for the first time) with its indirect procurement offering, and is now moving towards the more interesting, strategic, and complex direct materials market. When you add Fieldglass’ contingent labor procurement function, Concur’s travel and expense function, and elements of SAP’s other cloud properties – S/4 HANA, SuccessFactors, among others announced and as-yet unannounced – there’s certainly a lot of potential network functionality in the portfolio.

But making the whole of these properties greater than the sum is still very much a work in progress. They all need to migrate to the HANA Cloud Platform and then go through the even more complicated process of orchestrating what are today cloud silos of functionality. SAP has been diligently moving in this direction all year, and is definitely focusing on cross-pollinating its cloud offerings as much as possible. This always looks easier than it is, but the political will is definitely there to break down the silos at SAP, despite the somewhat confusing fact that Ariba, Fieldglass, and Concur live in one part of SAP’s cloud hierarchy, while SuccessFactors and other cloud properties live elsewhere.

Regardless, the business services side of the HANA Vora announcement can also play a role in extending SAP’s Business Network ambitions. If you’re building out a fully formed procurement network, you need things like tax calculation services, among many others. (You might also like some version of Postcode, for example, from Azure’s much more abundant service offerings. Maybe these two platforms should figure out how to interoperate and leverage each other. Just sayin’ a little coopetition might be a good idea….) The dev tools side of HANA Vora also help, and together they give SAP the means to extend its Business Networks by leveraging its considerable ecosystem, something every vendor will need to do – even if there are still some great properties like GTN to be acquired.

Ultimately, the vendor momentum is exciting and important, but the problem with both ends of this race to top is the problem of market maturity. The business services side desperately needs a horde of developers to start coding their butts off building new cloud services based on a composite model. With HANA Vora, Microsoft Azure, and the Amazon AWS services that underlie Infor’s Cloudsuite, the vendors are setting a pretty rich table for the developer community.

But what’s needed now are legions of composite app and business network savvy developers, and I’m not sure a critical mass of these developers exist today. I saw this lacuna at Microsoft’s Build developer’s event last April: there was no shortage of great programmers, but I came away from Build with the feeling that there was definitely some market maturity needed on the developer side. I’ve felt this in conversations with top notch NoSQL developers, who consider themselves, quite rightly, at the bleeding edge of today’s tech world but are all too often focused on coding new cloud services instead of looking for and using third party services. And I’ve seen it in the disconnect between every vendor’s IoT dreams and the ability of the developer side to imagine, much less build, the killer IoT apps that, by their very nature, must span multiple, cloud-based business services and appeal to industry-specific business networks and their industrial customers.

So it’s important to make sure the expectations for this race are well set: This isn’t like the early days of the mobile app market, when every Dick and Jane programmer was off building little mini-apps for iOS and wowing the masses with light-weight, one-trick-pony apps. The componentized services that race to the top developers should be building and using may be mini, but the apps that are expected to be built from them are decidedly maxi. And that takes a kind of developer that is in short supply today.

Nonetheless, the vendors have to start somewhere, and it’s safe to say that Microsoft, with Azure and its panoply of services, is the current leader in the services version of the race to the top. And SAP, as I stated previously, is leading on the business network side. But Infor is there too, a vendor that too many competitors chose to ignore, to their peril. And don’t forget Salesforce, which is playing hard for market share in the services side, though in my opinion there are too many core capabilities that have to come from the ecosystem – as opposed to organically within Salesforce – for their services play to compete well in the market.

Regardless, it’s hard to handicap a race when the competitors have just left the gate to run a race that’s never been run before. And, to torture the metaphor a little more, considering it’s a race with no discernable finish line, I wouldn’t honestly bet on any single vendor to win, place or show as yet.

There will be one solid set of winners, and that will be these vendors’ customers. The race to the bottom is lowering IT and infrastructure costs as it is simultaneously improving the interoperability in the cloud that is necessary to move from the current silos of cloud functionality to a world where business processes span cloud silos as easily as they span internal silos (it’s easier, actually, the internal silo problem is still a major problem.) This PaaS and IaaS race to bottom will make the business services in the race to top easier to consume, and more importantly, safer to consume, as the ability of vendors to lock in customers will diminish as their cloud platforms’ interoperability improves.

What’s most important is that the true value of the cloud is emerging, what I long ago called SaaS 2.0. The cloud’s true value exists in leveraging its potential as the place to deploy the applications and services that define the brave new world of interconnected, global businesses and networks, rather than just flipping on-premise apps into the cloud for easy deployment and out of a cap-ex financial model. The moves by these and other vendors to provide the development and deployment environments that can enable these net new processes and business networks are right on the money: the cloud will revolutionize global business in ways we’re only just beginning to imagine. And it’s all starting now.

Putting Salesforce.com up For Sale? How About a Private Equity Play?

The rumors keep coming, fueled by highly speculative analysis like this latest stab in the dark from Fortune, that Salesforce.com is for sale. I think the question of whether another publically traded company is going to buy Salesforce.com is settled: I agree with Oracle’s Safra, I agree with SAP’s Bill, as well as pundits far and wide: there’s basically no chance that one of the big public software companies will buy Salesforce.com. IBM could use the help, and maybe Mark could give Ginny (aka Ginny Who?, emphasis on the question mark) some tips on how to run up a stock without making big profits doing so, but the disruption that buying SFDC would cause any large company – not to mention the price – would make it a bigger pain in the butt than it would probably be worth.

But how about a private equity buy-out? Maybe even led by Benioff, a la Michael Dell and his eponymous company? How crazy is that?

In my opinion, much less crazy than Google, SAP, Microsoft, Oracle, IBM, or any of the other possible buyers that have been floated since Bloomberg wrote about the rumored sale months ago. It’s possible there’s no buyer, maybe there never was, but if I were Benioff (which, for so many reasons, I’m not) here’s why I would go private equity.

Get out while the going’s good, part 1. SFDC is selling at a nice price today, after another round of rumors have kept the stock up in the face of a weak report from IBM. But the closing price after the last earnings call wasn’t as high as the closing price after the Bloomberg article broke. Smart money likes M&A better than more of the same — good sales volumes, continued overspending on marketing and people, and no profits – or so it appears.

Get out while the going’s good, part 2. The forward price/earnings ratio has always been mind-boggling, and competitive pressures have never weighed more heavily on SFDC as they do today. Here’s the problem: the enterprise software world is in the process of a massive platform shift, and SFDC’s platform, Force.com, is fighting headwinds from some very powerful players. This is a vastly different world than the early days of SaaS CRM, when SFDC held both the first to market advantage as well as the first to no profits advantage, quickly understanding that the markets would tolerate an absence of profitability in the quest for market share. There’s no model for repeating the no profits side of SFDC’s success in the platform business – the sales cycles are too long and complicated – and the time for first mover advantage in the platform business is long over.

Get out while the going’s good, part 3. Right now the likes of Microsoft and SAP are in a quandary induced by the bipolar public markets in which they live. The bipolar mandate is this: grow like a cloud company, make profits like an on-premise company. This creates no shortage of quarterly insanity in both of these companies – like werewolves under a full moon, the execs in these on-prem companies transitioning to the cloud are driven mad by the need to meet these contradictory requirements every three months (Seriously, I’ve heard reports of actual howling as the quarter closes).

Just look at SAP’s latest quarter – actually pretty damn good, considering how hard it is to transition customers, partners, and field sales to a new cloud paradigm. And even in the face of good, solid numbers, and real profits, the street decided to beat up on SAP in the trading following the release of SAP’s numbers. Microsoft will report today, after I post this, and I expect to see more of the same: great numbers for a company successfully managing its transition to the cloud, no appreciation from the Street.

Get out while the going’s good, part 4. Workday finally got its comeuppance for continued losses in the face of okay, but not great, revenues. The end of the Street’s forbearance kicked the stock down 13 percent in the last quarter, and with that drop the blush may be off the rose. Sure, the company is on track to be a $1 billion company, which is without a doubt a helluva achievement. But its lackluster success in financials (a sector it’s trying to crack without much success: SAP has sold more of its new HANA-based Simple Finance in a matter of months than Workday has sold over five years) and lack of a strategically credible cloud platform strategy has made it clear Workday has a lot of work to do moving forward. It’s true that the Street still loves SFDC, but it also loved Workday too. Love is fleeting when money is on the table and fickle financial analysts are in control.
SFDC will soon have to face its own bipolar hell, in reverse: it’s going to have start showing profits in the cloud, while making a play for a bigger presence in the on-premise world. The trend towards hybrid cloud/on-premise deployments is undeniable, and will be huge, bigger than standalone SaaS, in my opinion. SFDC is going to have to create a credible hybrid play that captures more of the on-premise side of hybrid, and in doing so it’s going to have to come down from the cloud to do it.

In my opinion, PE is the best way to survive this disruption: Ask Charles Phillips over at Infor. As I wrote here, he’s sitting on 70,000 customers, only a handful of which have transitioned to Infor’s new tech stack and product line. But with a 90 percent renewal rate, and as a private equity company, there’s no bipolar market to deal with, no quarterly earnings madness driving the execs to howl at the moon.
There’s a lot of reasons why Infor has one of the more sane and well-grounded management teams in the business, and Charles is a big part of that, but the ability to focus on the big prize, and not the quarterly market’s cadence, is also a factor as well. This ability to take the long view is also much more customer-friendly than trying to keep up with the financial analysts’ view that only shareholder value is what counts. I’d like to think we live in a corner of the market where customer sat really matters – unlike sectors like banking, and telecoms, where the quest for shareholder value has put many of these companies into the perennial “least loved, most hated” category among their customers.

In the end, Benioff might be doing himself and SFDC a favor by going private equity. He’d have to give up his lavish, overstocked bench full of highly talented people, his over the top marketing costs, and obviously some control over the company’s destiny as the private equity guys show up, pop on the green eye shades, and start cutting the fat out of a bloated company. But he’ll be giving up less by going willingly than by waiting until he gets Workdayed by the Street and starts seeing the blood on the wall. If you haven’t read Michael Dell’s letter to the WSJ about the PE deal, you should. It’s instructive about when it’s time to be public and when it’s better not to be.

Michael did it, and hasn’t looked back. Et tu, Marc?

SAP and the Magic of Success – Laying the Groundwork for the Inevitable Future of Business

Sometimes covering SAP and its innovations reminds me of what it’s like being the parent of school-aged children. Good parents complain endlessly – typically commensurate with the cost of tuition or property taxes – about curricula, testing, homework, and the like. While all too often forgetting that the one true test of a good school is whether the kids wake up in the morning excited about school or dreading the ordeal of the coming day, and whether the parents sleep well at night knowing that they’ve at least covered the bases when it comes to their children’s future success.

SAP’s myriad innovation strategies can be nitpicked almost endlessly as well – commensurate with the cost of upgrading older systems, deploying innovation, and building roadmaps into uncharted territory – all the while forgetting that the one true test of an innovative vendor is whether there’s something in the mix that gets the line of business users up in the morning excited to go to work, while covering the bases on technology and functionality that allow the executive leadership to sleep well at night.

I would venture that SAP managed to put forth a message at its recent SAPPHIRE user conference that finessed that dichotomy – a measure of assurance that new functionality in S/4 HANA, the HANA platform strategy, SAP’s fledgling IoT strategy, its industries and service delivery strategies, the business network initiative, and other components of the multi-layered messages thrown at the assembled audiences at SAPPHIRE contained something to help users get up in the morning and something to help executives sleep well at night.

Is the message complete? The strategy fully-formed? The path forward clear and well-understood? Not yet: SAP is, like virtually everyone one of its peers in the enterprise software market, a work in progress. Come to think of it, most of the SAP customers I talk to or work with are themselves works in progress. Just like parents looking after their school-aged children, everyone is making investments for a future that is both hard to fathom and coming up faster than anyone would like. The trick is to find the right school, the right curriculum, the right teachers, the right social context – or the right tech partner, the right innovation strategy, the right service partner, the right industry or geographically-specific functionality – and then hope that, when it’s time for the magic of success to happen, the groundwork has been laid as carefully as possible.

Meanwhile, it’s legitimate to complain about the fine points of how things are progressing – at your kid’s school or in your company’s IT and business strategy – as long as fundamentally you’re sleeping well at night and most everyone gets up in the morning eager to start the day.

I think SAP did well on both accounts: The fundamentals, as I read them from my week at SAPPHIRE, all looked pretty good. S/4 HANA turns out to have a lot more functionality than I had thought – one of the original two product names under the S/4 HANA brand, Simple Logistics, turns out to have a whole lot more than just logistics under its rubric: there’s supply chain, sales, sourcing and procurement, manufacturing, asset management, and support for sustainability, engineering/R&D, marketing and commerce, HR, service delivery, and IT. Add Simple Finance to it, and there’s a decent start on meeting the needs of many SAP customers.

This should in part help folks feel reassured, and at the time excited, about what these new capabilities mean. There was plenty of eye-candy at SAPPHIRE – cool new analytics, demos of Ariba, Concur and Fieldglass all working in sync in an asset management scenario, and HANA advancing epidemiology and treatment options in the cancer world. There were lots of examples of the Fiori user experience, and lots of insights into new capabilities in IoT, including IoT deals with Siemens and Intel, and, of course, Steve Singh talking about business networks that promise new business processes and new added-value for existing and future tech expenditures.

And there was even some sleeping pills for the IT side of the house, courtesy of Hasso Plattner. In what had to be a best case scenario, Hasso gave a breakdown about how a 54 tbyte SAP system running on what SAP now calls “any DB”, which Hasso priced at $20 million in total hardware and systems cost, would be priced if it followed SAP’s migration path from “any DB” to HANA, and then to S/4 HANA. The HANA option reduced the total database size to 9.5 tybtes, with a hardware cost of $5 million. Going all the way to S/4 HANA turned the original 54 tbytes into 3 tbytes and a hardware cost of $550,000.

Okay, not every company will see this order of magnitude savings, but there’s a lot of wiggle room here for the real world savings to be pretty huge for anyone. (With one caveat – this math assumes a clean escape out from under the respective hardware and software licenses that are being sunsetted in many real-world user scenarios. Termination clauses might drive some of those numbers in a different direction. SAP needs to help customers figure this one out too. And it doesn’t include the S/4 HANA price as well.)

Of course, assuming there’s something there for most customers, and some economic value in migrating (Hasso also didn’t include the cost of migrating in his calculations, something else that needs to be considered) three big questions quickly follow: when will all this be available, can SAP make the case for migrating towards the S/4 HANA vision, and, most succinctly, will customers agree to move in sync with SAP’s aspirations?

The first is easy: The list of functionality above is GA now, if you want to run with S/4 HANA on-premise. If you’re looking for an all-cloud S/4 HANA, the first version, with the 12 functional areas, will be available this quarter, with more functionality rolling out at the end of the year and again next year. I think it’s safe to say that if planning were to have started the day after SAPPHIRE it’s likely many companies would get to the actual software implementation phase of the project by the time SAP had a critical mass of cloud-based S/4 HANA on the street.

There’s a good reason why the application implementation side of an S/4 HANA project would be down the road a bit no matter what: There’s a lot of moving parts to making a change of this magnitude, and much of the hard work lies in carefully preparing the data cleansing and migration tasks (a potentially fraught process in any migration or upgrade), consolidating systems and business processes to reflect new functionality in S/4 HANA and the need to move to the smallest number of instances possible, retiring and replacing hardware and database licenses, and otherwise doing the things that are needed when the goal is to eventually change database, platform, and applications, and make similarly significant changes to core business processes.

(I’ll stop and make the point that, despite the opinion of some critics who write books claiming that complexity is the sole purview of SAP, none of this is in any way unique to SAP – all enterprise software vendors, and even leading pure-play SaaS vendors, are asking their customers to make the shift to a new generation of business platform, and there’s no way to dumb down how hard it’s going to be to.)

The answer to the other two questions – will customers be ready and will SAP make a good enough case – are less straightforward. It’s clear that SAP’s customer base is by and large less ready than SAP would like, at least coming into SAPPHIRE. ASUG CEO Geoff Scott called it straight when he said that the sales pipeline might not move as fast as customers’ account execs would like. But don’t discount the solid endorsement for the overall S/4 HANA strategy that Geoff served up to his membership. That wasn’t done on a whim, nor was it done to curry favor with SAP (believe me, Geoff isn’t paid to suck up to SAP.) It was done simply because the ASUG board thinks moving over to S/4 HANA is fundamentally a good idea.

Which really leaves everything up to how SAP tells the story, and that’s not as easy as anyone – vendor, customer, partner – would like. It’s not just a product story, it’s also a story about service delivery, something SAP’s recent blending of its service and support arms into a single global entity was done in recognition of. As the tech and business worlds move towards the new models that SAP and others are defining, everything will change, including how technology is deployed, serviced, and supported. Even purchased and licensed: former SAP CMO and newly christened Chief Digital Officer Jonathan Becher showcased a new online storefront that will sell enterprise apps the way the Xbox store sells games, including in-process functional upgrades that “level up” the user the way in-game purchases level up the gamer. I’ll dig into the specifics of how SAP is articulating these stories in a follow-up post.

In the meantime, the fact remains that SAP’s customers, and every other worthy and unworthy competitor’s customers, need to make massive transitions in tech and business process in the coming years. When it comes to pretty much every highlighted announcement SAP made at SAPPHIRE, all the technological fundamentals behind the scenes of SAP’s announcements are not nice to have, but must haves. And the question is not if, but when.

New, faster database technology, cloud native applications, cloud-based integration, new user experiences, IoT, extended business processes, business networks, advanced, predictive analytics, a completely new relationship between customer, services, and support – none of these advances are optional in the long run. And every vendor is asking its customers to make these and many more shifts in platform and business strategy, and to get on with it already.

And while some patience is required, the clarion call from SAPPHIRE needs to be acted on now – these shifts take time, careful planning, and the usual blood, sweat and tears when it comes to migrations and upgrades. Meanwhile, the clock is ticking on new levels of business innovation that will define the competitive environments for SAP’s customers. The groundwork is being laid, a roadmap – the curriculum for the future of business – is now discoverable. It’s up to every company to start placing its bets, lining up its strategies, and then rolling up its sleeves and getting the work done. So far, what SAP is proposing looks like it will cover all the bases. The customers’ striving for the magic of success can now begin.

HoloLens as Metaphor: The Virtually Real Future of Microsoft

Test driving the HoloLens, Microsoft’s soon-to-be released augmented reality headset, it’s easy to forget the challenges facing Satya Nadella as his first year on the job starts to take shape. Who cares if Windows Phone is dying and the Nokia acquisition is rumored to be destined for a massive write-off? Does it really matter that Windows desktop is losing its monopoly? So what if Microsoft is betting on a massive upgrade to Windows 10 that will require millions of customers to leapfrog a Windows 8 OS that just didn’t seem to light world on fire? What does it matter that the market cap of competitors like Apple is stratospheric, while Microsoft’s cap is more sea-level-ish? Who cares about Google anyway?

Why the cavalier attitude? Simple: Microsoft has HoloLens. Everyone else can go suck an egg.

I don’t mean to imply that HoloLens solves all the above challenges, nor do I wish to imply that sucking eggs can serve as an appropriate competitive response. I don’t even like eggs. But what I do wish to imply emphatically is that HoloLens, and the augmented reality is it poised to deliver, should at least solve that market cap problem, if financial analysts can give Microsoft half the credit they give Apple for new product intros. And if not stratospheric, at least something in the upper troposphere would be fine. As the above-named Microsoft competitors have proven over and over, a strong stock price can paper over a nefarious lack of profitability (Salesforce.com), meh-category new product intros (Apple Watch, Google Glass), or excessive hype (all of the above) with room to spare.

Can HoloLens really do all that? Actually, no, at least not by itself. But, like massive innovations of the past, HoloLens has the potential to provide an anchor point for the new Microsoft – much like the iPod and then iPhone did for Apple, or search did for Google, or online CRM did for Salesforce.com – that will make the rest of its products and strategy all the more palatable to the fickle financial and consumer markets that have the foresight and forbearance of a three year-old when it comes to discerning the difference between fad and long-term value.

Before I continue my admittedly slavish, and potentially faddish, fascination with HoloLens, let me add that, above challenges notwithstanding, there was a lot happening at last week’s Microsoft Build developers conference that spoke to the long-term value potential of Microsoft. After all, Build was the conference where the Universal Applications Platform was rolled out to the assembled developers, finally fulfilling the promise of a single code base that runs across all Microsoft’s devices, as long as they are running Windows 8 or Windows 10 (which leaves Xbox out for now, as it’s not on the Windows 10 upgrade list, at least not yet. Considering the special console hardware and the Kinect motion detector that are part of Xbox, it sort of makes sense not to push developers to think about how to make a console or Kinect game portable to a phone or tablet.)

Build also saw a host of new Azure capabilities basically designed to make it more flexible, elastic, easy to develop and deploy on, and otherwise prove the point that Azure is a strong potential competitor for Amazon AWS and other cloud platform offerings. Microsoft also rolled out its Data Lake strategy, a key requirement for IoT and other applications requiring the aggregation and use of massive quantities of highly disparate date. Office continued its position as the third leg of the Microsoft stool, as both a driver of Azure utilization as well as an important nexus of business functionality.

And Edge, the replacement for that scourge of Web users and developers everywhere, Internet Explorer 11, was rolled out to an expectant and much-relieved developer community. Support for non-Microsoft tech was also in evidence – iOS and Android got their share of love too, reinforcing Microsoft’s new ecumenism when it comes to the tablet and phone market, which, considering Microsoft’s position in both markets, makes a ton of sense. (More on the phone market in a minute.)

What all this means is that Microsoft did an excellent job making a case, in front of an admittedly pro-Microsoft crowd, of the relevance of Microsoft as a provider and enabler of innovation. Its pas de deux as a purveyor of devices and services was also on display: not only with HoloLens but also with its new Surface tablets, Xbox, and third party devices like the weirdly-named but wonderfully designed HP Spectre, which was jointly developed with HP and handed out to every Build attendee (including myself, and I have to admit it’s a helluva showcase for why Windows 8.1 on a touch-screen, SSD device provides an amazing computing experience.)

In particular, the concept behind the Universal Applications Platform, which I have written about here, makes for an important inflection point in the race to capture the hearts and minds of developers. UAP is about as close to a write-once, deploy anywhere platform as exists in the market today: Microsoft has taken great pains to show that apps written using UAP can target virtually any modern mobile device, as long as it is running iOS or Android (oh, and Windows Phone as well.) This is a huge boon for developers who have been writing very different apps, with very different feature sets, for desktops, phones, and tablets. While Microsoft acknowledges that form factor and other device-specific characteristics may prevent true universal portability with UAP, the ability to deploy across multiple devices sure beats the hell out of the artificial distinction between tablet, phone and desktop that iOS and Android continue to perpetuate.

While we’re talking Windows Phone, let’s get the bad news over with. Conspicuous in its absence at Build was any sort of drumbeat about writing to Windows Phone. There were some dribs and drabs, mentions here and there, some news about being able to convert objective-C apps directly to Windows Phone (Candy Crush apparently did that with its Windows Phone version, which proves something, I guess) and an emulator that allows Android phone apps to run on Windows Phone, but I couldn’t find a Windows Phone session anywhere in the conference catalogue. The phones were in the demo booths, and clearly there were more Windows Phones per capita at Build than anywhere else this side of Redmond, but it was clear that Microsoft wasn’t going to invest any significant capital at its premier North American developer conference on Windows Phone.

It was almost fitting that ComputerWorld published an article that week, based on a thoughtful analysis of a recent financial filing, which suggested Microsoft would be taking a massive multi-billion dollar write-off for the acquisition of Nokia. Microsoft still thinks there room for its phones in emerging markets, and maybe those markets will provide some way for Microsoft to have a play in the phone market, but it’s pretty clear that Windows Phone’s future isn’t.

But who needs a phone when you can have a HoloLens? Of course, Microsoft needs to get some killer apps developed quickly in order to take advantage of the HoloLens hype before Google, Facebook or Apple get in the game (and, from what I hear from my sources, Facebook’s Oculus rift isn’t in the game, and, of course, Google Glass fouled out publically a while ago.) What was nice in my demo of HoloLens was the fact that existing Microsoft apps, like Skype, could be significantly enhanced using HoloLens out of the box. And just the idea of having the world be your virtual workspace gives HoloLens some instant usability – this is, after all, a Windows 10 device fully compatible with the UAP concept. Which means you put on your HoloLens, and interact with virtual versions of Office, Edge, and the rest running on your wall, your desk, your dinner table.

Sounds silly? Trust me, working or playing in augmented reality is going to take the world by storm. If Microsoft can leverage HoloLens quickly – it’s going to debut this summer, along with Windows 10, at a price that I expect will be like that of a high-end PC (which it is – a fully untethered, WiFi and probably cell-phone connected PC) — the world of work and play, and by extension Microsoft, will never be the same.

Even without HoloLens, or, better yet, in the run-up to the pending HoloLens era, Microsoft is clearly on a roll. It’s laid a few eggs – you lay a few, you suck a few, you hatch a few, that’s what successful tech companies do. The combination of Office, Windows 10, UAP, Azure, the enterprise apps in Dynamics, support for a full line of touch-enabled devices (honestly, you haven’t experienced the epitome of desktop computing if you haven’t used a touch-screen laptop), ecumenism with respect to iOS and Android, and what by all appearances is a very solid leader in Satya Nadella means that Microsoft’s comeback is in the works.

Will Microsoft dominate like it did in the past? No way. But tech is so much bigger, and so much more pervasive, that dominance isn’t really the goal anymore. Relevance as an innovator, one that can help customers refresh their technology and processes in ways that make sense, while allowing them to prosper as much as possible with what they already have, is one goal. Spanning the divide between our business and personal lives, work and play – that’s another goal. I think Microsoft can do both, as well or better than almost any company in the market today.

There’s more to tech leadership than a slick phone, much more. And Microsoft is about to show the market that, once again, re-invention and innovation can still have a made-in-Redmond feel.

 

 

Getting to the Tech Promised Land: Selling Tomorrow’s Message to Yesterday’s Crowd

It’s a given that the marketing messages vendors are pushing today are focused on clouds and new, innovative business processes. Private, public, hybrid, vendor-specific, sovereign, and third party clouds, business networks, process innovation, IoT, and new economy business models: The messaging is pretty consistent whether it’s Microsoft Dynamics talking to its customers at its annual Convergence user conference last month, Infor talking to the analysts at its recent analyst summit, SAP talking S4/HANA pretty much 24/7, and its Ariba subsidiary talking to customers at this week’s AribaLive conference. Clouds, new business models, loads of net new, highly valuable, user-friendly business process: the future is here and is a wonder to behold.

But that’s the marketing story, and as I find myself saying more and more, all the great ideas in marketing go to the field to die. In truth, what vendors are pitching and what customers want and are willing to pay for has never been more divergent.

The examples are everywhere: the Ariba customer who looked over at me during a presentation on the networked economy and said “we’re mostly just printing checks” with Ariba. Or the reality of Infor’s customer base, of which less than 3,000 out of 70,000 have moved to the cloud despite a well-articulated strategy and a decent ROI case for doing so. Or the Microsoft Dynamics partner who told me that his company still can’t figure out how to sell “One Microsoft”, despite the well-articulated strategy delivered by CEO Satya Nadella and Dynamics boss Kirill Tatarinov at their first “business focused” Convergence. Or the incessant questions from SAP customers about how to cost-justify the move to S4/HANA in the face of a relatively sparse set of applications.

In every case there is no shortage of great product and great strategy – sometimes, admittedly, more aspirational than actual – that together articulate a brilliant future for all these vendors’ customers, and, frankly, the global economy as whole. I’m really not kidding when I say that each of these vendors has pretty much nailed their version of the right strategy, and is on the way to putting the right products in place. All are positioned to make a profound impact on customers’ day to day operations, as well as their strategic futures.

If only the customers were ready.

Leading one’s flock to the promised land has always been a complicated task, and the temptation of flocks to regress and worship the idols of the past has been a metaphor that has long since transcended its origins in the story of the Exodus from Egypt. (Moses, you will recall, was saddled with a “stiff-necked people” he had to drag through the desert long enough for the generation that knew slavery to die off and be replaced by a new generation unburdened by the past. More than a few CEOs and CIOs I know can relate to that.)

This stiff-necked idol-worship is exactly what these on-premise vendors are facing as they bring to market an impressive set of new offerings. Whether it’s Infor’s new Cloudsuite and Upgrade X initiatives, Microsoft’s forthcoming Dynamics AX 7 and its pioneering Azure-based Lifecycle Services offering, SAP’s S/4HANA and HANA Cloud Platform, and Ariba’s networked economy, and everyone’s vision for IoT – cajoling customers to make the shift isn’t either as obvious nor as simple as the marketing messages would have everyone believe.

It’s important to note that this isn’t a failure of any vendors’ marketing efforts vis-à-vis its customers or influencers – any thoughts of shooting the messenger will just result in needless bloodshed. The messages and messengers are largely doing a great job: getting out in front of the flow and taking a few hits on the way is one of the prices to pay for leadership . Previous massive market shifts – GUI-based desktop computing, client/server computing, the relational database, modern ERP systems, the Internet economy – all had their teething problems, and every one of the pioneers who eventually prospered got a few arrows in their ass in the process. Those that couldn’t take the heat and stayed out of the kitchen paid the ultimate price for their lack of pioneering spirit.

So, in a way, hit and miss is the only way to progress, and it’s inevitable that you’re going to miss more than you hit in the beginning. The vendor conferences I’ve attended recently are perhaps the most stark examples of how hard it is for these messages to reach the right audience. If you’re a typical Dynamics customer, you’ve gone to Convergence for years looking for the latest features for your particular brand – NAV, GP, and AX. So when Satya and Kirill start talking about how to use everything from the Surface to Office 365, SQL Server, CRM, and AX, all the way up to Azure – chances are it’s a little hard for many in the audience to swallow.

Similarly, Ariba’s conference this week was full of procurement professionals, for whom the nuanced and complex stories of customers like insurance giant AIG and Cirque de Soleil were both fascinating and foreign. We learned in the keynote that AIG has placed accounts payable and procurement under the same executive, Jim Gillespie. Jim made an eloquent case for why it’s a good idea, but when he asked the audience how many organizations also did so, it was hard from where I sat to see a single hand in the air. So much for a critical mass of companies moving from siloed processes to complex integrated processes.

I saw a similar disconnect at a SucessFactors conference last year: selling an integrated HRMS and SAP backoffice story to a conference full of HR professionals with neither the authority, nor for the most part the vision, to act on the integrated business process message that is SuccessFactor’s best bet at beating Workday. Meanwhile, Infor’s renewal numbers speak for themselves: a 90 percent maintenance renewal rate for some of the most legacy on-premise software still in use highlights the premium most Infor customers place on next generation innovation —  not enough. (Infor’s value engineering group makes a nice case for why it’s a cost-effective move – and still not enough customers are biting.) Even the net new customers Infor is pulling in – 3100 in the previous three quarters –are by and large eschewing their vendor’s innovative ION middleware and the cloud.

The problem in many cases boils down to who is in the room when the sales pitch is actually taking place. As I ‘ve said before, every one of these vendors’ vision of the future runs into two unfortunate realities in the field: there’s no single decision-maker who can make the buy decision – these new offerings cross too many boundaries in the enterprise for any single decision-maker, even in many cases the CEO, to make the call. And reality number two is that, on the vendor side, it’s hard to find someone who can articulate the vision in its entirely, unless their name is Bill, Charles, and Satya, or one of their direct reports. The average, and even above average, field sales exec isn’t really equipped to sell a vision this complex at the level it requires.

This is very different from what the cloud-only, Silicon Valley cloud keirsetsu has to deal with. Salesforce.com, Workday, Netsuite, and other keiretsu members, as well as their fellow travelers, the financial analysts who think forward P/E ratios that aren’t stratospheric aren’t worth a hill of beans, all live in world which, until recently, was devoid of these kinds of challenges. When you’re selling CRM, or HRMS, you need to talk to a single buyer, a vp of sales or HR, who is largely looking for a way to do what he or she is already doing, only faster, better, and cheaper. The exec in the room knows the problem, can grok the solution, and is largely able to sign the contract as well. Your average rep doesn’t need to articulate a vision about new economic realities, complex, integrated business processes, or net new platforms. Just sign on the dotted line.

It puts the on-premise vendors, except for Infor, in an unfortunate position. The financial markets think SAP and Microsoft should be more like Salesforce.com and Workday, as in dumbing down their go-to-market strategies to make them as virally easy-to-sell as an all-cloud point solution, while giving Salesforce.com and Workday a pass on being more like SAP and Microsoft, as in profitable. I find that reasoning short-sighted, but that’s what the big money funding the cloud keiretsu is known for. (Infor, as a private equity play, doesn’t have to face the public market’s quarterly wrath. I’m not saying private equity is necessarily easier to deal with, but there’s an implicit long-term view that these investors take that is fundamentally different than the quarterly cadence of the public markets.)

In the end, it may take the equivalent of 40 tech years of wandering in the desert before the on-prem vendors’ customers cross over to the promised land. The trick is to keep trying and realize that sometimes market education simply takes time. The market may try to move in condensed, highly compressed tech years, but CEO, CIOs, and business execs are only human, and we humans are sometimes harder to change than everyone from vendors to G-d Almighty would like. After all, we have been a stiff-necked people for a very long time.

 

Implementing Enterprise SaaS: If it’s Easy, it’s Because You’re Not Trying

Back in the early stages of the SaaS market, so many months ago, it seemed obvious that the SaaS market would one day undergo a major transformation as the easy wins based on taking on-premise capabilities and flipping them to the cloud – pretty much the business model of Salesforce.com in the early days– gave way to an era of greater complexity and value. At one time it was the value-added cloud capabilities of business networks and the like that were supposed to lead the SaaS world to the promised land by using the cloud to conduct business in ways that simply hadn’t been possible in the on-premise world.

Wrong. So far, anyway.

But while we wait for the business network opportunity to reveal itself at scale – a bet that SAP in particular has made in the last few years with acquisitions like Ariba, Concur, SuccessFactors, hybris, Fieldglass, and other cloud properties – a new SaaS complexity is emerging, and its advent has begun to reconfigure how SaaS is implemented in the enterprise. And with that reconfiguration has come the demise of one of the most sacred tenets of the SaaS world: simplicity.

What has become obvious is that enterprise-class SaaS as a strategic implementation option is more and more dependent on the ability of the vendor and implementer to integrate SaaS services with the on-premise world. That integration isn’t just a nice-to-have afterthought, it’s becoming the core of the business case for implementing enterprise SaaS, and that business case is making SaaS a much more complex undertaking than it was in the glory days at the turn of the century.

The easiest way to tell that the game is afoot is to track how the global SI crowd, the ones that made cost and complexity the watchwords of on-premise implementations, are now showing up at the SaaS feeding trough, talking about business transformation, value-added services, and pretty much anything else that will replace the easy body-shop dollars that SaaS is definitively killing off.

Not that this is necessarily a bad sign – there are many competent practitioners of the implementation arts who possess the mental fortitude to do well by the new SaaS implementation imperative. But for the most part the global SI crowd comes to the SaaS table with their on-premise methodologies – pitched like the devil in order to get the business, and then honored mostly in the breach when it comes to the actual project – and are finding that their methodologies more of an anchor than a sail.

The smarter SaaS vendor execs are sanguine about how well these on-prem SIs will do: I was told in no uncertain terms at a recent SuccessFactors analyst event that savvy customers are turning more and more to the boutique SIs, who, as one exec told me, “are unencumbered by their on-premise methodologies.” (For those who haven’t tracked the relationship between methodologies and long-term project value, on-prem methodologies are like teaching to the test – you might actually end up with a smart kid when you’re done, but your odds may be even better that you’ll end up with high-scoring fool.)

The other way you can tell that complexity and SaaS are now synonymous is the growing quantity of deals gone bad. SuccessFactors has spent a tidy seven-figure sum of late remediating troubled implementations, and to be fair, the offending SIs have run the gamut from boutiques to the global SIs.

SuccessFactors is hardly alone in this regard, as evidenced by the increasingly universal requirement for vendor audits of SaaS implementations done by third parties, even the biggest and baddest of the global SIs. While SuccessFactors is relatively new to this, Workday has required these audits for some time.

The mandatory vendor audit is a significant departure from the status quo ante of the on-premise world, where vendors, like a couple of shocked parents at their first hearing in front a juvenile court judge, would one day rudely awaken in mid-project to find out that they are the first to be blamed and the last to know. The revelation that what should have been a poster child implementation had become a den of iniquity that had been hiding in plain sight all this time has strained the mental fortitude of enterprise software vendors since the dawn of time. The fact that it took the combined incompetence of the SI, the customer, and, often the overselling vendor sales rep, to create another major or minor catastrophe offers scant comfort.

Been there, lived with that. What’s different about on-premise vs cloud catastrophes is that, in the former, the vendor’s profit margin on the license sale remains largely intact. There may be a hit on the services side – post-hoc remediation services are expensive – and the brand takes a beating, and the customer is pissed, but that sacred license margin is still there to boast about when the quarter is done.

Bad implementations in the cloud have a very different impact on the vendor’s margins. A bad implementation, no matter who is to blame, still has to be run in the vendor’s data center, and supported by the vendor’s support staff. Meeting the data center’s service level agreements for a poorly implemented SaaS app means more effort and support costs. These brittle implementations are more likely to break at upgrade time, and in general letting them into the data center threatens to kill off the recurring revenue margin that the whole SaaS industry is built on.

This problem becomes even more acute when the cloud implementation has significant integrations, which as I stated above, is more and more the case. Hence SaaS vendors like SuccessFactors and Workday are not only requiring that their own teams audit the implementation, but they’re also requiring the customer to pay for the audit.

This is definitely a move in the right direction – customers have a degree of culpability and responsibility that has been traditionally papered over in the rush to judge the vendor and let the SI get off scot-free (unless the failure ends up in court, and then the lawyers labor hard to ensure that the allegations of blame are fairly and equitably distributed among all three parties, and the devil take the hindmost.)

What’s the final evidence of complexity from the world of SaaS implementations? Salesforce.com’s rather convoluted usage limits for API calls. What’s easy to understand is that high-end customers running Enterprise Edition or Professional Edition (“with API access enabled”), have a limit of 1 million API calls in a 24-hour period. That’s a boatload of integration and complexity.

What’s also easy to understand is that Salesforce.com is working hard to make sure customers don’t use more API calls than they pay for, as in this little note in the fine print from Salesforce.com’s API usage limit guide: When an organization exceeds a limit, all users in the organization may be temporarily blocked from making additional calls. Calls will be blocked until usage for the preceding 24 hours drops below the limit.

Take that, API user deadbeats.

What this new cloud complexity means is that cost savings in SaaS, like the famous peace dividend that was promised following the end of the cold war, may turn out to be more mythological than real. The requirement for integration and the maintenance of those integrations will very likely keep services revenues for SaaS chugging away for quite some time.

And don’t think that going all SaaS will solve the problem – silos of SaaS functionality can be even more complex to integrate, and keep integrated, than an on-prem/SaaS hybrid environment. SaaS vendors treat frequent upgrades as a virtue (which always sounds so good on paper, until something changes that you didn’t want changed). So imagine, like one relatively small company I know, having a cloud backoffice consisting of 80 cloud apps. Each one upgrades on its own schedule, with little or no awareness of what the other 79 are up to. The company in question was actually considering getting a DNA graft and moving a ton of functionality to a single on-premise ERP system. That is until a severed horse’s head appeared under the sheets in the CIO’s bed one morning. (Metaphorically speaking, of course.)

It’s clear now that we’re waking up from a cloud cost-savings binge that was a little too good to be true. True, lots of the grunt work that went into implementations is gone, and good riddance too. But expecting that the end of the low-hanging fruit of the implementation business would mean that less money would be spent on services overall is a bit of a pipedream. Implementing enterprise SaaS is hard – even if you’re doing payroll in the cloud, by the time you “configure” your SaaS payroll to take into account the many countries and currencies you do business in, the different pay structures and pay grades in your company, union work rules, the deductions, and on and on, you’re not really configuring, you’re implementing.

SAP knows, they did this themselves, using SuccessFactors to replace a sprawling, global HR mess with 100s of redundant processes and disparate, unintegrated systems spread all over the world with a single, unified SaaS system. You don’t just configure a system that size and then flip a switch.

And if you want to tie that into your finance system, your HR and talent management system, throw in some succession planning, add your contingent labor to the equation, tie talent management into maintenance and service scheduling  – well, you just did a big fat, complex implementation. With all the attendant costs and risk.

So if you’re doing enterprise SaaS because you want your IT life to be more simple, think again. The game is rigged against simplicity, and always has been, for the simple reason that business is complex, and always has been. To paraphrase President Eisenhower’s famous admonition to the nation as he left Washington politics for good: when  it comes to enterprise SaaS, beware the implementation complexity complex.

….

For good measure, Ike also said “If you want a friend in Washington, get a dog.” I’ll work that aphorism into my next post. Promise.

 

S/4HANA: It’s not R/3, and it’s not 1992 either (part II)

(Bloggers note: I was informed yesterday that the proper spelling for SAP’s new suite is S/4HANA. I was also told that a large tech manufacturer with a propensity for suing over IP issues owns a trademark for S4. I just checked my budget for protracted lawsuits and decided to go with S/4. Don’t tell Edward Snowden, he’ll drop me from his Xmas list like a hot potato.)

 

So, smooth sailing for S/4HANA?– Not likely, certainly nothing like the good old days when R/3 was the biggest and the baddest modern, client/server, enterprise software product on the market, marauding through the global economy like a rum-soaked buccaneer.

But if SAP has to create its own tailwind, there’s a few things it can do to fill its sails a bit. Some of this should have been mentioned at the launch, other aspects need to be developed quickly – but all are in the realm of the possible, as well as, IMO, the extremely necessary.

The S/4 HANA Sandbox: SAP chose to forget to mention, not that they weren’t told to, that SAP can load a copy of a customer’s ECC 6.0 production system into the S/4HANA cloud and let the customer run their existing system on S/4HANA in a “try before you buy” mode. This is the best way to overcome the pointless marketing hype about S/4HANA speeds and feeds, not to mention promises of how Fiori changes everything, and just let the software do the talking. I think every customer thinking about S/4HANA should demand this, and should demand it at no charge.

SAP’s risk is pretty much nothing, and everything, with the Sandbox. If reality meets or, dare they hope, exceeds the hype, the deal is done. When and how much still needs to be negotiated, but the why S/4HANA question will be settled. It’s also a great way for SAP to highlight the value-add of its cloud-services capabilities: platform-based cloud services are going to be one of the ways in which all the platform/enterprise software vendors compete, and SAP is going to have to fight it out with Microsoft and the services it’s bundling in Azure, as well as what native-cloud vendors are already doing by default. And if the Sandbox doesn’t make a customer desperate for some S/4HANA, then, well, SAP is toast. (Hey, don’t just take my word for it, Chairman Plattner thinks so too.)

Take care of the DB Migration ROI problem: Okay, maybe not take care of it. But one of the big mistakes SAP can make is to wait until customers reach a contract end-of-life situation, particularly with their DBMS and associated hardware and data center services, before SAP tries to influence the customer’s decision to switch to S/4HANA. Maybe SAP could get a couple thousand new customers a year by just waiting, but that’s assuming that all the other platform/enterprise software competitors will just let these customers roll over to SAP. They won’t, and SAP should assume that by the time the contracts are up for renewal it’s too late.

Instead, SAP should be hard at work making the case for why it’s worthwhile to consider switching now: are there hard and soft cost savings to consider even if it means walking away from a strategic database contract and paying the penalty? Even if there are no real cost-savings, and I’m not expecting there would be in every case, putting some numbers on the table about the value of switching now versus waiting for an Oracle or IBM contract to expire allows SAP to play offense, instead of playing defense. It may be that many companies will be willing to eat some of the cost of running the clock down on their existing contracts if SAP can show them how much better life and business will be with S/4HANA – and that means real numbers, not just platitudes like “100 times” improvements in this, and “250% improvement” in that.

Show the way: The other thing I wish SAP would have done last week is talk explicitly about how customers can get there from here. A roadmap would have been nice, and based on what they were talking about at TechEd Berlin last year, there’s something to say about when the S/4HANA follow-ons to Simple Finance, like Procurement, Manufacturing, Supply Chain, HRMS, etc., will be available.

But more importantly, SAP needs to tell the story about how a customer running ECC 6.0 becomes a customer running S/4HANA. They should approach it like a recipe – take one enhancement pack 7 update, add a database migration service, sprinkle in some Fiori upgrades to ECC 6.0, do a HANA RDS implementation, switch to Simple Finance, bake until well-done. Then start on the second course – be it manufacturing, HR, whatever. And along the way answer some tough questions: What’s the process? What’s the complexity? What tools and services will SAP provide? How long will it take? What’s the cost? What’s the value? If SAP wants to get S/4HANA on the strategic planning agenda, it needs to give strategic planners something to go on.

Of course, all of this advice will really just allow SAP to begin to put its best foot forward in a complex and highly competitive market. It really isn’t 1992 anymore, nor is it 1999 (Y2K time) either. SAP has some great assets, like a helluva fast DBMS and the tools and services to make it easy to use. SAP is also the most successful purveyor of software that embodies business processes in the market today, and that position can only be good for S/4HANA.

But as so much of what S/4HANA can do isn’t available in packaged software, not from SAP or anyone else, SAP has to create an amazing, partner-lead innovation wave, based on S/4HANA, that will close the manifold last-mile gaps that are widening all over the business world. That means SAP has to partner with ISVs and VARs in a way it never has before (hint: partnering should be for the benefit of the partner and the customer, not just the vendor). It has to take ownership of the success of the customer, not just act as though the job is done once the license deal is signed (a situation One Service is intended to address). And SAP has to stop talking about how cool HANA is and start talking about how cool businesses that run S/4HANA are.

Because perhaps the biggest difference between 2015 and 1992 is that the buyer is orders of magnitude more savvy, more jaded, and more desperate than ever before. Customers need the kind of change that S/4HANA is proposing – real time functionality with blazingly fast support for existing and new business processes, all running in whatever cloud configuration the customer wants. But customers aren’t going to just write a check to SAP because they say so. SAP has to show why it it’s the biggest and baddest, and then go out and prove it.

Because if SAP can’t get the customers to ultimately lead the charge – not the SIs, not market forces, not the pain of legacy systems – it’s not clear who, if anyone, will be around in 2035 to write the next chapter.

S4 HANA: It’s not R/3, and it’s not 1992 either (part I)

There’s a lot to unpack from SAP’s S4 HANA announcement of last week, but if I could only highlight the essence of what the announcement means for SAP and its customers, it’s this: SAP needs to make sure every customer understands how the versions of SAP they are running today will lead them to S4 HANA, in what time frame and at what cost. And SAP has to make sure every new customer understands what it means to run existing processes at significantly greater speed, as well as run net new processes they never were able to run before, before they’re asked to sign on.

If it wasn’t for these very customer-centric issues – in other words, if the exigencies of the real world didn’t exist – then I would say unequivocally that S4 HANA is at least as monumental a moment in the evolution of enterprise software as R/3 was back when it was released in 1992, and that’s saying a lot.

But much has changed in the ensuing 22 years, and things will have to be very different before it would be safe to give S4 HANA the kind of odds of raging success that R/3 had in its day. The old days of moribund mainframe systems and antediluvian mainframe software, a pending Y2K hoax, the lure of client/server computing, a desperate need for CIO’s to recapture control before the distributed data center obviates their power and budgets, and a consulting/SI channel equally desperate for something real to sell alongside the business process re-engineering hype of the early 1990s – none of these are around to give S4 HANA the kind of tail winds that R/3 enjoyed.

Which means that SAP is in charge of the tailwind, as well as the sail, the rigging, and everything else required to get S4 HANA the attention, and uptake, that it, at least on paper, deserves.

Of course, SAP is a vastly different company than it was 22 years ago: bigger, more complex, more embedded in the global economy, more of pretty much everything. Which augurs as well for S4 HANA as SAP could hope with such a monumental new offering. But there are still a fair number of issues that will conspire to make S4 HANA as challenging as it is promising for SAP.

Software then and now: Back in the R/3 days, SAP’s competition, to be blunt, sucked. Old, tired, unintegrated, mainframe-dependent, the enterprise software of the 1990s was a field ripe for disruption. And while R/3 had its share of issues, the bar was set pretty low for a successor to the likes of D&B Software and Cullinet.

Today, S4 HANA has to compete against a wide range of worthy opponents – Salesforce.com, Workday, Microsoft AX, Infor 10X, Oracle – that are setting the bar pretty high for success. These companies also enjoy significant incumbency benefits in their installed bases, which SAP has to attack vigorously at the same time that SAP has to defend its installed base from the enemy. The implicit ROI of incumbency means that proving that S4 HANA is a better choice than any of these companies’ offering makes SAP’s job all the more difficult.

Platforms then and now: There were really two platforms available at the time of the R/3 launch – the dominant mainframe platform of IBM, and the up and coming platform defined by Unix and client/server computing. The latter had a particular characteristic that almost made it the un-platform: open standards for hardware and software, implemented as an explicit challenge to the lock-in of IBM’s mainframe systems, made the platform switching costs between the upstarts systems relatively low, at least in theory. Vendor lock-in, so the smoke and mirrors of the time went, was IBM’s bailiwick. The openness and standards of Unix and client/server were the domains of the new guys in town.

Today, platform vendors, and every one of SAP’s erstwhile competitors is selling a platform strategy, are paying lip-service to openness, but no one is fooled as they were in the 1990s. A platform is the key to the IT budget for many years to come, as well as a way to not-so-surreptitiously guide and influence customer behavior. C-level execs are a lot more savvy about this issue than they were in the days of R/3, and that means SAP has to make the case that S4 HANA is both the very best long-term choice for a platform shift, as well as the most open choice for continuing to leverage other platform investments that can’t be just summarily decommissioned.

Databases then and now: Along with the Unix and client/server openness myth came the myth of database choice. Again, decoupling the database from the mainframe and its operating system, and thereby decoupling enterprise software from writing directly to either of these two systems, was a virtue that propelled IT budgets across the industry. SAP embraced database openness by effectively making all databases equal – and thereby marginalizing performance equally – in a way that the market embraced willingly. If a company was a DB2, Oracle, or SQL Server shop – and the keepers of these database standards in the enterprise were a powerful lot – nothing had to change in order to embrace R/3. And there was much rejoicing in IT land.

The end of that embrace is perhaps the biggest change in S4 HANA. By writing directly to the database, not a least-common-denominator layer, S4 HANA gets even more functionality out of one of the fastest transactional/analytical systems on the market today. This is great for the business user, whose applications can now do things applications could never do before. And this is good for the conscientious CIO who sees an opportunity to limit the oversized influence that the relational database keepers continue to wield. But doing so, ironically, means that SAP must both tout the superiority of HANA at the same time that it says that the database layer is no longer relevant, precisely because it is no longer a separate “layer”, but part and parcel of the applications that impart the true value of S4 HANA to the enterprise.

If that sounds a little confusing, you get the point. The End of the Database may be a little too much for SAP’s next slogan, and The database is dead, long live HANA is a bit of a stretch as well. But it’s going to take a lot of market education to overcome a few decades of open database thinking and RDBMS hegemony before the HANA part of S4 HANA reaches its apogee.

SIs then and now: R/3 rode in on a wave of SI hype called BPR, for business process re-engineering, which I at one point re-christened “bad practice repair”, which was what was really going on in a lot of companies. The SIs loved BPR because it gave them an entrée into the CEO’s office to talk strategy and CIO’s office to implement new software. SAP was all about both kinds of BPR, and it was the start of a beautiful friendship.

Today, the SIs are scrambling to understand what S4 HANA, particularly its implementation-light, cloud-base functionality, means for the implementation side of the SI business. No SI in the SAP partner world is laboring under the misapprehension that S4 HANA is anything but bad for the implementation side of the equation. While they all pay homage to the conceit that their real value lies in strategic services, they’re secretly waging a Sisyphean battle against the erosion of a core revenue stream for them. Which means, quite simply, that the SIs won’t carry SAP’s water the way they did in the 1990s. All the more so because there’s no great Y2K hoax to galvanize ignorant execs into doing a lot of new implementations in order to make sure the world doesn’t come to an end. (Though, have you read the news lately? I’m beginning to wonder….)

What can SAP do about this? I’ll publish my suggestion in my next post on Wednesday.

Enough Consumer Coolness: It’s Time to Make a Case for Windows 10 in the Enterprise

I’ll start by saying that I came home after having watched the Windows 10 launch (on video, not live, more on that later) all excited to show my kids the demos of HoloLens, particularly as I was sure I saw a little Minecraft in there, a serious favorite of the underage crowd in my house. Too late. My son, in perusing YouTube for the latest in Minecraft music videos, announced as I walked in that he had already seen the HoloLens demo, and wondered when he was going to be able to play 3D holographic Minecraft.

If ever anyone was wondering why Microsoft bought Mojang, the maker of Minecraft, just search “Minecraft video” on YouTube: The results (37 million hits) infinitely outstrip searching “Windows enterprise” (232,000 hits) by more than 100 to 1. And therein lies the crux of this post.

I mention this not just because it’s another example of how hard it is for the older generation to keep up with the newer one, but also as an example of how the Windows 10 launch, despite the use of the word “enterprise” a dozen times or more, was as much a showcase of how much the Windows team has an uphill battle to fight in creating buzz for enterprise computing as it was another example of how cool Microsoft can actually be when it puts its mind to it, as long as it’s not in the enterprise.

Can Microsoft afford this version of coolness, particularly when it comes to the enterprise? Hardly. This week’s earnings announcement was credited with killing the Dow Industrial Average on Tues., and in most categories there were a lot of disappointing results. But Dynamics, the enterprise little brother of the Microsoft Commercial division, put in a relatively stellar 13 percent growth rate. (Which parts of that were Dynamics CRM, AX, and the rest is never disclosed, unfortunately.) So, ignoring a solid growth opportunity, albeit a relatively small one, seems a little short-sighted. Particularly as Dynamics is the place where all of Microsoft (minus Minecraft, at least for now 🙂 ) is best highlighted.

There were some enterprisey tidbits in the announcement – the free upgrades from Windows 7, 8, and 8.1 are sure to make corporate IT folks happy. A new browser to replace Internet Explorer 11, the bane of developers and users with its anomalous script handling and other defects, will surely be welcome in IT shops that haven’t just shrugged their shoulders and shifted to Chrome. And the seamless interaction of Office and Skype across the full panoply of devices on stage was enterprisey enough, sort of – if you’re one of those people who think Office and Skype are enterprise apps (which, considering that the Minecraft generation in my house also uses them, sort of makes its enterprise cred highly suspect.)

But sort of isn’t what’s going to light the enterprise on fire. And here’s my problem with the Windows 10 launch: While the biggest selling point of Windows 10 – a single code base for building apps that run across every possible device – was definitely part of the messaging of the event, the evidence that Microsoft knows what this really means for the enterprise, or even what makes enterprise users tick, was missing in action. Again.

HoloLens certainly has some serious enterprise potential, as does Cortana, and the demo of Surface Hub, a giant wall-sized touch screen, which is right up there with jet packs and teleportation in the futuristic coolness category, certainly had something to make enterprise execs salivate. But none of that coolness is enough to get enterprise developers who build the new business apps, and the business decision makers (to use a Microsoft term) who spec out those apps and write the checks for them, to go all-in with Windows 10.

Microsoft finds itself once again caught falling down that classic chasm between offering coolness and offering solutions to practical business problems. What the Windows 10 launch showed is another example of how tech companies try to sell technology the same way they develop it. The tech dev cycle that starts with specifying a new feature, and then building, debugging, rewriting, testing, and demoing it at events like last week’s Windows 10 launch party leaves out the last mile that a business user is looking for: how does this change my business process and move my KPIs into the success zone? Importantly, coolness isn’t necessarily a virtue in the enterprise. Who the hell has the time to be just cool?

Or, to rephrase that last thought: what’s cool in the enterprise is something that solves a real, and important, problem right now. Not sometime down the road, as in when virtual reality will become a tool for enterprise success, once we’ve figured out how and why.

So I’ve asked for, and have yet to see, any evidence that Microsoft knows what that killer enterprise app looks like. It may be that they honestly don’t know, or even care. Both of which are bad mistakes to be making at this juncture. On the contrary, Microsoft has to up its enterprise game ASAP, before it loses an opportunity to define the next generation business app platform for an enterprise audience increasingly assaulted by more incumbent vendors pitching competing platforms that have a more definable enterprise edge.

Three key factors are making the clock tick faster and louder on getting the enterprise case for Windows 10 out in front of the market.

The Platform Wars. Two really big and really important competitors are pushing their enterprise platform strategies a whole lot more effectively than Microsoft is right now – Salesforce.com and SAP. Their customers – virtually all of which overlap with Windows – are being pushed by aggressive direct sales and marketing campaigns to get on program with each companies’ respective platform strategy. HoloLens and free Windows upgrades aren’t enough to combat this push. Windows 10 could be the leading edge of a comprehensive enterprise platform strategy (along with Azure and .NET) that could give Microsoft something to say to Force.com and HANA cloud. If only….

The Enterprise Phone Wars. As I have written previously, Microsoft is in serious danger of losing the US market for Windows Phone before it has even gotten started, and, most ironically, just when it has a new OS, Windows Phone 8.1, that is rated as good or better than IOS or Android. The cross-platform capabilities of Windows 10 won’t be nearly as impressive if Windows Phone isn’t one of the platforms enterprise developers think is important – and right now they don’t: few if any enterprise developers are developing for Windows Phone.

Pushing the cross-platform capabilities of Windows 10 in the enterprise could, just maybe, light a fire under the enterprise dev community, which right now is stuck worrying about how to build and maintain interfaces between mobile, desktop, and tablet environments. While HTML5 is a good workaround, running an app in the native mobile environment is acknowledged to be the truly optimal choice. But if the app has to go to a different device, it’s interface time, and Microsoft loses.

(A follow-up to my post on Windows Phone 8.1 and Verizon cited above: a week after that post appeared, Verizon quietly pushed an update to my phone. During the last month of playing with it, I think it is truly superior to IOS. Too bad Verizon still isn’t really on-board with Windows Phone 8.1. But thanks, anyway.)

The Business Process Innovation Wars. Business users need innovations that solve business problems, as noted above. This requires the innovation provider to demonstrate in-depth knowledge of existing business processes in order to propose – and then deliver – ways in which the processes can be innovated. Delivering proof that this process knowledge is baked into their offerings is becoming job #1 for enterprise software companies, and everywhere I turn there’s an increasing clamor from customers to show how a given innovation matters in terms of vertical and micro-vertical functionality, preferably cross-indexed with geographical or regional requirements. In other words, business innovation is increasingly about defining, and then delivering on, that last mile of innovation that matters most to the customer, particularly the business customer. Windows 10 so far has no real story to tell in that regard.

Can Microsoft pull out of its self-inflicted Windows tailspin before all that’s left is Minecraft and virtual reality? Yes, but that means it has to be ready to take a very different – or maybe parallel –route to market with Windows 10. This means connecting Windows 10 to the aspirations of enterprise users, and toning down some of the gee-whiz in favor of the get-it-done. This means, as I have said already, showcasing that killer enterprise app that makes the case for Windows 10. Or making the case that the Cortana, Skype, Office, and the new IE, Spartan, will have a huge, direct impact on day-to-day enterprise processes and their users. This also means taking some of the really awesome innovations going on in Microsoft Dynamics, such as its Lifecycle Services offering, a cloud-based enterprise software tool unlike anything in the industry, and connecting its capabilities to Windows 10 (if possible, and I think it is.)

In other words, it means stopping something I’ve railed against for a long time: pretending that the Windows team, and its traditional gang of influencers, really gets the enterprise. They don’t, full stop. And instead of pretending, the Windows gang need to acknowledge this lacuna and get started with reaching out to the enterprise, both internally and externally. Internally, there’s this group called Dynamics, who were also missing in action during the Windows 10 event, that actually get the enterprise and would be more than willing and able to lend the Windows team some legitimate enterprise cred. Externally, there’s a few thousand partners who could also play that role, also willing and able to step up to the plate.

And finally, there are the enterprise influencers, myself included, who seem to be consistently excluded from the dialogue. I tried to attend the Windows 10 event, and was rebuffed, however nicely. And having seen how sparse the real enterprise message was at the event, it was probably for the best that I stayed in the office and watched the event on line.

Until the enterprise story is told about Windows 10, by people who really get the enterprise, Microsoft will be leaving one of its best assets sitting on the sidelines at an increasingly critical moment in the enterprise software market. And judging by the market’s reaction to last quarter’s numbers, it’s a pretty critical moment for Microsoft overall. I think Windows 10 can make a difference in Microsoft’s enterprise software competitive profile, but convincing Microsoft continues to be a Sisyphean task.

If Microsoft will be content with Xbox, Minecraft and office productivity success, then no harm, no foul. But if there are aspirations for greatness in the enterprise, it’s time to show what Windows 10 can do. Or we’ll all be running watching Minecraft videos on our iPhones and Chromebooks, instead of running our enterprises on Windows phones, tablets, and desktops. While that’s just what Apple and Google want to see and hear (and Salesforce.com , SAP, Oracle, Infor, and others), I’m pretty sure that’s not what Satya Nadella had in mind when he took the job. Right?