The Blog

  • January 24, 2007
  • Is SAP changing its business model?

    I always chafe at the saying, “The proof is in the pudding” in part because it is a truncation of a longer phrase but mostly because it means nothing by itself.  The proof of the pudding is in the eating is how the phrase really goes and it is the one thing that came to mind when I heard about SAP’s announcement in Germany about a new business model and new mid-market products.

    Without having the benefit of a briefing from them I am left to wonder what this all means.  At its best it could be a bold move which sounds like it will be executed well and that’s where the flip side engages.  It was after all simply an announcement of an idea; I do not believe they actually rolled out the plan, just sort of a teaser.

    If the best that can be expected actually materializes then this could really be something.  My interpretation is that this “game changing approach to the mid-market” is an attempt to change the company’s business model.  As a traditional software company that trades CD’s and DVD’s for cash, that means the company is moving toward a SOA architecture, which it mentioned in its press release, that will position the company eventually as a pure play on-demand player.

    That approach is perhaps the most viable for any traditional company confronting the end of its paradigm.  It takes real vision and intestinal fortitude to pull it off because it means going to the shareholders with mixed metaphors and saying, “Look, the sun is setting on our model and if you want this goose to keep laying golden eggs, we need to do something different.”  Other approaches simply represent denial and as Clayton Christensen amply documented in “The Innovator’s Dilemma” denial is not a strategy for dealing with the future.

    The way it works and the way that it appears that SAP is doing this, is for the company to spin up a new business, give it P&L responsibility, new products and of course, the new model—along with the usual encomium, go forth and…well you get the idea.  Eventually the sun really does set on the old company but the new company acts as a life raft for all that capital, the jobs and the products.

    From what I have heard this seems to be what is afoot.  According to the release, “SAP detailed plans to invest in an additional business model which will operate in parallel with its established business.”  Yup, “additional” and “parallel” are important words here.

    Of course there were also the usual competitive marketing things going on like the name, NETSAP.  Sounds a little like NetSuite doesn’t it?  Same market, same range of products including CRM and ERP, and of course, NetSuite’s major investor is none other than Larry Ellison who also heads up that other non-Microsoft software company.  Viewed this way it simply might mean that SAP is playing catch up with Ellison and his on-demand dabbling, but I think this could be more.

    If SAP is to be believed then that leaves Oracle in the funny position of trying to preserve the licensed software way of life with Fusion.  No one wants to be the last one to leave the party for many good reasons so that should put some pressure on anyone still dancing.

    As a result of having bought Siebel about a year ago, Oracle is not in a bad position if it decides to be more aggressive in the on-demand world.  Siebel On-Demand offers a rich set of capabilities around which Oracle will eventually build a true on-demand presence. 

    Let’s keep things in perspective though, this is a mid-market announcement and an investment announcement and while I think I can see where it’s all heading, I would prefer to see some products and some happy customers.  As I alluded in the beginning, the proof of the pudding is in the eating.

    Published: 17 years ago


    • May 17th, 2007 at 4:18 am    

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