SAP’s Cloud Strategy – are they good on the 5 M s?

Many years ago, I went to B school in India to get my MBA. Everything there was 5 Ps, 3 Cs and so on. I have tried to stay away from talking in those terms – but then yesterday, Jamie Oswald started a facebook discussion on the use of MBA. That brought back a lot of memories of my time in B school , and I am going to try my hand at this and call it the 5 Ms of  Cloud.

The five “M” s of Cloud to me are Money, Multi-tenancy, Massive Scale , Mobile and Marketing . Lets see how they are doing on each of the Ms.

1. Money

Where is the Money? SAP is a for-profit business, and any strategy for Cloud must have a clear vision on generating profit. They have a HUGE revenue stream from perpetual licenses for Business suite etc. So, they have an advantage over other players like SFDC, Workday etc who do not have anything other than cloud.  SFDC and company are not short on revenue – they just cannot generate a profit now, since they are growing at break neck pace. I think it is the right strategy for those companies to not worry about profit any time soon, and grow as much as they can now – so that when they cut some spending on marketing etc, they will see huge profits in very quick time.

SAP has the opposite problem. SAP has the money to spend on cloud marketing and still show a profit to the street.  Their problem is lack of growth. A few years after Business ByDesign came out – they still have to keep a straight face and say they are close to 1000 customers.  Business One, which has a big customer base, is now going the cloud way according to this news http://www.pcworld.com/businesscenter/article/251354/sap_rolling_out_cloudsavvy_version_of_business_one.html.  It is not a big leap to cloud – B1 will still be available on premises. LOB on-demand solutions that SAP has are all well designed from what I have seen – but I wonder when/if they will bring the next billion dollars to the bank.

2. Multi-tenancy

The general idea here is for the vendor to use a shared database for multiple clients, with common schema for all clients using it. Then by some mechanism, vendor allows a given customer to add some custom schemas on top without affecting the underlying code base that affects every customers.

First off – I think customers don’t care much if the solution is multi-tenant or not as long as functionality provided by the application is useful. In some cases, like the data security legal issues in EU, they might even not be comfortable with the thought that their data is not physically separate from others.  However, if a vendor has to make money off cloud in a SaaS model – it is hard to imagine them doing so without multi-tenancy.  It is hard to force fit multi-tenancy on all layers of existing architecture without serious disruption.  The newer companies who went all out for cloud went for multi-tenancy right up front ( and some like Workday also went all in with in-memory too), and they have a distinct advantage.  I am not sure what SAP’s strategy is in this regard – will they force fit and make existing solutions fully multi-tenant , or will they build from scratch?

Successfactors, from what I could learn on internet, has a hybrid multi-tenant architecture. Now that SAP owns them, maybe SAP can use the abstraction techniques to build a similar model for all their applications.  Although SAP and SFSF both use java, there are differences in how they are architected beyond the usage of java.

Similarly, SAP wants to use HANA as the database for everything – and I do think they should do that ,and hopefully do it at a scale that doesn’t need customers to cough up a lot of extra money. Don’t ask me if HANA is multi-tenant. I am tired of asking SAP that question, since no two persons will say the same answer when I ask. if HANA is multi-tenant, now would be a great time to put it as the database for cloud offerings. It will help cloud solutions be faster, and take less cost for infrastructure due to compression etc. It will also help HANA mature sooner since it will get tested in mixed load conditions at massive scale. That will be enough proof for many on-premises customers to open their wallets and move SAP’s HANA revenue from 100M to a few billions.  Lets see what SAP does about that.

3. Massive Scale

Jim Snabe already acknowledged a few times that the only way to make money from cloud is by massive scale.  But how do you attain that scale? Many ducks have to be in a row to make it happen.

I don’t think SAP needs to cannibalize its on premises stuff heavily for massive scale. There are plenty of upsell/cross sell opportunities at existing clients, and many potential new clients for cloud to keep the perpetual licenses going for several more years.

Pricing obviously is one issue – it has to be affordable. Now that Greg Tomb has a cloud specific sales team, I am sure they have figured out some way of sensible pricing to cloud customers. And obviously SAP needs more aggressive targets to make sure they see a profit in some defined time frame.

Then there is the development issue. SAP has a large pool of developers – but they have competing priorities. Where will they focus between HANA, Cloud, Mobility and On-premises stuff? Will we see massive hiring? I have seen SAP hiring sales people, but not too many developers. But of course, because I have not seen it doesn’t mean that SAP is not doing it. And they need more support people if they need massive scale.  Also note that good developers are not easy to find – trust me, I have tried really really hard with that, with very little success, especially in Silicon Valley.

And then there is the question of data centers. In my opinion, it is not SAP’s core competence exactly to build and operate the kind of data centers it will need if they have to become a big cloud player.  It is a massive investment – and needs very specialized skills.  Not sure if they are going to do it all by themselves – or by buying out a hosting expert, or by partnering with some one. There is also a question on hardware. Will SAP buy a hardware company, buy HW from IBM, HP etc? or will they just contract to someone to build custom machines to spec? Massive scale comes with massive problems. Since SFSF has a lot more cloud customers than SAP does, hopefully they can help solve some of these quickly.

4. Mobile

If SAP is serious about cloud, they have to make sure their cloud strategy is hand in glove with their mobile strategy.  Amongst everything SAP has today – organic and acquired, I think the ones getting the least attention are cloud and mobility. It could just be an after effect of HANA sucking all the oxygen from the room. Hopefully – a combined strategy for both will make it easier for SAP to become a serious player on cloud. I know parts of SAP who are very serious about “mobile first” – but it remains to be seen how much traction it gets across the board.  Everything from Executive alignment to messaging to architecture to development to licensing to support needs to converge between mobility and cloud to make this work.

5. Marketing

This is where SAP has a definite edge – they have a great marketing organization under Jonathan Becher. For this time, I will resist the temptation of taking a dig at SAP’s use of Forbes Advoice :  So who is the target for marketing when it comes to cloud?  There are 3 main groups in my mind – existing customers will want to know what they can do with cloud and why they should care, there is the customer base of workday, SFSF etc that need to hear why SAP is a better bet and finally there are the partners/developers who will resell, host and extend the functionality of SAP’s base offerings.

For the existing instal base – there is already a bit of confusion that needs to be cleared up on overlap and general cloud strategy.  This can only be truly addressed one on one by the account executives, and the partners who are incumbent there.  SAP has a renewed focus on channel – so that will probably work ok.  On the developer front – traditional marketing is counter productive. For them, SAP needs to get them access to software, a licensing and revenue sharing mechanism that is fair and a good sales mechanism. Everyone from CEO to CTO and down the chain from SAP knows this, but the response has been in baby steps. Lets see how that works out when SAPPHIRE happens in May.

That is it – we are about to land in PHX, and I need to get off before the Flight attendant gets mad at me. Let me know what you folks think. never mind the content, I am just very pleased with my clever 5 M s of cloud 🙂