For the first time ever on my blog, I have a guest post by my dear friend, John Appleby – fellow SAP mentor, blogger and an executive at Bluefin, in London, UK. So without further ado – Ladies and Gentlemen, I present to you, John Appleby 🙂
When you go to a major conference, tributes to the blogging gods must be paid. Not because we have to, but because the creative energy that surrounds such an event makes you think. And in this case I’d like to thank my good friend Vijay for hosting my thoughts.
And it was so that a senior executive in SAP came over to me whilst I was stuffing my face at lunch and said “John, if I understand you correctly, you believe it is still Cloudy?”. He was referring to their cloud strategy but I realised that actually, I have no clue what an Enterprise Cloud Strategy looks like.
It is true that there are two broad cloud business models that indisputably work.
Small and Medium Enterprises – the suite
I know that if I were starting a new business, I wouldn’t invest in IT assets. I would let each employee expense a laptop and provide then access to some cloud services. And it is so that Netsuite has grown to a $236m revenue over 12000 customers which means an average of $1600 per customer per month. Margins are low but customers are buying.
So as a small business, organisations may buy from a single vendor or from a collection – depending on what suits the needs best. Either way there is no desire to have expensive IT assets in an office somewhere.
Large Enterprises – innovation in LoB
Large Enterprise ERPs are inflexible and as a result, organisations like Salesforce, Workday and so on have poached customers from the large ERP vendors like SAP or Oracle. There are a small number of such potential solutions that are horizontal (i.e. apply to all industry verticals) and a very large number that are industry-specific.
Salesforce Automation, Procurement, Cash Management, Credit Management, Talent Management – all of these and more are relevant such areas.
Is there a demand for a Large Enterprise Cloud Suite?
I’ve spent several late nights discussing this with all manner of people, including good friend Dennis Howlett who claims “the suite always wins”. He might be right but I think that it is in conflict with the current cloud market dynamic.
The reason for this is because right now, it is a number of niche players that have thrown together an app, integration and have created massive demand. But the operating margins are very slim. For Salesforce it is 6%. For Success Factors, there is a small loss. The same for Ariba.
Most of those companies survive as far as they have by trying to grab land as fast as possible and by creating platforms that move quickly but are not carefully architected. So suppose you want some of this market – would you rather try and build something, or acquire?
The problem in building a platform
The challenge is simple: those organisations throwing together a platform can barely make the economics work. But if you build a full cloud platform then you lose agility and add cost. This makes no sense at all economically, and nor could you compete with the niche LoB players like Salesforce, that are normally bought directly by the business.
How do you convince Sales and HR that they should buy a common platform? What is the benefit of that? What’s more there is very limited benefit in doing Financials at all – it’s just a means for posting.
Is land grab the only strategy?
This leads us to what SAP have been doing so far. They acquired Successfactors for $3.3B and Ariba for $4.3B. Given that Salesforce and Workday are not for sale, there are not many horizontal vendors left. The major area is that of areas of Finance – cash management and credit management. Are there others? Other than that there are a bunch of LoB apps focussed on Industry Verticals.
But in the end, I suspect that grabbing users and apps is the only relevant strategy right now. What happens next is the interesting part. Common sense dictates that Dennis is right and the suite will win in time, and therefore the only sensible strategy has to be to build out a suite to underpin land grab.
One thing is for sure – I wouldn’t want to have Lars Dalgaard’s job. Getting this part right is near impossible. It’s cloudy out there.