Let me start this blog post with a huge disclaimer: I have no intentions of wilfully beating up on SAP whatsoever!
Sure, the enterprise applications titan has lately been embroiled in an intellectual property lawsuit with archrival Oracle over improper use of support data through its TomorrowNow third-party support (recently discontinued) subsidiary.
As if this wasn’t enough, SAP is being sued again, and this time over an allegedly failed software implementation. Namely, in late March, Waste Management Inc. filed suit against SAP with claims of fraud (or gross over-promise, if one wants to sound a bit gentler here).
The plaintiff company claims to have spent a whopping US$100 million fortune implementing SAP’s software to run its business out-of-the-box (i.e., without any costly and pesky customizations). Since the software was allegedly a “complete failure”, the company is seeking expenses plus additional damages.
And it is all coming down in the midst of internal changes and reshuffling in SAP’s leadership and some high-profile staff departures. There are also indications about a not so smooth integration and assimilation of recently acquired Business Objects.
And yet, we’re a long way off from reading SAP’s obituary any time soon. SAP is the market leader for a reason, and I have a great deal of respect for its team and its ability to weather such storms.
It is not my intention either to crow over SAP’s apparent hiccups and acknowledged delaying (with decelerated investments) its much publicized software as a service (SaaS) offering called SAP Business ByDesign [evaluate this product].
SAP Business ByDesign is SAP’s first major foray into on-demand software delivery, whereby the company hoped to open a new market for its applications. Prospective customers would be companies that cannot afford its high-end applications, SAP Business Suite [evaluate this product], but which require more sophisticated software than its small business offerings, SAP Business One [evaluate this product].
The enterprise resource planning (ERP) giant had quite ambitiously hoped to attract 10,000 users and US$1 billion in revenue with SAP Business ByDesign by 2010. In addition to its commitment to SaaS, the on-demand product represents SAP’s indisputable commitment to the mid-market. In 2007, SAP set the lofty goal of 100,000 total customers, also by 2010. Growing from its current base of 35,000 will naturally require that a sizable number of small and midsized businesses join the fold.
But SAP’s outgoing chief executive officer (CEO) Henning Kagermann recently told investors that the company was now unlikely to hit that target. One would think that such a renowned (and regimented) company would have first conducted a little more research into what customers and partners really wanted, before chancing its neck and so publicly “betting the company” during the on-demand product launch and fanfares in the last fall.
And apparently the much-discussed ambitiously comprehensive on-demand feature list now looks somewhat incomplete, making some observers to be unsure whether it’s all more about vaporware or vapor-demand. The official SAP party line, according to the related official information extracted from the Q1 2008 earnings press release, can be seen below and you can draw your own conclusions:
“SAP’s small and midsize enterprise (SME) business continued to perform well in the first quarter of 2008 as the Company added more than 1,570 new SME customers (excluding customers from Business Objects) in the quarter, representing a 28% increase compared to the first quarter of 2007. A principal component of the SME strategy is SAP’s breakthrough innovative new solution, SAP Business ByDesign.
Since last September’s announcement of SAP Business ByDesign, the Company has been working closely with early customers and partners to validate and fine-tune the solution. As a result of this process, SAP has elected to modify the rollout strategy for SAP Business ByDesign to ensure a more focused and controlled ramp-up process. The new rollout strategy includes the following:
* For 2008, go-to-market efforts for SAP Business ByDesign will focus on six countries, where all the current productive early customers are based and which represent a large amount of the worldwide volume market opportunity. Additional country rollouts will be executed in 2009.
* It is expected to take around 12 months to 18 months longer than the original 2010 target to reach the SAP Business ByDesign $1 billion revenue and 10,000 customer potential.
* However, the Company will use SAP Business ByDesign innovations and technologies for the existing solutions and this will contribute significantly to the overall revenues of SAP in 2010.
* Also, the Company will engage with significantly less than 1,000 customers in 2008.
In light of the modified rollout strategy, SAP will reduce its accelerated investments around SAP Business ByDesign in 2008 by approximately €100 million, which is expected to result in additional operating margin expansion in 2008 as noted in the “Business Outlook” section of this release. Furthermore, beginning in 2009 there will be no further accelerated investments. The expected expenses related to SAP Business ByDesign will be funded out of SAP’s normal operational business.
SAP maintains its full confidence in the product, the market opportunity and the associated business model of SAP Business ByDesign, as the Company continues to move toward volume readiness in 2008.”
If SAP is just being conservative with the product and wants to ensure everything is correct before the general availability for expected (and hoped) high volume sales, then this might work out great for the vendor.
Again, I have a lot of respect for the SAP team, so I would give it the benefit of the doubt. After all, Germans’ zeal for engineering perfection is well recognized and admired. But also again, the question here is about creating inevitable bad market buzz for this important product.
It is only logical to expect analysts and market observers to be skeptical, and the reasons for the delay will thus remain shrouded in mystery. On one hand, some SAP executives seem to be publicly admitting that there is more work and figuring out to do.
On the other hand, some (of course incognito) company insiders reportedly assert the product has technical problems. Amid almost everyone having something to say in this regard, I would hereby point out to ZDNet’s bloggers Larry Dignan and Josh Greenbaum, who have produced decent blog posts on the topic.
Sure, the enterprise applications titan has lately been embroiled in an intellectual property lawsuit with archrival Oracle over improper use of support data through its TomorrowNow third-party support (recently discontinued) subsidiary.
As if this wasn’t enough, SAP is being sued again, and this time over an allegedly failed software implementation. Namely, in late March, Waste Management Inc. filed suit against SAP with claims of fraud (or gross over-promise, if one wants to sound a bit gentler here).
The plaintiff company claims to have spent a whopping US$100 million fortune implementing SAP’s software to run its business out-of-the-box (i.e., without any costly and pesky customizations). Since the software was allegedly a “complete failure”, the company is seeking expenses plus additional damages.
And it is all coming down in the midst of internal changes and reshuffling in SAP’s leadership and some high-profile staff departures. There are also indications about a not so smooth integration and assimilation of recently acquired Business Objects.
And yet, we’re a long way off from reading SAP’s obituary any time soon. SAP is the market leader for a reason, and I have a great deal of respect for its team and its ability to weather such storms.
It is not my intention either to crow over SAP’s apparent hiccups and acknowledged delaying (with decelerated investments) its much publicized software as a service (SaaS) offering called SAP Business ByDesign [evaluate this product].
SAP Business ByDesign is SAP’s first major foray into on-demand software delivery, whereby the company hoped to open a new market for its applications. Prospective customers would be companies that cannot afford its high-end applications, SAP Business Suite [evaluate this product], but which require more sophisticated software than its small business offerings, SAP Business One [evaluate this product].
The enterprise resource planning (ERP) giant had quite ambitiously hoped to attract 10,000 users and US$1 billion in revenue with SAP Business ByDesign by 2010. In addition to its commitment to SaaS, the on-demand product represents SAP’s indisputable commitment to the mid-market. In 2007, SAP set the lofty goal of 100,000 total customers, also by 2010. Growing from its current base of 35,000 will naturally require that a sizable number of small and midsized businesses join the fold.
But SAP’s outgoing chief executive officer (CEO) Henning Kagermann recently told investors that the company was now unlikely to hit that target. One would think that such a renowned (and regimented) company would have first conducted a little more research into what customers and partners really wanted, before chancing its neck and so publicly “betting the company” during the on-demand product launch and fanfares in the last fall.
And apparently the much-discussed ambitiously comprehensive on-demand feature list now looks somewhat incomplete, making some observers to be unsure whether it’s all more about vaporware or vapor-demand. The official SAP party line, according to the related official information extracted from the Q1 2008 earnings press release, can be seen below and you can draw your own conclusions:
“SAP’s small and midsize enterprise (SME) business continued to perform well in the first quarter of 2008 as the Company added more than 1,570 new SME customers (excluding customers from Business Objects) in the quarter, representing a 28% increase compared to the first quarter of 2007. A principal component of the SME strategy is SAP’s breakthrough innovative new solution, SAP Business ByDesign.
Since last September’s announcement of SAP Business ByDesign, the Company has been working closely with early customers and partners to validate and fine-tune the solution. As a result of this process, SAP has elected to modify the rollout strategy for SAP Business ByDesign to ensure a more focused and controlled ramp-up process. The new rollout strategy includes the following:
* For 2008, go-to-market efforts for SAP Business ByDesign will focus on six countries, where all the current productive early customers are based and which represent a large amount of the worldwide volume market opportunity. Additional country rollouts will be executed in 2009.
* It is expected to take around 12 months to 18 months longer than the original 2010 target to reach the SAP Business ByDesign $1 billion revenue and 10,000 customer potential.
* However, the Company will use SAP Business ByDesign innovations and technologies for the existing solutions and this will contribute significantly to the overall revenues of SAP in 2010.
* Also, the Company will engage with significantly less than 1,000 customers in 2008.
In light of the modified rollout strategy, SAP will reduce its accelerated investments around SAP Business ByDesign in 2008 by approximately €100 million, which is expected to result in additional operating margin expansion in 2008 as noted in the “Business Outlook” section of this release. Furthermore, beginning in 2009 there will be no further accelerated investments. The expected expenses related to SAP Business ByDesign will be funded out of SAP’s normal operational business.
SAP maintains its full confidence in the product, the market opportunity and the associated business model of SAP Business ByDesign, as the Company continues to move toward volume readiness in 2008.”
If SAP is just being conservative with the product and wants to ensure everything is correct before the general availability for expected (and hoped) high volume sales, then this might work out great for the vendor.
Again, I have a lot of respect for the SAP team, so I would give it the benefit of the doubt. After all, Germans’ zeal for engineering perfection is well recognized and admired. But also again, the question here is about creating inevitable bad market buzz for this important product.
It is only logical to expect analysts and market observers to be skeptical, and the reasons for the delay will thus remain shrouded in mystery. On one hand, some SAP executives seem to be publicly admitting that there is more work and figuring out to do.
On the other hand, some (of course incognito) company insiders reportedly assert the product has technical problems. Amid almost everyone having something to say in this regard, I would hereby point out to ZDNet’s bloggers Larry Dignan and Josh Greenbaum, who have produced decent blog posts on the topic.
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