In essential physical therapy, short-term pain might be unpleasant but it's also an indispensable prerequisite for long-term health. So yesterday when SAP's new CEO said that offering the company's core ERP products in a SaaS model will end up "hurting our margin, and hurting our stock," I hope he wasn't saying SAP will try to wait out -- or worse yet, try to ignore -- the inexorable forces of
In essential physical therapy, short-term pain might be unpleasant but it's also an indispensable prerequisite for long-term health. So yesterday when SAP's new CEO said that offering the company's core ERP products in a SaaS model will end up "hurting our margin, and hurting our stock," I hope he wasn't saying SAP will try to wait out -- or worse yet, try to ignore -- the inexorable forces of market demand and technology evolution.As reported yesterday by my brainy colleague Mary Hayes Weier, SAP CEO Leo Apotheker said the new SaaS version is not only ready for deployment but is, in fact, "the coolest app ever written." So clearly the fly in the ointment is neither timing nor technology; rather, as Hayes Weier noted, it's all about dollars and sense: Apotheker is trying to figure out how "to bring SAP into the world of cloud computing without killing profit margins." She also said that Apotheker summed up his company's challenge thusly:
"We want to look out for our customer, bring innovation to our customer, and make sure we bring our own cost and infrastructure in place so that we weather the storm."
So if I might further torture the pain metaphor, I'll bet a lot of CIOs are looking at those comments from the SAP chief and are thinking one of two things: they're happy that he can finally feel their pain, triggered by steep and relentless license and maintenance rates; or, not feeling overly sympathetic, they're telling him to cry me a river because SAP's hardly alone in wrestling with tumultuous shifts in business models.
For CIOs, this raises a number of questions relative to their relationships with enterprise software vendors, and it certainly raises an equally challenging set of questions for software companies that for years have delivered sophisticated, complex, and powerful products for which they received massive bundles of cash up-front plus sizeable installments throughout the life of the contract. For CIOs:
How are your enterprise software vendors managing the "perpetual" license fees you signed X years ago: is it just business as usual, or are they trying to work out mutually acceptable new arrangements?
What do you think of their road maps for extended product lines that allow you to choose either the traditional on-premises model at one price point, or the SaaS model at another price point?
Are the timetables for those road maps pacing your needs as a customer, or do they seem to be predicated on preserving yesterday's models?
In your relationship with your enterprise software vendors, who's pushing more aggressively on innovative approaches: You or the vendors?
And if the software vendors are leaving the innovation to you, are you ready to give serious consideration to other vendors that are focusing on creating the tools for tomorrow instead of preserving the predictability of yesterday?
It's not my intent to appear to be pinning the problems of the software world on Apotheker, but as one of the largest enterprise software companies in the world SAP wields enormous influence throughout the industry. And while Apotheker's comments about SAP's internal challenges are unlikely to stir up much sympathy among his customers, Hayes Weier reported that he also was clear in stating his commitment to SAP customers:
"We have a vested interest in making sure customers come out alive, and we will work with them as much as we can, but have to also protect our own interest."
Now, I'm not the CEO of a multibillion-dollar software company, and I don't even play one on TV -- but in looking at things pretty closely from the customer side of the equation, I'd say those companies would be a lot better off if they opted for some serious but short-term pain that'll get them in line with their customers rather than pushing the discomfort off into the future in the misguided hope that demand will stay high for models that no longer work.
Mr. Apotheker, every single one of your customers and prospects is wrestling with a difficult global economy along with rapid-fire industry-specific upheaval, so don't try to make your problems their problems -- they've got quite enough of their own.
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