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SAP 2011: Still a Cloud Contender

By February 1, 2011Article

After a couple of turbulent years, SAP is upbeat and looking forward again. Positive changes include change of leadership at the top, the acquisition of Sybase, the unwrapping of a robust Business By Design (FP 2.5), and innovations like in-memory computing.
SAP also announced several on-demand, line-of-business (LOB) business applications for 2011 that will be targeted at SMEs and large customers alike:

  • Carbon Impact (sustainability analytics)
  • Sales On Demand
  • Sourcing On Demand
  • Business Intelligence On Demand
  • Streamwork (collaborative decision making)

SAP is in the same boat as Oracle as it scrambles to develop and execute a strategy that balances its on-premise software business models and cloud computing models and stake its competitive claims against cloud upstarts like Salesforce, Netsuite, Successfactors, Workday, Taleo and so on.
Is it too little, too late for SAP? Do the cloud upstarts have an unfair first-mover advantage?
No and no: most experts do not believe either of those to be the case. It’s still early days for cloud markets. Customer adoption is just beginning to pick up, but there is still much uncertainty and hype. Therefore, the opportunity exists for any company to dominate the cloud in the coming decade.
It’s true that many SaaS companies have established a significant market presence and arguably have a first-mover advantage. However, the first mover advantage is a myth. Microsoft, in particular, was a fast follower and dominated the market in several technologies. Even the original PC operating system and GUI interfaces were technologies that were first pioneered by IBM and Apple respectively.
The first-mover advantage myth was first exposed by an extensive research study by Gerald Tellis (University of Southern California) and Peter Golder (New York University) in their important book: ”Will and Vision: How Late Comers Grow to Dominate Markets.”
The main conclusion of the book based on hundreds of case histories is this:

The first-mover advantage has never been the advantage it has been cracked up to be in any but six of the 66 industry groups studied over the past decade.

Though written back in 2001, the book has important lessons for today’s cloud incumbents. Though, it sounds old and somewhat clichéd, the researchers’ advice that market leadership boils down to two simple things: vision and will.

“The real causes of enduring market leadership are vision and will. Enduring market leaders have a revolutionary and inspiring vision of the mass [mainstream] market, and they exhibit an indomitable will to realize that vision. They persist under adversity, innovate relentlessly, commit financial resources and leverage assets to realize their vision.”

At the SAP influencer summit in December 2010, an event that was dominated by cloud computing discussions, the company painted a compelling three-pronged vision: on-premise, on-demand, and on-mobile.
When Peter Lorenz, EVP at SAP, said, “We have to succeed at on-demand – this is not a hobby,” SAP clearly signaled its seriousness about cloud computing.
In addition to the SaaS apps, SAP is also focusing on Platform as a Service using innovations like in-memory computing as a foundation of their PaaS architecture and building an app store and a developer ecosystem. SAP also recognizes that it will be hybrid world for many years to come. Many large enterprises don’t want to disrupt their core enterprise IT systems but want to continuously innovate by deploying new on-demand solutions at the “edge”. SAP is also working on enabling orchestration of workflows and integration across on-premise, on-demand, and on-mobile include non-SAP systems.
It certainly seems like the new co-CEOs — Snabe and McDermott — are re-energizing the team again and working hard to build the trust of their existing customer base as well as identifying new market opportunities in the SME space. The SME market is at a turning point in terms of their readiness in adopting more business-critical applications like ERP and analytics in the cloud. To reach this market, however, SAP needs to build a new image, an image that projects an SME-friendly face that is as cost-competitive and agile as the smaller pure-SaaS players. This is going to come down to executing sales and marketing strategies that focus on the SME channel and LoB and IT executives.
Almost 100 years ago, the economist Thorstein Veblen speculated that technology leadership has a significant downside: it imposes tremendous switching costs and cultural resistance in existing markets when a new generation technology comes along.
The upside is that the emerging technology creates new markets that didn’t exist before. For example, many countries leapfrogged landline infrastructure by building state-of-the-art wireless capacity at unprecedented speed: India, for example, went from zero to 700 million mobile phones in less than a decade making it the second largest wireless market in the world.
Likewise, SAP will find new markets in SMEs and in emerging countries, markets that will find that the use of SAP’s services in the cloud extremely attractive.
SAP has the right vision and offerings for 2011. It’s now a matter of execution.
Kamesh Pemmaraju heads cloud research at Sand Hill Group and helps companies—enterprises and technology vendors—accelerate their transition to the cloud. Follow him on Twitter @kpemmaraju.

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