EMC acquiring Virtustream provides the SAP HANA alt case

SUMMARY:

EMCs acquisition of Virtustream sets the latter free to provide an alt case for investing in SAP HANA. Here’s why.

S4HANA---logoMeeting with Virtustream was one of the highlights of my visit to SAPPHIRE Now 2015. As a reminder:

Sean Jennings, co-founder Virtustream told me that their solution offers customers 25-30% saving on existing deployments. That throws an immediate spanner in the S/4 HANA works except in one case – BW on HANA where there are clear benefits in terms of time to value. More to the point, Virtustream can offer clients cost efficiencies based on their MicroVM and the consumption based billing it enables. This is not reflected in the software license but at the underpinning infrastructure layer – an important cost to buyers.

So far, so good. What was not stated by me at the time but is now pertinent is that SAP was an investor in Virtustream. This was not your ordinary SAP Ventures investment but came from SAP North America. Why? The gnomes of Waldorf hated what Virtustream could do that in turn does not require investment in SAP HANA. SAP North America understood the relief Virtustream could bring customers to the point where it put its money where it matters.

When the news broke that EMC has acquired Virtustream my immediate thought was: ‘game on.’ Why? It’s nice that SAP will make a tidy profit from its investment but it is a bittersweet gift. The acquisition now means EMC can partner widely with SIs who might wish to make an alternative case for S/4 HANA. That was much more difficult with SAP as a significant shareholder.

Why would anyone want to do that? There’s a couple of reasons.

Despite Jon Reed’s eloquent portrayal of a S4 business case, I am struggling to see how it makes sense in the current business context. If I can already get substantial TCO benefits from Virtustream without disrupting my existing deployment landscape then why would I do a rip and replace for S/4 HANA? There would need to be at least a 2x improvement in my cost profile and right now I don’t know of any case where that has been successfully made. Feel free to pile in if you know of any proven cases. Yes – I know that SAP claims sales but that’s not the same as deployed and proven cases operating at scale.

Next, Reed’s business case is very much a ‘jam tomorrow’ scenario. He says:

The TCO approach Reilly recommends for the initial HANA business case was not exactly the dreamy IT-business collaboration I had in mind, but in his experience, that’s the practical basis that gets these projects live.

Quite. The problem is that IT has to make promises it may well not be able to keep unless there are very firm fixed price deals in place because as his piece demonstrates, an S/4 HANA switch is a significant technical upgrade. That fixed price element is anathema to SIs who continue with the time and materials approach to pricing and exactly the reverse of early BW on HANA use cases where ROI was clear.

Then there is the problem of testing. SAP argues Solution Manager in its continuing ‘not invented here’ mindset when there are other, better offerings in the market like Panaya, recently acquired by partner Infosys. Even John Appleby, arguably the loudest lover of HANA and widely quoted in Reed’s piece admits:

 “SAP’s tooling is not state of the art, and that’s a mistake. It’s workable, it moves things forward. But why haven’t they done more with test automation?

On the Panaya front, I noted:

Influencers among the SAP Mentor community immediately gave it a thumbs up. This from Thorsten Franz on Facebook:

As far as enabling upgrades goes, with Panaya, Infy can estimate, plan, and execute those projects better then SAP. Being able to adopt new technology  install upgrades) becomes more and more of a strategic asset for customers, so Infy can in fact claim to be an enabler for strategic missions.

Some inside SAP might wince at such suggestions but they need get over it and recognize that its partner is helping to enable the ‘simple’ mantra.

So what we now have is a battlefield where, on the one side SAP says: ‘come to me’ to all customers while on the other side, partners can readily make a case for less pain than an upgrade entails. If that wasn’t enough, there are numerous compelling cases where customers want to solve ongoing but unknowable problems.

Yesterday for example, I heard of a case where the customer’s question sounds bizarre at first until you realize the implications. Here goes: how do I solve for the demonization of certain products that are at the heart of my multi-billion dollar business? The first question from my side: how much of this stuff do you have in stores? Answer: no idea. Right there is a problem that no ERP upgrade will ever fix but for which resource is needed right now and for which I have seen solid CRM related solutions.

More to the point, would I as an SAP customer go to SAP for the answers as my first port of call? Unlikely when I already have SAP bucketed as a back office solution provider.

Finally, while I like the idea that SAP is partnering with user organizations to raise awareness of SAP validated solutions from the startup community, I wonder about the extent to which the ‘not invented here’ mindset will stifle innovation customers really need and of the kind I noted above.

My sense is that SAP will have to do a much smarter job of persuading customers to make the switch to S/4 HANA than we see today. Whether it can is another matter.

    Comments are closed.

    1. says:

      Hi Den, i basically agree with all your points except for ‘rip and replace’. this smacks of FUD as far as i’m concerned. S/4 migration can be irreversible and a big bottleneck but it’s done to preserve the IT investment rather than to let go of a legacy landscape.all the best,greg

      1. says:

        @greg – Possibly. Replacing an existing database is drastic for any organization and a HUGE decision not limited to running an ECC landscape. From that standpoint, it will certainly feel like rip and place. That assumes there are no dependencies between ECC and non-ECC systems. How many shops will want to support multiple databases in these circumstances? 

        1. says:

          Den that’s not true, many companies move from one DB to another, they have been doing so on SAP for 20 years. To call it rip and replace isn’t accurate, in my opinion.It’s definitely true that there are considerations here, especially the double-paying of maintenance, that mean that you need to migrate your entire landscape and not just ECC or BW. In addition, it’s a significant capital project and as Jon has noted in his article, the payback for this really comes in whether you trust that SAP will deliver value down the line.

          1. says:

            In speaking with Oracle DB shops, there is no obvious appetite for this. 

    2. says:

      Hey Den, I do want to qualify that whilst I’m a big believer in HANA (it is philosophically and technically the evolution of the database, in my opinion), I’m also one of SAP’s biggest critics! These days much of this is done behind the scenes, under NDA, with the side effect of not being so active in the external community.With that in mind, whilst SAP have done an amazing job of writing a database, some of the tooling needs work. We have seen much-needed functional consultant tooling like the guided procedures that come in S/4HANA, which should slash the net new implementation cost.Unfortunately the same has not (yet) come on the technical side especially in the area of Application Lifecycle Management. The SAP installation and upgrade tools have gotten better but could still be streamlined. It’s also clear for customers upgrading to S/4HANA, custom code management and test management will be paramount, and SAP’s efforts in this area are not sufficient to lower the barrier of entry to S/4HANA.That said, I don’t think you’ve spotted the most important thing here: Virtustream have what IBM and others have been promising for years: Enterprise-level hosting on demand, with on-demand pricing. This is very significant for SAP customers because they can cut 30% off their RUN costs, allowing them to spend that money on BUILD activities like Suite on HANA or S/4HANA. And because they have on-demand hosting, there is zero capital infrastructure cost to move to Suite on HANA – no assets that need to be written off. This removes a ton of friction for customers, make no mistake. EMC provides cash and a brand name customers can trust. This should be a win-win-win for customers, EMC and SAP alike.

      1. says:

        P.S. Why can’t you format replies on this platform? 🙂

        1. says:

          You can but it doesn’t look intuitive – we need to suck less.

      2. says:

        I know about the Virtustream’s on demand pricing. I thought I’d referenced/highlighted that earlier. If not my bad. 

        My views on NDA maybe different to yours. I have no problem with NDAs as they relate to strategic issues but where there is missing functionality etc or big bug fix issues then a considered approach behind the scenes is fine but then I believe there needs to be a way of surfacing concerns. Otherwise all we have are vague assurances.

        On value delivered, when I spoke with Virtustream, they were of the view that the value they deliver is such that it makes the business case for HANA much more difficult other than those cases where the customer wants to make the jump from nothing to BS on HANA etc.  I can see that based upon the numbers we discussed. Which comes back to the “why do it” question? As Jon found, this sounds like jam tomorrow. 

        You say: “It’s also clear for customers upgrading to S/4HANA, custom code management and test management will be paramount” -ever it was so but isn’t simplification via a significant reduction in running custom code a BIG part of the reason for making the switch?