SAPPHIRENow17 - the elephant in the room
In that context and from the get go, SAP faces a significant challenge in parrying away the inevitable critique around the highly publicized Diageo indirect access case and the much larger and more worrying InBev case. This carries through to customers where the instances of inbound pricing inquiries has risen dramatically and where we still see significant evidence of 'old school' behaviors in areas like line item definition and strong arming over outdated implementation methods. Even hardcore SAP fans see the disconnects. This thread from Jarret Pazahanick on LinkedIn captures the sentiment we see time and again:
Here is a précis of what I know based upon discussions with both customers and SAP pricing people. Some of this is certain, other elements are in motion, some of the detail I cannot discuss in open air for reasons of confidentiality. More will come out at SAPPHIRENow17.
- The last year or so, SAP has made considerable progress in simplifying the hundreds of line item price book. Procure to pay and order to cash for example embrace a slew of what were granular functions, each of which had a price ticket. That's fine as it relates to new customers and some who are renegotiating.
- There is a long way to go and price rationalization remains a work in progress, the timelines for which are fuzzy.
- Cloud pricing is relatively straightforward and includes maintenance but there are wrinkles around storage.
- HANA database pricing - again, relatively straightforward although considered to be uncompetitive in pricing terms. I will no doubt hear counter arguments but Amazon remains the benchmark.
- SAP knows that the introduction of sensor integration as one focus of ubiquitous connectivity creates a morass of pricing problems, many of which are ultimately related to the indirect access issue. In fairness to SAP, this is new territory for everyone and I am far from certain that any vendor has found a good way to nail this in such a way that there is an ongoing win-win. Josh Greenbaum talks about one such case which sounds relatively straightforward but which has other aspects to which I will return.
- SAP pricing is working towards some level of transparency and here we can readily point to BYD and the Digital groups as examples. They all know that one day, SAP's heavily guarded price book will have to become a publicly available document.
- Finally, implementation pricing is a mess in the eyes of customers who regard SAP markups on contract costs as too high. I find it impossible to reconcile how SAP fails to provide fixed price implementations for functions that are mature, even though it often subcontracts. It's a case of failing to take responsibility except on the most elastic of terms and which rarely favor the buyer.
Most of this represents progress customers should welcome, even though the pace of change is relatively slow. Some of it remains irksome. In that context, it is important to understand that SAP's internal workings are much more collegiate than is common in U.S. companies. My American friends find this odd but then it works for a company whose roots are in a very different culture that works for them - mostly.
The main difficulty centers around the many older contracts where the fear of what might come out of an audit arises. Here is more of what Pazahanick says:
Last week I fielded a call where the customer, who is already contracted on one project and has a non-binding agreement on another, is already worried about what might be buried in the legalese. In this case, the customer is struggling to build an appropriate relationship with his counterpart at SAP and so is left unsure how the deal will finally come together. Note that none of this has anything to do with pricing as such but everything to do with uncertainty, a key issue for SAP customers.
I expect to learn a lot more about others' experience in the coming days and look forward to on the record conversations with SAP leadership on this thorny topic.
SAPPHIRENow17 - the Next Big Thing
In his assessment of challenges facing SAP, Josh Greenbaum made an observation that weighs heavily on SAPPHIRENow 17 (and with apologies to Josh for lifting such a large chunk of verbiage:
I was speaking with an LOB manager working at long-standing SAP customer with a field maintenance problem it needed to solve. The problem was a classic digital transformation story: transform how field maintenance is prioritized by trying to understand what the cost of having a particular asset offline for a particular period of time would actually be. If it turned out that there was no impact, maintenance could be delayed, saving a ton of unnecessary expense and resources. And if maintenance was needed online immediately, the decision to spend the extra time and effort in overtime or other costs could be well-justified.
This meant understanding everything about the asset as well as the demand side of the market in which the company operated. As you can imagine, in its ultimate form this is the ultimate edge app: take existing on-premise data about the asset (ERP data), add real-time operations data about the asset (IoT data), marry it to external market data (unstructured web data), get information about the availability of maintenance people (talent management data) and parts (warehouse management), and plug it into a model (based on AI/machine learning algorithms), and, voilà, you’ve digitally transformed asset maintenance.
Sounds like a Bill McDermott/Bernd Leukert/Rob Enslin dream come true. Except for one little sticking point: this customer isn’t building this on SAP’s platform, nor is it using SAP’s tools. There’s a small license to be paid for accessing SAP’s APIs (because who wants the audit police to show up and ruin everyone’s day), but that’s it. The customer went with another vendor’s dev tools, which meant using that vendor’s platform, and, when the time is right, that vendor’s ML and IoT interfaces.
(My emphasis added.)
SAP has plenty going on around the IoT topic but most of it is hidden in the sense that SAP has not exactly been waving the flag or pouring in targeted marketing resource. Check out Leonardo for what is available. What's more, some of the projects it has been working on are seriously cool. But given the number of players in this market - think IBM, Microsoft, Salesforce, Google and the myriad of emerging companies and it is easy to understand that SAP might be feeling a tad nervous about the competitive landscape. Can we expect to see SAP make a big splash in this arena? Yup, but for the detail, we all have to wait.
Greenbaum makes an interesting observation which encapsulates some of SAP's problem:
In too many cases the SAP ‘crowd’ consists of the SAP ERP people at the company – full stop – while the customers using SAP’s non-ERP assets don’t think of themselves as SAP customers, a position encouraged by other non-SAP user constituencies who still think that SAP is synonymous with “poured in concrete.”
Vinnie Mirchandani, a long time critic of SAP has said on many occasions that while SAP thinks it is everywhere - and it is at one level - it is only a fraction of the total technology landscape in most companies. Estimates vary but 25-35% is not uncommon. If IoT is the next big frontier in enterprise computing, then SAP has some catching up to do on the marketing front.
Greenbaum thinks the marketing issue is well measured by the fact SAP ran more than 140 developer events last year that attracted considerable numbers of non-SAP coders but which the wider world didn't hear about. In short, SAP doesn't do Silicon Valley style marketing. This is unquestionably a two edged problem for SAP but one for which there is a near ready made solution.
In my conversations with SAP's IoT leadership, it was fascinating to learn that a significant amount of what I term strategic work is underway in Europe both at customers and at government levels. SAP's heartland has woken up to the fact that business is changing and is turning to SAP for help in a way that suggests incremental innovation is giving way to more radical change. In this geography, SAP is seen as a strategic partner. SAP has to make sure the world and his dog know that and NOT get sideswiped by the glitz of Valley talk. Instead, it can take pointers from the U.S. way of grandstanding but fashion it into messaging with which its customers can feel comfortable and included.
The good news is that for all the talk about IoT/AI and the many attendant buzzwords, we are at the beginning of business change mega trends so many anticipate following what we've seen at Amazon, Tesla, Facebook, Netflix and Uber as field leaders today. There is still a massive manufacturing base to which SAP can address itself. Now is the time for SAP to be bold and own some of the concepts that are driving change while showcasing its achievements.
In the lead up to SAPPHIRENow17, SAP cast its advisory net wide. It included some of the diginomica team and for that we are privileged. From back channel conversations among other colleagues, there is a consensus that SAP has a genuine opportunity at SAPPHIRENow17 to put a honking big stake in the ground but that there are also risks. Add in the pricing and indirect access topics and the event could easily go off the rails.
You can be sure there will be plenty of 'counter measures' being lobbed into the media arena as SAP unfolds its Next Big Thing but my view is that Greenbaum's final words capture the mood among the cognoscenti very well:
Messrs. McDermott, Leukert and Enslin have an enormous pallet of assets to assemble into a coherent message worthy of SAP’s total value to its customers. The challenge reminds me of William Gibson’s famous admonition: The future is already here, it’s just unevenly distributed. SAP’s future is already here, but the understanding and use of that future isn’t well-enough distributed, both inside and outside SAP.
The time for that to change is now.
Amen to that. And, as they say in media land, see ya after the break.