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Dear SAP — IT’s Past HANA TIME

June 16th, 2014 by
In-Memory DB

In-Memory DB

Recently there has been a lot of activity around in-memory database processing.  Oracle announced in-memory which it is positioning as a direct competitor to HANA [Fn1]; IBM, Microsoft, and others are getting on the “in-memory” bandwagon as well [FN2].  A quick check of Wikipedia indicates there are numerous companies claiming “in-memory” database processing as well [FN3]. Then there is the huge performance difference between Solid State Drives (SSD) and physical media Hard Drive Disks (HDD), being somewhere around 75 times or greater the Database I/O performance (from about a year ago) [Fn4].  The cost difference for SSD vs Memory is significant and SSD technology is still in its infancy but improving quickly.

This all creates a recipe for “in-memory” database processing becoming a commodity. SAP, there is a forward looking option where you can be strategic about increasing application sales, license revenue, and maintenance revenue.  You can do this while making customers happy.

Aren’t “win-win” situations great when they are available?

What Does Strategic Mean?

There is so much talk about “strategy” these days that it has become an overused word with little meaning.  Too many think strategy means “clever.”  While strategy is often “clever” in the business context it has a very specific meaning.  Over the years I’ve developed the following model to define the strategic journey for any area of business.  In this case, when I refer to strategic sales, I mean that you are creating real barriers to entry and real pressure for competitors.

Making IT and ERP Investments Strategic and Business Aligned

R3Now.com IT – ERP Strategy Model

Strategic Sales Thinking on Managing SAP HANA Competitors

SAP, you have certainly recovered any R&D or development costs invested in HANA.  Not only that, you’ve made some money along the way and will continue to leverage HANA as a revenue stream.  However, you have a unique, AND NARROW, window of opportunity.  As the dominant presence in the “in-memory” space, your opportunity is to limit Oracle’s new database sales growth while still growing your revenue and application footprint with customers. You can use a similar approach to the one I outlined for keeping customers happy and growing revenue in .  Basically, give customers something of meaningful value while growing your revenue and application footprint.  Fence out the competition.

Use HANA to get out in front of Oracle database sales by bundling HANA with certain application and license sales as a “free” application but with some ongoing maintenance fees.  You can limit the “amount” of HANA, for example make it the first 1, 2, or 3 64GB units as “free.”  For existing customers who may have purchased a promoted combination of application(s) and HANA, provide them some future discount for Net NEW application (or license) purchases.  You could also revive your old “safe passage” approach to get existing Oracle installed base customers OFF of the Oracle Database.  By giving existing Oracle Database customers an equivalent HANA value to replace their Oracle Databases, but charging maintenance, you create tremendous pressure on Oracle to “cannibalize” their own installed base. This approach does a LOT of things:

  1. Continued revenue generation by promoting the sale and license growth of existing applications.
  2. Some revenue generation from HANA maintenance for those customers who accept the bundled version.
  3. Targeted sale and promotion of the applications SAP as a company wants to more aggressively market such as mobility, CRM, or Business Objects.
  4. Net NEW database sales by Oracle, or other competitors, are more difficult to position against a MUCH higher performance “free” HANA database application option.
  5. Establishes a competitive environment where Oracle has to dilute its own sales and marketing efforts to pursue existing customer while competing against HANA adoption for new applications.
  6. It allows you (SAP) to continue to sell HANA into the existing database space.
  7. HANA is well positioned as the future defacto In-Memory database (similar to what IBM did with the PC in its early days).
  8. You create more “stickiness” with any customers using HANA over the rival database companies.

Conclusion for SAP HANA in the Future

HANA’s In-Memory dominance is challenged by numerous competitors entering (or already in) the marketplace.  When you combine improvements in SSD performance and cost the pressure grows stronger.  Oracle has just finished spending a significant amount of R&D on their In-Memory database product and is preparing to aggressively market it.  By providing HANA so that it promotes the sale of the SAP application portfolio, while undermining the viability of new Oracle Database sales, Oracle will struggle to recover R&D while you (SAP) raises their expense to acquire and retain customers.

Done properly Oracle would be placed in a position to cannibalize their own installed base to retain their customer base, all while SAP is left focusing on selling solutions from the SAP application portfolio.

Don’t let this opportunity slip away.  You can gain additional application market share while placing your biggest competitor, Oracle, in a difficult competitive situation.

==============

[FN1]  Oracle’s In-Memory Option Aims To Beat The Rest Within 12 Months.  ZDNet, June 10, 2014.  http://www.zdnet.com/oracles-in-memory-option-aims-to-beat-the-rest-within-12-months-7000030382/

[FN2] In-Memory Databases: Do You Need The Speed?  Information Week, March 3, 2014.  http://www.informationweek.com/big-data/big-data-analytics/in-memory-databases-do-you-need-the-speed/d/d-id/1114076

[FN3] In-Memory Database.  Wikipedia, retrieved June 16,2014.  http://en.wikipedia.org/wiki/In-memory_database

[FN4] Tom’s Hardware, 2013 HDD Database I/O performance: http://www.tomshardware.com/charts/hdd-charts-2013/-20-IOMeter-2006.07.27-Database,2922.html; SSD Database I/O Performance: http://www.tomshardware.com/charts/ssd-charts-2013/IOMeter-Database-Benchmark,2817.html.  retrieved June 16,2014

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SAP Third Party – Indirect Usage Licensing Part 2

December 3rd, 2012 by
SAP Indirect Usage Licensing

SAP Software License

For those who may not be aware, SAP is not the first company to require user licenses for third party or “indirect usage.”  It is becoming more commonplace and some companies are quite aggressive with it.  This follow up to last week’s post on SAP Third Party – Indirect Usage Licensing Part 1 will address real opportunities here.

Over the years SAP has set itself apart by aggressively pursuing sales while generally maintaining good customer relations.  It is a balancing act that has served SAP well.  Over the years SAP has avoided the market perception of a ruthless, do anything to get the sale, software vendor. 

This whole third party, indirect software usage can undermine that. 

But there IS an answer!

SAP Are You Listening?  There IS a Third Party / Indirect Usage WIN-WIN Here!

Like any other company, revenue growth is a primary focus.  For software companies, directly related to revenue growth there is also expanding the software footprint within the customer base. 

SAP as a company wants to grow revenue and expand their software footprint. What if there IS a way to achieve this AND satisfy your customers too. 

Would you agree this would be a WIN-WIN?

Customer Perception of the SAP Third Party Indirect Usage Licensing

Purchasing licenses for “indirect usage” feels to a customer like they are paying for something and not receiving any benefit.  There is no “value” in this approach from a customer perspective.  Yes SAP, you have your Intellectual Property (“IP”) to protect, and yes, you developed that IP. 

I am not talking about a legal issue with your IP, instead I am referring to a sales, marketing, and customer relations issue.

Add a customer’s lack of awareness to the perception of “no value” and you have a recipe for difficult customer relationships.  SAP third party or indirect software usage presents an unbudgeted “pure expense” from a customer viewpoint.  Most customers really are not aware of the indirect usage requirement so they don’t budget for it

SAP, Your Third Party or Indirect Usage Answer

Provide your customers a value added alternative to indirect usage or third party compliance issues.  Give them an option to substitute the third party or indirect usage cost they would have incurred in the form of other SAP applications or solutions.  In this way your customers are receiving something of value, you are expanding your software footprint, and you are still gaining the revenue you were looking for without the nasty reputation.  If necessary, give them a deferred payment window so they can plan for and budget the change.

Provide your customers a value added alternative to indirect usage or third party compliance issues.

You can gain a HUGE advantage by targeting certain application deployments–, for example if you want to expand your Cloud sales, HANA, or mobile, you could pick the various products you will allow as a substitute for the indirect usage fees.  This in turn boosts your sales of these newer products and provides your customers with something that is meaningful.  This has huge strategic benefits, for example, each HANA sale potentially displaces Oracle.  Each CRM sale substitute (for the indirect usage) potentially displaces Salesforce. 

Expand Application Footprint and Increase Revenue

ALWAYS be ready to trade the 3rd party integration for a deeper footprint which keeps a competitor out of the client.  Clients benefit from new software capabilities and SAP benefits from a revenue stream WITHOUT the negative relationship consequences of “forcing” the 3rd party maintenance issue.  This also becomes a differentiator with Oracle and other vendors who will push the 3rd party issue.  SAP STILL gains the additional revenue.

ALWAYS be ready to trade the 3rd party integration for a deeper footprint which keeps a competitor out of the client

You could structure contracts to defer 3rd party usage fees by adding some tradeoff in contracts like “as long as annual license revenue is at least ‘x’ no 3rd party licenses.” By doing this you are taking a “gentler” approach in preparing customers for a possible future license event.  This takes the surprise, frustration, and shock out of the equation while keeping your revenue stream more predictable and giving them a chance to budget for the spend.

Conclusion on SAP Indirect Usage or Third Party Usage Sales and Marketing Options

Seriously SAP, you have a LOT of options here.  You can be less adversarial and note that you will defer indirect usage or third party fees as long as a customer’s annual, net new license spend is “X” amount a year.  If they need new licenses for additional users the customer perceives this as a benefit and they can gain additional time to budget for an eventual indirect usage fee.  You are still satisfying your CORE requirement to grow revenue while increasing your solution footprint within your customer base AND in a way that is less offensive than the customer perception of a cost for no benefit.  Many customers look at this as a penalty for choosing SAP solutions.  While the IP is yours SAP, it is offensive to a customer because the data and business are theirs.

This creates a more open environment and many more customers may be willing to “come clean” about indirect usage.  By providing some kind of perceived benefit they are more likely to address the compliance (rather than hiding it) AND the customer AND SAP gain something of value.  Talk about a “Win-Win”!




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Storms Coming on the Salesforce.com Cloud Front

November 19th, 2012 by
Salesforce.com Cloudy Vision

Salesforce.com financial clouds

 

I recently ran into a post from a pretty well respected investor blog over at “Seeking Alpha.”  The basic takeaway is that the Salesforce.com cloud business is not all it is hyped up to be and that shareholders may be in for a seriously rude awakening [FN1].

——————–

The way it is described there sounds a LOT like Enron accounting.  They called it a Ponzi Scheme and here is how it works:

  • Employees receive stock options INSTEAD OF cash compensation for various raises, bonuses, etc.
  • Salesforce.com takes the DIFFERENCE in stock value that they gave to their employees (an expense under GAAP and IFRS) verses what it WOULD HAVE COST in cash and books THAT DEFERRED COST as actual cash flow.  Viola! Magical cash flow appears!
  • THEN they add the “saved cash flow” (deferred cost, i.e. Expense) to non-GAAP earnings as “profit” thereby doing a complete Enron to convert an expense into profit.

So, let’s sum this all up.  They issue more stock certificates, they provide them to internal employees, then they simply count the stock certificates as profit.  WOW!  That is some creative accounting. 

The post goes on to explain the shareholders have their share value diluted, not necessarily in dollar terms in the SHORT TERM, but most definitely in quantity terms in the short term.  It is only a matter of time before it all catches up with them however.  Their whole premise is the Salesforce.com Cloud sales model is unsustainable in the mid to long term.

An added expense to the shareholder is the dilution that these increasing stock-based compensations are causing. Every quarter, the share count is rising. So the shareholder is fooled in a double manner. By dilution and representing costs as profits.

They go on to add that while some investors may be fooled in the short term on the non-GAAP claims the GAAP numbers tell a story that the company may have some very serious storm clouds ahead.

Without deeper insight, instinct would tell you there must be a catch, simply by asking the following question: How can you raise cash by spending more than you earn? Spending more than earning is exactly what Salesforce.com is doing, as evidenced by the company’s increasing GAAP losses.

The summary is that Salesforce.com excludes the huge expense of stock based compensation to present NON GAAP profits (masking that this expense results in GAAP losses), but on the other hand they include it in their cash flow statement to present rising cash flow (masking that true cash flow from operations is falling).

Consequences of a Salesforce.com Stock Fall

A Salesforce.com stock slide would have significant ripple effects across all of the software space, but most aggressively on any of the cloud vendors.  Because it is such a high profile cloud vendor, and a high profile CRM software company, the effects would likely have at least some short term impact even on companies like SAP.  

 


 

[FN1] Salesforce.com Accounting Shenanigans Explained

http://seekingalpha.com/article/857361-salesforce-com-accounting-shenanigans-explained

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