Either side of Christmas there has been a fair amount of debate about the future of the enterprise software market, particularly whether the big players such as Oracle and SAP are going to start feeling the heat from the software-as-a-service (SaaS)/cloud computing folks. Given the economic conditions and the hefty maintenance fees that many customers have been asked to pay it quite rightly led some commentators to suggest customers have a right to demand more.
SAP has been ‘victim’ of some sabre rattling in Europe as it has just announced that it is backing down on changes to its support license structure – a result of pressure being exerted by many commentators. Frankly, though, I’d rather see that as a good example of an enterprise IT vendor getting the need for dialogue with customers. In fact Dennis Howlett suggests that SAP wants to be the ‘voice of the customer.’ So rather than criticise SAP I say well done!
Rip and Replace Frenzy?
Elsewhere there has been debate about the financial performance of SAP and Oracle with some analysis suggesting the Oracle’s numbers before Christmas told a disturbing story about its reliance on support revenues for its profitability. As I’ve said before Oracle does say its higher maintenance fees are critical to future investment in product/services R&D, but given the financial belt tightening of the last year many customers don’t have the luxury of sustaining such expenditure. (A fact borne out by the growth of the likes of Rimini Street and other third party support vendors, who are seeing more and more customers turning away to them for maintenance contracts)
So does that mean we are about to see dramatic changes in the IT industry? On its home turf Computerwoche dared to raise the question whether SAP could remain independent, while the hotly debated Sapience conference saw the SaaS vendors making very bold statements about their competitiveness against the ‘traditional’ enterprise IT companies. In this more balanced piece Jon Reed did say there are merits to the SaaS model and that SAP needs to be careful, particularly with some of its older customer base refusing to upgrade, but that we are not going to see a dramatic ‘rip and replace’ frenzy.
Integration Rather Than Software to Decide SaaS Success
I tend to agree both from a practical and technical perspective. Practicalities – for instance – IBM AS/400 was around long before I started and is still around today. Ultimately it will always be up to customers to decide which products they use and they would be crazy to throw away long-standing investments. In December Ray Wang also offered advice to companies considering a shift to SaaS, listing 10 recommendations, the most important of which – for me – was a technical one about integration. We have already learnt the lesson the hard way with existing enterprise IT platforms, that unless applications are integrated companies fail to extract their full value.
Certainly, in some areas such as customer relationship management (CRM) and salesforce automation it has been possible to establish a beachhead quite quickly, because these systems can be quite distinct from core IT infrastructures. However, to convince major organisations to switch their critical applications such as financial administration to the SaaS or Cloud model, vendors must demonstrate they can integrate disparate systems to ensure a transparent picture for the customer. That means combining business intelligence with performance management with accounts payable and other core finance applications. That is no easy task and requires a depth of expertise that I don’t think I’ve seen from the SaaS gang.
Who do you Trust?
I guess they would suggest implementation partners ensure the business processes run smoothly together, but if I were a major bank who would I see as having the expertise to implement properly? If the CIO had to guarantee the trading floor had real-time data that linked seamlessly with the back-office finance applications so would the CIO trust a SaaS vendor?
For me that’s the big question. Security is an easy FUD argument against SaaS/Cloud, but integrating business processes is the major area where SaaS vendors will need to convince.
So does that mean the ‘traditional’ big guns can breathe easy? No.
Impact of Conway’s Law and Enterprise IT as a Utility
The reality is that we’re moving to the Cloud/service driven IT model. It will fulfil Nicholas Carr’s view of IT as a utility. At the moment it is driven by economic necessity, but while the SaaS vendors have their chance I am confident they are going to be working hard to get further and further inside the corporate firewall, stripping out the older proprietary systems.
Where does that leave Oracle and SAP? I once had it described to me as moving a world of ‘provices’ and ‘serducts’ rather than products and services. In this excellent overview of the challenges for the enterprise vendors Pete Swabey references Conway’s Law, which reads: “Organisations which design systems…are constrained to produce designs which are copies of the communication structures of these organisations.”
If we follow the model that software will become a commodity and accept the impact of Conway’s law there are going to be a few clear priorities for vendors:
1) Customer service reputation: historically never a strong suit for enterprise IT vendors, but surely they are going to have to engage more aggressively with customers and be prepared for frank, sometimes awkward dialogue. How far that dialogue should go is the key challenge. If you follow the engagement model to its furthest reaches then surely vendors will involve customers more in agreeing product roadmaps, but that could be a massive, complex headache, which sees profits disappear, much to the consternation of shareholders.
2) Brand: if you agree that service rather than product will become the priority, that means that the focus on brand identity will have to increase and change. The US technology companies are all fairly sophisticated in protecting their brands, but I’m not sure many of them recognise it as critical to their customer/employee engagement. For example, I don’t really remember either Oracle or SAP trumpeting the capabilities of the Consulting and Support teams much beyond the odd press release. Surely, highlighting the services and expertise of these teams should become even more important than product. And that is not just about tangibles, it is also about the intangibles that customers associate with a brand. For example, would an enterprise IT vendor have the courage to publicise a software implementation that went wrong (and the turn around process), as a positive example of commitment to customers? Today no, but in the future (in the right context) a brave vendor should surely be willing to demonstrate how willing it is to through the kitchen sink at a problem? Creating that kind of mythology enhances loyalty.
3) People: And if the tangibles and intangibles become ever more important in this service driven model, then obviously people are of paramount importance. A cliché, sure, but again enterprise IT vendors have not always covered themselves in glory when it comes to interaction with their staff. Having worked for an enterprise software vendor (Oracle) and loved it, I know how exciting it can be to work in this sector. However, across the industry the approach to employee communications – more importantly engagement – is frankly patchy. And if you treat staff like mushrooms, then the obvious happens…
So neither a bloody or a velvet revolution, but it would be interesting to be in the boardrooms of SAP and Oracle to hear what they’re saying about the future.