What This Article Covers
- What is the xApps Arrangement?
- Why is it Such a Problem and so Anti-Competitive?
The SAP xApp program has been a commercial failure. This is good because the xApp program is not much more than a marketing agreement between SAP and smaller vendors. SAP co-opts best of breed vendors and provides them with more market exposure. It also confuses clients as to what software vendors are doing what and seems to violate the principle that the company doing software development receives the compensation.
How The Arrangement Works
The xApp program is where software vendors agree to give over 40% of their revenue on a software sale to co-market with SAP and be brought into their accounts. However, it gets worse. Software vendors that are on the SAP price list have to give over between 60 and 70% of the software license, and furthermore, the money from the customer is first paid to SAP. SAP then is responsible for paying the third-party software vendor on a schedule that may not be immediate.
There are some problems with this program, and they are listed below:
- SAP can and does pretend that it has far more functionality that it does. So SAP salesmen can say that “we have that capability through our xApp,” which is another way of saying that they don’t have it at all.
- Clients end up getting very confused as to who is doing what. Is the functionality within SAP, is it at the third-party vendor? Who is doing what?
- The integration is almost always oversold. SAP, in fact, invests very little in the integration process and creates just an essential enough integration to tell customers “the solution is integrated.”
- The resulting solution often ends up being less than the best. To insert more SAP functionality, some parts of the third party vendor’s functionality and SAP functionality are inserted, not because this results in the best solution but because then a new “product” can be said to exist.
- With SAP taking 40% to 70% of the revenues for the software that was due to the creators of the software, the xApp program takes revenues from where the work was done and gives it to where it was not done, which is SAP. (That is interesting because I thought we were all about compensating the creators of intellectual property in the US system.)
- The xApp program is just a Trojan horse by SAP. Through “working with” the third part vendors to integrate them to SAP, SAP eventually hopes to replace all of these vendors with their products, which will work eerily like the software of the third-party vendors. I show in this article on the history of advanced planning software much of the APO design appears to be taken from SAP’s joint venture with i2 Technologies in the late 1990’s (listed below). SAP co-opted work from Commerce One before dumping them and effectively ending the company, and after evaluating SPP, I am noticing many concepts that seem directly copied from MCA Solutions. For vendors, partnerships with SAP never last long and often result in bad outcomes for the smaller vendor. Because SAP is so powerful, there is a lot of fear of speaking out against them, so these facts do not tend to get aired in published material or on the web. (If I worked for any of the large consulting companies, I would receive pressure from a senior partner to remove this article.)
- Living in the US means being exposed to lengthy and constant contentions regarding the market, and how well the market works. (Europeans who visit here know this, but they mostly try to keep silent on the matter.) Well, this arrangement is decidedly anti-market and is essentially a concession granted to SAP due to its monopoly position in the marketplace. Its simply unfair to both be subjected to extensive free market drivel by people with little understanding of economics and then also observe the large anti-market conglomerates like SAP engage in monopolistic practices. It would be fair to say that SAP likes the free market about as much as Goldman Sacks does.
xApps for Inventory Optimization
I believe at one time there somewhere around 140 xApps. How many there are currently is unknown to us as we no longer hear the term, and the term may have been changed by SAP and the program renamed. The area we know best is inventory optimization where SAP partnered with two firms, SmartOps and MCA Solutions. The three-year agreement with MCA has now expired. In the example of SmartOps, they provide the inventory optimization and SAP integrates to them. It’s important to understand that the inventory optimization capability is part of SmartOps’s product and does not have anything to do with any of SAP’s products. Instead, SAP integrates to SmartOps, as it would integrate into another application.
The Best Approach When Dealing with xApps
In my view, it’s far better to approach the vendor (such as SmartOps) directly and buy the software from them rather than buying it through SAP. Furthermore, this will allow the software vendor to better service the customer because more of the revenues are flowing to those that created and maintain the solution. Intellectual property rights are a huge issue……..when a larger company feels as if their intellectual property is consumed without proper compensation (as the entertainment and pharmaceutical industry lobbying and public relation programs can attest) however, when the perpetrator is a large company benefiting from the intellectual property of a smaller company, all of a sudden the issue becomes greyer, and the relationship gets called “a strategic partnership.” The US intellectual property protection system is where intellectual property rights seem to be relative. Large companies have infinite intellectual property rights (and the right to expropriate IP that they had nothing to do with creating), medium-sized companies have medium-sized intellectual property rights, and individuals have none whatsoever. It takes a very fancy degree from the best law school not to notice this.
xApps have not done anything positive for the software market or clients. SAP is asking that companies pay a toll to SAP for a very small amount of work in creating partnerships with software firms. xApps have been unsuccessful in the marketplace, but less for the reasons listed above and more because SAP has a very hard time working with other software vendors. However, the fact the SAP can even attempt such a program leads to the conclusion that SAP has become too big, and like Microsoft is now causing a negative or a smothering effect on the industry. In the US system, this is when the Federal Trade Commission is asked to come in and check to see if any anti-trust rules are being broken.
The FTC has been barely active recently as false free market dogma has combined with industry capture of this critical regulatory apparatus, and as the top officials at the FTC have been corrupted by corporate money. However, anti-trust regulation is no joke and is critical to properly functioning markets. It is time for the FTC to turn its eye to the enterprise software market.
As I write this addition, it is now two years since I stated that I thought it was time for the xApps program to die. At this point, I can confidently say the xApp program is dead. While there are a few vendors that are on SAP’s price list like SmartOps, in general, most vendors who wanted to have this partnership with SAP have already been burned, and the program is no longer active. I have declared this in the following prediction, related to the end of the line for Solution Manager.
For those interested, a basic introduction to US anti-trust law can be found below. Also, companies can be reported for violating anti-trust laws at the link below this.