How Accurate was Forbes Magazine on SAP Cloud?

Executive Summary

  • Forbes wrote an article on SAP Cloud.
  • We review the accuracy of this article.

Introduction

On Aug 10, 2012 published the article Competing For The Cloud: SAP.

In this article, we will review the accuracy of this article.

Article Quotations

Cloud computing has made life easy for millions of users. But it’s a different story for software companies providing those cloud-based services: the field is small, the game is fast and the battle for dominance is fierce. SAP is determined to win.

Nearly four decades ago, in center city Philadelphia on the East Coast of the USA, in a bohemian-chic historic little side street, stood a popular fantasy-filled boutique named “Vendo Nubes” – “I Sell Clouds”.

Today, in 2012, Jim Hagemann Snabe sells clouds, too, and he makes a lot more money at it than Vendo Nubes imagined was possible – not just for him but for the shareholders of enterprise software-maker SAP.  As co-CEO (he’s the engineer, in charge of product development), Snabe’s mission is to actually own the cloud – the next stage of online computing.

“We have declared our intent to be the leader for business software in the cloud,” Snabe told INSEAD Knowledge on the sides of the Global Business Leaders Conference in Paris on July 6, 2012.  “We are already the largest player today in terms of numbers of users consuming our services. We have more than 15.6 million users.”

But despite being Germany’s largest listed company by market capitalisation, SAP is not yet the number one player in the clouds. That spot is occupied by the legendary Salesforce.com. Snabe is duking it out with Larry Ellison, CEO of Oracle for the number-two position.

Forbes Pushing the Establishment View Regardless of Facts to the Contrary

This entire introduction reads like an establishment article that seems intent on reinforcing the positions of the largest software vendors. Salesforce is 100% SaaS, while SAP and Oracle are really not. And there are many vendors that are also SaaS and innovators in SaaS, so it is curious that Forbes would be talking about SAP and Oracle in this way. This article smells a bit like a paid placement on the part of SAP to make itself seem more “cloudy” than it actually is.

It’s a competition with a history of acrimony:  in November of 2001, SAP lost the largest software privacy suit in history – a US$1.3 billion – to Oracle, conceding it had “inappropriately downloaded” Oracle software via its subsidiary, TomorrowNow, Inc.  The verdict was overturned less than a year later but competition between the two companies remains.

Right, but what does that have to do with how much Oracle and SAP get in revenues from the cloud? Forbes moves from the contention on SAP and Oracle being competitors for the cloud, into the topic of their acrimony. This seems like a Kelly Ann Conway type pivot.

Buying Size and Expertise

Consequently, SAP is modifying its organic-growth policy to make key acquisitions in order to scale up fast: Sybase, Inc. as well as SuccessFactors, Inc., and this past May made a US$4.3 billion offer for California-based supply-chain global network operator Ariba, Inc.

Yes, SAP is buying its way into the cloud, as is covered in the article How SAP is Buying its Way into the Cloud. Although Sybase is not an example of this.

Combined with SAP’s resource planning and back office software, the system would be able to oversee operations all the way to network tracking and managing corporate purchases. Real streamlining. The U.S. Department of Justice thinks so, too – so much so that it’s concerned the Ariba purchase could accelerate an SAP-led price war and has asked for enough additional information under the Hart-Scott-Rodino anti-trust laws to nudge the deal’s closing into Q4 instead of Q3.

This is curious. Why is the FTC not doing this?

“Ariba is the next wave of cloud computing,” says Snabe. “We don’t believe in acquisition to consolidate the past. When we acquire, it’s been about identifying new categories where there was significant value-add for new customers. And the question we always ask ourselves is: are we able to get there faster through our own organic innovation or do we need a quantum leap to get into that market fast? Ariba run the largest marketplace for buying and selling between companies…they are the eBay for businesses (to date more than 730,000 customers), so it was obvious for us to go for the leader.”

That is the charitable explanation. Another explanation is that SAP’ lacks the ability to develop cloud offerings internally. I believe the second is true as SAP literally has no examples of successes in the cloud that were developed internally.

It was also not obvious to go after Ariba, as Ariba’s primary domain expertise is indirect procurement. SAP would have been better off purchasing a procurement vendor that has focused on direct procurement, as a direct procurement application can be connected to the current procurement functionality within SAP’s ERP system.

SAP is Growing in the SMB Space?

This acquisition also speaks to SAP’s changing customer base. When the company was founded in 1972 by five former IBM engineers in Mannheim Germany, ICI (Imperial Chemical Industries) was their first client. Early customers were specimens from the Fortune 500. Today, it’s small and medium-sized (SMEs) companies who are filling the order books. The kind of companies that really need help managing data, beyond traditional corporate data.

No that is false. SAP has been trying to capture this customer base, but SAP is still highly concentrated in the largest companies. As a longtime SAP consultant, I can say that SAP’s software is simply inappropriate for the SMB market because its TCO is so high and it is so complicated. Anything I need to do in SAP, I can do much more easily in just about any other application. SAP’s acquired products have a smaller customer size, but the internally developed products do not.

“In today’s world, you need to be able to analyse Twitter sentiments in order to understand your impact in this market and guide your efforts and promotions in the right directions,” points out Snabe. “In the cloud, the speed of innovation is extremely high and the deployment and delivery of services is hugely simplified.”

This is a comment about Big Data, which is a market SAP does not have much to do with and has little to offer companies. This is a throwaway conference type statement. And Forbes does nothing to validate any of these statements. By challenging nothing, even when the information is clearly false, they implicitly endorse it.

SAP has a history of cloud washing, as it is what Wall Street wants to hear. The 103% figure is a doubling of cloud bookings. Which seems high.

Yes, it does. SAP’s cloud sales are not growing 103% year over year.

SAP as UNICEF?

These kinds of new technologies are changing the way businesses are run and, says Snabe, the way we work and live. As an engineer, “What really gets me up in the morning is the opportunity for us to solve some of the resource-constrained challenges that this world has: we are now seven billion people; in the next thirty years we could be nine billion. We need to find new ways to solve challenges around water, energy, food, ways to optimise healthcare.” For example, SAP software can analyse the DNA of a cancer patient and identify the mutation to find the most effective medical treatment.

That is what gets Snabe up in the morning, or his extremely high compensation? If SAP is pitching the idea that they are focused on social good, they can drop the pretense. SAP is challenged in even treating its customers fairly. It has no history of doing anything but profit maximizing by any means necessary. So the idea that SAP is the new UNICEF is a bit difficult to swallow. Secondly, I study the quotations and the comments of the top executives at SAP, and this would be the last group of people I would want to come up with solutions to water, energy, food or optimizing healthcare. The top executives at SAP are about monopolizing areas so they can maximize profits for SAP. They also lack the domain expertise to offer solutions in these areas. Instead, I would suggest they stick to selling software.

One problem that particularly worries Snabe is youth unemployment today, particularly in Europe. “Many of the innovations of the future require young people’s open mindset, and the diversity of bringing young people together in solving problems around energy, etc. We are in the final stages of launching a programme where we will offer education in our technology to unemployed young people in Europe…we have a very strange dilemma: on the one hand, unemployed young people; on the other, in the IT sector there are a lot of positions we can’t fill. So we felt that one of the obligations we have is to offer education to unemployed people and with that increase the level of skills and technology in Europe.”

You have got to be kidding. But this quotation is good to have as it is useful for sharing for comedic purposes.

SAP’s global presence is far-flung: a strong engineering force in Germany, Canada and Brazil; a huge lab in Palo Alto, California; more than six thousand people in India and a rapidly growing presence in China – 32 locations in all. Snabe is also able to identify significant growth in Europe, “We are able to grow through an increase in SMEs, who are in many ways global companies; they’re just smaller, but they still need world-class technology, just as the large companies get.”

Again, SAP is not growing its SME business.

SAP has had nine consecutive quarters of growth and ambitious plans to double the size of the company by 2015. It won’t be easy: the company’s “Business by Design” cloud service is still very short of its 2011 goal of 10,000 customers needed to keep pace with Oracle. But Snabe is undeterred. He owes it to long-distance running (it clears his head and lets new ideas come in) and a love of classical music.

It missed that plan. I notice how Forbes did not discuss how short ByDesign is of SAP’s projections. It is estimated that ByDesign has around 1100 customers. So yes, that is quite a bit short of 10,000. Apparently, because Snabe likes long distance running and classical music, SAP should not be held accountable for repeatedly making inaccurate projections in the future. Right.

Leadership Rhythm and Self Indulgent Personality Preferences

“I like classical music because it’s on the one side a very structured form, where there’s no ambiguity about what’s being played; yet the real fantastic classical experience comes when there is an element of creativity in that system, coming from the individual musicians and the conductor.”

Wow, that is fantastic. We now know what it is like to be on a date with Snabe, but we are unsure what value this adds to the topic being covered. We are however waiting with bated breath to determine what Snabe likes about long distance running!

It’s an echo of his leadership style and one which underscores his goal to be the dominant player in the cloud. “I don’t believe in the leader taking all of the decisions,” he says. “It’s my role to bring the best people together. But I also believe you need to be a very ambitious-type leader who sets ambitious targets for the team. Because if you’re not competing to be number one, you’re not competing.”

This quotation sounds like it came from George W Bush.

Conclusion

This appears to be another paid placement from SAP. The article has a rapid-fire style that provides snipets of information while excluding others in order to lead the reader to the sunniest possible conclusion. It is designed to get readers to accept a number of false assumptions about SAP to either boost the stock price or to make an impression with low information IT buyers.

AWS and GCP Research Contact

  • Interested in Our Research?

    Our unbiased experts can provide you with honest answers and advice about how you can use Amazon Web Services and Google Cloud with SAP and Oracle.

    • We have a better track record of being correct than any of the well-known brands.
    • If this type of accuracy interests you, contact us and we will be in touch.

References

https://www.forbes.com/sites/insead/2012/08/10/competing-for-the-cloud-sap/

AWS and Google Cloud Book

How to Leverage AWS and Google Cloud for SAP and Oracle Environments

Interested in how to use AWS and Google Cloud for on-premises environments, and why this is one of the primary ways to obtain more value from SAP and Oracle? See the link for an explanation of the book. This is a book that provides an overview that no one interested in the cloud for SAP and Oracle should go without reading.