How to Interpret SAP and Microsoft’s 2017 Cloud Partnership Announcement

What This Article Covers

  • Opening With The Standard Puffery
  • One Hundred and Eighty Degrees Different from Steve Lucas’s Comments on This Exact Issue in 2015
  • On Ariba
  • A Unique Partnership?
  • A Rather Extensive Section of Puffery
  • Surprise…….Big Companies Use SAP and Azure!
  • Paid Not to Notice the Change in the SAP’s Cloud Policy?

Introduction

Recently we were asked about SAP and Microsoft’s cloud partnership announcement of November 27, 2017. (not to be confused with previous SAP and Microsoft’s cloud partnership announcements.

In this article, we will review the announcement and provide our analysis. We did not mean to do this when we began writing this article, but as part of the research, we came upon a Forbes article on this topic, which we will be lampooning. We did not expect this analysis to find such a rich vein of comedy, but that is the way things work out sometimes.

Opening With The Standard Puffery

“Microsoft Corp. and SAP SE on Monday announced integrated offerings to provide enterprise customers with a clear roadmap to confidently drive more business innovation in the cloud. In a bold show of commitment, the two companies also announced they will be deploying each other’s cloud solutions internally.”

So the first part of this paragraph is really throw away. Most announcements like this are often filled with gratuitous bragging on the part of the participants. The meat of this paragraph is the part about each company deploying each other’s solutions.

For Microsoft, this is a mistake. As we cover in our Study into SAP S/4HANA Implementations, S/4HANA has a had an enormous number of problems being taken live.

Will S/4HANA become a production system for Microsoft? Probably not. It may never become something that Microsoft relies upon. Microsoft can simply run S/4HANA as a test environment. No one is going to check if Microsoft is really using S/4HANA, but Microsoft may want to get version doing something so that they can use it for marketing purposes. Internally, the MS Dynamics team will most likely not appreciate this part of the announcement.

Now will SAP be deploying Microsoft’s Azure solutions internally? That would be curious if they did. But it may be to run some small portion of SAP. These are companies with enormous resources, they can afford to run each other’s products in a minor way if they like. But one should not simply take SAP and Microsoft’s word for it. They may simply be saying this to get a marketing boost.

The announcement says more thing on this point.

“Additionally, Microsoft will deploy SAP S/4HANA® on Azure to help run its own internal finance processes, and SAP will move its key internal business critical systems to Azure.”

This is a curious statement given that SAP had at one point said that it was going to beat AWS in hosting.

For example in 2015 Steve Lucas of SAP was reported in Diginomica had a very different perspective.

One Hundred and Eighty Degrees Different from Steve Lucas’s Comments on This Exact Issue in 2015

“He took the opportunity to explain why he believes SAP is a better option for enterprise buyers than Oracle, IBM, Microsoft and AWS. But does it make sense in today’s world?

However, Lucas was also keen to highlight the benefits that owning Ariba’s network has on application design for S/4 and the fact that SAP has built out its own data centre infrastructure. Lucas said that SAP had no interest in building on the likes of Amazon Web Services (which the likes of Infor have done) because it doesn’t believe that this will cater to people’s data protection requirements. Lucas said:

We could have also said a long time ago that we were going to build this on AWS. It’s cheap. Why not? The reason why not is because of the healthcare laws and the data privacy laws, which are so different country by country. For us really we want to be able to deliver a consistent, safe and secure offering.

We built our own data centers for the HANA Cloud Platform, this is really important. The reason that we have not put the HANA Cloud Platform on something like AWS, is because AWS doesn’t adhere to all the global privacy laws where we operate. We actually own and operate our own data centers. That’s incredibly critical.” – (Steve Lucas) Diginomica

Wow!

Times have really changed in a short period of time!

In 2015 Steve Lucas thought that AWS was…

  1. Too insecure
  2. It lacked privacy
  3. He thought that SAP needed its own data centers.

Now SAP is promoting customers to place S/4HANA on Azure, which is no more secure or private or as much on SAP’s data center as is AWS. Actually, this is consistent with SAP’s announcement of the Multicloud which we covered in the following article How to Best Understand SAP’s Multicloud Announcement.

SAP did not move to promoting the use of SAP with AWS or Azure because it was or was not right for customers. They changed their policy because they failed to compete with Azure and AWS.

Hosting has been a long-term weakness of SAP, outside of the hosting offered by the companies that SAP acquired (liked SuccessFactors and Ariba) that were already in the cloud before SAP acquired them. This was explained best in Vinnie Mirchandani’s book SAP Nation 2.0.

Let us move back to the SAP Microsoft Announcement

On Ariba

“Finally, SAP Ariba is currently utilizing Azure and is exploring further use within its procurement applications.”

This is a long-term trend. Even Salesforce, the largest pure SaaS vendor, and a vendor that was well regarded for very competent hosting capabilities outsourced their hosting to AWS in 2016.

A Unique Partnership?

“Through their unique partnership, the companies will co-engineer, go to market together with premier solutions and provide joint support services to ensure the best cloud experience for customers.”

So this paragraph is really just fluff. It can be disregarded as it does not carry any information.

“SAP HANA® Enterprise Cloud — SAP’s private managed cloud service — on Microsoft Azure will allow customers to run SAP S/4HANA in a secure, managed cloud.”

Ok, but that is not particularly relevant. The reason for this is because SAP has extremely few cloud customers.

The reason is twofold.

  1. Installed Base: As mentioned earlier, S/4HANA is very lightly installed. The numbers provided by SAP (over 1000 live instances of S/4HANA) are highly exaggerated.
  2. Customization: S/4HANA requires customization to meet customer’s requirements (ECC was customized in 92% of cases). For this reason, S/4HANA cannot be multitenant. This is covered in the article Is S/4HANA Actually Designed for the Cloud?

This image is designed to allow your brain to rest, and to prepare you for an extensive section of puffery. Get up and get a drink if you like. 

A Rather Extensive Section of Puffery

Breeze through this next paragraph as it does not any actually contain content.

“Together, SAP and Microsoft will help companies make the most of running SAP applications in the cloud. Bill McDermott and Satya Nadella sit next to each other on stools SAP CEO Bill McDermott (left) and Satya Nadella, CEO at Microsoft, double down on their commitment to partnership “As technology transforms every business and every industry, organizations are looking for the right platforms and trusted partners to help accelerate their digital transformation,” said Satya Nadella, CEO of Microsoft. “Building on our longtime partnership, Microsoft and SAP are harnessing each other’s products to not only power our own organizations, but to empower our enterprise customers to run their most mission-critical applications and workloads with SAP S/4HANA on Azure.”
Enterprise companies are increasingly moving business-critical systems to the cloud for the benefits digital transformation provides: better customer relationships, more empowered employees, streamlined operations, new business models, and new products and services. According to research firm Gartner Inc., two-thirds of all business leaders believe that their companies must pick up the pace of digitalization to remain competitive.* As leaders in enterprise software, SAP and Microsoft are aligning closely to provide customers with the safe and trusted path to digital transformation.
“We are taking our partnership to the next level with this new capability to run SAP S/4HANA in the Microsoft Azure environment,” said SAP CEO Bill McDermott. “The world’s significant businesses trust Microsoft and SAP. Together, we will help companies win the customer-driven growth revolution.”

That is enough. As I said.

There was more, but I cut the quotation at this point.

Surprise…….Big Companies Use SAP and Azure!

Enterprise customers of all types, such as The Coca-Cola Company, Columbia Sportswear Company, Coats and Costco Wholesale Corp., count on SAP and Azure today for their businesses. “The strategic partnership announced between Microsoft and SAP is an extremely important development for the Coca-Cola System,” said Barry Simpson, senior vice president and chief information officer at The Coca-Cola Company. “The value of aligned engineering, sales, and delivery between these two strategic partners will allow our system to accelerate our digital agenda. This is a very positive and exciting development for us.

This is the social proof part of the announcement. There were several other companies listed, but you get the idea.

Paid Not to Notice the Change in the SAP’s Cloud Policy?

What might be the most interesting thing is that the about-face between SAP’s position in 2015 and their position in 2017 is so drastically different. Steve Lucas’ arguments in favor of not using a 3rd party for hosting did not make any sense when he said them or now. We have a full critique of Steve Lucas’ statements to Diginomica in the article The Problems with Diginomica on Steve Lucas on HANA, Oracle, IBM, AWS and Microsoft.

And that we were not able to find anyplace where it was mentioned that SAP pulled an about-face on this topic.

Forbes had some coverage of the partnership that was quite amusing. Here are a few quotes from Forbes.

“(the partnership) It directly involves the high-profile CEOs of each company: Microsoft’s Satya Nadella and SAP’s Bill McDermott, and it extends—signficantly and dramatically—the long-time alliance that’s existed between the two software powerhouses.

It’s not just some deep-tech code alignment but an end-to-end partnership: Microsoft and SAP say they will “co-engineer” new products and services, “go to market together with premier solutions, and provide joint support services.”

Against that backdrop, here’s what some world-class customers had to say about the benefits they’ll gain from the deep cloud collaboration between SAP and Microsoft.

So: amid the saber-rattling and bombast and blunt-force competition that have been the hallmark of the Cloud Wars, it’s quite compelling to see two of the world’s leading enterprise-software and cloud-computing companies embrace the opportunity to collaborate deeply and broadly for the benefit of some very, very happy customers.”

It’s just too funny! This is obviously a paid placement on the part of SAP or Microsoft or both. The level of analysis provided by Forbes is nill. The author could not care less if anything they are writing is true.

And that ladies and gentlemen is how you make the big money in the media business.

Conclusion

As is normally the case, the money in both media and consulting comes from repeating what SAP says to you.

The compliant nature of the coverage of things like the SAP and Microsoft announcement demonstrates that when SAP and Microsoft have their marketing departments craft such announcements that they know that the media entities they pay to cover these types of things will report it almost word for word.

Overall, the announcement most likely does not amount much. But it is a further reinforcement that SAP is no longer trying to fight the powerful trend of specialized IaaS and PaaS vendors.

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  • Questions About This Area?

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    • If this type of accuracy interests you, tell us your question below.

References

https://diginomica.com/2015/12/09/saps-steve-lucas-on-why-hana-beats-oracle-ibm-microsoft-and-aws/

https://www.salesforce.com/blog/2016/05/salesforce-aws-public-cloud-infrastructure.html

https://www.forbes.com/sites/bobevans1/2017/11/29/as-microsoft-and-sap-pair-up-in-the-cloud-customers-offer-phenomenal-endorsements/

How Accurate is SAP on SAP HANA Cloud Integration?

 What This Article Covers

  • What Does SAP Say About SAP HANA Cloud Integration?
  • Build Integration Solutions with SAP Cloud Platform Integration?
  • Does What SAP Make Any Sense?
  • Does SAP Provide Any Evidence for Its Claims
  • Does What SAP Says Accurately Reflect What is Happening on Projects?

Introduction

SAP often presents the benefits of SAP HANA Cloud integration. In this article, we will review SAP’s media output to observe its accuracy.

Connect and Integrate with SAP HANA Cloud Integration

“Easily exchange data in real-time with SAP Cloud Platform Integration. Integrate processes and data between cloud apps, 3rd party applications and on-premises solutions with this open, flexible, on-demand integration system running as a core service on SAP Cloud Platform.”

How is this accomplished? Also, why is this better than using another integration application? SAP has been guilty of making a number of exaggerated claims about its “platforms” that end up not being easier to use than competing offerings.

Obviously, any application interface can be made real time. But in many cases, it makes more sense for it to be in batch. Why is SAP including “real-time” into this description when it is well known that any interface can be made real time?

What does..

“on-demand integration”

..mean?

Any integration harness or application is on-demand for the people that use it. What does it mean that it runs as a core service as part of the SAP Cloud Platform? Isn’t it part of the SAP Cloud Platform anyway? Also is it really a platform, or just an area where integration development can be performed.

SAP goes on to to say the following:

Key benefits include:

“Access a deep catalog of integration flows.

Integrate both processes and data through unified technology engineered for the cloud.

Get an integration service that is secure, reliable and delivered and managed by SAP in SAP’s secure data centers across the globe.

Lower TCO with an affordable, pay-as-you-go subscription model and minimal up-front”

Does SAP have any independent studies that can demonstrate that the SAP HANA Cloud Platform lowers TCO, or is this just a sales statement that has nothing to back it up?

SAP Cloud Platform Smart Data Integration?

“With SAP Cloud Platform Smart Data Integration, you can replicate, virtualize and transform data from multiple sources and store it in your SAP HANA instance on SAP Cloud Platform. Smart data integration offers pre-built adapters to common data sources plus an adapter SDK that lets you get data from any source for a 360-degree view of your business. Thanks to a cloud-first architecture your data is securely transferred from on-premises applications to the cloud without putting your business at risk.”

Most SAP customers don’t have HANA. So what if the customer does not want HANA, can they use the SAP HANA Cloud Platform to store in Oracle, MongoDB, PostgreSQL, Tibero or another non-SAP database?

What is a cloud-first architecture? Are many customers using the SAP HANA Cloud Platform to do the things listed by SAP?

Build Integration Solutions with SAP Cloud Platform Integration?

“SAP Cloud Platform Integration is making process integration simple and reliable.

It is SAP’s strategic integration platform for SAP Cloud Customers and provides out-of-the-box connectivity across cloud and on-premise solutions.”

SAP, outside of its acquired applications (SuccessFactors, Ariba, Concur, etc..) has very little in the way of cloud customers. The vast majority of SAP customers are using SAP software in an on-premises delivery mode.

When SAP uses the term “out of the box” it is time to question this. Out of the box is a highly salesy term which usually translates to “a lot of work is required.” This is particularly misleading as Bill McDermott has already stated the following about integrating SAP’s cloud acquisitions with their ERP system.

“With all those new products both homegrown and acquired, building native integration has been a challenge for SAP in the past seven years. If they want customers to sign on to the whole vision, with core ERP alongside SAP-owned cloud providers, integration is a key selling point. McDermott admits to the SAP Ariba main stage crowd that it hasn’t been easy.”

Conclusion

SAP names many things that can be done in SAP Cloud Platform, but this does not necessarily mean that customers should be using SAP Cloud Platform to do these things.  Furthermore, the article does a poor job of describing what is actually happening on projects.

This article receives a Brightwork Accuracy Score of 3 out of 10, mostly for how much information it leaves out.

Financial Disclosure

Financial Bias Disclosure

This article and no other article on the Brightwork website is paid for by a software vendor, including Oracle and SAP. Brightwork does offer competitive intelligence work to vendors as part of its business, but no published research or articles are written with any financial consideration. As part of Brightwork’s commitment to publishing independent, unbiased research, the company’s business model is driven by consulting services; no paid media placements are accepted.

SAP Contact Form

  • Questions About This Area?

    The software space is controlled by vendors, consulting firms and IT analysts who often provide self-serving and incorrect advice at the top rates.

    • We have a better track record of being correct than any of the well-known brands.
    • If this type of accuracy interests you, tell us your question below.

References

https://www.sap.com/products/hana-cloud-integration.html

https://cloudplatform.sap.com/capabilities/integration/cloud-integration.html

https://www.sapappsdevelopmentpartnercenter.com/en/build/sap-hana-cloud-integration/

https://www.asug.com/news/sap-ceo-bill-mcdermott-s-4hana-integration-is-top-r-d-priority

Enterprise Software Risk Book

Software RiskRethinking Enterprise Software Risk: Controlling the Main Risk Factors on IT Projects

Rethinking Enterprise Software Risk: Controlling the Main Risk Factors on IT Projects

Better Managing Software Risk

The software implementation is risky business and success is not a certainty. But you can reduce risk with the strategies in this book. Undertaking software selection and implementation without approximating the project’s risk is a poor way to make decisions about either projects or software. But that’s the way many companies do business, even though 50 percent of IT implementations are deemed failures.

Finding What Works and What Doesn’t

In this book, you will review the strategies commonly used by most companies for mitigating software project risk–and learn why these plans don’t work–and then acquire practical and realistic strategies that will help you to maximize success on your software implementation.

Chapters

Chapter 1: Introduction
Chapter 2: Enterprise Software Risk Management
Chapter 3: The Basics of Enterprise Software Risk Management
Chapter 4: Understanding the Enterprise Software Market
Chapter 5: Software Sell-ability versus Implementability
Chapter 6: Selecting the Right IT Consultant
Chapter 7: How to Use the Reports of Analysts Like Gartner
Chapter 8: How to Interpret Vendor-Provided Information to Reduce Project Risk
Chapter 9: Evaluating Implementation Preparedness
Chapter 10: Using TCO for Decision Making
Chapter 11: The Software Decisions’ Risk Component Model

Enterprise Software Risk

See our free project risk estimators that are available per application. The provide a method of risk analysis that is not available from other sources.

How SAP Has Been Secretly Outsourcing Hosting

What This Article Covers

  • How Interested is SAP in Hosting?
  • Secret SAP Hosting
  • The Evidence that SAP Has Been Outsourcing its Hosting
  • The Traditional Manufacturer / Dealer Network Issue
  • The Uncompetitiveness of Consulting Company Hosting

Introduction

I wrote this in a previous article.

The purpose of this article is not to announce anything but to get customers thinking about using more SAP cloud offerings. However, this is really a white flag of surrender. SAP has not been successful with its own cloud, and there are many reasons why. One is that SAP is not even interested in hosting. They outsource the hosting to companies like IBM, WiPro. All while pitching to Wall Street they are a big cloud company. How they do this is the subject of a future article.

However, IBM has been losing very significant data center business to AWS and to a lesser extent Azure. CSC, another dinosaur like IBM has been losing business to AWS and Azure in a similar fashion. I mean what I take from it is that SAP realizes their goose is cooked and their old strategy did not work. Even Salesforce now uses AWS. Evernote now hosts with Google. So it is demonstrating that the large scale economies of scale of companies that provide hosting.

Secret SAP Hosting

What is explained in this article is not public information. SAP keeps a lid on this and even the customers are not told. But what may be even more intesting that what SAP is doing is why they have been doing it.

SAP’s marketing materials show many cloud-based third-party applications. However, SAP does little of its own hosting except for its newly acquired applications that were already cloud-based before they were purchased. Therefore, most of SAP’s database and applications revenue is from applications not in the cloud.

How Interested is SAP in Hosting?

For years the vendors most dedicated to SaaS, vendors like Arena Solutions and SalesForce, hosted their own applications.  Yet as the IaaS market has matured, that model is more being called into question. Even Salesforce, the largest SaaS vendor recently began outsourcing its hosting to Amazon Web Services. Even for SAP, who tries to heavily market that it hosts its own applications, many companies are now offering third party hosting for SAP software.  Overall, it seems that SAP is actually not all that interested in providing hosting, which raises questions about how a vendor like SAP deals with third parties hosting their software.

The Evidence that SAP Has Been Secretly Outsourcing its Hosting

What I learned is that SAP sends out a hosting proposal to their consulting partners to perform the hosting. Interestingly, the customer is not even made aware that their hosting is not provided by SAP. It is laid out in the book SAP Nation 2.0 that SAP is not even interested in hosting. But one questions how much of this disinterest is based upon the traditional manufacturer/retail relationship. Under this relationship, a manufacturer must be careful to not upset its dealer network by offering its items directly to consumers. For instance, you cannot go directly to Ford to purchase a truck. It would certainly cost less to do so, and even if you are willing to drive the truck away from the factory location where the truck is produced, Ford still won’t sell it to you. You must go through their dealer network. As with on-premises software, this dealer network was created before the Internet was created. Previously, all communication was handled by the dealer. But now customers go to the Ford website to learn about the truck, but then place their order through the dealer, not through the Ford website. Dealers are in fact increasingly less of a source of information about cars for car buyers.

This is explained in the following quotation from the Economist on car dealers.

The internet was supposed to do away with all sorts of middlemen. Yet house sales are mostly conducted by estate agents, and car sales are still finalised in cavernous showrooms that smell of tyres. Technology is diminishing the role of car dealers, however. Customers are using the internet for much of the process of choosing a new car, and are increasingly getting loans and insurance online rather than buying them from the dealer who sells them their car. In many cases car buyers turn up having already decided which model and which options they require; and, having checked price-comparison websites, how much they will pay.

There were, in fact, legal bans that prevented automakers from circumventing dealers.

Two decades ago Ford and General Motors tried to revive this idea from the industry’s early days, but they were deterred by resistant dealers and restrictive laws in some American states. The legislation, enacted in the 1950s to protect dealers from onerous terms that carmakers were trying to impose on them, is now being used to put the brakes on Tesla. It has battled to open stores in several states where direct sales are banned or restricted (see diagram). And it is winning most of its fights. New Jersey and Maryland recently overturned bans, though the struggle continues in Arizona, Michigan, Texas, and West Virginia.

However, while the auto manufacturers may like to circumvent dealers if it were not for state laws that were encouraged through dealer lobbying, SAP’s situation is different. SAP is dependent upon its “dealer network” of consulting companies to recommend SAP. SAP tells Wall Steet and the world that customers pick SAP software because they think it is the best. That is far from the case. Instead, these consulting companies recommend SAP no matter what the quality of alternatives because it is profit maximizing for them to do so. SAP consulting companies don’t generally care what the best software is, or what meets best with a client’s business requirements. They need to maximize their billable hours, and SAP allows them to do this. SAP is one of the few software vendors to outsource nearly all of their consulting to other consulting companies. Of all software, SAP takes the longest to install and the most billable hours to implement and then to maintain. (See online calculation at Brightwork Research & Analysis

Consulting companies will recommend SAP, adjust RFQs to match with what SAP can do, and generally tilt the playing field as much in SAP’s favor as possible. They, of course, admit to none of this and like to present themselves as looking out for their client’s interests. However, historically they have only kept either Oracle or SAP application consultants on staff (although this is slowly changing). SAP needs constant recommendations by its dealer network to maintain its position. Therefore it is of two minds on SaaS and Cloud.

  • Satisfying Wall Street and the Current Trend: Because of pressure from Wall Street and somewhat from customers, SAP must continue to tout itself as a SaaS or Cloud vendor.
  • Satisfying SAP Consulting Partners..i.e. the Dealer Network: Because most of its software portfolio is still primarily on premises, and on-premises software has proven more effective at locking in accounts combined with the fact that its dealer network make money primarily implementing on-premises software, SAP either needs to keep selling on-premises software, or need to bring in their consulting partners on hosting, or risk losing their endorsement as they see themselves cut out of the revenues. And SAP knows the only reason they are recommended by the major consulting companies is that SAP “socks it to their partner’s pockets.”

The Uncompetitiveness of Consulting Company Hosting

SAP faces a problem when bringing its consulting partners into the hosting loop. And that is none of them are competitive at it. If we take IBM and CSC, which have historically had the largest data center and hosting businesses, even these firms are rapidly losing market share to AWS. IBM and CSC are so dated in their offering versus AWS and Azure that this will continue into the future. And all of the other consulting partners, like WiPro or Accenture, have even less ability to compete than having IBM and CSC. So SAP’s answer is to outsource to partners that have lost already to AWS. Secondly, SAP has essentially given up its fight against AWS and Azure and has elected to make their SAP Cloud more compatible with AWS and Azure. I covered this topic in the article How to Best Understand SAP’s Multicloud Announcement. 

Conclusion

SAP has been trying to have it both ways as they have increased their hosted offerings. They want to project being Cloud to customers and to Wall Street. They want to continue to enrich their consulting partners for whom they rely upon for recommendations against all reason to SAP customers. This is a textbook reason why a company that has a basis on in the previous era of technology is the wrong company to be the leader in a new era of technology. They have too many arrangments to protect under the previous model, that worked spectacularly for SAP. But now they are forced to pretend to be in a new era when their approaches are still based in the previous era.

References

https://fortune.com/2016/05/25/salesforce-inks-major-aws-deal/

https://www.economist.com/news/business/21661656-no-one-much-likes-car-dealers-changing-system-will-be-hard-death-car-salesman

https://www.autoremarketing.com/retail/direct-to-consumer-sales-debate-goes-way-beyond-tesla

https://www.vox.com/2014/10/26/6977315/buy-car-hassle-free

Research by Eric Marti, Garth Saloner, and Michael Spence has concluded that as much as 30 percent of the cost of a car is the cost of distribution.

But as Gerald Bodish wrote in a 2009 analysis from the US Department of Justice, the most expensive part of the whole process is hiding in plain sight — it’s the stockpiles of unsold vehicles sitting around on dealers’ lots. He observes that in late 2008, there was a staggering $100 billion worth of unsold dealer inventory, with an annual carrying cost of $890 million.

Bodish cites a Goldman Sachs analysis indicating that replacing the current inventory-heavy method with a more efficient build-to-order method could reduce costs by 8.6 percent. Real-world experience from Brazil, where Chevrolet sells Celtas direct to consumers, shows a somewhat more modest savings of 6 percent relative to what’s paid at traditional dealerships.

https://www.gsb.stanford.edu/faculty-research/case-studies/disintermediation-us-auto-industry

How to Best Understand SAP’s Multicloud Announcement

Executive Summary

  • SAP announced the “multicloud” which has been used by SAP to try to bolster its credibility regarding the cloud. This announcement is a 180-degree change in SAP’s previous strategy where SAP denigrated the IaaS cloud provides like AWS, proposing that SAP could do better.
  • SAP makes a number of claims in the announcement that are either false or can be classified as “word salad.”

Introduction

This article covers the announcement made at SAPPHIRE regarding SAP offering what it called multi-cloud options.

SAP and Multicloud

SAP has announced that its Cloud Platform is now also offered as a multicloud environment, which will allow customers to develop and run apps via their choice of infrastructure providers.

This is a good time to review the definition of multicloud. According to Wikipedia, multicloud is the following:

“For example, an enterprise may concurrently use separate cloud providers for infrastructure (IaaS) and software (SaaS) services, or use multiple infrastructure (IaaS) providers. In the latter case, they may use different infrastructure providers for different workloads, deploy a single workload load balanced across multiple providers (active-active), or deploy a single workload on one provider, with a backup on another (active-passive).”

Therefore I interpret this to mean that different “layers” of the cloud are accessed from different vendors. Therefore the term multicloud would imply a great deal of choice.

Using Multiple Cloud Vendors

“Customers will be able to use Amazon Web Services (AWS), in general availability; Microsoft Azure, under public preview; and the demo showcase of Google Cloud, in addition to full multicloud support through the SAP Cloud Platform.”

This part of the article gets a bit confusing because AWS and Azure are not different layers in the cloud. The SAP announcement is merely stating that you can use a mixture of cloud providers to in essence host SAP applications. And that this then allows you to support SAP Cloud. But you could also have done this before this announcement.

Is it Really Multicloud?

I am open to being persuaded otherwise (so comment below if you think I am missing something), but SAP’s announcement does not seem to use the term multicloud properly. Instead what SAP is proposing is is that its cloud can be used in conjunction with other far more established and successful cloud providers. SAP is primarily an application vendor, and they always have been. They have applications like XI/PI which is an integration harness, which is rarely used on projects. They have MDM, which is almost never seen, and if seen has a tiny footprint within a company’s master data workload. Basis is the server control in SAP.

SAP’s NetWeaver Shenanigans and the Questions of NetWeaver’s Existence

SAP calls this and several other items “NetWeaver,” which it also calls a platform. Netweaver is not a platform in any sense. NetWeaver is an umbrella marketing term to describe some things that already existed before the term showed up on the scene. Strangely, I am one of the few analysts to question whether NetWeaver ever existed as I covered in this article years ago. If you go to an SAP account executive and ask to buy NetWeaver, he or she will have nothing to sell you. You have to buy NetWeaver MDM, NetWeaver XI, etc.. The product is the second word. NetWeaver is merely tagged on the front.

Several SAP account executives have admitted to me that they have stated to customers that XYZ was “NetWeaver Compliant,” and realized that they did not know what this meant. But it seems to work on executives and makes them feel calm, so they would only keep saying it.

HANA for SAP’s Infrastructure Street Cred

SAP’s real claim to being at the level below the application is HANA, which is a database. First, HANA is very new and still not that common as SAP has run on non-HANA databases for the vast majority of its history. Also, HANA is rarely delivered via the cloud. SAP Cloud, which was until just recently called SAP HANA Cloud. It was specifically designed to deceive customers and Wall Street that more HANA was being used than actually was, as I covered in the article Is the SAP HANA Cloud Platform Designed for HANA Washing?, while at the same time deceiving customers and Wall Street that HANA was being deployed more in the cloud than it actually was. Is the SAP HANA Cloud Platform Designed for Cloud Washing? 

The long and the short of it is that SAP has been posing as an infrastructure vendor for some time, and they continually use the term platform in their product names and marketing material, but what infrastructure product of any prominence do they own? That would be HANA, but a highly expensive (and therefore limited use) database that is rarely delivered from the cloud does not put SAP in the position they would like to be.

AWS and Azure

Although I am unconvinced why one would need to use the SAP Cloud Platform. Azure for instance already offers SAP on Azure. AWS offers SAP on AWS.

As a general statement, customers will want to stay away from SAP’s cloud offerings as much as possible as SAP does not have any competitive capabilities in the area. AWS and Azure, on the other hand, are proven in this area.

So understanding that it’s difficult to see why one needs the SAP Cloud Platform.

Details on the SAP Cloud Platform

“The Cloud Foundry-based SAP Cloud Platform includes multi-language runtime environments, such as Java, Node.js, and the advanced model of SAP HANA extended application services.”

That is nice. All technologies have some components to them, but I don’t know why this sentence is here.

Azure and the SAP HANA Enterprise Cloud

“As part of its alliance, Microsoft said it is also working with SAP to make Azure available as a deployment option for SAP HANA Enterprise Cloud.”

Yes, but why? One can already host SAP on Azure. Why would a company want SAP HANA Enterprise Cloud involved? Once again, outside of its acquired applications (SuccessFactors, Ariba, etc.) that were already cloud based, SAP does not have much competence in the cloud. SAP has few customers for any of the areas listed by SAP up to this point.

SAP APIs Announced

“Also announced during day one of Sapphire Now in Orlando was the addition of “hundreds” of new APIs for SAP S/4HANA, SAP Hybris, and SAP Ariba to the SAP API Business Hub, as well as the availability of new integration flows and microservices.”

That is nice but unrelated to the central issue.

“Similarly, the SAP App Center also received an upgrade.”

Great.

Is SAP Positioning Itself as the Open Vendor?

“SAP’s cloud-related announcements are focused on the theme of openness.”

Perhaps, but SAP has for its entire history been focused on closeness. I don’t know how the most closed off software vendor that ever existed (IBM would be a close second) in enterprise software can claim now to be open. I have had so many conversations on projects with SAP and SAP consultants at Deloitte, IBM, etc.. where it has been explained to me that it is a good thing that SAP is such a closed system. And that customers should only be using SAP applications because integration is such a pain. In fact, it is hard to describe to those who have not experienced it, but most the SAP consultants and consultancies I know consider non-SAP applications to be non-starters. If you are an SAP consultant, it does not pay for you ever to praise non-SAP software. That software may become popular, and that is not profit maximizing for the SAP consultant.

Therefore, SAP has hundreds of thousands of consultants that are loyal to them (the vast majority not working for SAP) to help block out non-SAP applications. This applies equally to IT decision makers in customers that use SAP, which often sees their allegiance being more with SAP and the SAP ecosystem than with their present employer.

Is SAP Constantly Taking IP from Other Vendors?

In one meeting, the following was stated by an SAP consultant to the customer.

“The thing is that SAP is constantly surveying the landscape for good things in other applications. SAP then takes those things and places them in SAP. So no matter what, you eventually get everything you need in SAP.”

Hmmm…does that sound like openness? Also, can you smell what SAP is selling Wall Steet here?

It’s locked in customers.

Wall Street wants to purchase the stock of monopolies that can fleece their accounts. Wall Street talks in terms of free markets, but when it comes to how they behave, they want secret cartels — a bit like the way the operate, unencumbered by regulation, running monopolies, getting government insurance (why the investment banks became banks after the bailout) and receiving money from the Fed at 0% interest. That is the big “free market” system that Wall Street favors.

Bill McDermott Tacitly Signals SAP’s Monopolistic Power to Wall Street

Another comment against openness is from Bill McDermott, in their 2017 Q1 earnings call.

“So here is my hypothesis on the industry. Why is SAP the de facto standard business software company in the world? I’ll tell you why. Because even if we don’t win every sale and somebody at a point solution level takes something, they still have to live with us and the other 80% of the enterprise.”

So there you have it. SAP will enforce their power against a vendor that offers a superior application to them. They will make it as difficult as possible for that application to be successful, speak dismissively towards it, make it difficult to integrate to SAP. Bill McDermott very effectively makes the argument that SAP will continue to behave as a monopolist.

Mind Controlled SAP Accounts

On projects, I use an application called Demand Works Smoothie to perform forecast testing to make improvements to SAP DP. I do this because testing anything in SAP’s DP application is so complicated that the vast majority of companies don’t perform any testing. However, even though I show up at repeated customers that have never tested any forecast comparison in DP, I am still asked why I would test outside of SAP, even if I will make the adjustments back in DP.

This is their position even though I have documented the problems in DP in best fit functionality in articles going back to 2009. So it is clear, according to SAP and to SAP consultancies, all non-SAP applications are inferior to SAP. They are not standard (SAP is the de facto standard, as expressed by Bill McDermott) and these other applications (that are superior to SAP in every single application category outside of ERP as explained in How SAP is Now Strip Mining its Customers) need to be minimized and removed from the solution design when possible. Indirect access, which SAP is the only vendor enforce*, is the manifestation of SAP’s perspective that any customer that connects any non-SAP system to an SAP system should pay them to double the licenses for the SAP system. It is difficult to see how SAP could make it any more clear that they oppose open systems.

Is SAP About Open Systems?

Openness means more competition, and it means a reduction in profit margins. It is the right thing to do for customers, but when has SAP been in favor of that?

“Speaking at the opening keynote on Tuesday, Bernd Leukert, member of the executive board of SAP SE, products & innovation, touted openness as the new game changer within an organization, saying it drives new business values.”

SAP has a constant stream of proposals about things that sound good, but then SAP goes and does the opposite in reality. So some other statement to the same effect carries no information.

“We promise we will breakdown all the barriers that prevent you to innovate,” he said.

“Openness makes our software much richer. This is the age of openness of SAP, but more importantly for you, our customers.

“Leave the technology to us.”

I would suggest disregarding all of these statements. They do not carry information.

Some SAP Word Salad

“According to SAP CTO Bjoern Goerke, we are living in a time of accelerated change; a time where software is eating the world and everything will be digitized.”

“Every company — large and small — needs to constantly adapt and reinvent itself to stay competitive. Embracing constant change and the willingness for continuous learning are the new norm for the 21st century workforce,” he said

“Business agility and speed become imperatives for success, and customers are looking for ways to accelerate the delivery of innovative solutions that provide an engaging and seamless customer experience, all without disrupting their core business processes.

“Digital transformation needs escape velocity.”

This has nothing to do with whether one should use SAP for hosting services when there are so many better options in the market that are proven. Overall the expansionist and looney tunes commentary sounds like something from one of Deepak Chopra’s book. You can get the same commentary from the patients of any number of insane asylums.

NetWeaver and Some Buzzwords

“Also on Tuesday, SAP announced the expansion of its Google Cloud Platform partnership to certify SAP NetWeaver and integrate machine learning, the Internet of Things (IoT), and productivity tools, as well as the expansion of its Leonardo digital innovation system which covers new applications concerning machine learning, the IoT, Big Data, analytics, and blockchain on its SAP Cloud Platform.”

So I have pointed this out several times in the past, but NetWeaver does not exist and has never existed.

Machine learning and IoT are buzzwords and have nothing to do with SAP. SAP has nothing to do with Big Data, and the rest is just word salad.

What is The True Purpose of the Multicloud Article?

The purpose of this article is not to announce anything but to get customers thinking about using more SAP cloud offerings. However, this is a white flag of surrender. SAP has not been successful with its cloud, and there are many reasons why. One is that SAP is not even interested in hosting. They outsource the hosting to companies like IBM, WiPro. All while pitching to Wall Street they are a big cloud company. How they do, this is the subject of a future article.

However, IBM has been losing very significant data center business to AWS and a lesser extent Azure. CSC, another dinosaur like IBM, has been losing business to AWS and Azure in a similar fashion. I mean what I take from it is that SAP realizes their goose is cooked and their old strategy did not work. Even Salesforce now uses AWS. Evernote now hosts with Google. So it is demonstrating that the large-scale economies of scale of companies that provide hosting

SAP, who previously put AWS on notice, finally realized their goose is cooked, and their old strategy did not work. Even Salesforce now uses AWS. Evernote now hosts with the Google Cloud. So it is demonstrating that the large-scale economies of scale of companies that provide hosting are not just affecting SAP, but all manner of vendors.

But it is only taking SAP so long to figure out these things; it brings up the topic of how good SAP’s management is. I can, with far less access to information, easily outguess SAP’s management. Eventually, they switch back to what is practical, when what they would like to have happened proves untenable. Is that really why SAP top executives are paid tens of millions per year? So they can repeatedly fall into uncovered utility hole covers?

What is precisely the point of using SAP’s cloud offering? Companies can go out to AWS or Azure and just stand up SAP already and push the SAP Cloud out of the way. The value of the SAP Cloud is only not there, and they don’t appear to have any vision aside from producing aspirational press releases.

I have had a hard time seeing how the announcement changes anything. It seems like a way to promote SAP Cloud while essentially admitting defeat internally, but putting on a brave face externally. The proper interpretation of this announcement is the following:

“Hey how about if you use our cloud along with AWS and Azure……pretty please….use our cloud ok?”

Vendor Enforcement of Indirect Access

*I was recently told by a customer where Software AG tried to enforce indirect access. They were inspired by SAP to do so. However, without the market leverage of SAP, they were unsuccessful in doing so. To enforce a false legal concept like Type 2 indirect access, you need to be very large. 

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References

Enterprise Software Risk Book

Software RiskRethinking Enterprise Software Risk: Controlling the Main Risk Factors on IT Projects

Rethinking Enterprise Software Risk: Controlling the Main Risk Factors on IT Projects

Better Managing Software Risk

The software implementation is risky business and success is not a certainty. But you can reduce risk with the strategies in this book. Undertaking software selection and implementation without approximating the project’s risk is a poor way to make decisions about either projects or software. But that’s the way many companies do business, even though 50 percent of IT implementations are deemed failures.

Finding What Works and What Doesn’t

In this book, you will review the strategies commonly used by most companies for mitigating software project risk–and learn why these plans don’t work–and then acquire practical and realistic strategies that will help you to maximize success on your software implementation.

Chapters

Chapter 1: Introduction
Chapter 2: Enterprise Software Risk Management
Chapter 3: The Basics of Enterprise Software Risk Management
Chapter 4: Understanding the Enterprise Software Market
Chapter 5: Software Sell-ability versus Implementability
Chapter 6: Selecting the Right IT Consultant
Chapter 7: How to Use the Reports of Analysts Like Gartner
Chapter 8: How to Interpret Vendor-Provided Information to Reduce Project Risk
Chapter 9: Evaluating Implementation Preparedness
Chapter 10: Using TCO for Decision Making
Chapter 11: The Software Decisions’ Risk Component Model

https://www.zdnet.com/article/sap-now-offering-multicloud-option-with-aws-azure-google/

https://en.wikipedia.org/wiki/Multicloud