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SaaS vendors ‘welcome’ SAP conversion to the cloud

22nd Jun 2009
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SAP’s announcement last week, committing itself to producing Software as a Service (SaaS) solutions took a lot of people by surprise, not least many of the leading cloud computing vendors who have made so much mileage out of their assertion that the German on-premise market leader wouldn't come out as a supporter of the delivery model for enterprise customers.

But that's precisely what SAP's John Wookey did at the On Demand Europe conference in Amsterdam. In an exclusive interview with’s sister site, Wookey declared that SAP had come to terms with the new realities of the Cloud Computing age and could not leave it too long before coming out with a strategy to compete. SAP's goal, he declared, was to achieve dominance in this new area of the market and that the firm was committed to the cloud model – despite some of the reservations previously expressed by SAP's senior management.

So where does that leave the rest of the market? The other cloud vendors have banged the 'SAP doesn't get it' drum for a long time now. “When will SAP get the message?' has been a recurring refrain. It was a question that was entirely rhetorical and only asked confident in the belief that SAP would never answer it. Well, be careful what you wish for. SAP has now answered and while there's a world of difference between a statement of intent delivered over coffee in an Amsterdam hotel and actually delivering on that intent, the stakes have most definitely been upped.

Ironically, while Wookey was speaking in Amsterdam, Lars Dalgaard, CEO of SuccessFactors, was addressing his own firm's user gathering in San Francisco, where he talked up the idea of “moving mountains" to maintain a higher performing workforce. It's a theme he picked up on when asked about the SAP gambit, suggesting that this particular mountain will take a lot of shifting even with SAP's muscle behind it. “I applaud the ambition of a 27-year old legacy software company attempting to pull a massive turnaround, announcing it for the second time in as many years,” said Dalgaard. “However, to become a lean, nimble and scalable cloud application provider might be beyond its grasp – even for SAP. Many customers will be wondering what us vendors are thinking – that this just doesn’t seem to be a natural, logical progression for the SAP business model, but rather appears to be more of a forced, shoe-horned response to market and analyst pressure.

“Building a Cloud Computing company from the ground up – which is basically what SAP is intending to do after almost a decade of purposely avoiding the paradigm shift– isn't an easy thing. It wasn't when I started SuccessFactors in 2001 with the goal of being delivered 100% in the cloud, and it hasn't been for the ensuing eight years in which we've built the biggest cloud computing company in the world, now serving more than 5 million users.”

SAP is on the right track he conceded, but is out of tune with the needs of today's enterprise companies. “SAP's vision for the future is the right one, but unfortunately, it's not the right vision for massive enterprises that are increasingly looking to the cloud today to manage their infrastructures and their most important data” he said. “Huge global companies like Siemens – which just signed to deploy our software worldwide to 420,000 workers – aren’t looking for a provider and partner that is still figuring it out how to build, deploy and scale on-demand software, nor debating the merits of a hybrid model...We've been building and delivering essential on-demand software in the cloud for nearly a decade – experience you can't instantly replicate.”

Overall, Dalgaard takes the tack that says he accepts that SAP might pull this off one day, but argues that it won't be for a long time yet. “SAP is stocked with brilliant people – some of whom have joined and are looking to join SuccessFactors,” he noted. “SAP will no doubt figure out how to build and scale cloud software, but it won't be fast enough for businesses that demand enterprise level secure, proven, scalable cloud computing solutions today. We've been there, are doing that, 5 million users can attest to that. We do wish Mr. Wookey luck on his second on-demand go. It’s lonely in the cloud.”

Elsewhere Zach Nelson, CEO of NetSuite, expressed similar doubts. Nelson had actually made a point of highlighting 'anti-cloud' comments from SAP's US sales head Bill McDermott in a presentation at the same Amsterdam conference the day before Wookey went public with SAP's plans.  Wookey in turn went out of his way when opening his own presentation the next day to rebut Nelson's comments as being out of date. It's a sign that there will be little love lost between the two firms which share a common 'suite' approach to cloud applications.  For his part, Nelson commented:  “The 'new' SaaS plan from SAP will fail as all of its 'old' SaaS plans have for the simple reason that it is created around SAP's needs vs. customers' needs. SAP is trying to find ways to keep customers locked into their antiquated SAP products by promising future deliverables that never arrive. Customers meanwhile are quickly moving to true web-native offerings like NetSuite to reduce cost and increase business agility.”

And what of where CEO Marc Benioff can usually be called upon to produce a pithy put-down of SAPs' efforts? Bruce Francis,'s VP for corporate strategy, commented: "The SAP move is significant for two reasons. First and foremost, it's another major signpost in the road that we've been on for ten years now called 'The End of Software'. Second, SAP is coming to the realisation that Microsoft and Oracle have yet to figure out: that cloud business and technology models completely disrupt and cannibalise their client server counterparts."

These were just the opening shots in what is clearly the next stage of the cloud computing wars. SAP has made its intentions public. It's a move that may cause many CIOs to stop and think. If enough of them believe that SAP can deliver in a realistic timescale, it could make for some interesting shifts in spending patterns long term. Whatever the case, the Cloud Computing market is a lot more interesting for last week's announcement and competitive tensions have been markedly ramped up. If you listen closely, you can hear the sound of drums...