Friday, August 28, 2009

On-Premises ERP Versus Cloud Computing: Too Late for the Sky?

On-Premises ERP Versus Cloud Computing: Too Late for the Sky?
Friday, August 28, 2009
Bruce Richardson

Early last week, I spent a morning reviewing SEC filings and Seeking Alpha transcripts for the most recent earnings calls from Epicor, QAD, and NetSuite. I wanted to see how well the two on-premises vendors were doing relative to the ERP-in the-Cloud company. A quick note: Most readers think of vendors like NetSuite as a software-as-a-service (SaaS) or on-demand provider, but I’m going to use the cloud nomenclature, since the term is rapidly replacing the other descriptions in vendor presentations.

While it’s not entirely fair to compare the three firms, since NetSuite doesn’t sell manufacturing applications (but it does have manufacturers as customers), there are some very interesting observations.

Epicor: 125 new customers

For the second quarter ending June 30, 2009, Epicor reported total revenue of $100.4M, down 21.5% over the year-earlier period. License revenue fell 28% to $17.5M. While maintenance slipped 2.8%, it still represented 47% of revenue in the quarter. The company reported non-GAAP net income of $6.7M.

Epicor added 125 new customers to its base of nearly 21,000 companies in manufacturing, distribution, retail, hospitality, and services. Although the company has a cloud product for retail, it hasn’t released a cloud version of Epicor 9 yet.

QAD: Six new cloud customers, with “20 live customers by year end”

For the second quarter ending July 31, 2009, QAD reported total revenue of $61.3M, down 26.2% from 2Q09. License revenue dropped 41.2% to $6.7M. Maintenance and other revenue contributed $32.1M or nearly 53% of total revenue. The company reported a net loss of $1.4M, including stock compensation expense.

Although QAD didn’t provide data on the number of total new customers, it did say it signed six cloud customers in the quarter, including five U.S. companies and an Australian firm that plans to deploy QAD Enterprise in sites in Australia, Brazil, China, the United States, the UK, and Singapore. A QAD executive said the company plans to have “20 live customers by year end.”

QAD is installed at 6,000 sites. It no longer breaks out the customer count.

NetSuite: 270 new customers

It was a different story at NetSuite. For the second quarter ending June 30, 2009, the company reported total revenue of $40.3M, up 10.3% over the year-earlier period. It had a GAAP net loss of nearly $5M for the quarter. Conversely, it had a non-GAAP net income of $687,000.

In the quarter, NetSuite added 270 new customers to its base of 6,000 accounts. This is up from the 240 new accounts added in the first quarter. If you read the company’s 10-Q, which was filed August 10, 2009, you’ll see that new customers accounted for $11.6M in new revenue. This more than offset the $7.9M decrease in revenue from existing customers and other sources. Half of that was because of a $3.9M drop off in professional services. The balance was attributed to customer churn and other factors, such as the reduction of revenue recognized from the company’s Japanese distribution rights agreement. The latter resulted in a net decline of $0.02 in profitability.

In the filing, the company noted “existing customers’ purchases of additional user subscriptions and modules (or ‘upsell’) largely offset the impact of customer churn and decreases in subscription and support revenues (or ‘downsell’) for existing customers.”

Will cloud adoption force public companies into the arms of private equity?

Even though I’ve only presented one quarter’s worth of data, I also looked at the previous quarter and earlier periods too. Since the start of economic downturn last September, on-premises vendors have been harder hit than their cloud brethren. This is especially true for ERP providers.

While the largest enterprises may be the last to replace their financial applications and the bulk of their ERP systems with a cloud offering, it will happen, but only when the largest vendors endorse it, or companies like NetSuite and Workday are viewed as viable replacement products. The economics for buyers are too compelling, which is a theme we’ll explore in future editions of First Thing Monday.

The publicly-traded vendors have more of a challenge, though. Software as a service and cloud represent entirely different business models. Although this is especially true in the shift from large, upfront deals to subscription fees, it also shows up in the company’s business model.

Look at QAD, for example. In its 2009 annual report, the company noted that it had 1,500 employees, including 625 in services and support, with 400 consultants in 23 countries and 15 support centers. It also noted it had 350 developers in R&D centers in the United States, India, China, Ireland, Australia, and Belgium. Some of this comes courtesy of acquisitions, but how many services and support people, trainers, developers, and sites will QAD need if the new business shifts to mostly cloud sales?

Finally, Epicor and QAD are on the top of many private equity firms’ acquisition wish lists, despite the challenges of actually completing a deal.

Wall Street loves cloud companies

In addition to appealing to customers, there are also shareholders to consider. As I write this, NetSuite has the highest market cap of the three at $882.06M. Epicor is valued at $397.54M, while QAD trails at $132.24M. The valuations are based on the closing price on Thursday, August 27.

Since the first trading day of the year, NetSuite’s share price is up 41.4%, Epicor 26.7%, and QAD 4%.

What do you think?

Are the on-premises vendors too late for the sky? If they continue to ignore the trend or move too slowly, will they find themselves running on empty, or pleading to their physicians, “Doctor, my eyes have seen the years and the slow parade of fears”?

As always, I welcome your feedback and ideas—brichardson@amrresearch. Let’s continue the discussion on my blog, The Future of Enterprise Software.

Finally, please take a look at a new research product from AMR Research, Voice of the Customer. We just published the annual outlook on software spending, with some striking findings.

Wednesday, June 10, 2009

SAP reshapes strategy for online software

SAP reshapes strategy for online software
By Richard Waters in San Francisco

Published: June 10 2009 00:09 | Last updated: June 10 2009 00:09

A top executive at SAP is set to outline a new strategy on Wednesday for delivering software over the internet, as the German software group struggles to respond to a market that poses a significant long-term threat to its business.

The early pace in the market for on-demand software, also known as “software-as-a-service”, has been set by newcomers such as, which normally charge a monthly subscription fee for customers to access their software over the internet.

Speaking at a conference in Amsterdam on Wednesday, John Wookey, who is driving SAP’s on-demand software push, will outline a new approach that ties the company’s online services far more tightly to its traditional software.

“Until John got there, there was no strategy,” said Bruce Richardson, an analyst at AMR Research in Boston.

“It’s absolutely essential for SAP – if they don’t make a viable play in the on-demand world, they will be completely overwhelmed by it,” said Josh Greenbaum, an analyst at Enterprise Applications Consulting.

SAP’s first home-grown attempts to respond to the on-demand software revolution have failed to gain much traction. An online service for salespeople to manage customer relationships, rivalling, has gained only “a couple of dozen customers” in its first three years, said Mr Wookey, though he said SAP was pressing ahead with a redesigned service.

Meanwhile, Business By Design, a full suite of online applications aimed at medium-sized companies, which represents one of SAP’s biggest investments in recent years, has faced teething problems that have forced a protracted delay in its launch, and executives admit that their initial plans were over-ambitious.

Acquisitions, including of software maker Business Objects, have since taken SAP’s number of on-demand customers above 1,000 and provided the foundation for it to lay out a broader strategy in the area, Mr Wookey said in an interview.

The German company’s new approach will be to integrate its online services far more closely with its traditional business software, in a hybrid model that tries to take advantage of the big installed base of SAP’s business applications.

Customers will be able to mix online services and traditional software without running into the sort of problems that currently bedevil the software-as-a-service business, such as balkanising a company’s data by holding it in different systems, said Mr Wookey.

“It’s a problem that only we at SAP can solve,” he added.

The simplicity of this hybrid approach is likely to have a big appeal to corporate technology departments, said Mr Richardson.

Mr Wookey also outlined a vision that would eventually see SAP open up its technology to allow other developers to build on-demand services that would tie into its software.

This more open approach represented “a bit of a cultural shift at SAP”, he added.

“It’s a big shift for any company to open up in that way,” said Mr Greenbaum. “They get it, they want to do it, it’s taking a little time to turn the tanker.”

Copyright The Financial Times Limited 2009

Friday, May 15, 2009

SAP BusinessObjects Explorer Is New Star at 20th U.S. SAPPHIRE

SAP BusinessObjects Explorer Is New Star at 20th U.S. SAPPHIRE
Friday, May 15, 2009
Bruce Richardson

If my calculations are correct, last week’s SAPPHIRE was the 20th that SAP has hosted in the United States. Next year will mark the 20th anniversary of the first one, which I recall as a small event held in New Jersey.

In viewing my reports from many of the recent SAPPHIREs, I noticed that I usually opened with the same complaint: SAP spends a small fortune hosting an event for 10,000+ of its largest customers and prospects, but neglects to try to sell anything during the keynotes.

I’m happy to report that co-CEO Leo Apotheker used most of his hour-long opening slot to sell, sell, sell. The most exciting new product is SAP BusinessObjects Explorer. SAP customers and partners may know it as Polestar.

The new Explorer allows customers to load and manipulate enormous volumes of data in memory, where it can be accessed instantly. At the press conference, one executive from Molson Coors said she loaded 900 million records. Searches across all of the records took less than three seconds. She was so impressed that she compared the velocity to that of the Space Shuttle launch she had witnessed the night before.

She taught her business users how to use the software after only a “five-minute WebEx training.” For her, the primary benefit is the ability to reduce the time needed to make a decision from one day to one hour.

Similar results were reported by an executive at Sara Lee. He said he loaded 290 million to 300 million rows of production data into Explorer. He deployed the software in three days and gave it to business users without providing any training. They took to it immediately.

Both agreed that with traditional tools, you may spend half your life on performance tuning. Given the speed of Explorer, there is no need for tuning.

What can you explore with Explorer?

One of the criticisms I had of Polestar and SAP’s Business Intelligence Accelerator was that they lacked applications or templates. Okay, so I can load a billion records, but what can I do with it?

While neither customer went into too much detail as to how the product is actually used, it’s not too hard to imagine businesspeople deploying the tool to instantly calculate customer profitability by product or region, compare forecasts to actual results, or argue for or against various SKU rationalization proposals based on data, not instinct.

In a meeting with SAP Business Objects’ CEO John Schwarz, I told him that I thought Explorer would make a great platform for third-party applications like Jonova’s business planning software. Imagine having the power and data needed to simulate the impact of moving to direct store delivery or to load point-of-sale (POS) and demand data from thousands of retail points and plan real-time replenishment strategies based on balancing costs and demand. If you can model it, you can make it happen. Of course, this would involve publishing the application programming interfaces. I’m not sure where that fits on the roadmap.

Clouds and SaaS

While none of the SAP executives talked specifically about a cloud version, I found an interesting set of PDF slides and a preview of “Explorer in the cloud” on the SAP Developer Network. The latter is available at

Mr. Apotheker’s keynote also featured one slide on SaaS. For large enterprises, SAP currently supports CRM, strategic sourcing, business intelligence, and carbon management. The latter comes from the acquisition of ClearStandards on the eve of SAPPHIRE. In the soon timeframe, SAP promised human capital management and expense management.

As you might imagine, we had a lot of questions. We were hoping to talk to SAP’s John Wookey during SAPPHIRE, but couldn’t get our schedules to mesh. Look for more next Monday.

SAP Business ByDesign: “Go on the offensive big time” in 2010

Jim Shepherd and I went to the exhibit floor to test-drive SAP Business ByDesign, SAP’s first entry into ERP as a service. The company has capped usage to 80 or so companies as it works on guaranteeing sub-second responses to transaction-intensive processes, improving the ease-of-use, adding more functionality, and figuring out how to make money in SaaS.

In my one-on-one meeting with Mr. Apotheker, he told me that if all goes well with the next release, SAP “will go on the offensive big time in 2010.” That should coincide with when he expects the economy to recovery.

He also said that SAP planned to sell Business ByDesign back into the customer base. The challenge has been the customers’ expectation that it will have all of the global functionality needed.

Two new topics for SAPPHIRE ’10?

In keeping with our tradition of offering unsolicited advice, here are two ideas for the next SAPPHIRE: the redesign or replacement of NetWeaver and a new holistic focus on marketing SAP services and support.

The idea that NetWeaver may need a refresh won’t create headlines. As one executive told me, “The time of the fridge is over.” The fridge is a reference to the refrigerator-like look of the NetWeaver product set. Over the next 12 months, SAP will likely embrace more third-party products such as Microsoft SharePoint, IBM WebSphere, and other application servers and integration products.

SAP will also need to get more aggressive on mobility. While I love my BlackBerry, it’s not the only smartphone. The company will also need to add a lot more capability around presence or location-based applications: Where are my people, and what’s the best way to reach them? Should I use IM, e-mail, phone, videoconferencing, or call the pro shop and ask them to find their golf cart?

While no application company seems to do a good job of selling and marketing their services and support offerings, the problem seems especially acute at SAP. One of Mr. Apotheker’s first moves when he assumes the sole CEO role on Tuesday should be to announce the search for a marketing executive responsible for all of SAP’s service and support offerings.

Maybe it’s me, but the service and support offerings seem to consist of pieces: Solution Manager, Value Engineering, Enterprise Support, MaxAttention, Run SAP, SDN, product documentation, consulting, implementation support, and the like. Someone needs to tie all of the offerings together in a clear, consistent package, and get customers to use them. We continue to be astonished by the large number of SAP customers that don’t use Solution Manager, Value Engineering, or SDN.

As if the job wasn’t daunting enough, the new person should also be responsible for making sure that the support tools are easy to use, and not be content that they are good enough.

Selling services and support will become increasing important as more of the lifecycle management burden falls on SAP. Many large customers will likely come to see SAP as their enterprise architect even in heterogeneous environments.

What do you think?

Will we see a battle royale emerge between SAP BusinessObjects Explorer and Oracle Exadata in the database appliance market? How do you rate SAP’s odds for success in SaaS? Is it serious about on demand? Can it displace best of breed? If you were redesigning the NetWeaver fridge, which features would you add or drop?

As always, I welcome your feedback and ideas— Please visit my blog at

© Copyright 2009 by AMR Research, Inc.

Wednesday, April 29, 2009

SAP sales drop by a third

SAP sales drop by a third
By Gerrit Wiesmann in Frankfurt

Published: April 29 2009 18:14 | Last updated: April 29 2009 18:14

SAP, the world’s largest maker of business software, said sales fell by a third in the first quarter of 2009, highlighting companies’ reluctance to invest in information technology during a recession.

The slump was bigger than the 12 per cent drop in sales of such programs reported by rival Oracle in March. It led investors to sell SAP stock, although the shares rallied to close only 2 per cent lower at €29.50.

The German company said software sales dropped by a third to €418m ($557m). However, it managed to make up for this by raising revenues from maintaining SAP software installed on customers’ computers.

As a result, software and related services revenues were unchanged at €1.74m, outperforming Oracle, which saw joint revenues sink 2 per cent in its third quarter, which ran until the end of February.

For the full year, SAP said it continued to work on the “assumption” that software and related services revenues would be flat or fall by 1 per cent, allowing it to meet an operating-margin target of between 24.5 per cent and 25.5 per cent.

“While visibility for software revenues remains limited, we continue to take steps to protect our margin in this tough operating environment,” Léo Apotheker, SAP’s co-chief executive, said.

Mr Apotheker added that he was not worried by ­Oracle’s better performance in selling software at the start of 2009. SAP’s position as market leader was “not substantially changed” by what would prove to be a normal quarterly blip, he said.

Mr Apotheker signalled he did not want to follow Oracle into the hardware business after the US group agreed to buy server maker Sun. However, SAP’s strategy of organic growth would still be flanked by add-on purchases.

Mr Apotheker takes sole responsibility for SAP next month when his current co-chief executive Henning Kagermann retires.

SAP saw double-digit sales growth for much of 2008 – and an annual operating margin of 28.2 per cent – and it said as late as last summer that the crisis could be a boon as clients looked to cut costs with new software.

Yet, in autumn, the company warned that the fall-out from the global recession meant it could not give a sales forecast for 2009. Cost cuts – including a pay freeze and jobs cuts – followed.

SAP is cutting jobs for the first time in its 37-year history, aiming to reduce its workforce by 3,000 – 6 per cent of staff – to 48,500 by late 2009. Some 2,200 of these posts were cut last quarter.

This led to a one-off restructuring charge of €160m in the first three months of 2009, helping to drag operating income down 8 per cent to €332m.

Net income hit €204m, down 16 per cent from the first quarter of 2008.

Copyright The Financial Times Limited 2009

Software sales fall by a third at SAP

Software sales fall by a third at SAP
By Gerrit Wiesmann in Frankfurt

Published: April 29 2009 07:53 | Last updated: April 29 2009 07:53

SAP, the world’s largest maker of business software, on Wednesday painted a bleak picture of corporate spending on information technology when it said that sales of new software fell by a third in the first quarter of the year.

The Walldorf-based company said software sales – an indicator of follow-on sales from upgrades and maintenance – dropped 33 per cent to €418m, while software and maintenance revenues were flat at €1.74bn.

Last year, SAP regularly reported double-digit growth in both positions and last summer still boasted the economic crisis could raise information-technology spending as its clients looked to cut costs with new software.

But last autumn the company suddenly gave a stark warning about the fall-out of the global recession and said it could not give a sales forecast for 2009. Cost cuts, including a pay freeze and jobs cuts, soon followed.

“While visibility for software revenues remains limited, we continue to take steps to protect our margin in this tough operating environment,” Léo Apotheker, SAP’s co-chief executive said in a statement on Wednesday.

He stuck to his pledge, made at the start of the year, that cost cuts would help SAP to achieve an operating margin of 24.5-25.5 per cent in 2009, albeit down from a profit margin of 28.2 per cent the prior year.

SAP said this forecast was based on “the assumption” that full-year revenues from software and related services would be “flat” or show “a decline of 1 per cent” – although it said this was not a formal sales target.

The company is cutting jobs for the first time in its 37-year history, aiming to reduce its workforce by 3,000 people, some 6 per cent of total staff, to 48,500 by the end of 2009. Some 2,200 posts were cut last quarter.

This led to a one-off restructuring charge of €160m in the first three months of the year, helping to drag operating income down 8 per cent to €332m. Net income hit €204m, down 16 per cent from quarter one 2008.

Mr Apotheker, who takes sole responsibility of SAP when co-ceo Henning Kagermann retires later this month, said cost cuts were starting to have an effect and pledged SAP would continue with “tight cost controls.”

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Recession takes toll on non-financial sectors

Recession takes toll on non-financial sectors
By Richard Milne in London

Published: April 29 2009 19:42 | Last updated: April 29 2009 20:21

A string of European companies reported poor earnings on Wednesday as the global recession took a heavier toll on groups from the real economy than on banks.

Companies ranging from France Telecom to car parts maker Continental and pharmaceuticals group Bayer, which are both German, reported weaker earnings in the first quarter.

Meanwhile, Spain’s Santander, the largest bank in the eurozone, said its operating profit had risen.

Other industrial weak spots included steelmaker Arcelor-Mittal plunging to a $1.1bn loss and Siemens, Europe’s largest engineering group, issuing a profits warning in spite of a rise in earnings.

“Financials have done better, while real economy companies – outside consumer cyclicals – have been less impressive,” said Nick Nelson, equity strategist at UBS.

Banks such as Deutsche Bank, Credit Suisse and Santander’s Spanish rival BBVA have reported strong first-quarter profits, while companies from Euro Disney to Philips have reported weaker results.

European managers are generally refusing to say they see the “glimmers of hope” in the economy that several US companies such as General Electric have reported.

The chief executives of Siemens and BASF, the world’s largest chemicals group, even said they had seen further deterioration in recent weeks.

But both Conti and Bayer yesterday said they were seeing the first tentative signs of a bottoming out in the collapse of activity.

Mr Nelson said first-quarter earnings showed that “the rate of deterioration” was slowing in Europe, but that there would be more profit warnings and downgrades in coming months.

The pain in the real economy extended yesterday to diverse companies such as SAP, the German IT group, which said sales of new software had dropped by a third and France Telecom, where profits fell slightly.

German engineering companies – which make up the heart of Europe’s largest economy – reported a 35 per cent fall in orders in March and forecast further woe for this month.

Industrial companies have been hit hard not only by the collapse in demand for exports and cutbacks in investment, but also by the continued relative strength of the euro.

At the same time, some banks have seen improved conditions after a miserable 2008.

But other financial companies are struggling.

Allianz, the German insurer, saw operating profit fall 41 per cent in the first quarter.

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Thursday, April 23, 2009

Oracle faces culture shock in Sun’s open-source world

Oracle faces culture shock in Sun’s open-source world
By Richard Waters and Joseph Menn in San Francisco

Published: April 23 2009 21:42 | Last updated: April 23 2009 21:42

Larry Ellison is a famously activist exponent of competitive strategy. An avowed student of Sun Tzu’s Art of War, the Oracle chief executive has long followed an approach that sets Oracle’s interests against those of its main rivals, with Microsoft, IBM and SAP cast as the enemy.

With the acquisition of Sun Microsystems, however, he is about to walk on to new terrain where some of the methods that defined Oracle’s traditional approach to strategy no longer apply.

Sun’s main software assets – and the jewels for which Mr Ellison said this week that he had agreed to pay $7.4bn for the company – are all closely tied to the open source world: the Java programming language and development tools, which are partly open source, as well as the Solaris operating system and MySQL database.

That makes them unlike the roughly 200 software properties that Mr Ellison has acquired in the past. They are made freely available, and rely partly on the efforts of a wider group of developers to extend and support them. Their future success, in fact, relies on a technology community that stretches well beyond Oracle – and includes companies such as IBM, which also relies on Java as a core technology.

“Obviously Oracle is going to have to be a lot less heavy handed,” says Kenneth Chin, an analyst at Gartner. “They’ve acquired a lot of open-source assets, and they need to keep the communities involved.”

So far, Oracle has had little to say about how it will manage this balancing act. That has left the open source world trying to second guess what Mr Ellison will do next.

The focus has shifted in particular to how he will seek to make money from software properties that Sun itself so glaringly failed to “monetise” in the past, and whether his real intention is even to subvert some of the assets he is acquiring to protect Oracle’s existing business model.

The future of MySQL – an open source database bought by Sun last year, which has come to be seen as a long-term threat to Oracle’s own core database software business – has become the most immediate source of concern.

Marten Mickos, the former chief executive of MySQL, admits that Oracle’s acquisition of an upstart rival has sent a chill through the open-source community, and he likens it to Goliath vanquishing David. However, he also claims that it will still be in Mr Ellison’s own interests to maintain the software: “I think MySQL is cannibalising Oracle anyway,” so Oracle might as well benefit from that process directly, he says.

Most observers do not expect the hard-headed Mr Ellison to see it this way. Gary Reback, a Silicon Valley antitrust expert, says there is a chance that anti-trust authorities will force him to divest MySQL, but adds: “I think he wins any way you cut it. If he keeps it, he kills it: if he spins it off, who wants it without the top developers anymore?”

There are some potential limits. Mitch Kapor, a leading figure in the open-source world, points out that MySQL has a life beyond Oracle’s control: the software has already been “forked”, meaning alternative open-source versions have been created that are outside Oracle’s control.

However, stripped of the sponsorship of a big company willing to supply the core group of developers to push the project forward, MySQL could lose momentum as a significant rival to Oracle.

Mr Ellison’s intentions for Java have also become the centre of considerable speculation. Created by Sun as a way to counter the growing influence of Microsoft, Java’s power comes from its adoption by a wide group of companies, including IBM. If Oracle upsets this ecosystem it would undermine the value of Java – something people close to the company have been at pains to stress.

Yet maintaining Java’s openness, while at the same time directing its future development, will be a delicate balancing act, requiring the exercise of what Bill Whyman, an analyst at ISI, calls “soft power” – not Mr Ellison’s strength.

“We always wanted Java’s evolution to be participatory, but fully open would compromise compatibility,” says Bill Joy, the Sun co-founder and former chief scientist. “I believe Oracle shares these values, so am not concerned.”

More directly, Oracle has made clear that it plans to make money from Java in a way that Sun failed to do – another source of potential conflict with the rest of the technology world. Besides simply raising the licensing fee, Oracle could try to levy a small fee on every application that runs on Java, according to Gartner – a move that would have particular implications for the mobile world, given that Java is shipped on virtually all mobile phones.

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Friday, April 17, 2009

SAP’s New CEO to Inherit Far More Complex Product Set

Friday, April 17, 2009
Bruce Richardson

On April 29, SAP will host a conference call to discuss its results for the first quarter ending March 31. The company is also expected to announce that Henning Kagermann will be retiring from his role as Co-CEO. Fellow Co-CEO Léo Apotheker will assume the top position.

Knowing Mr. Kagermann, I bet he would have preferred to leave his successor with a strong pipeline and a robust economy as he slips quietly away. During a brief conversation a few weeks ago, I asked him whether he expected to see the economy recover by the end of this year or if we would we have to wait for 2010. Mr. Kagermann said that he thought “we will be lucky if it’s 2010.”

Over the last few weeks, I’ve sat through a lot of product discussions with various SAP executives and dozens of the company’s largest customers. Based on my observations, Mr. Apotheker faces numerous challenges. The top one may be the increasing complexity of the company’s product line and strategy. Here are some observations.

Surprise! Separate Enhancement Packs for ERP and each New Dimension product

When I attended the SAP Business Suite 7.0 launch in February, I left believing that all of the company’s new products would be delivered through an annual Enhancement Pack that covered the whole product spectrum. As it turns out, there will be separate packs for ERP and each of the New Dimension products. (The latter is an old label that refers to SAP’s offerings for CRM, SCM, HCM, and SRM.)

In addition, each release is cumulative, meaning that Enhancement Pack 5 will contain all of the features included in the previous packs. While this is great news for vendors like IntelliCorp and Panaya, which offer tools to help buyers compare the new releases with the current versions, it adds a lot more complexity to large implementations. This is especially true if SAP reverts back to separate release schedules for each of the various New Dimension products.

At the launch, SAP also introduced the concept of value scenarios. If you read my piece, “A Closer Look at the New SAP Business Suite,” you may remember that SAP had created 30+ vertical-specific scenarios based on end-to-end business processes, including inspired shopping experience, integrated product development, and collaborative demand and supply planning.

These scenarios are more like frameworks than composite apps. Still, a scenario such as collaborate demand and supply planning could involve pulling data from CRM and supply chain management in order to create the end-to-end process. This builds in a level of dependence on synchronized product releases. This is a challenge giving that SAP software is developed in 10 or 11 labs around the world.

Three types of apps: transactional, analytical, and collaborative

SAP has quietly built in additional complexity by adding different types of applications. In the R/3 days, its world consisted of transactions, with all of the results stored in a database.

Then, SAP developed and acquired a set of business intelligence/performance management products that pulled data from multiple data sources and content types, both structured and unstructured. The latter creates an issue when you see the world as a set of transactions. For example, what do you do with unstructured data? Where do you store it?

With the acquisition of Business Objects, SAP will be offering far more powerful and complex tools capable of managing enormous volumes of real-time data. This will likely result in a lot more members in the Terabyte Club, a moniker created by AMR Research’s Derek Prior.

Returning to the collaborative demand and supply planning scenario, these new collaborative apps offer a different challenge. In this application, SAP envisions a sort of a heterogeneous trading hub where a manufacturer may be exchanging real-time data with customers, suppliers, third-party logistics firms, contract manufacturers, financial institutions, regulatory agencies, and other interested parties.

The combination of the three types of applications, higher data volumes, and increased transactions is putting more pressure on SAP to open up NetWeaver to support third-party products. Discussions with customers, software vendors, and former employees point to the need for improving or replacing SAP NetWeaver Process Integration (PI). Formerly known as XI, PI is SAP’s enterprise application integration toolset.

Add SaaS and cloud to the soup

While SAP has been relatively quiet about its plans for expanding its on demand and software-as-a-service (SaaS) products beyond CRM and SRM, it’s logical to assume that over the next three to five years, most companies will find themselves support a hybrid architecture consisting of traditional on premise deployments and the rapidly growing on demand software.

Then there is the subject of cloud computing. A few weeks ago we spoke with SAP CTO Vishal Sikka about his plans. He told us that his team has been “working with Amazon for some time.” Logical cloud offerings include backup and archive, support for test and demo systems, and some virtualization support. In terms of offering applications on the cloud, Dr. Sikka pointed to several issues that need to be resolved: lack of analytics, integration challenges, and the difficulty of supporting transaction-intensive functions such as available to promise.

Urgent need for product roadmaps spanning two to five years

So, as you imagine the challenge of mixing and matching transactional, analytical, and collaborative applications in some combination of on premise, on demand, and in the cloud, you can feel the CIO’s pain. Clearly, CIOs have a lot more work ahead on governance, master data management, insourcing/outsourcing, and taming the total cost of ownership.

In meetings with SAP customers, we usually hear the same request unanimously: “Please help get SAP to provide us with product roadmaps.” Most are trying to slot in new, bite-sized projects over a multiyear period. This is much harder when you don’t know the release schedules. To date, SAP has been reluctant to disclose detailed plans. When we push back, the answer usually revolves around revenue recognition concerns. Okay, but that’s not very helpful for customers.

We will plead your case to Mr. Apotheker at SAPPHIRE

The next time we see Mr. Apotheker will be at SAPPHIRE in Orlando (May 11–14). In the past, Jim Shepherd and I have had the opportunities for one-on-one chats with Mr. Kagermann, Mr. Apotheker, and other SAP board members. Assuming that tradition holds, I promise we will relay your requests for detailed roadmaps for user interface plans, applications, NetWeaver, Business Objects, SaaS and clouds, and implementation strategies. Would you like more guidance on pricing, too?

We will also ask him about the economy. I hope he’s a lot more optimistic than his soon-to-be former boss. Look for our analysis next month.

On my blog, we are also looking for your view on your interest in new research on the future of work. Please take a minute to read the posts and add your thoughts.

In the meantime, I welcome your feedback and ideas—