In interviewing SAP customers for the upcoming book, I ended up classifying them broadly into four groups. I termed the first three: a) Risk-takers who are trying out new Leonardo ML or IoT projects, developing new functionality with its Cloud Platform, moving to S/4HANA in the cloud; b) Modernizers who are moving to S/4 on prem, even staying with SAPGUI, others moving to cloud properties like Ariba or SuccessFactors or new on-prem functionality like IBP – relatively less disruptive changes; and c) Diversifiers who are “ring-fencing” with functionality from Salesforce, Workday, Plex or other SaaS vendors, two-tier settings with NetSuite and Microsoft and others who are trying out third party maintenance from Rimini or Spinnaker. This group also includes a growing number of customers who are moving back to SAP after trying something competitive.
The fourth group is what I called Bystanders – and it is the biggest group – as they are not really budging or doing much. I estimated them as 60% of the SAP base of customers. I estimate this percentage is much higher in Oracle, Infor, Unit4, Microsoft and other on-prem customer bases. With SAP, the European customer base has been especially static. On the other hand, the breadth of its developed and acquired products is much wider than that of its competitors so it has more ammunition to move its base.
I interviewed several analysts on why these customer bases are moving so slowly. I am paraphrasing from several pages in the book: Cindy Jutras thinks it is fear whether customizations can be retired. Frank Scavo says it is business scenarios more than vendor functionality which drive such major, traumatic moves. Holger Mueller thinks end of life dates announced by vendors have some impact. He wonders how many customers would want to continue with systems in 2025 which do not support IoT or machine learning scenarios. As I wrote here, next-gen solutions have several challenges which need to be addressed before there is significant customer momentum.
The stakes are very high. There are at least a million Bystander customers across the major vendors (SAP itself has over 400,000 customers, with a large percent on ECC, BusinessOne, BusinessObjects, relational databases and other older technologies). You could cynically argue that on-prem vendors are collecting maintenance checks so are content to stay with status quo. The problem is status quo is making it difficult for customers to attract younger IT talent ( try competing for young developers for an on-prem, ABAP or Unit4 shop). Customers are struggling with older customizations. There are security and compliance challenges. There is plenty of technical debt. Their costs have been high and continue to be high. Either SAP, Oracle, Infor and other on-prem vendors start energizing their customer bases or they are creating a vacuum for a disruptive force to enter.
Who could that be? Last month, I heard Zoho executives prepare for an Amazon entry into enterprise apps. Heck, the way Zoho is going it is already a disruptive force. It could be SaaS vendors like Workday or Salesforce if they can start to grow their global and functional footprint
In the book, I point out that “tilting the bell curve of customers” to move Bystanders into the Risk Taker and Modernizer categories is SAP’s big short term opportunity. The book has several ideas for SAP to do so. Other on-prem vendors have similar opportunities in their own customer bases. And, whoever does it quickly in their customer base will also have a shot at attracting Risk-takers and Modernizers from other on-prem competitors. However, as these vendors introduce new offerings and messages, SaaS, TPM and other vendors won’t stand still – they will update their own offerings to remain competitive.
Image: Deal Architect
I live in Florida and have seen over and over that weather vacuums provide the seed for birth of destructive fronts and hurricanes. They are not fun and cause plenty of turbulence. In our state, we take elaborate measures to prepare for such disruptions.
I feel the same coming around enterprise software. A million+ Bystander customers not doing much is too big a vacuum. Nature hates a vacuum. Time for every vendor to start updating their contingency plans.
(Cross-posted @ Deal Architect)