The Innovator’s Challenge: SAP Crosses the Rubicon, but the Empire is Still to be Won

SAP has spent several years and several billion dollars trying to formulate a strategy that propels it ahead of an unprecedented set of market forces, and this year’s TechEd helped set the stage for a 2012 that is poised to be the year SAP finally crosses the innovation Rubicon.

Of course, as students of history will tell you, crossing the Rubicon was only the beginning of the journey that made an emperor out of the general who led his army over the forbidden river. SAP faces a similar journey – the real test will be in seeing how well SAP can marshal its technology, field sales efforts, and partner ecosystem into a fighting force ready for historic conquest. By contrast, showcasing a growing palette of innovation – which SAP did in spades this week at TechEd – is the easy part.

Because more and more the battle SAP now engages is truly epic – at least in the otherwise mundane world of technology – precisely because of the massive bets the SAP board has laid on the table: as the sole standalone enterprise software giant, SAP is fighting perhaps its greatest battle against market perceptions that bundling hardware and services is the only way to reap the margins and profitability that Wall Street believes are required of successful technology companies.

Those market perceptions have seen Oracle and its hardware focus become the standard of excellence for the sector, despite massive questions about the role of innovation at Oracle. These perceptions have also lead HP to embrace software and services, and Dell to embrace services as an adjunct to their own respective innovation Rubicons.

Meanwhile, SAP has chosen to largely stick with its software-only strategy, though more and more its offering are requiring a level of services that are making the concept of out-of-the-box functionality even more mythological than ever. Importantly, SAP’s software-inter-pares focus has made it the company to watch as Oracle prepares for its OpenWorld user conference and gets ready for a quarterly results call that will put a bright spotlight on whether Oracle can make good on Safra Catz’s promise to get the company back to software-like margins now that Sun has been fully digested.

The problem for Oracle is that SAP’s software strategy is making a lot of sense as an innovative wedge into the enterprise, one that has the potential for challenging the bundling and hardware-based low TCO strategy that is at the core of the Oracle way. SAP’s challenge is to prove that the advantages of its software innovation strategy provide a better long-term value than Oracle’s dual software rollup and Exa-twins strategy.

The potential advantages to SAP’s strategy were out in force at TechEd this year, from the gamification theme to the focus on mobility to the HANA drumbeat (actually drum and bugle corps is a better description) to the continual progress on cloud-based analytics. In conversations with customers and partners, it was clear that the top level message that SAP is innovating in areas that are near and dear to the market’s heart was being heard in all the right quarters.

The mobility and HANA stories were the most impressive to me. SAP has made it clear that its reading of the enterprise tea leaves have shown that the mobile experience is the design center for the enterprise of the future. I spent the first day at TechEd asking SAP execs of all stripes about this question, and the answer was consistent: if you are a customer or partner and want to develop a new enterprise app, your design starts with the mobile user experience. That app can use HANA, pull data from the Business Suite, and be as transactional or analytical as you would like, but if it doesn’t look good on an iPad, it’s back to the drawing board time.

This is not only consistent with where other market leaders and innovators are headed, but it also shows the recognition that even the most modern SAP Business Suite user experience pales in usability when compared to the standard mobile app: Which of course makes SAP’s Sybase investment make all the more sense. That was the observation number two from TechEd: the DNA strands from Sybase are more and more tightly interwoven with the core DNA of SAP, and the evolutionary advantages are starting to show.

Meanwhile, TechEd was HANA’s own Rubicon. SAP announced that the dream of HANA as an OLTP engine for the Business Suite was now within reach, and that the company was actively working to move several thousand SAP Business Warehouse customers off their Oracle RDBMS platforms and on to HANA. While many of these customers have to run the gauntlet of Oracle’s contract lawyers in order exit their license agreements without incurring huge penalties, SAP is busily preparing a business case for BW customers that will make it cost-effective for these customers to make the shift.

The prospect that SAP could be presenting these customers with a faster, better and cheaper way to run their data warehouses as compared to Oracle should rattle a few cages over at Oracle. And with HANA-ready apps and services, HANA as a platform play in the cloud, and other parts of the SAP in-memory strategy coming to fruition, it’s no wonder that SAP is touting HANA as the fastest growing pipeline for an SAP product in the company’s history (okay, so the bar might be set a little low, it’s still an impressive claim.)

This prospect of a major HANA pipeline – and that’s before SAP taps the multi-billion dollar BW replacement market – was a major reason for SAP’s success in its last quarter, a point emphasized by Bill McDermott when I spoke to him about the quarter in July. His other main point was in evidence at TechEd – the strategy of innovating largely around what SAP likes to call a “stable” core is one that is making tremendous sense for its customers. It was clear in every customer conversation I had that the notion of adding new functionality like HANA or new mobile or analytics apps on top of the Business Suite was making huge sense for these customers. This was the dual nature of every customer’s raison-d’etre a TechEd: keep an eye on what’s going to make the core easier and more efficient to run, while looking for the cool new apps that will make the business more competitive.

So the Rubicon has been crossed, what of the battle for the empire? The question really boils down to what the SAP board is willing to do about its innovation opportunity. The problem with SAP and innovation is twofold. The first is that the company has so much innovation going on in so many quarters that it risks drowning in the river instead of crossing it. This is of course a messaging problem for newly crowned CMO Jonathan Becher, who has the unenviable task of making sure SAP is consistently on message in the 24 industries and dozen or so major markets in which it wants to wear the innovator’s crown. This means places where SAP has been traditionally weak – like CRM and HRMS, both of which now have really nice new mobile apps in the quiver – as well as places SAP has been traditionally strong, like manufacturing and supply chain. It means taking the rest of SAP into the new markets, like mobility and financial services , that Sybase brings to the table. And it means distilling one of the more comprehensive and  complex innovation messages in the market into the SAP equivalent of IBM’s Smarter Planet, or Oracle’s Engineered for Innovation.

The second problem for the SAP board involves Oracle, and to a lesser extent IBM: how willing is the board, because in the end it’s their decision, to take on Oracle in aggressive fight for the growing pool of IT dollars that McDermott now sees as shifting towards innovation. That fight requires SAP to shift from its usual preference to play defense against Oracle to playing offense, and the stomach for this fight is the real question.

Take HANA and in-memory as the perfect example: It’s clear that Oracle will be making a major move against HANA at OpenWorld –they threw down the gauntlet here even before TechEd was over. If SAP plays its usual hand, and Oracle plays its usual hand, then Oracle will successfully steal the in-memory ball and start running for the goal line, red and yellow cards be damned, while SAP will put on a sincerely good chase. Rinse and repeat for mobile – it’s hard to imagine Oracle will let another OpenWorld go by without making some commitment to the mobility market. The only real question is what is SAP prepared to do about it.

SAP has the opportunity to fight Oracle on its home turf – SAP is, after all, now a database company too – as well as take the fight to new markets. This opportunity would involve blending a strong innovation message with a strong total cost of ownership message, and it would involve direct engagement with an aggressive and highly successful opponent. To do so might not guarantee success, but failing to do so would guarantee mediocrity, and further threaten SAP’s ability to make the case to its investors that the last standing enterprise software giant deserves to continue standing.

I have to close this TechEd rant with a note on gamification, which was one of the themes of TechEd and was the subject of an Innojam – a 30-hour coding quest – that resulted in a contest for the best gamified app (of which I had the honor to be one of the judges). SAP’s focus on gamification in the enterprise is another example of some fearless thinking with respect to innovation, but the results from the Innojam proved to me that any fear of gamification is completely unfounded.

First off, the 13 teams that made it into the final round were exemplified by an incredible energy and creativity – and excitement – that itself was innovative. The sparks in the room were palatable, and the different approaches to gamifying SAP were impressive. My own favorite – the “Do I Know You App” mentioned in the link above, which is an app that lets meeting attendees put names to faces and otherwise learn about the people with whom they are about to meet – didn’t win, but it exemplified a winning gamified “SAP” app in three important ways:

• The user experience was hip, mobile, entertaining, and in very sharp contrast to the traditional SAP look and feel, even the Business Suite at its most modern.
• The app was engaging and intrinsically as well as explicitly rewarding, and the explicit rewards of gamification enhanced the intrinsic reward of being able to have a more engaging meeting, even with people one has never met before.
• The app enhanced an important component of the kinds of people-centric business processes that SAP has to capture in order to reach its billion-user goal.

It’s easy to say that gamification is really way out there, and is something that SAP is doing just to look cool, even as it pulls on its suit and ties it tie and heads off to that staid and boring enterprise software world of yesteryear. The Innojam proved that if SAP wants to unleash gamification as one of its next waves of innovation, it will have yet another army to march across the Rubicon. Gamification may prove to be as strong an innovation play as SAP has ever made, and that’s saying a lot.