SAP: Lemons from Lemonade for Search Vendors

January 18, 2012

A couple of years ago I did a series of columns about SAP, the German software company which is imbued with the DNA of IBM and the more unpredictable genes of the “let ‘er rip” approach to generating revenues. Change is difficult, and SAP interests to me because the firm’s machinations are the embodiment of the dislocations that old style software vendors face in the cloudy world of Amazon, Google, and even old Big Blue herself, IBM. Keep in mind, one of SAP’s strategic moves was to purchase Sybase.

HANA emerged two years ago as a solution to the woes of organizations struggling with big data, the need to make sense of them, and the complexity which threatens to sink traditional enterprise applications. Consider SAP itself. The company owns Business Objects, once the leader in business analytics. Today I don’t think of Business Objects, which may say more about my awareness than SAP’s marketing. But I hear zero about Inxight Software which performs entity extraction and other text operations and I have heard little or nothing about TREX, SAP’s information retrieval system. I lost track of the SAP investment in Endeca long before SAP’s rival Oracle snagged the 1998 technology to “enhance” its own struggling search solutions.

What is HANA?

According to an SAP friendly blog, SAP describes HANA in this way:

HANA is the foundation and the core of all that we do now and going forward for existing products, new products and entirely new frontiers. We are transforming enterprise software with HANA, and we are transforming our entire product portfolio,” Sikka said in a statement earlier this week announcing that SAP HANA is now generally available worldwide. “But HANA is more than a product,” Sikka continued. “It is a new paradigm, an entirely new way to build applications. It is the basis for our own intellectual renewal internally at SAP—where we rethink how we design, build, deploy, service and sell products—and the basis for our customers’ and partners’ intellectual renewal—where we help customers rethink existing business problems and help them solve entirely new challenges using design-thinking.” (Source: The Top 10 Reasons SAP HANA Is Disrupting Larry Ellison’s Grand Plans]

To me, HANA is a next generation database and it now has to differentiate itself from the XML next generation database from the likes of MarkLogic, from Cloudera, from other NoSQL solutions, and from the new and improved versions of data management systems from IBM, Microsoft, and even Amazon. Big job. Maybe an impossible job?

In December 2011, I snipped the write up “Can SAP be the #2 database vendor by 2015?” I found this passage particularly interesting:

Why doesn’t SAP HANA have deeper market penetration? Put simply it is because SAP wanted it this way. Whilst HANA truly is a general-purpose database, SAP first announced it as an analytics appliance for the 1.0 release. They also priced it really high and didn’t’ offer a discount – list pricing can be as high as €180,000 for a 64GB HANA “unit”, depending on which version you require. And what’s more, SAP sells solutions and HANA is a platform, so the global sales force doesn’t quite know how to sell it in volume – yet. They didn’t want to sell it in volume in any case because they wanted to introduce it slowly to market – building stability, references along the way and avoiding expensive and embarrassing global escalations. So by the end of 2011 we should expect $100-150m of HANA sales, which is 3-5% of SAP’s total revenue. Not particularly significant, right? Well in September they released HANA as being supported for SAP’s Business Warehouse software, which allows large-scale data warehouses. And this is where it gets interesting: there are 17,000 existing BW customers, and HANA would provide business benefit to all of them.

If you are interested in HANA, you can access SAP’s primer about the solution at this link.

In the midst of the HANA hype, Seeking Alpha’s “SAP Is No Longer The Leader It Once Was” stated in December 2011:

The current most promising innovation is SAP HANA, an appliance with columnar in-memory technology enabling fast processing and near real-time analytics. According to SAP, HANA has the potential to become the next-generation system architecture, removing the use of middleware and relational databases. However, the root causes of the downturn appear outside the perimeter of the company transformations: product development, continuous customer complaints, and the 20-year aging ERP that represents the core of the customer base seem to remain unchanged. Agile is probably not enough to address the long-term issues of product development. Most likely, Agile is not the solution to fifteen years of trying to get CRM right, or to making three platform mistakes in three on-demand initiatives (CRM on-demand in 2006, Business byDesign in 2007, and SaaS Enterprise in 2009).

The Seeking Alpha analysis then makes these machine gun like statements:

Is SAP getting it right? Here is a summary of the points to keep in mind to answer this question:

SAP R&D has yet to deliver its first truly successful product since 1992 (it could be HANA overtime)

The core of ERP that holds the customer base is outdated

There seem to be no plans to develop a modern replacement product

Development of a potential new ERP would take years

Sales have declined stepping back by 3 to 4.5 years

SAP’s leadership is questionable

According to Gartner, the revenue from relicensing R/3 to ERP 6.0 is ending

Customers and employees have lost trust

Executives have been leaving

On-demand is not making progress

The customer base is increasingly at risk

Analysts estimate that HANA could produce just 10% of the revenue by 2013.

There is a gap between the buzz and the hard facts.

What does this mean for vendors who hitch their wagons to the SAP “star” as ISYS Search Software did with the announcement “ISYS Wins Software Deal with SAP”? Three points:

  1. Search vendors are looking at their technology and packaging it in ways to generate incremental revenue. ISYS, it appears, is in the connector game, competing with firms such as EntropySoft
  2. SAP seems to be lagging further and further behind the NoSQL players who are now facing headwinds despite early market leads. My example is MarkLogic, the XML database outfit
  3. The broader market seems to be splitting into quite different segments. SAP is going to have difficulty in the IBM and Oracle space, and it is going to have trouble with the open source NoSQL crowd which seems to prefer having Hadoop on its T shirts than HANA.

SAP remains interesting, but it is now in some danger of further marginalization. SAP needs a search system still.

Stephen E Arnold, January 18, 2012

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2 Responses to “SAP: Lemons from Lemonade for Search Vendors”

  1. Future PLM platforms and SAP / Oracle technological wars on January 25th, 2012 9:19 pm

    […] was reading an interesting article by ArnoldIT – SAP: Lemons from Lemonade for Search vendors. The article referencing technology coming from SAP called HANA. According to SAP […]

  2. Future PLM platforms and SAP / Oracle technological wars « Daily PLM Think Tank Blog on January 25th, 2012 9:21 pm

    […] was reading an interesting article by ArnoldIT – SAP: Lemons from Lemonade for Search vendors. The article referencing technology coming from SAP called HANA. According to SAP […]

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