Earlier this week, Saugatuck attended the SAP Sapphire NOW conference in Orlando, Florida. We value coming to the conference each year as it, like several other that we attend, provides great signposts as to current state of business computing. This year more than 20,000 attended the event live, with thousands more accessing the keynotes remotely. In this Research Alert, we emphasize three key takeaway threads from the event: “Simplicity”, “HANA Front and Center”, and “Ariba: Key to SAP’s Future.”

Why is it Happening?

With many of the key technological foundations having already been laid, SAP is at an important juncture to begin to significantly monetize on the vision it has built over the past few years. We see the company pursuing that in the following ways:

Simplicity. Saugatuck reacted positively to CEO Bill McDermott’s charismatic keynote and the subsequent follow-on sessions that emphasized the need to “simplify” the massive complexity that has often defined SAP systems, and enterprise IT in general. The move to provide FIORI for free is a good move in this direction, and should help accelerate the adoption of its new user experience / interface. And the continued move to the Cloud (across all lines of business) likewise helps customers in this regard.

But it is likewise important not to confuse “simplicity” with “easy to pull off.” As McDermott emphasized, simplicity needs to apply not only to the look and feel / UI, but with the underlying application workflows / application stack, and in how it does business with customers and partners alike. Frankly, the user interface is the easiest of these to tackle. The good news is that SAP appears to be listening to its customers, as it takes action to simplify the massive array of offerings in its portfolio with its new “Simplified” line of solutions (e.g., “Simplified Finance” – see below). While McDermott is no Martin Luther King, his “I have a bold vision for the future of business” (i.e., “simplicity) could potentially be an important inflection point for SAP if they are truly able to deliver the goods behind the well-intentioned and well-received messaging.

HANA Front and Center. While it has been clear that HANA is at the core of SAP’s technology and product strategy for several years now, Board Chairman Hasso Plattner did a nice job reiterating this in his day 2 Keynote, including how SAP has been managing the “Innovators Dilemma” paradigm for the past several years. We won’t review all of that here – nor all of the investments that it has been making to power everything via HANA. This has not been trivial. In fact, some may consider SAPs build-it-they-will come investments “betting the ranch” in these regards.

What was fascinating to us is how SAP is completely rethinking how application logic will get applied as it moves toward with model-driven solutions that directly engage with transactional-level data / records in the new “Simplified” solution versions that it is bringing to market. At Sapphire Now, SAP unveiled Simplified Finance, a new offering that takes advantage of this new design point. It leverages the power of its in-memory database structure to not only process traditional financial use-cases extremely quickly, but provides the opportunity for extensive and sophisticated big-data predictive analytics against the non-aggregated raw data (as well as a variety of externally sourced structured and unstructured data). This is powerful stuff – if SAP can execute against the vision, and if it can provide a not-too-painful transition strategy for customers to get from where they are today to where SAP wants to take them. In this sense, we now have a deeper appreciation of the role that HANA is playing in its technology and product strategy, and why it has moved so rapidly to re-platform all of its solutions on HANA. We will be tracking these innovations closely, as this likewise is not a trivial thing to pull off. For SAP to succeed in a big way, however, it needs to do much better at convincing customers of its vision – as the 3,500+ customers they cited that are using HANA (600 reportedly now live) are a drop in bucket to its full installed base.

Ariba: Key to SAPs Future. As detailed in a recent Research Alert (after we attended Ariba LIVE), SAP is realizing that it has a tiger by the tail – with significant upside if it continues to manage the acquisition squarely. While the new 30-day free trial is interesting, Saugatuck found the new eBay partnership quite a coup, as it opens up its network to other networks, and provides a broader portfolio of non-catalogue “spot” spending with which to manage. We would anticipate other networks to be added as well over time. Combining this direction with Ariba Pay (announced more than a year ago), where SAP will now be able to take a small slice of all transactions (or in the case of eBay, share PayPal transactional fees) – and one can quickly grasp the enormity of the revenue upside potential that lies ahead of SAP / Ariba. We can only imagine that the cash registers must be ringing in the minds of senior SAP leadership behind its Networked Economy go-to-market strategy.

Click here to read the Market Impact.

This blog was originally published on Saugatuck's Lens360 blog on June 6, 2014. Published with permission.

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