Flashing open the A1S kimono

by admin on April 30, 2007

in General

A fascinating conversation is underway among some of my colleagues following the SAPPHIRE07 blog fest. A recurrent theme has been the absence of actually ‘seeing’ A1S, the service SAP believes will spearhead its drive to accelerate customer growth from its current tally of some 40,000 customers to around 100,000 by 2010. I, along with others think this is ambitious but not impossible. But without seeing something concrete, we’re pretty much in the dark. Mike Prosceno acknowledges this lack of seeing was a cockup and it will get fixed. In the meantime, Thomas Otter kindly pointed to an investors meeting video where SAP showed snippets of A1S. It’s worth watching because you get a clearer impression how SAP will demonstrate capability, configuration, delivery and how it impacts pricing. The demonstrated scenario covered the activities of a sales person. A swipe at salesforce.com? Important points to note:

  • The company can have an adapted, tailored business system
  • Portal style delivery
  • Role based screens
  • Embedded analytics and learning

I’ve included a couple of shots I took from the video so please excuse the smeary appearance. I have to say that it was a very superficial demonstration. Even so, it gives some feel for the look, feel and capability. The first shows a sales person’s detailed sales opportunity screen. In the second you see a screen where users select broad business processes for inclusion in their environment.

Capability

We don’t know the richness and depth of that detailed functionality. This will be a crucially important question because companies will naturally draw comparisons between the on-demand suite and the combination of existing best in class solutions. Similarly, we don’t know the extent to which SAP is including functionality for vertical markets. During the meeting, SAP said it is talking to a ‘small’ number of partners. If it wants to reach the magic 100K by 2010, I suspect they will need a LOT of business partners to fill the micro-vertical expertise gaps that are bound to arise. If they are learning anything from developments in the on-demand webware world it should be that Salesforce.com’s AppExchange is proving an attractive model.

Delivery

SAP introduced me to a new term ‘mega-tenancy.’ This means each customer will have their own dedicated system inside a multiple-parallel environment. This is not multi-tenancy in the traditional sense but somewhere between multi-tenant and the older ASP model. I like that idea because it provides the customer with a way of knowing their A1S instance is ringfenced. In the context of the mid-market and especially those in Europe, it answers at a stroke a recurring question about data security.

Pricing

Pricing is where the discussion gets interesting. Henning Kagermann said the average deal size they’re modeling upon is represented by the 50 person business. He also said the revenue per deal was anticipated to be in the $50-100K range. This compares well with the $160/user/month Scott Lutz implied and would indicate that SAP will quote based on consumption as well as functionality plus the required services needed to take the system live. That idea is supported by Hans-Peter Klaey’s assertion that once SAP has qualified and nurtured a customer, cross and up-selling opportunities will emerge. You don’t do that unless you think there is more money on the table.

As the average per user count increases, SAP will have to consider a discount structure. In the right deal, you can twist NetSuite’s arm down to $50/month per user so why should SAP be any different? But it’s not quite that simple either. If SAP extends to procurement in servicing organisations as an example, I can foresee interesting discussions around how the extent of usage impacts per seat pricing.

Should for example an occasional buyer be costed at the same rate as a purchase or sales ledger clerk? One of the central questions customer will need to answer is whether the combined cost of continued operation of many systems that may well be in ‘steady state’ is outweighed by the allure of a single business suite delivered in this fashion that may not be as functionally complete.

What trade offs will companies be prepared to make – if any? But the over-arching question on pricing remains. Can SAP command any sort of premium in this cost conscious and IT constrained market based on brand and the final service offering compared with NetSuite, salesforce.com and emerging players like Twinfield? It all comes back to bang per buck.

I wonder therefore whether A1S will answer one of the central questions Brian Sommer recently posed about customer awards:

The users that should be showcased at these events are the ones who spent a pittance and got a ton of value. Moreover, the focus should be on highlighting the customers who were able to figure out a lot of the change management challenges on their own and actually solved them without the use of consultants or a strait-jacketing piece of technology.

Subsidiaries of large enterprise

Contrary to what I thought, Henning was at pains to say that SAP will not actively sell to small subsidiaries of large SAP customers. At least not as a first step. That doesn’t make any sense to me. SAP is already fielding enquiries from large customers about how it might benefit from A1S. Those conversations will not be in SAPs control.

Conclusion

Depending on how SAP views partner relationships, I believe A1S could represent a real opportunity for smart professionals who service the UKs medium size enterprise. They could profitably open an entirely new line of business based on micro-market expertise, helping to develop valuable business functionality. Given that A1S is configured over the wire, this could, in turn, open up lucrative international opportunities. That’s because business segments behave in remarkably similar ways across geographies. The Big Question remains however – will A1S pass the functional taste test? Maybe we’ll know more after Vienna.

 

Technorati tags: , ,

Comments on this entry are closed.

Steve Mann May 1, 2007 at 2:41 pm

Very on target Dennis… let me know if there are other questions you have.

Steve

Previous post:

Next post: