SAP has had a terrible week
October 8, 2008
The last couple of days have not been good for SAP. First they announced shockingly poor results for the third quarter. The downturn in the economy has unquestionably caught the execs off guard. The last two weeks of the quarter weren’t just rough. Deal closure pretty much dried up completely leading to a 9% year over year decline in new license revenues. That’s not serious. That’s cataclysmic.
It’s unfortunate that SAP was the first to report because it quickly became the focus for attention. In the coming weeks expect to see a rash of similar earnings warnings. Some will be uglier than others but the enterprise space is going to experience a freeze like nothing we’ve seen in the past.
Earlier in the week, Ray Wang of Forrester provided me with access to a forthcoming slide deck that discusses SAP’s maintenance price hike issues which I wrote up over at ZDN. I have written extensively about this topic because it is one of the running sores of the enterprise software space. While the timing could not be worse for SAP, I see this very differently. I see it as a massive upside opportunity. As I said on ZDN, an investment of $250 for SAP types in hearing Ray’s webinar will be money well spent. He’s absolutely worth the admission price.
My colleague Vinnie Mirchandani draws further attention to the topic in which he concludes:
I have acquired a moniker in the industry as “Vinnie Maintenance” for droning on for years about “high-maintenance” in software. Ray and Dennis’ additional research is going to make them just as unpopular with vendors.
To which I say: By all means, ignore us. But please listen to the 94% of your customers who are saying so.
The good news is that if you really need to upgrade or buy new business critical software, now is the time to do it. Vendors will scramble for deals so don’t be surprised to see deep discounting. Remember though that software is only one component in an enterprise project of this kind. There’s infrastructure costs, consulting and implementation all to take into account. This is where the real costs are incurred.
Vinnie, Mike Krigsman and I share a belief that the vendors can do a lot more to help customers, principally by making sure that implementers don’t price gouge while upping their quality game. Too often I see vendors getting pummeled in the press when it is really the implementer that is responsible. But I find it hard to besympathetic when the vendors continue to let their channels of distribution and implementation run amok. Now is the time to get tough. The vendors CAN do it - if they choose.
Of course you could always think about switching IT spend from capex to opex. That means considering saas. But you should only do this if vendors can provide a viable alternative for your needs. Just because the economy has gone pear shaped doesn’t mean you should be distressed in acquiring a solution.
Footnote: Later this week I am in London for FOWA. It will be interesting to gauge the sentiment among the startup community. I really hope they’re not hurting too badly. Next week I’m in Berlin for SAP TechEd. I confidently predict a relatively thin attendance from the SAP peeps and an extremely interesting set of conversations.
Update: I completely missed this earlier assessment of SAP’s earnings, or rather the warning bells that should be going off inside the SAP C-suite. But then the same is also true for other traditional vendors.
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