SAP and Salesforce.com: opposing application platforms

Recent moves by both SAP and Salesforce.com illustrate two different approaches to building a new platform to support an ecosystem of related solution providers.

First out of the chute was Salesforce.com, which back in January announced its AppExchange platform, which allows anyone to build extensions, customizations, and complete applications on top of the Salesforce.com infrastructure. This approach allows the tiniest developer--even a single individual--to build a new application, deployed as a service, and offer it for sale through Salesforce.com's AppExchange directory. Salesforce.com recently dropped the price of entry to this game, from $75 per user per month, to $25. At that price, any developer with a hot idea can work out of his or her bedroom and develop an application for sale.

The opposite approach is shown by SAP, which recently launched a venture fund to finance software development firms that want to develop applications to work on top of SAP's Netweaver platform. In contrast to Salesforce.com, however, these applications will be on-premise deployments, and it's hard to imagine them being deployed anywhere but in an organization that is running SAP. It appears that with much of the software venture money these days going to new software-as-a-service startups, SAP needed to launch its own venture fund to get money to its partners that are using a traditional on-premise model.

So, there are two key differences between these two attempts to provide a platform for building an ecosystem of application providers: (a) Salesforce.com's on-demand model vs. SAP's traditional on-premise model, and (b) Salesforce.com's providing a very low cost, low entry-point platform vs. SAP's providing venture funding for developers.

With SAP's increasing dominance of the enterprise market, and its deep pockets, there's a good chance that SAP will be successful. But its goals are to extend the reach of its SAP installed base.

Salesforce.com's approach is more innovative, in my opinion. It is attempting to provide a web-based, on-demand operating system, upon which new applications may be deployed. Of course, there is nothing to stop other providers from offering similar platforms. Furthermore, because Salesforce.com's offering is based on a service-oriented architecture and open standards, there would appear to be nothing to stop applications from interoperating with those built on top of Netweaver. Or, vice-versa.

While it appears to be harder and harder for traditional enterprise system vendors to be successful--witness the latest merger/acquisition of SSA by Infor, now with over 50 separate systems in their combined portfolio--the models offered by SAP and Salesforce.com provide a glimpse into how applications will be developed and delivered in the future.

Datamation has more on recent moves by Salesforce.com with AppExchange, and there's a good overview of AppExchange on Salesforce.com's website. ASPnews has more on SAP's venture funding of developers for its Netweaver platform.

Related posts
The death of packaged software
Rolling up the rollup: SSA Global to be acquired by Infor
Salesforce.com publishing real-time system status

The death of packaged software

Erik Keller has an interesting editorial over on Sandhill.com, where he argues that there is a shift going on in corporate IT in favor of building more applications in-house (or through contract developers) instead of buying software packages. Keller made some of the same arguments a couple of years ago, and I commented on them back then.

Basically, his argument is that there are three trends at work today that are making custom development a more viable option: service-oriented architectures (SOA), which make it easier to integrate custom software components into existing systems; the availability of open source, which can be used as a starting point for custom systems; and offshore development firms that are developing high quality code at low cost.

These points are generally well understood, although the implication that they represent a threat to software package vendors is not fully recognized. Keller made these same points two years ago.

But in his editorial this time, Keller points out something new: three negative factors on the side of commercial software providers that are fueling the trend toward custom development. Ironically, he says, these factors are exactly the same as those that worked in favor of packaged software in the past.

According to Keller, these factors are (quoting him directly, here):

Slow time to market: Like the mainframe-oriented IT shops of 1980s, many of the largest enterprise-software vendors find it difficult and expensive to quickly incorporate the latest technology into their products in a timely and innovative fashion. They also tend to have limited experience with the latest tool sets.

Poor quality: Internal IT groups often used to fail when they attempted large, complex projects. Over the last 15 years, buyers have found that most enterprise software vendors and systems integrators are no better and actually less accountable than their internal capabilities.

High expense: With large upfront charges and on-going maintenance fees hovering around 20 percent of list price, enterprise software has taken on the same bad characteristics of inefficiently managed internal IT staffs.

As I wrote two years ago, I still believe that commercial software packages are the best route for most companies, especially small and mid-size organizations that are ill-equipped to maintain, let alone develop, comprehensive enterprise applications. For example, if a manufacturing firm has difficulty implementing SAP, or Oracle, or Great Plains, just wait until it attempts to develop time-phase material requirements planning or available-to-promise logic from scratch.

That being said, however, the economics of the build-vs-buy decision are difficult to argue with. By paying approximately 20% of the license fee for maintenance each year for Oracle or SAP, you are essentially buying the software again every five years. Although companies should continue to use commercial software for basic horizontal functions, such as finance and accounting, manufacturing, and basic order processing, the build-option is becoming much more attractive for complementary and industry-specific or company-specific functionality.

The transition of the major vendors toward service-oriented architectures (SOA) is making the build-option easier, with the ability to plug in such niche-functionality more easily. As Andy Bartels at Forrester pointed out recently, by embracing SOA, vendors such as SAP and Oracle are unleashing forces they cannot control, as the same SOA that makes it easier for vendors and partners to build composite applications also make it easier for customers to build their own composite applications.

The vendors' embrace of SOA is actually sowing the seeds of their own destruction. But they have no choice. They can either get on the SOA train or get run over it.

Related posts
Build/buy pendulum swinging back toward build

Oracle going dark

Josh Greenbaum is complaining that Oracle seems to be less and less open these days in dealing with the press and analyst community and is adopting a "circle the wagons mentality" as it moves into year two of its Fusion strategy.

In his article in Datamation, he writes, "Oracle is harder and harder to cover, and harder and harder to understand – at a time when its message is more complex and craves more understanding than ever before."

Josh contrasts Oracle's recent "closed door policy" with that of two of its top competitors:

Two recent conferences I've attended, SAP's Sapphire and Microsoft's Convergence, were noteworthy for the opportunities the companies afforded analysts and the press to talk to executives, customers, and partners. For anyone trying to answer the hard questions – like which company has a better long-term strategy – it's much easier to have an opinion when you're given something to go on. Especially if that information is constantly updated and refined by access to the actual decision-makers.

He also points out that when access is limited, it's easier for analysts to write negative stories than positive.

Ironically, I've been hearing positive things recently about Oracle's work with its J.D. Edwards acquisition. One source, who had a long career with JDE and still has contacts within Oracle's JDE offices in Denver, says that Oracle is doing a far better job with JDE than PeopleSoft ever did.

Furthermore, in spite of some misteps at first, Oracle seems to have gotten its act together in how it tests and releases upgrades for JDE.

So, why the entrenchment at Oracle?

Rolling up the rollup: SSA Global to be acquired by Infor

SSA Global, one of the primary consolidators of enterprise system vendors is now itself being acquired by Infor, another consolidator. There's a short press release on Infor's website just now, announcing the deal, which gives $19.50 a share to SSA shareholders, the majority of which are two investment firms, Cerberus Capital Management and General Atlantic Partners.

Why the deal? My guess is that SSA's investors see it as the best opportunity to get out. SSA's stock price has been on a steady decline since the beginning of the year and was trading around $16.00 the past week or so. Infor's offer of $19.50 represents a 20% premium over its current price. Sold.

Of course, this is from the investor's viewpoint. What about the customer's perspective? At first glance, I can't imagine that customers will be excited about this deal. I won't try to list all of the acquisitions that SSA Global and Infor each have made over the past several years. Use the search field in the right column to search for "SSA" or "Infor" and you'll find everything I've written about each firm's products over the past four years. Some, such as SSA's Baan (now ERP LN), were big names in the past. Some, such as SSA's Epiphany, have good up-to-date technology. Some, such as Infor's Lilly Visual applications and the former SCP Adage (Agilisys) system have deep industry functionality. But the list of products is very, very long, and it's hard to imagine how the combined entity can give adequate attention to such a diverse portfolio of products.

If you are a current customer of SSA or Infor, please let me know your experience with either vendor and your view of this deal.