SAP’s Database Strategy Faces an Uphill Battle

Last week I attended a half day SAP press conference in San Francisco, on the subject of SAP’s strategy for database technology and mobility. Both are hot topics in enterprise software, and there were plenty of announcements. In fact, it’s quite easy to get lost in the weeds. So, in this first of two posts, I’ll try to summarize what I see as the big picture for SAP’s database strategy.

SAP Positioning Itself as a Database Company

When SAP acquired Sybase in 2010, it said it was doing the deal primarily Sybases's mobility platform. But Sybase also has its traditional relational database products, leading with its Adaptive Server Enterprise (ASE) database. At the same time, SAP itself has been rolling out its HANA in-memory database (IMDB) technology. Until now, these two database products were managed separated, but no longer. SAP is consolidating all its database offerings—HANA and Sybase’s—along with middleware and tools, under one management unit.

There were many tactical announcements. SAP announced general availability of its BW business intelligence product on HANA, and its plan to make HANA available later this year as the database of choice for its small business customers of its Business One ERP product. In addition, customers later this month will have the flagship Sybase ASE database available as a deployment option for SAP’s Business Suite and All-in-One products.

SAP rolled out all of these announcements under the banner of its plan to become known as a database company.

Database Migrations Difficult to Justify

After the press conference, one SAP executive sensed my ambivalence about this plan. With Oracle taking an ever-increasing adversarial position toward SAP, I can understand SAP’s discomfort with having a large percentage of its best customers running on Oracle’s database. At the same time, the other two major providers of relational databases (IBM and Microsoft) are SAP-friendly. IBM is SAP’s largest system integration partner, while SAP and Microsoft often find their technology interests aligned. So, how do you threaten Oracle while not also threatening IBM and Microsoft?

Furthermore, does SAP honestly believe that existing SAP customers are going to migrate in droves from Oracle, IBM’s DB2, or Microsoft SQL Server to HANA or ASE? In the case of business analytics, there may be some movement toward HANA, yes, as the value of in-memory performance for analytic applications is somewhat easy to envision. But what about SAP’s business applications, such as Business One, All-in-One, and the Business Suite? With all the challenges and demands placed on CIOs these days, it’s difficult to imagine an installed SAP customer undergoing a database migration, simply to eliminate some Oracle, or DB2, or Microsoft SQL Server licenses. SAP insists there is business value for HANA in some transaction processing—and I can see that, say, in supply chain management. But is that enough to justify a database migration? Even less so, why would a customer swap out Oracle, DB2, or Microsoft for ASE, which is essentially a like-for-like product? I just don’t see it.

In side-bar discussions, SAP executives basically agree. Alright then, so the target is net-new application customers? But here the challenge is essentially the same. In most cases, business apps prospects already have skills and experience with Oracle, DB2, or MS SQL Server. Are they really going to want to invest in learning Sybase ASE, or HANA? Unless they can completely eliminate those other database platforms from their environments, going with Sybase or HANA is adding to their complexity, not simplifying things.

I think that selling databases is going to be harder row to hoe than SAP is making it out to be.

Subsidizing HANA May Meet Complications

Perhaps recognizing the challenge, SAP realizes it is going to have to sweeten the pot, especially for HANA. So, at the press conference, SAP announced that it is putting up some serious money, through two funds:

• For new and existing customers: a $337 million fund to subsidize services for SAP customers to convert to HANA. I assume the initial target for these funds will be in migrating business analytics customers to HANA.
  
  
• For technology start-ups: a $155 million venture capital fund through SAP Ventures for start-ups to build new apps on HANA.

It’s encouraging that SAP is putting its money where its mouth is. For customers, making a database change may not be cost-justified without some help from SAP. Moreover, tech start-ups may need some financial encouragement to build new products on HANA.

However, I see complications with each of these funding efforts.

• With the customer fund, there may be issues with SAP’s partners. By funding SAP’s own services to assist with HANA, SAP is taking work away from partners, who typically play a key role in SAP implementations and migrations. In response to my question on this, SAP executives said that it will bring partners into this work at some point in the future.
  
  Nevertheless, I have to believe that, at first, partners will view SAP as increasing its share of services at the partners’ expense. This is especially true under current economic conditions where customers can only absorb a certain amount of change at once. Moreover, by delivering HANA services directly, SAP delays giving partners the HANA experience they will need for the future. SAP can solve this problem, of course, by ponying up the money but letting customers choose whether to use SAP’s professional services group or partners to deliver the services, or by co-delivering services with partners.
  
  
• For start-ups, HANA may not be as attractive as SAP thinks. Looking back at SaaS and other tech start-ups over the past decade, most of them chose to build on open-source database technologies, such as MySQL or PostgreSQL. The reason, of course, is that open-source infrastructure minimizes their own costs as they grow. It also leaves more customer budget available to invest in the application, instead of the required infrastructure.
  
  I once asked a start-up executive why his firm was building on MySQL instead of Oracle. He replied, “Oracle scales technically, but it doesn’t scale economically.” I have to wonder if HANA will face the same resistance, even with funding from SAP Ventures. A quick check with associates indicated that there are already open-source in-memory databases (IMDBs), including CSQL and VoltDB. I have no knowledge of the capabilities of these products or how they compare with HANA. It is likely that HANA is head and shoulders above open source alternatives. But Oracle’s flagship database was and still is head and shoulders above open source capabilities, and that didn’t stop cloud start-ups from using MySQL and PostgreSQL.

Ultimately, very few organizations want to buy databases—or middleware. They want business applications, and those apps require databases and middleware as part of the technology stack. So, when SAP talks about becoming a database company, it’s hard for me to become excited.

Perhaps SAP already knows that it's going to be difficult. Earlier this year, it began floating the idea of making its goal, "to become the No. 2 database provider by the year 2015." But by the time of the press conference, the goal had been watered down to “becoming the fastest growing database provider.”

When you are starting from such a small market share, becoming the “fastest-growing” is not a very high bar.

Update, Apr. 16: Some deeper questions on Oracle's database strategy from Jonathan Wilson. And, a good post from Vitaliy Rudnytskiy, pointing out that HANA is more than an "in-memory database."

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