SAP: Moving to Frictionless AND Sticky Commerce Pierre Mitchell - May 16, 2013 6:14 AM | Categories: Commentary | Tags: Ariba, events and conferences, L1, SAP This year’s Sapphire conference has been extremely interesting, not to mention big, with 80,000 users attending on-premise or virtually! It’s been a while since I was at Sapphire, and this year, they co-located the ASUG (user group organization) conference. This is good news for practitioners, and personally, I feel that last week’s Ariba LIVE should be similarly co-located next year (i.e., a ‘conference within a conference’ type thing) both to preserve its value and to be kind to the limited travel time and budget of procurement practitioners. If there was one theme to the event, it’s “all about the network.” SAP didn’t pay over $4 billion to take out its biggest best-of-breed competitor because of its highly overlapping enterprise application portfolio. Think about it: companies that chose SAP over Ariba wouldn't be happy for the distraction. Companies that chose Ariba over SAP would be wary over whether Ariba could keep its focus, although they would surely and rightfully be happy about better-long term viability/alignment and integration. So, we’re left with the Ariba Network. And what is the Ariba Network? It’s a set of electronically-enabled commerce services focused on discovery, connectivity, and collaboration. The first two are straightforward and haven’t really changed since Ariba acquired Tradex nearly 15 years ago for $1.9 billion in order to, per the 1999 press release, “create the industry's first best-of-breed global B2B e-commerce platform." Sounds familiar, no? But, the difference now is that the promise is starting to get fulfilled, and the vision has expanded to try to capitalize on the B2C successes like Facebook and Amazon and translate them from the Social Network to the Business Network. Bob Calderoni was on the main stage, introducing Ariba to the SAP community and hammering home this point. Obviously, the Ariba Network is as massive as he touted, with 5M cloud application users, 1M companies, $460B in commerce, 190 countries, 72 currencies, 38 VAT compliant countries, etc. The talk was full of what you’d expect: value of the network effect; business benefit of B2B that he called “inter-enterprise computing” (signaling a more forceful focus on infrastructure where SAP has somewhat lagged behind Oracle); the additional $650B in productivity improvement still on the table from automating the >80% of B2B commerce that is still being done manually; and providing value to buyers, sellers, and banks (the “manage cash” component of the overall story was re-iterated very strongly). Bob is a smart guy and he sold his company well. During his talk, he mentioned that he was the one who initiated the discussions with SAP that led to Ariba’s sale. It’s clear that SAP not only did not want Ariba to fall into the hands of a competitor but also saw in Ariba an aggressive firm that successfully transitioned itself from an enterprise applications vendor to a cloud-based B2B solutions provider that could monetize the IP much more than just renting and supporting some hosted applications. By making the applications much more B2B-enabled natively, and by making them more “network enabled”, SAP would be able to make its applications much more “sticky” and value-added in addition to the traditional value proposition of traditional electronic network functionality (e.g., document exchange, content management, etc.). So, the applications get designed for the network, and the network itself becomes more feature-rich. They are optimized to work together and enrich each other (e.g., making “network derived insights” part of embedded application capabilities). The CIO gets better returns on existing SAP investments, and the CPO can use the network to get massive supplier connectivity, not to mention free up time for more strategic procurement activities. The network also allows the users to be seemingly shielded from the gory technical details of integrating the various SAP-acquired technologies running in the cloud to each other, to the network, and to all the legacy on-premise applications in the portfolio - in addition to infusing recent infrastructure components such as HANA, Fiori Mobile applications, etc.). SAP is essentially saying, “Trust us – we’re wiring it up and making it all work together in the cloud.” The trading partners are irresistibly drawn to the network and thus, over time, to the applications that are optimized to work best on the network. World domination ensues. SAP likes this vision. And they like it because they’ve never been able to make the leap successfully from business applications to a business network. The Ariba Network gives them a “platform” to build from (and I'm defining the platform term pretty loosely here), in this case from the buy-side. This is very much like Apple’s story: we have great products that are optimized to work together… as long as you stay in our ecosystem. This story has been pretty successful for the world’s most valuable company and SAPs strategy will in fact be very successful. But the closed ecosystem is where this great story starts to break down. Although Ariba’s origin started with indirect e-procurement (look up “Ariba ORMS”), it saved itself from the “Feature 500” death trap to focus on building its supplier network that could be integrated to any back office environment, similar to its best-of-breed applications. So in that sense, it is somewhat open. But the “somewhat” term is only a harbinger of something deeper and more troubling that needs to be discussed... While most of the attendees at Sapphire seemed to appreciate the value of the broader network vision, there were also some questions from session participants that I’ll paraphrase: What does the Ariba set of applications mean to my existing SAP on premise application investments? Will the Ariba applications eventually replace the SAP on premise applications? If so, which and when? Which network integration scenarios can I support with SAP on-premise applications as opposed to Ariba’s cloud solutions? Why does my choice of application hosting (on-premise vs. hosted) force me to pick one of these two application suites? Can I mix and match the modules from the different suites to work together? Which ones and how? Can I purchase a standalone cloud based application without having to buy a membership fee to the network? Will there be continued investment in both the application suites, the integration of the respective suites to the network, and their ability to integrate to each other? If I have investments in both SAP and Ariba, how do I integrate them? For example, if I am running contract management in both, how do I synchronize them? Which is the master and which is the slave? Can it be either? Will there be another application component that will must sit on top of such master data? Will SAP offer a supplier portal infrastructure to allow me to connect to the Ariba Network, to other networks, and to suppliers directly? You get the idea. There is unease not just about the presence of a new natively-offered business network by SAP and the acquisition of a best-of-breed application provider, but also over the co-mingling of those two things. I talked about two of the three “legs of the stool” of the Ariba Network: discovery and connectivity. But the third is collaboration, and this is a word that often feels good in theory and ends up being very hard in practice. The problem here is that Ariba’s cloud-based applications are the core of the collaborative services in the Ariba Network. In other words, the application services become one and the same as the network services. To wit, the application on-ramp (or ‘handset’ if you will) is no longer loosely coupled to the network that it connects to. To provide customer choice, the on-ramp should be agnostic to the network - and vice versa - in order to provide a healthy ecosystem. Conversely, when the on-ramp is the same as the network, it is the ultimate manifestation of sticky – and of vendor lock-in. As long as you just want the whole thing to work and are happy getting it pretty much from a single vendor, then you should be fine. However, if you are a company that feels that SAP should stick to providing enterprise applications that connect to multiple sets of networks (including “toll free” networks and/or network features) and connect directly to your trading partners – working within an open and vibrant and competitive third-party ecosystem based on open standards – then the tightly-coupled business network vision suddenly seems much less compelling. The funny thing is that we foresee an interesting dynamic emerging at SAP between the old-school "applications as enterprise application services" camp and the new-school "applications as network services". These affect: Sales – Differences in commissions for on-premise applications vs. cloud-based Product management – Separate overall control for SAP SRM vs. Ariba Cloud application suites. Will all SRM applications eventually report up to Ariba management? Core engineering – Which technologies will be in the “core stack”? What will be common infrastructure? What are the interoperability plans and standards within the suites and across them? How to deal with legacy technology and standards (e.g., cXML vs. IDocs)? How to componentize and mix-match across suites and technology stacks? How will data models be harmonized to extend Ariba's limited/non-existent data models from a PLM and SCM standpoint? It's a dizzying amount of work. SAP can certainly empathize with Oracle here. Partner management – Where and how do partners play in the network? Hubwoo has a small booth at Sapphire, but I’ve a strange feeling they won’t be back next year. I also can’t seem to find good procurement-relevant technology partners out in the vendor booth trenches. Customer support - the power of N*(N-1) and the network effect can also be its downfall in managing such complexity. In future posts on Spend Matters and deeper dives on our subscription site, Spend Matters PRO, we’ll be offering up recommendations for practitioners faced with this dual opportunity/dilemma of the Ariba Network within the SAP installed base – and also the impact and opportunity for providers currently outside of the formal ecosystem. And more broadly later in May and June, check out Spend Matters PRO for more generalized and product-specific coverage, analysis, and customer implications coming out of SAP Sapphire. Previous PRO topical coverage can be found below: “Applications Unlimited” Oracle vs. “We Know Best” SAP/Ariba (Part 1) “Apps Unlimited” Oracle vs. “We Know Best” SAP/Ariba (Part 2) Ariba and SAP…Exploring the Network Elephant in the Cloudy Room The Future of the Ariba Network with SAP (Part 1) The Future of the Ariba Network with SAP (Part 2) The Future of the Ariba Network with SAP (Part 3) SAP and Ariba: Customer and Prospect Implications – E-Invoicing (Part 2) SAP and Ariba: Customer and Prospect Implications – E-Invoicing (Part 1) SAP and Ariba: Customer and Prospect Implications – Sourcing, Spend Analysis, Supplier Management and Contract Management SAP and Ariba Procurement Customers: Hints at a Directional Solution Focus and Recommendations to Take Advantage of Acquisition and Post-Merger Uncertainty Voices (2) Jason Busch: 16.05.2013 at 7:02 am Pierre, Great stuff … I personally think the proprietary network / apps approach that creates even a perception of lock-in (e.g., allowing other on-ramps but charging additional networks fees on top of them as double taxation for suppliers/buyers, requiring cloud app users to use the Ariba network versus integrating with others as options, etc.) with customers will reduce the potential of what SAP is putting together here. They have such a massive, massive opportunity if they pivot on the lock-in business model … Reply Discuss this: Cancel reply Your email address will not be published. Required fields are marked *Comment Name * Email * Website Notify me of follow-up comments by email. Notify me of new posts by email.