A guest post from the unreasonablemen.net

I saw this from Ovum analysing SAP’s Q1 financials. There are a couple of take outs from this that really struck me with respect to SaaS and incumbent business models.

1) The company is still growing its core business (double digit growth no less)
2) The SME product group is going gang busters 18% growth
3) Their SaaS offering is not performing (now there’s a surprise!)
4)They are going to address this by only focusing on selling SaaS (wait for it…) into those markets where they have been successful selling on premises… uh oh!

Lets break this down a bit.
1) SAP are selling a heap of core enterprise apps, solutions (services) and mid market core apps.

From the aggressive growth you would have to postulate that the focus of the company is on … core stuff with big numbers. That’s like heroine. Try to stop using that and you are going to have withdrawals…stock market, staff and customers…

2) They’ve decided to “…focus for the remainder of 2008 on Germany, the US, France, the UK and China, where most of its existing customers are located” and “…reduce its “accelerated investments” in Business By Design this year by about €100m – a decision prompted by the slow uptake”

Basically selling SaaS into those very markets (and companies) where they’ve already sold on premises solutions to, but with a ‘lesser’ product. This is a multi faceted strategic faux pas, and they aren’t alone is doing this.

This whole situation reminds me of a conversation I had with a leading SaaS CRM vendor. My contact had actually set up a meeting with Seibel in an effort to coach them on how to be more successful. He’d done this because their performance in the SaaS space was so woeful it was (in his opinion) damaging the growth of the SaaS market.

The key issue, they were targeting their existing enterprise customers with their SaaS offering, BUT only when they have failed to sell the on-premises version. To put this in context, Seibel’s sales approach is to approach their existing customers (who they’ve convinced to buy expensive on premises stuff), try and sell them more expensive on premises stuff, and when they lose the deal say …”well we’ve got this SaaS thing that’s cheap”… nice!

So what are the problems with this approach?

1)You are damaging your brand. If like SAP you are the king of the heap in a market, known for a certain thing, why risk damaging this with a competitive offering?
2)The way you sell this is different. SaaS isn’t the cheap and cheerful part solution, it’s a fully functional alternative that has its own value proposition that needs to be properly articulated in order to be successful
3Saleforce skills and rem. The only way to change this is to change the way your sales teams sell and are rewarded. They sell what you pay them to sell!
4) Sharemarket. The sharemarket isn’t exactly enamoured with the idea of you tanking your cash cow revenue stream. They dislike that only marginally more than large investments in new technology that fail and essentially eat into their payouts. No way are they going to support you doing this long term unless you can show it’s a stonking success. Neither Seibel nor SAP have done that.

In years to come, do you think students will read case studies on how not to embrace a disruptive technology that include SAP, Seibel or Microsoft?

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