The launch of SAP Business Suite 7 software this February was the beginning of a revolution that SAP has been quietly nurturing for several years — one that will truly change how companies consume software and how vendors like SAP deliver new functionality. We’ve heard about revolutions before, and, frankly, most have been disappointing or, at best, premature. As this one is led by SAP, it’s going to take place slowly, in the fullness of time. But once it is in full bloom, the enterprise software market will be in for some truly revolutionary times.
The End of Upgrades
With the unveiling of SAP Business Suite 7, SAP proposes that upgrades as we know them will soon fade away. As someone who has been looking at upgrades in the overall enterprise software market for decades, I can assure you that this change will be welcome news to virtually everyone, vendors and users alike.
Of course, for those of you who are on-demand software users, upgrades are already a thing of the past. In the on-demand model, as long as you subscribe and pay your monthly fees, you’re guaranteed to be running on the latest and greatest version. More importantly, you may not even realize an upgrade ever occurred, until you see some new feature pop up. This “no-brainer” upgrade model has, of course, been on the minds of many people at SAP, and it makes on-demand software look extremely competitive when compared with resource-intensive upgrades that characterize on-premise software like SAP Business Suite.
Comparing On-Demand to On-Premise
It is a bit unfair to compare the upgrade of an on-demand CRM product, for example, to the upgrade of a massive on-premise software suite — at least in the history of software so far. The relative levels of complexity are as different as, say, getting el
ected to the city council versus getting elected president. While the process is similar, the scope of the undertaking is in no way comparable.
The variations in complexity also mean there are huge differences in what actually takes place when a big suite gets upgraded. For the most part, software suite upgrades come in two flavors — technical upgrades (which effectively bring the underlying infrastructure technology up to the latest and greatest level) and functional upgrades (which upgrade business processes and individual usage by adding new functionality or capabilities).
This split is rather meaningless to the on-demand world, where the issue of whether an upgrade is technical versus functional is moot from the customer’s point of view. A technical or functional upgrade is transparent to the customer, except when a user tries out a new feature, at which point some process change or training may be in order.
The Impact to SAP Customers
Ultimately, the significance is this: While upgrades in the on-demand world blur the distinction between technical and functional upgrades, that distinction is very apparent to companies with on-premise solutions — and in a way that is not to SAP’s liking. This is why SAP is eager to get its upgrade revolution up and running.
For the most part, the 13,600 customers that have upgraded to SAP ERP 6.0 have undertaken a technical upgrade, not a functional upgrade, and therein lies the rub. A technical upgrade does move the customer to the latest platform, and sets the stage for the adoption of new features available with a functional upgrade. But it’s a revenue-neutral event for SAP and, just as importantly, an innovation-neutral event for the customer.
For customers, this means users are still not deploying the latest and greatest functionality that is intended to make customers more efficient and more competitive, and depriving themselves of the fruits of SAP’s R&D (supported in part by the customers’ maintenance fees). From SAP’s side, of course, those functional upgrades are also where new license revenue can come from, and, good times or bad, SAP is always looking to grow its user and revenue base.
Making Functional Upgrades Appealing
So why don’t customers do more functional upgrades? The answer can be boiled down to two sentences: They’re expensive and time-consuming. And they often require business process change to really make use of new functionality.
Too often, this makes the pitch for a functional upgrade much more complex than cost-justifying the acquisition of a best-of-breed application. The three-step process — first undertaking the technical upgrade, then the required process change, then the functional upgrade — is a hurdle, and all the more so when compared to the no-brainer upgrade of an on-demand solution.
What does this have to do with SAP Business Suite 7? Hidden in plain sight in this launch is the beginning of an upgrade breakthrough that promises to end the distinction between technical and functional upgrades. By making the latter largely as simple as the former, there’s the sense that customers will be encouraged to invest in the process change that would unleash new competitive functionality (and spend more of their IT budget with SAP as a result).
Enter Enhancement Packages
The basis of this “end of upgrades” philosophy is the enhancement package, which is designed to bring significant new functionality to bear — but in a form that looks to the IT shop like a simple technical upgrade.
SAP Business Suite 7 is the launching pad for this new functionality — indeed, if you’re on SAP ERP 6.0, your upgrade to SAP Business Suite 7 is performed using an enhancement package. That enhancement package will get 150 new functions up and running in a way that looks and feels more like a “no-brainer” than anything else in the enterprise suite market.
Once a customer is on board with SAP Business Suite 7, the real revolution begins. Each functional upgrade will come as an enhancement package, rendering the traditional nail-biting weekend switch-over to a new version a thing of the past. It will still be up to the customer to tee up the new functionality for its users, but the complexity — and cost — of getting to that decision point will be greatly reduced.
While the enhancement packages won’t exactly match the no-brainer aspects of on-demand upgrades, they represent a significant opportunity to lower TCO and improve ROI for SAP customers. And these enhancement packages differentiate SAP from a competitor like Oracle, which so far is relying on a traditional functional and technical upgrade path to move its customers forward.
The Future of the Revolution
Unlike other revolutions, this upgrade revolution will become more important only as the number of customers on SAP ERP 6.0 or SAP Business Suite 7 grows. When the bulk of these customers start deploying enhancement packages — and reaping the benefits — it will be time to reset the TCO standard for the enterprise software market as the cost of adding new functionality is reduced. At this point, it will be up to the on-demand world to start talking about something other than just low cost and ease of upgrades. This should make a lot of customers, their CFOs, and SAP, very happy.
|Joshua Greenbaum has over 25 years of experience as a computer programmer, systems and industry analyst, author, and consultant. He spent three years in Europe as an industry analyst and a correspondent for Information Week and other industry publications. Josh regularly consults with leading public and private enterprise software, database, and infrastructure companies, and advises end users on infrastructure and application selection, development, and implementation issues. You can reach him at firstname.lastname@example.org.