It’s not a coincidence that as companies expand their operations — and operational control — outside their four walls, they need their vendors to support these changes. What’s different is how the vendors respond, and what that response means for their customers and partners. Herein lies an important element in SAP’s future success.
Call it the battle of the ecosystems, and be sure to mark the difference between a real ecosystem and a mere ego-system. The latter, as the name implies, exists largely to make things better for the company at the top. The former, the one that SAP is trying to build, is predicated on mutual benefits for all.
SAP’s Ecosystem Strategy
What gets lost in the talk about SAP NetWeaver partnerships, Industry Value Networks (IVNs), and the 1,500-plus SAP partnerships is how these interconnecting vendor relationships exist to mirror the interconnecting requirements of their mutual customers. SAP’s ecosystem strategy is predicated on this premise, although it’s not always articulated in this manner: The growing networks of partnerships in virtually every industry require a growing network of partnerships among their vendors to keep up with their growing and changing requirements.
This is why you find giants such as Cisco Systems alongside start-ups such as Conformia Software in the SAP partner program. Whether it’s about network compliance, in the case of Cisco and its Service-Oriented Network Architecture (SONA) platform, or extended product life-cycle management for pharmaceutical manufacturing, as in Conformia’s case, the customers’ needs to reach and interact with the outside world mean that they need more than what SAP alone can provide.
SAP, rather than try to buy or build its way into every corner of every customer requirement, has been wise enough to use partnerships to fill the white space. It doesn’t hurt to note that SAP has used its ecosystem community as a logical place to go shopping for acquisitions: Virsa Systems and Lighthammer Software are two good examples of how ecosystem partnerships can turn into an exit strategy for investors, something that the investor community has noticed and embraced with a passion.
Indeed, the combination of mutual benefits and the possibility of an acquisition have made partnering with SAP a major component of the thinking in Silicon Valley and beyond. The contrast between the number of companies looking to partner with SAP and those seeking agreements with its competitors is noteworthy: Oracle, despite its vast partner network, lacks a reputation for either working closely with its applications partners or acquiring them, with the result that no mass of applications vendors is clamoring to partner with Oracle. Microsoft has recently made a strategic acquisition of a former applications partner and in general has done a lot better than Oracle at managing its partner channel. But neither of the two has quite the ecosystem buzz around enterprise applications that SAP has.
It’s the buzz effect that I believe will be most telling in the long run. Take the IVNs that SAP has been promoting lately. These are groups of vendors, customers, and systems integrators organized around a vertical industry and its particular issues. The goal is to orchestrate a complete solution to an industry issue — in retail, telecommunications, and banking, among others — by pooling resources and brainpower. IVNs aren’t just one-trick ponies, however. As the vertical industry evolves, SAP is counting on its IVNs to keep the solution set evolving, too.
Whereas IVNs are in it for the long haul, another ecosystem playground, the Community Definition Group (CDG), is one example of a more tactical ecosystem play. CDGs exist to tackle a specific set of problems, such as energy-management systems for utilities, by bringing together a set of partners, getting them to spec out a solution, and soliciting their input as to what SAP can do to speed the solution to market.
Because they’re closely focused on a specific problem, CDGs can move quickly and build not just value but the future of other partnerships as well. And the more ad hoc the nature of the engagements, the more everyone has an opportunity to see if future partnerships are a good fit for all.
Other versions of the ecosystem can be seen on the SAP Developer Network (SDN), which had more than 600,000 users and more than 1 million posts as of the end of 2006. The ecosystem lives in deals with industry leaders, from Microsoft — the Duet partnership — to Adobe — elements of Muse — and Intel — memory-based database systems such as SAP Business Intelligence Accelerator.
Of course, SAP’s ecosystem hasn’t been without its teething problems, starting with a surplus of demand and a dearth of partner managers. There’s still the sticky wicket of SAP NetWeaver compatibility — a must if you’re selling into the future of SAP, but a technology barrier that many partners have to overcome on their way to getting that SAP logo on their Web sites. So far, no start-ups I know of have built their applications from the ground up using SAP NetWeaver.
Just Ask Mother Nature
The bottom-line question, of course, is whether ecosystem trumps ego-system, whether mutual self-interest can overcome exclusive self-interest in the applications market. Or, to be more blunt: Does SAP’s ecosystem strategy give it the advantages necessary to fend off challenges from Oracle, Microsoft, and others?
The easy answer is “yes”; the harder question is “how”? In part, SAP’s ecosystem proves a commitment to customer value that, while it always has a price tag, isn’t just about SAP’s license revenues. That’s a far cry from the old mentality that, with a little ABAP and enough programmers, you can build whatever you need and never have to license another piece of software. It’s also a far cry from the contention, voiced by Oracle, that innovation and strategic advantage are waiting in the next acquisitions — a “trust me” strategy that’s hard to plan for and even harder to count on.
Indeed, an ecosystem strategy by definition says that there’s more than just one vendor that can deliver the solutions a company needs to stay ahead of its competitors; the “one vendor, one code-base” solution is more about delivering a level playing field than a specific strategic advantage. The ecosystem’s approach in applications, much like the original ecosystem that Mother Nature owns and runs, is based on a “sum of the parts” message that actually requires synergy to succeed.
As companies build more synergistic networks of interactions between customers and partners, the need for greater synergy in the software solutions they deploy only grows. “One size fits all” just won’t cut it anymore. Any vendor that thinks all its customers’ problems can be solved by products developed inside the vendor’s own four walls doesn’t understand its customers very well. It takes an ecosystem to really make a difference, and, as the market matures in the next few years, the vendor with the strongest ecosystem will be the one that survives — or else. Don’t take my word for it; just ask Mother Nature.
|Joshua Greenbaum is a market research analyst and consultant specializing in the intersection of enterprise applications and e-business. Greenbaum has more than 15 years of experience in the industry as a computer programmer, systems analyst, author, and consultant. Before starting his own firm, Enterprise Applications Consulting (www.eaconsult.com), he was the founding director of the Packaged Software Strategies Service for Hurwitz Group.