How Cloud enables Best of Breed and threatens SAP’s Traditional Business Models
Cloud computing is not a new concept; people have been talking seriously about the cloud for several years. However, as with all technology paradigm shifts, adoption takes time. Until recently cloud solutions were utilized more for one off applications by small to medium sized business (SMB), or used as quick easy places to host a proof of concept or stand up a development box. However, with the arrival of enterprise ready cloud computing solutions, more and more CIO’s are adopting a “Cloud First” strategy, for many reasons:
- Capital – Reducing the debt or capital invested in technology is a primary driver for cloud computing adoption.
- Speed to delivery – Cloud solutions are deployed far more rapidly than on premise solutions.
- Purpose built solutions – Specifically when it comes to Software as a Service (SaaS) solutions, many are designed and built to serve a particular business need. (think e.g. of Salesforce, Anaplan, Concur)
- No long term commitment – Without heavy capital investment in hardware and software and low implementation costs companies are able to move to cloud solutions without heavy financial or organizational commitments. One of my customers referred to it – “like leasing a car.”
- Faster adoption and innovation – Without the technical constraints and overhead involved in software upgrades companies can quickly and easily take advantage of new features rolled out by software vendors.
According to the 2015 RightScale State of the Cloud Report, Enterprise organizations’ adoption of cloud solutions surpassed SMB for the first time in 2015, with 56% of enterprise respondents reporting as having multiple projects or applications in the cloud or heavily using cloud infrastructure.
Why Best of Breed fails as effective an on premise strategy
When I first started in this industry in the mid 90’s companies were engaged in an ongoing argument about which software solutions would best serve their enterprise. The debate was between single vendor enterprise software solutions like SAP vs. a diverse set of best of breed solutions. Often the solution for a specific problem provided by an enterprise software vendor was sub-par when compared to a purpose built solution. However, when the dust settled, the single enterprise software solution had won and for good reason. When you are looking at best of breed as an on-premise strategy there are significant hurdles to your success:
- Cost – Single solution software offers incremental functionality at a cost lower than purpose built software solutions.
- Hardware – Running multiple solutions from different vendors often means there is a need for extra hardware and additional support for that hardware.
- Operating System – In many cases the Best of Breed option requires different operating systems.
- Database – Having multiple best of breed solutions on premise often means having multiple databases to pay for and support.
- Skillsets – With multiple hardware, software, databases and operating systems to support the IT support staff at an organization requires multiple skillsets and additional resources.
As most companies adopted a “Single Vendor” approach the best of breed solution lost out to whatever solution that vendor provided, usually with the hope that the solution would get better over time.
The Cloud brings back Best of Breed
With the advent of SaaS and other cloud based software solutions the conversation regarding Best of Breed vs. Single Enterprise software is back and this time most of the hurdles to the best of breed strategy that existed on-premise are gone.
What makes Best of Breed possible in the cloud?
- SaaS Eliminates technology specific issues – No longer is the database, operating system or hardware part of the conversation. With the software vendor providing and maintaining all the back end technology the focus is solely on the solution.
- Integration standards – Cloud companies all provide API’s to access their data and processes. These integration hooks can be easily leveraged to tie all your best of breed solutions together on your own or by leveraging an IPaaS (Integration Platform as a Service) solution like Dell Boomi, Informatica, Mulesoft, SnapLogic and others. This connectivity makes integrating the best of breed far easier.
- PaaS (Platform as a Service) – solutions like SAP HANA Cloud Platform and Salesforce Force allow companies to build their own custom cloud applications that provide solutions to enhance the existing software or provide a competitive advantage.
What does a Cloud First / Best of Breed strategy mean for the large integrated software solutions?
What does this mean for companies like SAP? In the past Customers were willing to wait for SAP to become the best in a space or at least have a competitive product. If you look back at the early days of SAP APO or BW, the competition had far better solutions, but companies who rightfully bought into a single software solution were willing to deal with the deficiencies or wait for SAP to catch up. One customer when asked how they liked their existing SAP solution responded “nobody likes it, but we will keep buying it”. With the return of best of breed as a viable strategy thanks to the cloud, they no longer have this luxury. This is why we have seen SAP acquire Fieldglass, SuccessFactors, Concur among others, in essence creating their own ecosystem of best of breed cloud solutions. SAP has to compete, product by product, as they release new software and continue to find hooks to tie together their offerings. If you look at SAP’s latest cloud offering, Cloud for Analytics, they once again tie together multiple products that are logically linked, planning, analytics and predictive.
Where will all this lead and what does the future hold in store? As SAP embraces cloud technology via acquisition, new product development while delivering in the cloud what they had on premise in the form of fully integrated cloud based solutions like S/4 HANA and Cloud for Analytics, they are still playing catch up to cloud providers best of breed solutions. Will customers stay loyal to the big enterprise and wait for them to catch up? Will the big vendors be able use their scale to price packages of their own software so aggressively that the smaller best of breed cannot compete? Or will a best of breed cloud customized on PaaS and integrated using iPaaS solutions that are ready now win them over. How this will all shake out is anybody’s guess. It’s going to be an interesting few years…