Enterprise Application Players Keep Refining Value Propositions
Written By: Predrag Jakovljevic
Published On: April 14 2005
"Software as a service" is experiencing a rebirth. Despite the initial problems the first generation of application service providers (ASP), on-demand availability, appropriate pricing models, and other delivery approaches for enterprise applications are gaining new prominence. Small and medium companies in particular are looking for better alternatives to rigid user licenses, labor-intensive application maintenance, and the initial, large investment and time for return on investments to emerge. (For detailed information on "software as a service" see the Trends in Delivery and Pricing Models for Enterprise Applications series)
Responding to this demand, recent moves by the most prominent players in the software realm in late 2004 suggest that "software as a service" are here to stay. In particular
- SAP America, Inc and Hewlett-Packard (HP) introduced new managed solutions for medium companies at the end of 2004.
- PeopleSoft (now merged with Oracle Corporation) announced customers can outsource some or all of their support for PeopleSoft applications.
Part One of the Enterprise Apps Players Keep on Refining Their Value Propositions series
The SAP and HP Alliance
SAP America, Inc., the US subsidiary of the largest enterprise applications provider SAP AG (NYSE: SAP), and Hewlett-Packard (HP) (NYSE: HPQ; NASDAQ: HPQ), the information technology (IT) powerhouse, have long provided managed and hosted services for large enterprises. Their new vertical industry focus, "software as a service" solutions for medium companies, will supposedly help companies reduce the guesswork and expense of deploying sophisticated business management technology by providing software, services, and support. They will create a single point of contact at a total monthly cost for as low as $325 (USD) per user. The aggregate monthly cost assumes that software license, maintenance, and implementation fees are financed through the SAP Financing Program and that the remaining services are paid on a monthly basis.
SAP and HP recognize that many medium companies, while understanding the operational efficiencies and competitive advantages of deploying enterprise applications, often hesitate to implement them because of uncertainties about expenditures and the overall complexity and project scope. Hence, SAP and HP believe that managed industry solutions will eliminate these concerns by clearly defining the costs and resources necessary to run a complete, managed enterprise solution environment over time. Their solutions were devised to greatly simplify IT evaluation, adoption, and management, offering a breadth and depth of industry process management and strategic value that is typically unavailable from point, best-of-breed solutions. Supposedly their solutions will consolidate all components of the IT landscape within a predictable cost structure and provide the added convenience, safety, and efficiency of hosted delivery.
Through HP, SAP will initially target mid-market companies in oil and gas fuel distribution, consumer products/food, high-tech, and in the technical service industries. Additional industry solutions will be added over time. Equally important, knowing that successful hosting comes through true partnerships that reduce costs and improve efficiency for the client, SAP requires its partners create at least one vertically-oriented extension to the suite in order to become a mySAP All-in-One solution provider. SAP provides hosting expertise through a special operation quality service and solution portfolio to help partners drive innovation. So far this has been fruitful. Three of the four mySAP All-in-One industry flavors, slated to be released as hosted offerings, were written by partners. In return, both HP and SAP will compensate partners that sell the managed service: HP will offer a one-time referral fee, and SAP will pay a recurring revenue stream. SAP also pledges to support its partners to operate SAP solutions better, to drive the number of escalations down, to enable faster operation planning, and to share knowledge about best practices.
Along with its four hosted vertical solutions, SAP currently has twenty-nine channel partners that provide over forty-five mySAP All-in-One products in North America. The pre-packaged template products include real-time integrated applications software for supply chain operations, manufacturing, maintenance, financials, CRM and business intelligence (BI), etc. These aim to provide "best-in-suite" applications for mid-market prospects, which should be more appealing than a diverse "best-of-breed" approach. These managed solutions also include software and implementation services from SAP and its solution partners, as well as maintenance and end user training, support, functional management, and application management from SAP.
As the datacenter provider for the solutions, HP will offer a full range of services, including operations, infrastructure hosting, storage-on-demand, business recovery solutions, managed Web solutions, and security services that will enable ongoing process improvement and innovation. The solutions will leverage implementation and support services from SAP, HP, and their partners. A dedicated SAP customer service manager will be assigned to each customer, thereby reducing the risk and the required in-house resources at the customer site. Additionally, customers will hold the software licenses, enabling greater control and strategic value. They will also have an option to switch to an on-premise solution if necessary.
As for the SAP Hosting division, although SAP has noticed of the likes of salesforce.com, it is still not directly competing with them. The HP alliance does not provide a kind of a subscription service, but rather it is a lower entry point for cash strapped customers who can spread the software cost over a few years through SAP Financing programs. SAP Hosting is positioned to provide more complete SAP-centric solutions including operation, application, and infrastructure management. Accordingly, SAP will offer customers one-stop-shopping or selective outsourcing services focused on SAP. At the same time, it will support the license sales of SAP subsidiaries, reduce TCO, and strengthen operation quality. SAP claims a strong partner focus through interfaces with the partner community, a rich set of partner services, and by working with partners on a project level.
Hosting from SAP should allow customers to focus on leveraging the application for business improvement, while HP and SAP bring full-scope services to the configuration, implementation, operation, and maintenance of the solution. Also additional business partners have been announced to help SAP and HP with the initial managed vertical solutions. They include Implico GmbH for oil and gas fuel distribution; GEMS, Inc. for technical service providers; and Bristlecone for high-tech devices. For the time being, these solutions will be available through SAP, HP, and their joint channel partners across the US.
As nobody runs more concurrent SAP users than HP, HP—which is also a longstanding hosting partner for other peer vendors such as PeopleSoft—is key for the North American market. However, the SAP/HP alliance is only part of the total SAP Hosting picture. Application hosting and outsourcing at SAP dates back to the late 1990s, when SAP first announced a deal with AT&T, which was quickly followed by one with EDS. At the same time, SAP also introduced its SAP SMB vertical solutions. Developed by SAP Certified Business Solutions (CBS) providers and experienced consulting partners these solutions were based on previous successful implementations, and were hosted by companies such as Plaut Sigma Solutions, Origin, and Applicast. In June 2000, the SMB vertical solutions program was launched at SAP's Sapphire user conference. For more information, see SAP Claims Big Gains in the Low-end Battleground.
Now, most of these companies are defunct, while others are no longer involved with SAP Hosting. However, SAP has been known for persisting and modifying its approaches until they work. Drawing on more than thirty years of experience in serving the world's leading companies, SAP and its partners now offer vertical solutions that help businesses improve metrics. Consequently, SAP Hosting provides numerous services including packaged solutions around mySAP Business Suite that are based on best practices and global processes, empowering its partners and other companies to operate and manage SAP applications smarter.
The software offerings from mySAP All-in-One are somewhat scaled-down versions of the flagship mySAP Business Suite. Pre-packaged vertical templates are based on past enterprise applications and "best practices" within specific industries which reduce implementation time and total cost of ownership (TCO). For example, the consumer products solution for mid-market manufacturers and distributors of fresh food, such as meat, poultry, seafood and baked goods incorporates best business practices. Developed by itelligence, a SAP certified business partner involved in the SAP All-in-One program since the late 1990s, the software manages dual units of measurement (UOM), such as pounds and packages, for sales orders and billing; monitors lot histories; and tracks compliance with national food safety regulations. It also monitors lot genealogy, tracking and recall; and is compliant with Hazard Analysis and Critical Control Point (HACCP) requirements; and sales order fulfillment.
In addition to mySAP Business Suite and mySAP All-in-One, SAP also offers a hosted sourcing platform and associated services for mySAP SRM. This recently introduced platform for supplier relationship management systems allows prospective customers to test on-line supplier operations before committing to a solution. Several supporting partnerships were also announced, with services to identify savings; prepare and execute on-line materials sourcing events; and implement corporate purchasing platforms. In other words, enterprises can have trial runs a series of pertinent events—including creating and managing requests for information (RFI), requests for quotations (RFQ), and reverse auctions—before bringing a fully-fledged system in-house and embedding the sourcing methodology within their core purchasing processes. mySAP SRM then provides the integration necessary for existing SAP customers to migrate all their data, history, and reports from the hosted system to their enterprise system on-premises. Thus SAP believes its hosted platform will provide quick savings and a quantifiable proof of concept and value for companies considering SRM options.
The broad array of hosting services provided includes account management, SAP Basis or SAP NetWeaver technological foundation operations, database administration, second level help desk, operating system administration, change management, hardware and its maintenance, data center operations, technical upgrades, performance and capacity planning and problem resolution. When it comes to standard SLA, SAP guarantees over 99.0 percent application availability, with a target of less than two seconds of average dialog response, and 99.0 percent of network availability.
SAP's value proposition in SAP Hosting can be seen through the SAP Customer Services Network (CSN) 2003 initiative. SAP Hosting is one of CSN's six pillars (others being SAP Consulting, SAP Active Global Support, SAP Education, SAP Custom Development, and SAP Ramp-Up). From the initial identification of a business need to the actual engagement, SAP CSN aims to give customers the full selection of services and support needed to achieve maximum value from their investment. By offering a coordinated and cohesive menu of services and support from SAP and its partners, SAP CSN strives to create successful customer implementations.
SAP CSN aims to
- align services and each customer by, for example, communicating and coordinating the portfolio of comprehensive services, by providing seamless engagement of services at the customer's site, and by minimizing the amount of SAP interfaces to the customer; and
- create competitive advantage in the marketplace, by for example, aligning and enabling lines of business to address priorities towards sales; by supporting creation of long term customer relationships and customer successes; and by delivering strong market insight and customer needs based segmentation.
SAP CSN can accelerate implementations, transfer knowledge to staff, and continuously improve operations as seamlessly as possible. After users have selected the right solutions from SAP, they then need the right services that will get their software up and running fast, keeping it operating at peak levels, and ensuring that IT supports their business goals with the flexibility to adapt as their business goals change. Based on customer satisfaction surveys, SAP has identified a direct correlation between customer implementation success and investment maximization, and customers that leverage services offered by SAP directly. To that end, using the integrated and specialized services offered by SAP, as well as choosing experienced and innovative partners to deliver SAP solution-related services should help users achieve success both today and tomorrow.
To aid in this endeavor, SAP Hosting currently has more than 600 employees and five data centers in Philadelphia, St.Leon-Rot, Dresden, and Walldorf. It just integrated with the Germany-based SAP SI Managed Service. This, in conjunction with the Dresden data center, which is a complete application management practice including around 200 solution experts and a complete Customer Interaction Center infrastructure, will be able to serve global customers.
Currently, the "new" SAP Hosting, which is now integrated with SAP SI Managed Services has more than 200 customers and 150 partners worldwide. Together they entail the operation of over 400 SAP systems on 1,600 servers. It also operates SAP AG's complex infrastructure from development to production, with more than 1,500 SAP Systems on about 13,000 UNIX and Microsoft Windows NT servers. Beside solving typical customers' pain points like rising operation costs and shortage of internal resources, SAP Hosting often comes in handy for the companies that need more standardized or consolidated solutions rather than a concoction of disparate solutions worldwide (due to frequent mergers or divestitures). It also benefits companies that might want to upgrade from older SAP R/3 releases to the latest, SAP NetWeaver based solutions. This way, SAP might "kill two birds with one stone" by transitioning customers to the latest technology, while generating new predictable revenue stream
Thus, SAP Hosting is SAP's strategic tool against hosted service offerings of other tier one providers like Oracle and Siebel—especially against Oracle.
Just before succumbing to the merger with Oracle Corporation (NASDAQ: ORCL), the largest database and enterprise software provider, PeopleSoft, still one of the largest enterprise applications providers, announced a new suite of Application Management services that allow customers to outsource some or all of their technical support for their PeopleSoft applications. Available on a subscription basis, PeopleSoft's Application Management services should enable companies to better use internal IT staff by employing experts from PeopleSoft Global Services (PGS) to provide remote support for on-premise applications. PGS, composed of PeopleSoft Consulting, PeopleSoft Education, and PeopleSoft Hosting, provides worldwide professional services to harness the power of PeopleSoft software.
PeopleSoft delivers Application Management services remotely through secure network connections at company facilities in Pleasanton, Chicago (US), Toronto (Canada), Madrid (Spain), Amsterdam (Netherlands), Sydney (Australia), and India. The services will be available for all PeopleSoft Enterprise, EnterpriseOne and World products and can be purchased separately. They are organized into the following four categories:
- Maintenance Services. Provides system diagnosis and ensure that PeopleSoft applications are regularly updated with the latest fixes and patches. Maintenance services include fix current, service pack management, and archiving.
- Administration Services. Provides customers with guaranteed application uptime and availability. These services streamline the daily operation of PeopleSoft applications by monitoring key application performance metrics such as job queues, storage, and memory utilization. Administration services include monitoring, production job management, PeopleSoft administration, database administration (DBA), and security.
- End User Services. The Help Desk Application Management service provides technical support twenty-four hours a day, seven days a week to augment existing customer-based help desks. By providing assistance to customer help desks, companies should resolve challenging end user questions more quickly and will benefit from direct access to PeopleSoft's knowledge base.
- Extended Services. Designed to continuously optimize the performance of PeopleSoft applications. By assisting customers with customizations and performance tuning, Extended Services should help organizations maximize the return on their PeopleSoft investment and ensure that the applications adapt to a customer's changing business needs. Extended services include performance tuning, customizations, change control management, and disaster recovery.
Prior to the merger, PeopleSoft Application Management services were immediately available to customers in the US and Asia Pacific and were to be available in early 2005 for customers in Europe. For its part, Oracle, which has long maintained a hosted software offering, is putting more focus on the Oracle On Demand hosted services division, by recently hiring a new executive vice president to head the division, and by announcing a new licensing structure of $125 (USD) per user, per month for its hosted Oracle E-Business Suite.
This concludes Part One of a two-part note.
Part Two will discuss challenges and make user recommendations.