SAP announced it was buying a US web/cloud software company (SuccessFactors) that provides human resource management and productivity tools, a move to boost its total cloud repertoire and thus be more competitive as a cloud provider. The decision shows that the SaaS business is starting to create problems with product scope that didn’t exist for hosted software, and that’s an important shift in my view. It shows that the adoption model for SaaS is one of one-stop-shop even when the same buyers have rejected that notion as unnecessary in their data centers.
Our surveys suggest that there are a couple of reasons for this change. First, nearly everyone in the buyer space says that the fewer cloud providers you have, the better. It’s not a matter of economy of scale, it’s a matter of minimizing integration and support issues, they say. The second point is that there is a different buyer constituency for SaaS than for installable software. Two-thirds of all SaaS buys are directly driven by operations personnel and not by IT, and these people frankly don’t give a hoot what earlier IT practices were.
SuccessFactors has a cloud-coupled architecture and a core product set, and it’s reasonable to wonder whether SAP intends to roll some of its stuff into the SuccessFactor framework, to roll a version of SuccessFactors into hosted form, or to just keep the two elements separate. It seems to me that succeeding in human resources planning with the M&A doesn’t leverage the cost enough. Making the software hosted moves backward from the benefit, so it’s likely that over time SAP intends to make this the packaging for a broader set of tools targeted (as SuccessFactors is) primarily at SMBs. This would set SAP up for the growth opportunity the cloud represents.
That’s a reflection of something I’ve also picked up in surveys, which is that the important market in cloud computing isn’t IaaS even though that’s where more than 60% of current spending is focused. Higher-layer services do more for the user and so justify higher prices and profits. You can’t replace IT and support functions with IaaS, only hardware servers. You can replace both with SaaS, and that’s what users are now finding interesting.
This suggests that in the long run the operational benefits of the cloud may be more significant than the equipment economies. This again favors PaaS and SaaS services because it’s hard to create cloud operational benefits when the cloud provider doesn’t supply the operating software. It also means that service-layer tools for the cloud will have to do more to enhance operations. Support economies of scale are something cloud hardware/software providers haven’t really spent much time promoting, likely because they’ve not spent much time addressing them!