SAP plans to rewrite the code base for its hosted software over the next 12-18 months, extending the in-memory features developed for its HANA database to its middleware and building a new user interface designed around touch and gesture.
In October, disgruntled SAP staff leaked the German software giant's plans to shift development resources away from its Business ByDesign service - SAP's first foray into cloud business software, developed in 2004 and primarily hosted at SAP's Waldorf, Germany data centre.
The highly-damaging leak - which came during a reporting period in which SAP executives could not respond - has taken weeks to repair.
While ByDesign failed to gain wider traction, many of the reported 785 active customers - who earn SAP annual revenue of around €23 million (A$32 million) - are counted among the company's largest. They include Germany’s national airline Lufthansa and the NSW Department of Trade and Investment.
NSW Trade CIO David Kennedy immediately contacted SAP on the day of the leak, seeking both an explanation and formal advice that it would meet its commitments to the government. Several weeks on, his department now has that formal advice, and SAP executives have been allowed the freedom to speak.
This week Rainer Zinow, senior vice president of cloud solutions at SAP, discussed the company’s cloud vision at length with iTnews and argued that the German software company's strategy has been misunderstood, and thus misreported.
What was quoted from SAP’s “all-hands meeting” accurately portrays that fewer development resources will remain embedded in the ByDesign team.
Zinow has put forward a case, which has subsequently won approval from his executive peers at SAP, to expose the business to some short-term risk with a far more essential long-term goal in mind.
Zinow said ByDesign was not as vanilla as most cloud services could or should be. While all iterations feature the same underlying code base, SAP has gone to some effort to add new features to ByDesign for key clusters of customers, such as for government agencies or for professional services.
It is this effort - the customising of the software to suit new verticals - which SAP has chosen not to pursue further.
“We need to reduce the development speed on Business ByDesign while we focus on building a new cloud platform, based on HANA,” he said.
“We will keep a large team delivering on our existing commitments in the market [i.e. ByDesign], but within the boundary conditions of where the market is today,” he said.
“I am perfectly happy to build capabilities that a consulting firm needed as a customer, or for a customer in the public sector, but if a new opportunity came along to work on ByDesign for an automotive customer, for example - my response would be great idea, but not now.”
Zinow will essentially re-deploy development staff once focused on new features for ByDesign to work on re-writing SAP's cloud software from the bottom up, to produce a new cloud platform based on the “massive parallelisation” available from today’s semiconductors and the in-memory technology (HANA) SAP has already applied to its database.
In tandem, SAP's UX developers are working on a new user interface based on touch and gesture, on the assumption that users will be demanding corporate applications from tablets and other consumer-grade devices.
However, Zinow argued that existing ByDesign customers will nonetheless benefit from the process. Many of the same workflow, user interface and analytical engines being redeveloped for the HANA-based cloud platform should theoretically be able to slide back into ByDesign services at a customer’s request, he said.
After several days mulling over SAP’s formal response, David Kennedy told iTnews SAP was close to delivering on the sum of features he had expected from the cloud service.
“We purchased the service on the basis of what we knew it would do,” he said. “As yet there are a whole heap of modules and functionality we are yet to implement - things like CRM and point of sale.” Those rollouts are likely to continue, he said.
Zinow said he was “grateful” for Kennedy’s support.
“The US Government has a ‘cloud first policy’ - but there is a big gap between that and running a huge government department entirely on the cloud,” he said.
Read on for more on SAP’s HANA strategy. What will SAP’s future cloud solutions look like, and how will the redevelopment impact SAP revenues?
The HANA cloud
Zinow expects the world of computing to look completely different in three to five years time.
As such, SAP's hosted software will need to take a few steps back to accommodate these changes, he said.The software vendor’s first attempt at a cloud computing platform (Business ByDesign) made trade-offs between usability, performance and the amount of main memory and compute available to the application.
Zinow said if anyone could have predicted the advances in processing (parallelisation) and the accessibility of memory now available to an application, SAP’s developers could have made less compromises in the underlying code base.
When ByDesign was developed, he said, “fast main memory was a limited resource” whereas today “you can just about have as much memory as you want".
“There were tons of compromises baked in,” he said. “If I were to code it again, I would do it differently.”
Zinow said SAP had made great gains with the HANA in-memory database - but SAP was far from realising the full potential of its in-memory breakthrough.
“HANA as a database is great - but if I want to exploit it fully I have to apply the same logic to the application server and [other] middleware,” he said. Applications built on top of this stack would enjoy far better performance.
The first extension - SAP’s XS application server - has already been announced.
This small, stripped back app server sits embedded within the HANA database and “doesn’t have a third of the things we thought were a must-have when we designed systems in the past,” Zinow said.
“In the past we would spent to a third of coding to build out aggregates - to report on ‘this week’ or ‘last year’ - which would be read from a corresponding table. But today it is equally fast to calculate aggregates on the fly.
"So technically I can axe a third of my coding and a third of the tables in the financial application because I now have so much memory and I can do computations in parallel," he said.
“Three years ago I wouldn't have dared to program that way, it would have been so slow. In today's world it is the most sensible thing to do. We’re moving towards a compromise free architecture.”
Zinow’s team has compiled a list of 170 software engines that might feasibly be replaced with this new architecture in mind - but he is unlikely to develop them all.
“We have to ask ourselves the question - do we port one-to-one or will we still need it? Can we source it, otherwise? Ten years ago we built a print engine. Today, if I was to do that again, I would rather source something from Google or Adobe.
"We are looking at all engines - we will re-do some of them, some others I will throw away. We will keep asking, are there frameworks available? Is there something from the open source market available?”
A new user interface
While the back-end infrastructure will be Zinow’s priority, his team also has some work to do on the user interface of future SAP cloud solutions.
Intel’s roadmap for 2015, he notes, includes a 3D camera for gesture-based interfaces. Touch and gesture, he expects, will be so compelling that “three years from now the last notebook will be sold."
“When you look at the organisations that have gone completely BYOD, they’ll need the applications you need to run your business to run on these personal devices,” he said.
“I want to make sure all our cloud applications are touch and gesture enabled and run beautifully on the tablet.”
The user experience won’t be prioritised at SAP, he said, until the back-end engines are redeveloped. But there are some aspects of the user experience that can’t wait.
Elements developed in (or developed to run in) the Silverlight app framework, for example, will need to transition to HTML5 as soon as possible, to cater for devices created by Apple and Google.
SAP has a team already addressing the potential performance overhead from rendering complex graphical tables on HTML5.
“Rendering HTML5 pages is a fairly compute intense activity,” he noted. “We need to see whether a transition to HTML5 means we are not spending more milliseconds rendering pictures at the front end and negating the savings we’ve made at the back end.”
Impact on SAP revenues
SAP co-CEO Bill McDermott has set a goal of €20 billion in revenues at 35 percent operating margin, €2 billion of which must come from cloud solutions, and has further bet that SAP will win over one billion HANA users by 2015 - double the company’s current customer base.
Zinow’s cloud strategy risks SAP incurring a short-term dip in revenue, as it focuses efforts on an incomplete core platform at the expense of new features and functions a new customer or group of customers might demand.
“We have discussed this with Bill and the CFO,” Zinow said.
“Bill’s reply was interesting. He said 'look at numbers of NetSuite and Salesforce - all have price-earning ratio in the hundreds. We have a price-earning ratio of 16. None of these companies are profitable, but nonetheless they have a multiple close to insane.'
"My CFO, by contrast, won't sign a single deal that is not profitable, or we could not deliver on that 35 percent operating margin promise.”
The only explanation, he said, was that financial markets will reward any software company moving to a subscription model, owing to the potential for locked-in earnings in the future.
“The financial markets, in their valuations of software companies, will pay ten dollars for one dollar of subscription revenue. It is quite understandable. Subscription is an annuity business - if you don't mess up, it happens next year again.
"Look at SAP’s revenue during the financial crisis - net new license sales dropped in 2008 and 2009 - what kept us perfectly afloat was maintenance," he said.
“Cloud computing, if you think about it, is nothing else than the maintenance model. A company that can generate revenue in cloud space, with low attrition, is financially super attractive to investors."
The new cloud paradigm
The controversy over SAP’s plans for ByDesign highlights a new challenge for the industry as more solutions become hosted services.
Industry observers and customers prefer to neatly organise a vendor’s offerings into ‘products’ - with clear expectations about what is included and excluded in that product construct.
SAP plans to rebuild the foundation of its cloud services, but has promised the fruits of this development effort will still be made available to existing customers.
Zinow doesn’t know and doesn’t particularly care what name SAP’s marketers will use to brand these HANA-based cloud services.
“I am fighting day and night with marketers that want to call something an ‘on-demand solution’ or a ‘cloud solution’. In two years that will sound legacy," he said.
“I say that by 2016, cloud computing ends. By then it's just called computing. We have to take the deployment model out of the marketing.”
To some degree, customers of these services are left to rely on the trust they have in their service provider.
Kennedy agreed that - more broadly - the cloud model presents challenges to how the business views IT products.
“We have to keep reminding ourselves that this is the nature of cloud services. As long as a service delivers the outcomes, I'm not overly concerned as to how that service is delivered.," Kennedy said.
“Cloud is a continuous flow of innovation,” Zinow said. “Look at perpetual license model - the last major release for most business software was six or seven years ago. The cloud model is more stressful for my team, there is more work. But I honestly believe that companies that adopt cloud computing as their paradigm will be more successful.”