I’ve been immersed in SAP HANA ever since I first heard about it, when Hasso Plattner talked about it in May of 2010. SAP HANA is an in-memory database that computes thousands of times faster than traditional database products.
There are two business lessons that I learnt in this time: first, amazing products are products that disrupt markets and create new markets. Think of the Dyson vacuum cleaner or the iPhone, for example. Second, as Steve Jobs said, “If you don’t cannibalize yourself, someone else will.”
What’s fascinating about SAP HANA is that it has the capability to disrupt four market categories. Even SAP themselves don’t see the full potential of HANA – and that’s fine, because the most disruptive technologies don’t always know their purpose in advance. Let’s get into the detail of these categories and what it means.
1) Database Market
This is the most obvious – SAP HANA is a database much like Oracle, but it runs entirely in-memory. This means it is 1000x faster for many operations and scales linearly. As SAP CTO Vishal Sikka told me this week – “If it runs in 100 seconds with 1 core, it can run in 1 second with 100 cores. That is the beauty of HANA”.
This matters because there are things you can’t do with Oracle that HANA can do. Cancer genome sequencing in seconds. Real-time monitoring of oil drills. Providing offers to customers at a till based on their basket and historic purchases.
In addition, SAP HANA can now be used as the database for all of SAP’s existing Business Suite install-base – 89,000 customers, and it’s a lift-and-shift simple process to move off Oracle. Once you’re on HANA, you can start to take advantage of things you couldn’t do before.
As of now, SAP is the fastest growing database vendor in the world, and overtook Teradata as #4 in June 2012. They booked $800m of database revenue in 2012 (see slide 37). SAP HANA is disrupting the database market.
2) Enterprise Hardware Market
Most Enterprise Software customers run software on expensive mainframe-style hardware. Individual boxes can run into the millions. So SAP built their HANA database on high-end commodity Intel x86 hardware. HANA will run on your laptop (if you have enough memory) and it’s supported by a number of the usual hardware vendors.
SAP expected to disrupt the hardware market, as well as the expensive enterprise storage market, which is based around selling outdated spinning chunks of metal. The market already moved onto solid-state storage and it’s known to be reliable (how many iPhones, iPads and Samsung Galaxies do you see?).
Unfortunately, the hardware vendors like IBM and HP saw SAP HANA as a means to sell yet more spinning disks, and so created hardware configurations with even more of them. SAP got annoyed and invested $50m in Violin Memory, a start-up that has a solution to this. No vendor has yet produced a SAP HANA configuration based on Violin, though I hear SAP bought a ton of them. [update, a colleague tells me that Fujitsu went live with a customer on a Violin appliance, but it's not officially certified hardware]
So this year I expect further disruption to the hardware market, perhaps with a new entry into the x64 Server market that knows how to do premium commodity. Lenovo, perhaps?
3) Services Market
One thing is for sure: SAP wouldn’t be where they are today without Accenture and IBM Services. Those guys pimped SAP R/3 in the 90s and made SAP the success that it is. In the process of this, they created an even bigger market for themselves – 6-8x larger than the Enterprise Software market.
This really annoys SAP co-founder Hasso Plattner and to quote SAP CTO Vishal Sikka: “we have this strong strategic need to not have the partners come in to implement HANA. If that happens, then we have failed, and Hasso told me that.”
I talked to Hasso about this last week and he was unrepentant: SAP have to solve the services market problem. I told him he had got it wrong and SAP as an SI was just the same as Accenture and IBM and the ratio is not decreasing for HANA projects. If SAP wants to disrupt the consulting market then it needs to do so by facilitation – like the Violin model.
Services disruption is of particular interest for me and I’m always pushing my consulting teams to innovate. I noticed that on a recent deal, the ratio was inverted: 10% Services, 30% Hardware and 60% Software. Of course, we will do more services work once the software is installed, but it gives you a flavor of how the services market might be disrupted, if we can scale our models.
Interestingly, SAP Global Head of Sales Rob Enslin just got put in charge of SAP Services, and he’s an ex SAP Basis consultant. I talked to him last week and he is changing the organization in ways that I believe will support this disruption.
Can SAP disrupt itself?
If you know anything about the Enterprise Software market, you are probably wondering why I missed the elephant in the room: The Cloud. I didn’t, I just left it until last. Here is SAP’s biggest challenge for 2013.
SAP HANA is sold in one of 3 ways. One, you can buy a runtime license for your Business Suite for 15% of your Software Application Value (total of what you paid SAP) per annum. Two, you can buy Enterprise licenses which are bought by the 64GB chunk of memory (minimum 128GB). Third, you can buy 60GB of HANA One on the AWS marketplace for $1 an hour (plus $2.50 an hour for hosting).
Now, Amazon are a very impressive company and they are creating bigger machines – 244GB systems were released last week. As of now, SAP haven’t announced if they will be supporting them and if so, what the cost will be.
However the problem is simple: HANA One doesn’t cannibalize on-premise sales, because you can’t buy 60GB of HANA from SAP on-premise. 120 and 240GB Amazon instances do, however, cannibalize the low-end of SAP HANA on-premise sales and this will have a negative impact on revenue perpetual license revenue.
But the fact is: the world is going cloud. As William Gibson said: “The future is already here — it’s just not very evenly distributed.” – and whilst there are many companies who will run on-premise software for a very long time, companies as big as Pepsi are implementing cloud solutions (they just bought 300k Employee Central licenses from Success Factors).
My view is that in any case, providing a cloud subscription model for HANA can only be a good thing. It dramatically simplifies adoption and – at least for the medium term – there won’t be an option to do cloud HANA for large installations so customers will have to move on-premise at some later stage, and will probably then buy even more HANA. Moreover, Wall Street and thereby the shareholders put a higher value on recurring revenue (Workday is valued at P/S of 41x, whilst SAP is valued at 6x), which should help.
So as for me, there are two crucial questions here:
1) Does the SAP board have the stones to accept a short-term hit in revenue and move to the recurring revenue subscription model for HANA?
2) When will SAP enter the in-memory cloud market? For every $1 they take for HANA One, they are giving away $2.50 to Amazon for hosting. This is money left on the table.
2013 is shaping up to be a very interesting year.