Radical Disruption

SAP® has made significant strategic moves in the last few weeks, as it positions itself for an “IT-as-a-Service” mobile world. SAP sells complex enterprise software. The total solution cost to SAP customers includes the cost of the software, software maintenance, infrastructure to run the application software, people to run the infrastructure, and people (including expensive consultants) to bespoke SAP to business processes. The SAP solution sell is very sensitive to total cost. The higher the cost of the infrastructure and people to make it work, the greater the pressure on SAP’s software margins. The lower the cost of infrastructure and support, the higher are SAP's software margins and the more competitive the solutions.

Three radically disruptive technologies deeply affect SAP strategically:

1. Virtualization of the Server and Storage Infrastructure
   • Server virtualization is a major force for reducing the cost of IT infrastructure. Server virtualization separates the logical server from the physical server and allows dynamic movement of applications between physical servers. This improves utilization, availability, and flexibility (speed to deploy and change). Wikibon research shows that a $1B company spending $40M on IT can realize $20M in savings over five years through tighter integration, assuming commitment from key vendors is in place. The SAP scale-out architecture with multiple application servers is well suited to a virtualization infrastructure.
   • The leader in server virtualization is the VMware hypervisor, owned by EMC. Microsoft is trying to catch up by giving away Hyper-V. Oracle is trying to kick-start Oracle VM. IBM has LPARs on its own proprietary platforms.
   • The biggest virtualization issue for SAP is virtualization of the database. Oracle is dragging its heels on supporting virtualization of Oracle databases and making it a condition for maintenance that the problem is recreated on a server without virtualization before Oracle will work on a problem. Microsoft has an almost identical policy with SQL. IBM is not rushing support for DB2 on VMware. All of them are promoting virtualization products and are attempting to slow down VMware. All of them are working on their own integrated stack, and are attempting to impose their terms and conditions on the application providers.
   • SAP needs a virtualization solution as part of its software stack for its direct customers and for service providers that will provide SAP software-as-a-service (SaaS).
   • The Sybase purchase enables SAP to provide full virtualization support for all virtualization environments that its customers want to deploy. By partnering with EMC & VMware, it can create its own full software stack of hypervisor, Linux, Sybase DB and SAP applications, test them and package them to reduce the cost of purchase, implementation and maintenance. And of course SAP can also partner with other hypervisor providers such as Microsoft.
   • SAP has partnered with Cisco, EMC and VMware through the Virtual Computing Environment (VCE) coalition and its Vblock™ Infrastructure Packages. The initiative marks an important step toward running SAP software reliably and securely on volume equipment in a production virtualized environment. All the partners have committed to ongoing innovation to improve the capabilities of running large-scale production SAP systems in a virtualized environment with high availability and security.
2. Speed up of I/O with Flash – the iPad effect
   • The biggest constraint on the providing better applications is I/O performance. ISVs use large buffers in servers and expensive storage arrays to ameliorate the effect of slow I/O, but access time to data on a disk drive has only improved by a factor of four in the last 25 years and is now not expected to improve at all. Spinning drives are mechanical devices, and very slow. Drives work in milliseconds but flash works in microseconds. That means a hundred to a thousand times more data can be made available to simplify and improve the productivity of the end user. This is the iPad effect.
   • The iPad effect is seen most clearly when you put an iPad with 64GBytes of flash memory against a laptop with much higher processor speed and many more GBs of disk storage, and measure the user experience of running applications. Open Outlook on the laptop – and then open email on the iPad. Open Word and open pages. The iPad wins hands down and is two to ten times faster. “Save” is a thing of the past with the iPad. My wife runs her therapy business on her 3G iPad, and has doubled her responsiveness. My son picks up the iPad first if it is available, the iPod Touch second, his MacBook third and a PC virtually never. Ease of use and great performance will be table-stakes for Application 2.0.
   • Flash storage prices are dropping faster that disk storage. As a result, the whole storage hierarchy needs to evolve, with new architectures that exploit the speed and persistent nature of flash. The operating systems and database systems need to be updated to provide synergy with this architecture as well as deliver higher quality availability and recovery mechanisms. The applications will be reworked to bring new levels of ease of use and performance for the end-user.
   • SAP, with the purchase of Sybase and the partnerships with the VCE coalition, have put themselves in a position to deliver SAP 2.0 versions with higher function and lower cost. Good news for SAP customers.
3. Smart Mobile devices
   • The days of an end-user Microsoft PC standard in the enterprise are over; a plethora of smart mobile devices are replacing the heavy metal in the cubicle/den. The application will need to integrate and take advantage of these platforms, for example by knowing where the user is, what the mobile device's capabilities are, what preferences the user has, etc., in order to deliver the right information the right way at the right time – and stop there.
   • The challenge for application designers is to integrate the two high-speed low-latency storage rich platforms with high-band-width but poor high-latency communications. This will mean respect for mobile platforms and not forcing compliance, either in the network or software or device (think Adobe Flash as a MBA case study of how not to execute).
   • Sybase has been making major investments in mobile computing with particular strength in Short Message Service and will enhance SAP’s IP portfolio for rich application development.
   • SAP’s other strategic moves indicate that they understand what it will take to deliver SAP 2.0 to its ecosystem, and that they are moving fast to execute. As usual, the devil will be in the details.

SAP Strategy Summary and Conclusions

In summary, SAP's 2.0 stack strategy takes into account:

• Oracle and Microsoft are vertically integrating, and SAP needs a hedge to avoid margins being crushed.
• Integration of persistent flash storage will radically change system design (e.g., by enabling the entire SAP database instance to reside in memory).
• Mobile devices with flash will bring new capabilities to SAP applications. Think of the iPad of the data center talking to iPad mobile — integrated, clean, fast, and high value.
• Despite IT management sensitivity to the issue, SAP needs to create its own stack and re-architect systems using a DB and IP they can control.
• Key components of the SAP stack in this new world include:
  • The application layer—including mobile apps,
  • Database, middleware, and tools,
  • Virtualization, management, and security,
  • Storage, servers, and networking.
• Creating an integrated stack is vital for cost effectiveness, flexibility and availability. The leading contenders are Oracle, IBM, HP, VMware, Microsoft, and Cisco. SAP is creating its own stack by blending components, and avoiding being bespoken to any specific vendor. SAP and its ecosystem are well positioned.
• This move gives SAP substantially more pricing control because, over time, it will be less reliant on Oracle, Microsoft, HP and IBM.
• Virtualization is a big trend that SAP needs to support. Working with a VMware ecosystem is a far better path than being locked into OracleVM.
• For SAP and Sybase, supporting VMware is an imperative. Oracle has been fighting VMware adoption (as has Microsoft). However, with Sybase as a lever, SAP will almost certainly (80%) be able to broaden its stack to include other virtualization platforms.
• Virtualization is the heart of Infrastructure 2.0.
• This may create some confusion in the customer base over which database to choose. However, diehard SAP customers that are Oracle users can stick with Oracle if they like, knowing that they have an exit strategy if Oracle won’t deliver VMware support.

New enterprise applications are emerging from SAP and other ISVs where the infrastructure is increasingly invisible; the ROI will be realized from strong integration that will accelerating time to value by reducing deployment risk, simplify infrastructure, lower costs and increase deployment speed.

SAP's ownership of Sybase and partnership with the Virtual Computing Environment (VCE) coalition (Cisco, EMC and VMware) and its Vblock™ Infrastructure Packages, should help ongoing innovation to enable reliable and secure virtualization on volume hardware, and speed the journey to “private cloud computing.”

Action Item: For the time’s they are a’changin!¹ When looking at cross-enterprise application packages, it is useful to ask vendors what are their strategic plans to integrate the three disruptive technologies of virtualization, flash, and mobile. To date, SAP is well positioned. Oh, and use a 3G iPad!

Footnotes: Note ¹ © Bob Dylan, 1963