For years, SAP has been a bonanza for consultants and integrators. Aside from Oracle, it’s hard to find another company’s products that have created bigger mounds of cash for servicers. Big ERP projects can take months, even years of custom work, with on-going tweaks and support services all in the mix. Large corporate customers have been willing to spend lavishly on services around SAP because ERP is crucial to their businesses and their investment in the software is so big. It’s high-profile code: HP even blamed bad quarterly earnings on a botched SAP implementation in 2004.

But SAP’s market is being made over just like every other IT market today. Competitors like Salesforce.com and NetSuite are disrupting the market with the promise of CRM and other functionality as-a-service, at a much lower price. SAP grew up in an era of slowly evolving infrastructure, applications and end-user environments, but now all three are changing rapidly, at the same time. Last week’s SAPPHIRE 2011 conference highlighted how the company is responding to these challenges with mobile and social enterprise strategies and technology such as the HANA in-memory database platform.

So what are the implications, services-wise, for SAP and its galaxy of consultants? Three important trends are emerging:

1. Customers want faster, simpler, less costly implementations. SAP, like most vendors, has been eyeing cloud solutions for a while, but now customers are beginning to see real options hit the market. SAP’s march to the cloud has been slow, but it is aware of how competitive cloud ERP solutions could potentially disrupt the core business. SAP pre-announced a HANA cloud offering at last week’s Sapphire show, even though by SAP's on admission HANA is in pre-beta; this is clearly a move to show customers a roadmap to cloud and freeze the market on competitive offerings.
2. The maintenance-fee model is a dinosaur. Customers constantly tell us that maintenance fees, from SAP, Oracle, Symantic, and pretty much any enterprise software vendor, are killing them. Here again the cloud subscription model can be the disrupter by shifting the up-front CAPEX model to a software rental structure. How quickly SAP can react remains to be seen. At Sapphire the company predicted that by 2015, its new mobile, HANA, and OnDemand businesses would account for about $7B, a meaningful goal. To the extent that SAP falters on hitting this milestone, it will likely pay the price financially.
3. A chance for consultants to go strategic. CIOs can no longer succeed in their jobs when 70% to 80% of their budgets is tied up in simply keeping operations running. The SAP services opportunity is inevitably going to shift away from mega projects, drawn-out installations, and custom coding. That said, customers don’t want to rip-and-replace ERP. So, as customers’ budgets get freed up for more innovation, consultants can respond with more strategic, business-focused offerings around how SAP can drive more revenue and efficiencies. The big consultants are organized around vertical industries and are good at thinking that way. For example, what new mobile SAP applications can be created for the retail industry, to save costs and drive more business? Or new healthcare applications? And HANA applications should be a lucrative business-driver for the consultants.

The global consultant/integrator shops that do a lot more than SAP implementations – Deloitte, Accenture, IBM, CSC – saw these trends coming a while ago and have been aggressively adding cloud-related services and IP to their arsenals. In some ways they are ahead of the big established ISVs, who are still stuck in the license-and-maintenance-fee/custom-install model. It’s the smaller servicers with core SAP businesses that will take a bigger hit if deployment projects get skinnier. SAP should work closely with these servicers, since their customer base – the medium and small businesses – will have less to lose by trying alternatives and potentially leaving the SAP mothership.

SAP customers relying on service providers should look at the following factors to evaluate progress in the marketplace:

• The degree to which SAP partner integrators deliver on a cloud vision. Big SAP firms have lived off of complexity and outsourcing. The opportunity now is to facilitate cloud-based business models. Examples include facilitating App Stores for the enterprise, providing enhanced security offerings for the cloud, accelerating new business opportunities and the like.
• The impact of new entrants built on simplified business models – e.g. SaaS. New firms are disruptive to the SAP ecosystem, and SI partners must embrace these innovations to stay ahead of the curve. The conundrum is in many cases new application models strip the fat that has sustained consultants for decades.
• The evolving application ecosystem and the role of service providers. Specifically, as SAP rolls out an App Store-like experience, where will service providers add value? A critical issue for customers is who will be the application provider in this new world? Will it be SAP? New entrants going after the long tail? Service providers? Or in-house application development teams?
• Value add. In the past decade, “value add” from service providers has often been a euphemism for “my problem, managed by someone else.” Customers must demand more in the era of cloud computing, big data, and fast data. Forward-thinking service providers will be those that can truly transform businesses and have a bottom line impact versus shifting IT outside a company.

At Sapphire 2011, the booths of service providers were packed with customers asking about mobile, cloud, and in-memory solutions. This is a positive sign that customers are comfortable with current partnerships and will be looking to existing suppliers to deliver on new visions. The key will be to work with service providers that put your bottom line first in the queue.

(David Vellante contributed to this Professional Alert.)

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