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Enterprise Software Market, 2010

July 2010

Market Dynamics Team ʹ

a xiovanna Enea
a xurdeep Dhillon
a Hannah Eisenberg
a Harry Tse
a Matthew Sell
a Michael Sagayaraj
a Piet Loubser
a Venus Picart
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ÿ  ^mprove SAP͛s tactical and strategic position in the marketplace by

identifying market trends that shape strategic risks, revenue opportunities, and
potential investment requirements for the business.

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Simultaneous disruption of multiple dimensions & hyper competition

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on-demand pure players, fast evolution, M&A acceleration,
managed services providers,

 ÿ   emergence of mega vendors
adjacent market mega vendors mastering the complete stack

ÿloud Economics Application

Boundaries Blurring

User Experience Business Model

ÿhanges

Technology/ ÿomputing Enterprise Ecosystem

Stacks Blurring software market Transformation

Business Networks
New Users
ÿustomers & Usage

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The value is not in describing this chaos, but in organizing it in an analytical way which
provides support to SAP management to make decisions.

ÿustomers

@



Technology ÿompetition




xo-To-Market

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Mobile: Always-On and ÿonnected

= The emergence of smart devices facilitates computing to become un-tethered
from the desktop
= With the ubiquity of residential broadband and mobile Wi-Fi, customers are
bringing the expectation of always being connected from their consumer
experiences, whether in the office, mobile, or at home

Form Factor and User ^nterface Evolution

= ^nnovation around user interface allows more
human-like interaction to include touch, gesture,
voice, etc. ^n parallel, form factors have taken
advantage of this to create new categories of smart
devices

ÿonsumerization of ^T Environments
= Expectations and accessibility of technology from the consumer market are enabling enterprise
workers to take control of their ^T work environments

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Line-of-Business Empowerment
= Budget pressures (ÿapex vs. Opex) along with the
desire for better corporate agility and autonomy are
enabling line-of-business to increasingly become the
recommender and buyer of software, rather than ^T

Enterprise Social/ÿollaboration
= The drive for better collaboration and networking both inside
corporations and across businesses leads to the mainstream
adoption of enterprise social/collaboration platforms
= ÿustomers bring their consumer expectations of social networking
and on-line collaboration to their enterprise work environments

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ÿlients Market ÿonsolidation and Mega Vendor Stacks

Services = Market forces drive continued consolidation in the enterprise
Application
^T market
Platform
Storage
= ÿustomer wallet-share competition amongst mega vendors
^nfrastructure drives them to build out an ever increasing integrated stack of
hardware, software, content, and services

ÿontent
= The increasing availability and accessibility of content for
consumption allows content providers and information brokers to
rise to prominence, disrupting the balance of power of existing
software tools vendors

Service Delivery Systems

= Service vendors look to increase margins and expand their
footprint by extending their offerings to include software
components as part of the service, either directly or as an
embedded component
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Alternative business models to traditional user-based license

= E.g. subscription, micro-payment, usage-based/utility, ad-supported
= Driven by customer need for lower upfront costs and quicker return
on investment, and emerging vendor͛s need to disrupt the business
model of established vendors

Market Places and On-line Stores

= ÿoupled directly to devices and applications
= ÿontent market-places gain traction in the enterprise
= Driven by consumerization of ^T and line-of-business
empowerment in the enterprise

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ÿloud ÿomputing
= Paradigm shift from on-premise, physical ^T
infrastructure to shared, hosted, virtual ^T
resources, utilizing a utility model

^n-Memory
= The advent of 64-bit computing and cheaper memory
has spurred the development of in-memory computing,
enabling new applications, most dramatically in
database and B^/Analytics

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= ÿonsumerization of ^T Environments = Alternative Business Models
= Mobile: Always-On and ÿonnected = Market Places and On-line Stores
= Form Factor and User ^nterface Evolution
= Line-of-Business Empowerment
= Enterprise Social/ÿollaboration

ÿ     

= Market ÿonsolidation and Mega Vendor = ÿloud ÿomputing
Stacks = ^n-Memory
= ÿontent
= Service Delivery Systems

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ÿorporate-centric ^T ^ndividual-centric ^T
environment environment

Drivers Key Activity

= Expectations and accessibility of technology from the consumer = Enterprise workers are bringing their own consumer devices into
market are enabling enterprise workers to take control of their ^T the work environment, along with the software applications that
work environments run on them

^mpact Exemplar Vendors/Products

= Enterprises have to re-evaluate how their ^T infrastructure can = Apple - iPhone, iPad
support non-standard hardware and the software applications = xoogle / HTÿ - Android phone
that come with them.
= Security is a key issue as corporate ^T moves from absolute Related Market Dynamics
control of the ^T environment to risk mitigation mode.
= Line-of-Business Empowerment
= Mobile: Always-On and ÿonnected
^mplications to SAP
= Form Factor and User ^nterface Evolution
= SAP needs to evaluate how to support and embrace these new
devices and software applications for its software solutions

Prediction
= Enterprise standardization only becomes applicable to ^T
infrastructure and back office functions
= Enterprise ^T infrastructure becomes flexible to support myriad
of devices and software applications that business users want to
use

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Desktop-centric: Mobile:
On and connected Always-on and
while at your desk connected

Drivers Key Activity

= The emergence of smart devices facilitates computing to become = Ubiquity of residential broadband, Wi-Fi availability, and Wi-Fi
un-tethered from the desktop devices
= ÿustomers bring the expectation of always being connected from = Adoption of smart phones and other smart devices
their consumer experiences, whether in the office, mobile, or at = ÿloud-based applications and services
home
Exemplar Vendors/Products
^mpact
= Apple ʹ iPhone, iPad
= Mobility will facilitate new application use cases, requiring that
= R^M ʹ Blackberry
applications become location-aware

^mplications to SAP Related Market Dynamics

= ÿonsumerization of ^T Environments
= Mobile represents a huge area of opportunity for SAP, opening
up a whole new breed of mobile applications, as well as new use = ÿloud ÿomputing
case scenarios for existing applications = Form Factor and User ^nterface Evolution
= Market Places and On-line Stores
Prediction = Alternative Business Models
= Business applications are seamlessly context sensitive to the
users location
= The notion of ͞desktop͟ as a location becomes meaningless.
Workers expect seamless connectivity where ever they are.

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Traditional Pÿ form New form factors and user

factor ʹ keyboard, interaction ʹ touch screen, smart
mouse, and monitor devices, augmented reality devices

Drivers Key Activity

= ^nnovation around user interface allows more human-like = Emergence of smart devices: ÿell phones have evolved beyond
interaction to include touch, gesture, voice, etc. ^n parallel, form being personal organizers to true application platforms, e.g.
factors have taken advantage of this to create new categories of iPhone.
smart devices = New categories of devices have become commercially appealing,
such as tablets and e-readers
^mpact
= Application use case scenarios expand beyond traditional back- Exemplar Vendors/Products
office = Apple ʹ iPhone, iPad
= Amazon ʹ Kindle
^mplications to SAP = Microsoft ʹ Surface
= SAP should evaluate application use cases beyond the traditional
͞desktop͟ computer and transactional back-office worker
Related Market Dynamics
= Mobile: Always-On and ÿonnected
Prediction
= ÿonsumerization of ^T Environments
= Keyboard + Mouse paradigm becomes obsolete
= New breed of applications designed with new form factors and
user interface in mind dominate old-school retro-fitted
applications

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^T buying center Line-of-business buying center

(ÿapital Expenditure) (Operating Expenditure)

Drivers Key Activity

= Budget pressures along with the desire for better corporate
agility and autonomy are enabling line-of-business to increasingly
become the recommender and buyer of software, rather than ^T
^mpact
= Line-of-business driven initiatives bring a new set of expectations
ʹ quicker return and instant gratification, which drives the move
to smaller, simpler, and cheaper packaging of software
applications
= ^T budgets are being transformed from fixed allocation (ÿapital
Expenditure) to variable expense (Operating Expenditure)
= ÿustomers are moving away from very large upfront software
purchases to smaller, as-needed subscriptions to software
Exemplar Vendors/Products
= QlikTech
= Salesforce.com

^mplications to SAP Related Market Dynamics

= ÿloud ÿomputing
= ÿustomers have low tolerance for big, complex, time consuming
deployments. SAP needs to adjust to these new customer = Alternative Business Models
expectations. = Market Places and On-lines Stores
= Service Delivery Systems
Prediction = ÿonsumerization of ^T Environments
= Other than ^T infrastructure projects, all purchases are through
line-of-business

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ÿonsumer orientated social Mainstream adoption of

networking and collaboration enterprise social/collaboration

Drivers Key Activity

= The drive for better collaboration and networking both inside = ÿonsumer social networking sites like Facebook and Linked^n are
corporations and across businesses leads to the mainstream now mainstream
adoption of enterprise social/collaboration platforms = Massive multi-player (MMP) on-line games illustrate that
= ÿustomers bring their consumer expectations of social collaboration can extend beyond a handful of friends or contacts
networking and on-line collaboration to their enterprise work to very large constituencies of thousands of people.
environments
Exemplar Vendors/Products
^mpact = Microsoft ʹ SharePoint
= New software applications will be designed and created with the = ^BM ʹ Vulcan
assumption of built-in collaboration and social networking
= Jive

^mplications to SAP Related Market Dynamics

= SAP should evaluate whether it wants to provide a
= ÿonsumerization of ^T environments
social/collaboration platform, and how to add
social/collaboration capabilities to its existing applications

Prediction
= Microsoft and ^BM will dominate social/collaboration platforms
in the enterprise

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Mega Vendors, with an

^ndependent Vendors,
integrated stack of hardware,
Best of Breed
software, content, services
Drivers Key Activity
= Market forces drive continued consolidation in the enterprise ^T = Oracle͛s aggressive acquisition strategy
market = On-going consolidation from other large ^T vendors
= ÿustomer wallet-share competition amongst mega vendors
drives them to build out an ever increasing integrated stack of Exemplar Vendors/Products
hardware, software, content, and services
= Oracle
= ^BM
^mpact
= HP
= A mega vendor͛s account control/wallet-share, combined with
the value of an integrated stack of components trumps multiple
best of breed, independent vendors Related Market Dynamics
= Service Delivery Systems
^mplications to SAP
= ÿompeting in the ͞stack͟ war with other mega vendors maybe
inevitable if SAP wishes to stay independent.

Prediction
= As the enterprise software market matures it will evolve to a 2
tier model ʹ a handful of mega vendors and a long tail of small
niche specialists. Vendors caught in the middle will struggle to
compete.

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Software tools ÿontent providers and

vendors information brokers

Drivers Key Activity

= The increasing availability and accessibility of content for = ^ncreasing number of data source types and sources of data
consumption allows content providers and information brokers = Text analytics, along with sentiment and social analytics becomes
to rise to prominence, disrupting the balance of power of existing mainstream
software tools vendors
Exemplar Vendors/Products
^mpact
= xoogle ʹ Public Data
= Data/content becomes a strategic vendor asset. Delivering this as
= Microsoft ʹ ͞Dallas͟
a service differentiates against other software tools vendors
= Thomson Reuters
= ^nformation brokers with their content gateways emerge as a
disruptive force in the industry
Related Market Dynamics
^mplications to SAP = ÿloud ÿomputing
= SAP should add content services plus value-add analytics through = Service Delivery Systems
partnership or acquisition of key content providers = Market Places and On-line Stores

Prediction
= ͞^nformation as a Service͟ rises to prominence as a growing
number of content service providers provide packaged content
through information brokerage market places

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Software Tools Service Delivery

Drivers Key Activity

= Service vendors look to increase margins and expand their = ADP provides payroll as a service
footprint by extending their offerings to include software
components as part of the service, either directly or as an Exemplar Vendors/Products
embedded component
= ADP
= Reardon
^mpact
= UPS
= The market is transitioning to a service delivery-centric market,
with different rules, mindset, business model, basis of = Thomson Reuters
competition, strategy, etc., which results in a different = ^ntuit
battleground for SAP to fight
Related Market Dynamics
^mplications to SAP = Line-of-Business Empowerment
= SAP needs a Service Delivery Platform to compete in this service- = ÿontent
oriented market
= Market Places and On-line Stores
= Alternative Business Models
Prediction
= ÿloud ÿomputing
= The new operating theatre of service delivery systems results in
commoditization, relegation, and disintermediation of the
enterprise software market

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Alternative models ʹ subscription,

User License +
micro-payment, ad-supported,
Maintenance Model
usage-based/utility
Drivers Key Activity
= Driven by customer need for lower upfront costs and quicker = SaaS subscription model is now an accepted alternative in the
return on investment, and emerging vendor͛s need to disrupt the enterprise
business model of established vendors = Ad- supported model is mainstream in the consumer market
= Emergence of market places (iTunes, Apps Store) facilitates the
^mpact micro-payment model
= Vendors reliant on user license + maintenance model are in
danger of being disrupted by new vendors adopting alternative Exemplar Vendors/Products
models
= Salesforce.com (subscription)
= xoogle (ad-supported)
^mplications to SAP
= Zynga (micro-payment)
= SAP needs to balance the preservation of the lucrative user
license + maintenance model with the adoption of alternative = Oracle/Sun (open source)
business models
Related Market Dynamics
Prediction = Market Places and On-line Stores
= User license + maintenance model is made obsolete by = ÿloud ÿomputing
alternatives. Mature vendors are either disrupted or have been = Line-of-Business Empowerment
forced to change their business model = Mobile: Always-On and ÿonnected

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Vendor-centric
Market places and
software acquisition
on-line stores
model
Drivers Key Activity
= ÿonsumerization of ^T environments and line-of-business = As of June 2010, Apple͛s Apps store has over 225,000 apps with
empowerment is driving the usage of market places and on-line over 5 billion downloads
stores in the enterprise, often directly coupled to a hardware
device (e.g. Apple͛s app store) or an application platform (e.g. Exemplar Vendors/Products
SFDÿ Force.com)
= Apple
= xoogle
^mpact
= Market places, along with their alternative business model
(micro-payments, subscription) disrupts the traditional user
Related Market Dynamics
license + maintenance software model = Alternative Business Models
= Democratized application development through a market place = Mobile: Always-On and ÿonnected
impacts traditional software vendor development = ÿontent
= Service Delivery Systems
^mplications to SAP = Line-of-Business Empowerment
= SAP needs to design its enterprise software so that it is more = ÿonsumerization of ^T Environments
suited for consumption through a market place.

Prediction
= Majority of business user software will be acquired through
market places

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On-premise, physical On-cloud, virtual

infrastructure infrastructure

Drivers Key Activity

= Various factors such as economic ownership costs drive a = SaaS model is now an accepted alternative in the enterprise
paradigm shift from on-premise, physical ^T infrastructure to = Mega vendors are ramping up their data centers to support their
shared, hosted, virtual ^T resources, utilizing a utility model cloud platforms

^mpact Exemplar Vendors/Products

= Utility computing business model disrupts the traditional user = Amazon
license + maintenance software model
= Microsoft
= Software deployment services become obsolete, only somewhat
= xoogle
mitigated by the need for cloud integration services
= ^BM
^mplications to SAP = Salesforce.com

= SAP should embrace the cloud computing model for all future
developments Related Market Dynamics
= Mobile: Always-On and ÿonnected
Prediction = Service Delivery Systems
= All general purpose business applications run in the public cloud. = Market Places and On-line Stores
Private/hybrid clouds will be utilized for remaining proprietary or = Alternative Business Models
sensitive applications

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Disk-based data storage. Solid-State (in-memory) data storage.

Separate transactional and ÿombined transactional and
analytical data stores analytical data stores

Drivers Key Activity

= The advent of 64-bit computing and cheaper memory has = xrowth of QlikTech leading to ^PO
spurred the development of in-memory computing, enabling new = SAP in-memory all-purpose (transactional/analytic) database
applications, most dramatically in database and B^/Analytics
Exemplar Vendors/Products
^mpact
= QlikTech
= Disrupts relational database market and vendors
= SAP
= Disrupts E^M and Data Warehouse market and vendors
= BW Accelerator / BusinessObjects Explorer
= Business Analytic Engine
^mplications to SAP
= SAP can leverage it͛s forthcoming all-purpose in-memory Related Market Dynamics
database to remove reliance on Oracle RDBMS in its accounts
=

Prediction
= E^M and Data Warehouse becomes redundant
= Database market becomes commoditized, however vendor
market share remains essentially unchanged

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