Over in the world of IT products, there is a lot of talk going on about “cloud computing”. In a nutshell, what this means is that companies stop buying computers to run their programs on and instead pay other companies to buy computers and then turn their software over to them so that they take care of all of the details of keeping the software up and running. The economics are pretty nice and so a lot of product managers are switching to this business model. However, is it possible to switch too soon? Over at SAP the product managers are probably wondering about this question right about now…
Why SAP Switched To The Cloud
Just in case you didn’t know it, in the world of business management software packages, SAP is the king of the hill. They currently own an amazing 24% of the market. Their nearest competitor is Oracle who only owns 12%. Last year SAP brought in US$6.2B in revenue in this segment. Not a bad business to be in and what a great thing to be able to put on your product manager resume.
However, there is trouble on the horizon. It turns out that the fastest growing companies in this market are all “cloud based”. In other words, their software runs on computers that are hosted in a data center somewhere and their customers access the software over the Internet. This differs from SAP’s business model in which they sell software to their customers who then run it on their computers in their data centers. The upstarts in the market are growing at an astounding 86%! They currently only have a tiny part of the market, but the writing is clearly on the wall.
What SAP has done is to update their product development definition and try to create two versions of their product. One does what it has always done – it’s software that comes on discs that you load on your computers. The other is “cloud based” and you don’t buy it, rather you subscribe to it and it runs on servers that are located “somewhere else”.
Issues With The Cloud For SAP
As all product managers know, a change this big comes with its own special set of problems. The first was that the SAP software was never originally designed to run in the cloud. This means that they’ve had to rewrite a big part of it – especially the database that sits at the heart of the product. Now they have two different versions of the same product that the product managers will have to manage.
As you can well imagine, the arrival of a brand new product has caused issues in the SAP sales team. They were used to getting sales credit for making a very big sale – the company gets paid a lot of money when a customer buys the product upfront to install on their servers. The cloud version does not bring in as much money upfront, instead the revenue comes in month-by-month. The SAP sales teams had been motivated to sell the software and not the service. The SAP product managers are now saying that they have corrected this problem, but it can be very difficult for a leopard to change its stripes…
Finally, you can imagine how confusing this is for SAP customers. They are interested in the cloud, but not all customers are willing to move into the cloud right now. Some customers are saying that if they have to consider switching to using a cloud based version of this software, they’ll use it as an opportunity to reevaluate their vendors. The SAP product managers certainly don’t what this! Also, customers who stick with the “old” way of doing things are concerned that SAP may no longer pay as much attention to them. It looks like the SAP product managers have a real communications task ahead of them.
What All Of This Means For You
As product managers we realize that change happens — it’s almost a part of our product manager job description. The way that our product is today is not the way that it will be tomorrow. Over at SAP, the product managers are dealing with this very issue – their product has to move into “the cloud” but their customers may not be ready.
The real growth in the business management market is coming from companies that are already in the cloud. What this means for SAP is that they now have to move there. They’ve created two version of their product: an “old” one and a “cloud” one. They need to get how they pay their sales teams worked out so that both products will be equally offered. They also have to make customers happy so that they feel like they are being supported and they don’t start looking at other vendors.
The good news for the SAP product managers is that they are probably doing the right thing. Now is the time to be looking at how they can move their existing product into the cloud. However, this kind of radical product transformation does not come easy. The SAP product managers will have to manage both their internal teams as well as their customer’s expectations.
Question For You: Do you think SAP should continue to sell two products or should they drop one?
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What We’ll Be Talking About Next Time
The best product management job to have roughly 5 years ago would have been to work at Blackberry – the maker of the most popular mobile phones. Back in the day, no matter where you went, you would always see people typing on those little Blackberry keyboards or using their little Blackberry trackballs. However, a lot has happened in the past 5 years – both the iPhone and Android arrived on the scene and Blackberry has fallen on hard times. Can this brand be saved?