I came across a story the other day that paints a pretty dire picture for the incumbent big software companies. It talks about the inroads that companies like Workday and Salesforce.com are making on the “home turf” of SAP (NYSE: SAP) and Oracle (Nasdaq: ORCL).
While the story is extremely friendly towards what Workday is doing, the author makes a number of interesting points. Consider the following points:
As you look at (SAP/Oracle) financials they are heavily dependent upon a 90-95 percent maintenance margin business that effectively sees their customers paying at least twice over in five to six years from the day they first sign up for a license. It’s one heck of a business model but it only works for as long as the vendors continue to feed the pipeline of licensed sales.
Salesforce.com has already taken $2 billion plus out of the market with their CRM solution.
Workday is interesting because they’ve done something we’ve not seen in the market before. They are taking money off SAP-Oracle’s table stakes in accounts where you would think the incumbents are impregnable. The notion that large-scale rip and replace is a non-starter has been proven to be a fallacy and that trend will continue.
And guess what, the big system integrators are also beginning to see the light with Cloud. They may be finally realizing they can deliver more value to customers and make more money doing it. From the story:
Given some of the numbers I am being quoted, savvy SIs could shave 70-80% off what PeopleSoft customers are being sold as upgrade and still come out ahead functionally. “Whatever they’re quoting. we’ll shave it,” said one SI. I guarantee it will be more cost-effective going with Workday. I’ve crunched the numbers.
We all know SAP and Oracle won’t sit quietly and let this happen. They’re buying cloud vendors, they are running cloud marketing campaigns and say they are 100% committed. Can they execute? Can they pull a 180? Only time will tell.
