Two interesting things happened in the last couple of weeks, that led to writing this blog:
- We received a new white paper from research firm ESG, analyzing the impact of SAP S/4HANA on the SAP market and on our own business – Technical SAP Consulting & Managed Cloud Services.
- I attended an interesting meeting with individuals from several other Hitachi Group companies, to discuss various things regarding the SAP market and our activities in the coming year.
One of the things I realized in that meeting, and this sometimes also happens in conversations with various people working in the SAP ecosystem, is that there’s a lack in understanding some of SAP’s newest technologies in the market. Specifically, I’m referring to the difference between HANA and S/4HANA; what each of these does; and what is the revolution taking place these days in the SAP market, due to these technologies.
By “lack of understanding” I don’t refer to fellow technical SAP experts, they certainly understand the above, and possibly also know the “behind the scenes” of the war that is taking place in the last few years. But do your business people, marketing experts, sales folks – all those non-technical experts in the SAP ecosystem – do they know what the difference is, and what’s going on? Or do they think, as I sometimes hear, that S/4HANA is in fact “HANA version 2.0”, or some other variant ?
So, today’s blog is dedicated mostly for the non-techi folks in the SAP ecosystem, but all you techi friends are also welcome to read. This will be a story full of emotion about the longtime rivalry between two of the world’s leading tech giants, and a real battle that’s taking place today around SAP customers.
For those who want the short version, here it is – SAP HANA is a database. SAP S/4HANA is the new business suite of SAP applications, that runs on the HANA database. That’s it, but there’s so much beyond that. So go ahead and read the full story.
And a word of caution – to best serve the non-technical audience for which this blog is written, it is going to be simplistic and high-level, with as little technology deep-dive as possible.
What is SAP – in 2 minutes
When an organization has a mission-critical SAP system, it actually means they have a system that consists of various layers of software and hardware. Let’s leave the hardware aside for the moment, since it’s less relevant at this point. On the software side, an SAP system has three main layers:
- Operating System (OS)
- Database (DBMS)
Traditionally, SAP was an applications vendor. Everyone in the industry knows these applications very well – ERP, Supply-Chain Management, Finance, HR, Logistics, Manufacturing, Retail, and many other applications that SAP has been producing over the years, for running an enterprise at all levels.
Also traditionally, SAP applications ran on top of third party databases (this is where the actual data is stored), as SAP did not have a database of its own. The main databases on which SAP applications run are Oracle, MS-SQL and IBM DB2, though there are additional databases that SAP runs on, such as Sybase (which SAP acquired back in 2010, for $5.8 billion; here’s an interesting article from that year, on why SAP acquired Sybase).
Oracle Corp plays an interesting role here. On the one hand, Oracle is a bitter competitor of SAP, because it’s application suite – Oracle Applications – is a direct competitor of the SAP application suite. On the other hand, Oracle is one of the leading databases in the world, with many SAP customers running their SAP applications on the Oracle database. In other words, the SAP market is a major revenue generator for Oracle Corp on the database side; Oracle database license revenues from SAP customers make a major percentage of Oracle Corp’s total revenues.
All of that synergy lived relatively well until 2012 – SAP focused mostly on the applications side and led the market in that category, with Oracle being a distant #2 (here are two Forbes’ articles covering Gartner’s analysis of the ERP market and the Supply-Chain Management market). On the database side, Oracle has been the market leader as far as license revenues; Oracle generated (and still generates) a significant portion of its revenues from SAP customers running on Oracle.
And then came SAP HANA.
SAP Introduces HANA – The In-Memory Database
SAP officially launched SAP HANA in November 2010. HANA is an in-memory database, which is a revolutionary technology, compared to “standard” databases. In regular databases, all the information is stored on disks that “live” in enterprise storage systems. When a database gets an inquiry, it goes to the disks, searches for the information, retrieves it to the system’s memory, and then performs various operations on (or using) this data. Once it has finished with the specific piece of data, it stores it back onto the disk, until the next time it needs this data.
An in-memory database operates differently. The infrastructure for this database consists of an enormous amount of memory and compute power (compared to “standard” storage), the data resides at the memory level at all time, and all actions are performed within the memory itself. Since memory is significantly faster than disk (memory access time is measured in nanoseconds, while disk access time is measured in milliseconds), HANA performance is also significantly faster when compared to that of standard databases. In addition, HANA brings other meaningful advantages – I covered HANA benefits in a blog that focused on Considerations Before Migrating to SAP HANA.
The launch of the SAP HANA database was like waving a red flag at a bull; the bull’s name was Oracle. Here, SAP no longer competed only on the application layer of the business; Oracle suddenly saw a direct, potential threat at its bread-and-butter – the database business and the revenues it generates. And it reacted (photo credit: Naoki Nakashima, Flickr).
Larry Ellison, Oracle’s Founder, Chairman and CTO (and one of the 10 richest people in the world), launched a series of fierce attacks on SAP and HANA. In a series of keynote speeches and interviews, that started almost immediately after the HANA launch in 2010 and is still ongoing, Ellison has been doing his best to bash HANA and install doubt and fear in the minds of SAP customers. Some of his speeches and recordings have become iconic in the industry, such as this 2-minute video from 2012, or his keynote speech at the 2014 Oracle OpenWorld, to name just two cases.
The bottom line of Larry’s comments – HANA is a brand new system, not yet tested, and not proven for mission-critical workloads. SAP will never substitute their long-time, proven Oracle database, for the HANA database.
SAP’s reaction to these attacks was polite and respectful. Here’s an example from a Yahoo Finance 2-minute video interview with Bill McDermott, SAP’s CEO, following one of Larry’s bash attacks.
What actually happened in the field? Like with any new and innovative technology – not to mention mission-critical in its influence – adoption has been slow. It takes an Innovator, visionary CIO to be one of the first in the market to adopt a brand new technology for one of the organizations’ most mission-critical systems (SAP). (graphics credit: The University of Arizona).
Overall, HANA adoption lagged behind SAP’s own estimates. Customers did take their time to migrate to HANA. In its FY2015 reports, SAP wrote (page 7 of the PDF) that “In just a few short years, nearly 10,000 customers and startup companies chose to innovate on SAP HANA…”, which means an adoption rate of less than 5% from SAP’s customer base. However, the quarterly reports that SAP publishes also show an acceleration in adoption, as was expected.
At oXya, we had the privilege to work with a few such innovative customers, and support them in their migration to SAP HANA. As of May 2016, more than 50 out of our 335 enterprise managed services customers (roughly 15% of oXya customers) are already running on SAP HANA or are in the process of migrating to HANA. We are very proud of this significantly-above-industry-average percentage, and that we are an industry leader in migrating SAP customers to SAP HANA and S/4HANA (and I’ll write on S/4HANA in the following section).
Since SAP saw that adoption of the HANA database has been slow, what did it do to accelerate this adoption, and to further innovate in the market? It introduced SAP S/4HANA.
SAP Introduces S/4HANA – The New Suite of Business Applications
In February 2015 SAP introduced SAP S/4HANA, which is “a next-generation business suite designed to provide the digital core SAP customers need to run their entire business in a digitized world.” (quote from SAP’s FY2015 annual report).
SAP S/4HANA is not a database. Rather, it is a new and revolutionary application suite from SAP. Research firm ESG writes that “This (SAP S/4HANA) is perhaps the single biggest shift in SAP technology for the last 25 years, since SAP R/3 was introduced in 1992”. Many SAP experts agree with this statement. SAP S/4HANA includes many innovative technologies and features, that all have one common goal – to enable organizations to run their SAP in a simpler, faster, and far more efficient way, while supporting new work processes (such as mobile). With all that, SAP S/4HANA helps customers to be more competitive in the market place, and better align with modern challenges of the digital world. We wrote in the past about some of the new features in S/4HANA, such as Fiori, the new SAP GUI (see the table and video in this blog post, for a comparison of time and efficiency between the old SAP system and the new one).
And the kicker about S/4HANA – as its name implies, this new suite of applications only runs on the HANA database!
In other words, customers who will want to upgrade to the newest and best SAP suite of applications, will have to also adopt the HANA database and run on it. They will not be able to choose any other database – it only runs on HANA.
So what does it all mean?
There are a few interesting questions to ask, in the aspect of S/4HANA:
- What will the adoption of S/4HANA look like?
- Which SAP customers will migrate to S/4HANA?
- How will this migration cycle affect the IT industry?
Let’s answer these, one by one.
How will the adoption of S/4HANA look?
Like with any new technology, it will be in stages, exactly like in the adoption cycle graph shown earlier. First come the Innovators, and we already see enterprises who have migrated to S/4HANA, or new SAP customers who performed greenfield installations of SAP S/4HANA. oXya has a few such customers, including in North America – we hope to share their stories in the future. After the Innovators will come the Early Adopters, and then the Majority – Early and Late.
ESG estimates, in its paper, that “This (SAP S/4HANA) will become the mandatory standard for SAP customers in the near future, assuming they wish to stay current on SAP product enhancements. At some point, support of older versions will start to become increasingly difficult.”
My own estimate is that the “near future” that ESG is referring to will take some time. We are still at the Innovators stage. It will probably take a few good years to cover the percentages “needed” until the market reaches the stage of Majority adoption, but it will come. The reason for that is explained in the next paragraph.
Which SAP customers will migrate to S/4HANA?
In my estimate – everyone, eventually, or at least the majority of customers. After all, it is exactly like ESG says – any customer that wishes to stay current with SAP technology, and maintain a competitive place in the market. SAP customers cannot afford to stay behind with old, dated systems, that are less efficient.
Customers will want to keep current with their competition, and will eventually be “forced” to move to S/4HANA (which, of course, will continue to evolve and improve). I suspect it’s still 4-5 years away (and possibly a bit more) before we see the large mass of SAP customers migrating to S/4HANA (and to HANA, as a result), but I have no doubt that it’s coming.
How will this migration cycle affect the IT industry?
In a huge way. The move from “regular/current” SAP systems to HANA and to S/4HANA affects many facets of the IT industry:
- Infrastructure for SAP: First, HANA requires different infrastructure than current SAP systems. There are already various infrastructure vendors who are playing in this field, with more who will probably enter the market. Hitachi Data Systems, with which we closely cooperate, is a leading player in the SAP HANA market, with its Hitachi Unified Compute Platform (UCP). And second, as customers choose new infrastructure, they will often want to avoid the high Capex costs that are associated with the HANA hardware; instead, many customers will prefer to move to a cloud system with an opex-based consumption of hardware, such as the one oXya offers.
- Functional/Design for SAP: The system integrators’ (SI) community will also have its hand full with the transition to S/4HANA; while SAP recommends using the standard applications and creating minimal adjustments, many organizations will probably want to adjust the new applications to their specific needs. Hitachi Consulting (HCC), our sister company, is a leader in this area, and we’re closely cooperating with them.
- Technical Services for SAP: Companies such as oXya will certainly have their hands full. Most SAP customers do not have the necessary in-house knowledge and expertise in order to migrate to HANA and S/4HANA; They will require external help, from the likes of oXya, who have already done that numerous times, and can help assure a fast and painless transition.
- Managed Services for SAP: This is another market in which oXya is a major player. As SAP customers adopt these new technologies, they will require skilled personnel to run the new SAP systems around the clock, to make sure the new SAP provides peak performance and generates a great ROI for the organization. This may mean choosing an SAP partner that you can count on, a partner that provides you with a dedicated team that is an extension of your own IT organization, and various other unique features. As you can read in the new white paper from ESG, there is a shortage of skilled technical IT people in the market, across multiple areas. Many of these areas are covered by oXya’s dedicated support teams, once a customer chooses our services for running their SAP – so working with oXya as a partner can immediately solve multiple recruiting challenges, of the following expertise areas:
- SAP Basis (not in the ESG table, but huge shortage in the market)
- Server virtualization/private cloud infrastructure
- Compliance management, monitoring and reporting
- IT architecture/planning
- Data protection
- Database administration
- Storage administration
- Server administration
- Network administration
Of course, there’s another potential effect on specific industry players – the database vendors. The main one to get hurt is probably Oracle, which presumably has the largest share of database revenues from current SAP customers. I wouldn’t go out on a limb in estimating that we can expect the level of bashing and attacks from Oracle to increase in the coming years, or at least stay at current (pretty high) level. Oracle Corp have very smart people, and no doubt they analyze the marketplace in a similar way to what I did above – some of Oracle’s core customer base is about to disappear, and migrate off Oracle in the coming years.
I hope to see many of you at SAP SAPPHIRE – stop by the Hitachi booth, look for me and the rest of the oXya team, and feel free to discuss your SAP challenges with us. You can also email me at any time, to email@example.com.
Melchior du Boullay is Managing Director, Americas at oXya, responsible for all of oXya’s operations across North, Central and South America since 2007, when oXya started operating in the Americas. Melchior has nearly 15 years of experience as an SAP Basis admin and technical consultant, SAP project manager, SAP account management, and business development.
oXya, a Hitachi Group company, is a technical SAP consulting company, established in 1998. oXya provides ongoing managed services (outsourcing) for enterprises around the world. In addition, oXya helps customers that run SAP with various projects, including upgrades and migrations, including to SAP HANA. oXya currently employs more than 600 SAP experts, who service more than 330 enterprise customers with more than 300,000 SAP users around the world.