The Great Reckoning: Thoughts on the Deflation of Technology Bubble 2.0

This post shares a collection of thoughts on what I’ve variously heard referred to as “the tightening,” “the unwinding,” “the unraveling,” or “the great reckoning” — the already-in-process but largely still-coming deflation of technology-oriented stock valuations, particularly in consumer-oriented companies and particularly in those that took large, late-stage private financings.

The Four Horsemen

Here are four key signs that trouble has already arrived:

  • The IPO as last resort.  Box is the best example of this, and while I can’t find any articles, I have heard numerous stories of companies deciding to go public because they are unable to raise high-valuation, late-stage private money.
  • The markdowns.  Fortune ran a series of articles on Fidelity and other mutual funds marking down companies like Snapchat (25%), Zenefits (48%), MongoDB (54%), or Dataminr (35%).  A unique feature of Bubble 2.0 is publicly-traded mutual funds investing in private, VC-backed companies resulting in some CEOs feeling, “it’s like we went public without even knowing it.”
  • The denial.  No bubble would be complete without strong community leaders arguing there is no bubble.  Marc Andreessen seems to have taken point in this regard, and has argued repeatedly that we’re not in a technology bubble and his firm has built a great data-rich deck to support that argument.

The Unicorn Phenom

If those aren’t sufficient signs of bubbledom, consider that mainstream media like Vanity Fair were writing about unicorns  and describing San Francisco as the “city by the froth” back in September.

It’s hard to talk about Bubble 2.0 without mentioning the public fascination with unicorns — private tech companies with valuations at $1B+.  The Google search “technology unicorn” returns 1.6M hits, complete with two unicorn trackers, one from Fortune and the other from CBInsights.  The inherent oxymoron that unicorns were so named because they were supposed to be exceptionally rare can only be lost in Silicon Valley.  (“Look, there’s something rare but we’re so special, we’ve got 130 of them.”)  My favorite post on the unicorn phenom comes from Mark Suster and is entitled:  Why I Effing Hate Unicorns and the Culture They Breed.

As the bubble has started to deflate, we now hear terms like formercorns, onceacorns, unicorpses, or just plain old ponies (with birthday hats on) to describe the downfallen.  Rumors of Gilt Groupe, once valued at $1.1B, possibly selling to The Hudson’s Bay Company for $250M stokes the fire.

What Lies Ahead?

While this time it’s different is often said and rarely true, I do believe we are in case when the unwinding will happen differently for two reasons:  (1) the bubble is in illiquid assets (private company preferred shares) that don’t trade freely on any market and (2) the owners of these illiquid shares are themselves illiquid, typically structured as ten-year limited partnerships like most hedge, private equity growth/equity, or venture capital funds.

All this illiquidity suggests not a bubble bursting overnight but a steady deflation when it comes to asset prices.  As one Wall Street analyst friend put it, “if it took 7 years to get into this situation, expect it to take at least 3.5 years to get out.”

Within companies, particularly those addicted to cheap cash and high burn, change will be more dramatic as management teams will quickly shift gears from maximizing growth to preserving cash, once and when they realize that the supply of cheap fuel is finite.

So what’s coming?

  • Management changes.  As I wrote in The Curse of the Megaround, big rounds at $1B+ valuations come wrapped in high expectations (e.g., typically a 3x valuation increase in 3 years).  Executives will be expected to deliver against those expectations, and those who do not may develop sudden urges to “spend more time with the family.”  Some CEOs will discover that they are not in the same protected class as founders when these expectations go unmet.
  • Layoffs.  Many unicorns are burning $10M or more each quarter.  At a $10M quarterly burn, a company will need to layoff somewhere between 200 and 400 people to get to cashflow breakeven.  Layoffs of this size can be highly destabilizing, particularly when the team was putting in long hours, predicated on the company’s unprecedented success and hypergrowth, all of which presumably lead to a great exit.  Now that the exit looks less probable — and maybe not so great — enthusiasm for 70-hour weeks may vanish.
  • Lawsuits from common stockholders.  Only recently has the valuation-obsessed media noticed that many of those super valuations were achieved via the use of special terms, such as ratchets or multiple liquidation preferences.   For example, if a $100M company has a $300M preference stack and the last $100M went in with a 3x preference, then the common stock would be be worthless in a $500M sale of the company.  In this case, an executive with a 0.5% nominal ownership stake discovers his effective ownership is 0.0% because the first $500M of the sale price (i.e., all of it) goes to the preferred shareholders.  When people find they’re making either “no money” or “car money” when they expected “house money,” disappointment, anger, and lawsuits can result.  This New York Times story about the sale of formercorn Good Technology provides a real example of what I’m talking about, complete with the lawsuits.
  • Focus will be the new fashion.  Newly-hired replacement executive teams will credit the core technology of their businesses, but trash their predecessors for their lack of focus on core markets and products.  Customers unlucky enough to be outside the new core business will be abandoned — so they should be careful to ask themselves and their vendors whether their application is central to the company’s business, even in a downturn or refocus scenario.
  • Attention to customer success.  Investors are going to focus back on customer success in assessing the real lifetime value of a customer or contract.  People will remember that the operative word in SaaS is not software, but service, and that customers don’t pay for services that aren’t delivering.  Companies that emphasized TCV over ARR will be shown to have been swimming naked when the tide goes out, and much of that TCV is proven theoretical as opposed to collectible.
  • Attention to switching costs.  There is a tendency in Silicon Valley to assume all markets have high switching costs.  While this is certainly true in many categories (e.g., DBMS, ERP), investors are going to start to question just how hard it is to move from one service to another when companies are investing heavily in customer acquisition on potentially invalid assumptions about long-term relationships and high pricing power.

Despite considerable turmoil some great companies will be born from the wreckage.  And overall, it will be a great period for Silicon Valley with a convergence to the mean around basics like focus, customer success, and sustainable business models.  The real beauty of the system is not that it never goes out of kilter, but that it always returns to it, and that great companies continue to be produced both by, and in cases despite, the ever-evolving Silicon Valley process.

# # #

Footnotes

This post was inadvertently published on 12/23/15 with an incomplete ending and various notes-to-self at the bottom.  While I realized my mistake immediately (hitting PUBLISH instead of SAVE) and did my best to pull back the post (e.g., deleted the post and the auto-generated tweet to it, created a draft with a new name/URL), as the movie Sex Tape portrays, once something gets out in the cloud, it can be hard to get it back.

Theoretical TCV: A Necessary New SaaS Metric?

The more I hear about SaaS companies talking up big total contract value (TCV) figures, the more I worry about The Tightening, and the more I think we should create a new SaaS metric:  TTCV = theoretical total contract value.

TTCV = PCV + NPCV

Prepaid contract value (PCV) is the prepaid portion and NPCV is the non-prepaid portion of the subscription in multi-year SaaS agreements.  We could then calculate your corporate hype ratio (CHR) with TTCV/ARR, the amount by which you overstate ARR by talking about TTCV.

I make the suggestion tongue-in-cheek, but do so to make real point.

I am not against multi-year SaaS contracts.  I am not against prepaid SaaS contracts.  In high-consideration enterprise SaaS categories (e.g., EPM), buyers have spent months in thorough evaluations validating that the software can do the job.  Thus, it can make good sense for both buyer and seller to enter into a multi-year agreement.  The seller can shield contracts from annual churn risk and the buyer can get a modest discount for the contractual commitment to renew (e.g., shielding from annual prices increases) or a bigger discount for that plus a prepayment.

But it’s all about degree.  A three-year  prepaid contract often makes sense.  But, for example, an eight-year agreement with two-years prepaid (8/2) often doesn’t.  Particularly if the seller is a startup and not well established.  Why?

Let’s pretend the 8/2 deal was written by an established leader like Salesforce.  In that case:

  • There is a very high likelihood the software will work.
  • If there are problems, Salesforce has major resources to put behind making it work.
  • If the customer is nevertheless unhappy, Salesforce will presumably not be a legal lightweight and enforce the payment provisions of the contract.

Now, let’s pretend that 8/2 deal was written by a wannacorn, a SaaS vendor who raised a lot of money, made big promises in so doing, and is way out over its skis in terms of commitments.

  • There is a lower likelihood the software will work, particularly if working means building a custom application, as opposed to simply customizing an off-the-shelf app.
  • If there are problems, the wannacorn has far fewer available resources to help drive success — particularly if they are spread thin already.
  • If the customer is unhappy they are much less likely to pay because they will be far more willing to say “sue me” to a high-burn startup than to an established leader.

So while that 8/2 deal might be a reasonable piece of business for an established leader, it looks quite different from the perspective of the startup:  three-fourths of its value may well end up noncollectable — and ergo theoretical.  That’s why startups should neither make those deals (because they are offering something for an effectively fictitious commitment) nor talk them up (because large portions of the value may never be realized).

Yet many do.  And somehow — at least before The Tightening — some investors seem to buy the hype.  Remember the corporate hype ratio:  TTCV / ARR.

 

The Best Work Parable

I can’t remember when I first heard this great parable, and despite Googling around couldn’t find it online [see footnote], so I thought I’d take a moment to re-tell this pointed story here.

One day an employee is asked to write a proposal for a new business idea and submits it to his manager.

Employee:  “Did you get a chance to read my proposal yet? What did you think of it?”

Manager:  “You know, I need to ask you one question about that proposal — was it really your best work?”

Employee (reluctantly):  “No … , in fact, it was not.  I can think of several things I could have done better.”

Manager:  “Great, so please do those things and resubmit it to me.”

The employee then does additional work on the proposal and resubmits it to the manager.

Employee:  “Hi, did you review my revised proposal?  What did you think?”

Manager:  “Well, I need to ask you one question about that proposal”

Employee:  “Sure”

Manager:  “Does the revised proposal represent your best work?”

Employee (reluctantly):  “Well, no, while I think it’s much better than the first version, I still have several ideas for how to improve it.”

Manager:  “OK, so I’d like to ask you to implement those ideas and then resubmit the proposal to me.”

The employee then revises the proposal again and submits it for the third time to the manager.

Employee:  “Did you get a chance to review my proposal?  What did you think?”

Manager:  “Does this third proposal represent your best work?”

Employee:  “Yes.”

Manager:  “Great, so now I’ll read it.”

If you’re playing the role of employee, do you submit your best work on the first go?  If not, why not?  Why do you want your management reviewing low-quality work?

If you’re playing the manager, are your employees getting you to do their jobs for them by having you correct/revise their work into the desired form?  How can you set the bar so you get their best work on the first go?

[Footnote: while I couldn’t find this story via Googling several readers were kind enough to inform me that it appears to have been originally told about Henry Kissinger.  See here.]

What Marketing Costs Should be Included in CAC Calculations?

Dear Kellblog:

I’m working on my CAC calculations and I’m trying to determine if I should include all marketing costs or just my direct demand generation costs?  I’ve talked to many of my CMO peers and can’t get a consistent answer to the question?

Thanks / Bewildered CMO

Dear Bewildered CMO:

My gut reaction is that you should include all marketing costs.  Don’t try to argue that PR and product marketing don’t work on customer acquisition.  Don’t try to argue that people aren’t programs and try to exclude the cost of your demandgen team.

Why?  Three reasons:

  • Demandgen people and programs dollars should be fungible.  PR and product marketing better be doing things that help acquire customers., even if indirectly.
  • Playing counting games can hurt your credibility.  VCs aren’t just trying to compare metrics, they’re trying to get to know you by seeing how you think about and/or calculate them.  I’d think you were a weasel if I found you excluding these costs without really good reason.
  • To the extent that people try to compare these things between private and public companies, remember that there is no way to split marketing apart (or split customer success from sales) with public companies which should suggest that by default you include things.

Best / Kellblog

For fun, let’s go quickly look at some sources for CAC definitions and see what we find regarding this issue:

Kellblog defines the CAC as:

dk-cac-pic3

S&M, by default, needs to include all S&M costs, so you can’t cut anything out.

(Side note:  to the extent you amortize commissions, I would prefer to say cash sales expense as opposed to GAAP sales expense, because the latter will hide some costs — but that has nothing to do with marketing.)

The 2015 Pacific Crest Private SaaS Company Survey defines the CAC as:

How much do you spend on a fully-loaded sales & marketing cost basis to acquire $1 of new ACV from a new customer.

This seems to close one door (i.e., you better include IT and facilities allocations to your sales costs — as GAAP would require anyway), but open another because it defines the CAC not in terms of total new ACV, but new ACV from new customers.  So if, for example, you had installed base upsell marketing programs, then I would not count those costs in the CAC calculation because they are not marketing costs spent to win new ARR from new customers.  Is PR?  Is product marketing?  It’s a slippery slope.  I’m not in love with this definition for that reason.  You could never do it for public companies.

David Skok defines the CAC as:

Note that while Skok is calculating a cost to acquire a new customer as opposed to $1 of new ARR, his definition is clear when it comes to splitting marketing costs:  include all S&M costs.

Bessemer prefers talking about a CAC payback period and defines it as:

bess cac

Again, this definition is clear — include all S&M costs.

Memo to Startups: How are you Feeling About Taking that Public Money?

The first time I encountered the issue of inadvertent disclosure of venture capital / private company information was back in 2004, when this ground-breaking Wall Street Journal story hit, Venture Capitalists Scramble to Keep Their Numbers Secret.

The issue was pretty simple.  If public money were being invested in venture funds, then a conflict emerged between non-disclosure agreements required by the venture funds and the FOIA requirements of those funds to disclose their holdings.  In this case the issue wasn’t the valuations of individual holdings, but the performance of the funds themselves.  In the end FOIA appears to have won and it looks like CALPERS, for example, no longer invests with either Kleiner Perkins or Sequoia, though a quick search here shows that GGV and Khosla were seemingly willing to put up with the disclosure requirements.

I had two takeaways from the situation:

  • I was surprised that people didn’t think of it in advance.  The issue seemed to sneak up on the VCs.
  • When there is a disclosure conflict, the rules governing the investing party will tend to win.

I guess not everybody got that memo because recently we’ve had  a similar issue with publicly-traded mutual funds that have invested in privately-held, venture-backed companies.

A series of stories by Dan Primack in Fortune discussed the markdowns of companies including SnapChat (25%), Zenefits/YourPeople (48%), DataMinr (35%), or e-cigarette maker NJoy (90%+).  The second story showed that MongoDB has been cut in half since Fidelity’s original investment, while Domo has doubled.  The third story discussed the consequences of all this including

  • It will presumably be harder for Fidelity and other funds to get into these private deals
  • There will be pressure on the VCs to mark the holdings to similar levels in their portfolios
  • It presumably hurts the startups themselves via reputation damage and could hurt their ability to recruit new talent (though lower valuations can actually help here for sophisticated people)

But the more interesting question is did this take any of the companies by surprise?  Was it an overlooked detail in a pile of closing documents?  Did the Fidelity’s of the world have a right but not an obligation to disclose (e.g., materiality)?

I don’t know, but I would say the whole episode seems to have sneaked up on everyone the way FOIA did in 2004.  This story in The Information seems to confirm my belief:

It’s like we went public without even knowing it.

So it seems to me that in the hurry to these mega-round, unicorn-round deals that nobody paid attention to the lawyers — or maybe the lawyers didn’t speak loud enough — about the disclosure risks when taking money from publicly-traded mutual funds.

I’m guessing the answer to my question is “not so good” and startups are going to think twice, maybe three times, before taking money from this class of investor, even if it’s “dumb money” at a high valuation.

The Perils of Measuring a SaaS Business on Total Contract Value (TCV)

It’s a frothy time and during such times people can develop a tendency to get sloppy about their numbers.  The first sign of froth is when people routinely discuss company size using market capitalization instead of revenue.  This happened constantly during Bubble 1.0 and started again several years ago – e.g., all the talk of unicorns, private companies with $1B+ valuations.

Oneupsmanship becomes the name of the game in frothy times.  If your competitor’s site had 1M pageviews to your own site’s 750K, marketing quickly came up with a new metric on which you could win:  “we had 1.5M eyeballs.”  This kind of gaming, pardon the pun, is seen through rather easily.

The more disturbing distortions are those intended to impress industry influencers to validate strategy.  Analysts – whose job is supposedly to analyze – have a troubling tendency to not judge strategies on their logical merits but on their results.  So if vendor has a silly, unfocused, or simply bad strategy, the vendor doesn’t need to argue that it actually makes sense, they just need find a way to show that it is producing results – and the ensuing Halo Effects will serve as validation.

Public companies try to demonstrate results through revenue allocation games, robbing from non-strategic SKUs to pump up strategic ones (e.g., “cloudwashing” as the megavendors are now often accused).   Private companies have free reign and can either point to unverifiable lofty financing valuations as supposed proof that their strategy is working, or to unverifiable sales growth figures where sales is typically defined as the metric that looked best last quarter.

Most people would quickly agree that at a SaaS business, the best metric for measuring sales is growth in new annual recurring revenue (ARR).  They’d also agree that the best metric for valuing the business is ending ARR and its growth.  (LTV/CAC would come in right behind.)  Using my leaky bucket analogy, the best way to measure sales is by how fast they pour water in the bucket.  The best way to measure the value of the business is the water level of the bucket and how fast it is going up.

But it’s a frothy time, and sometimes the numbers produced using the correct SaaS measures don’t produces numbers that, well, sufficiently impress.  So what’s a poor CEO to do?  Embellish.  The Wall Street Journal recently ran a piece that compared company claims about size/growth made while the company was still private to those later revealed in the S-1.  The results were disappointing, if not perhaps surprising.

Put differently, what’s the SaaS equivalent of “eyeballs”?

The answer is simple:  bookings or, more precisely, total contract value (TCV) bookings.  To show this, we’ll need to define some terms.

  • ARR = annual recurring revenue, the annual subscription fee
  • NSB = new subscription bookings, the prepaid (and – no gaming — quickly collectible) portion of the contract. Since enterprise SaaS contracts are often multi-year and can be fully, partially, or only first-year prepaid, we need a metric to understand the cash implications of the deal.
  • TCV = total contract value, including both prepaid and non-prepaid subscription as well as services. TCV is the largest metric because it includes everything.  Some people exclude services but, to me, total means total.

Now, let’s look at several ways to transform a simple $100K ARR deal in the following spreadsheet:

peril1

Note that in each case, the ARR is $100K.  But by varying deal terms the TCV can vary from $150K to $750K.  Now in the real world if someone was going to pay you $100K for one-year deal, they are unlikely to pay $300K for a three-year prepay or contractual commitment.  They will want something in return; typically a discount.

Let’s combine these ideas in one more example.  Say you run a SaaS company and want to impress everyone that you’re doing really well.  The trouble is you’re not.  You sold $10M in new ARR in 2014 (all one-year, prepaid) and think you can sell $10M again in 2015 on those same terms.   If you measure yourself on new ARR growth, that’s 0% and no one is going to think you are cool or write you up on the tech blogs.  But if you switch to TCV and increase your contract duration, you get a lot more flexibility:

peril2

If you switch to TCV, the good news is you can grow literally as fast as you want just by playing with contract terms.  Want to grow at 60%?  Switch to 2-year prepaids and give a 20% discount.  That’s not fast enough and you want to grow at 101%?  Move to 3-year prepaids by effectively doing a year-long “buy 2 get 1 free” promotion.   That’s not good enough?  Move to 5-year non-prepaids and you can grow at a dazzling 235% and get nice TechCrunch articles about your strategic vision, your hypergrowth, and your unique culture (that is, most probably, just like everyone else’s unique culture).

This is great.  Why doesn’t everybody do it?  Because you’re mortgaging the future:

  • The discounts you’re giving to get multi-year deals are crushing ARR; new ARR growth is shrinking in all cases.
  • You are therefore crushing both revenue and cash collections over the time period(s)
  • The prepaid deals create a drug addiction problem because you’re not collecting cash in the out years. So you build a dependency either on lots of capital or lots more prepaid deals.
  • Worse yet, on the non-prepaid deals you may not ever collect the money at all.

Wait, what did he say?

In my opinion, non-prepaid multi-year deals are often not worth the paper they are written on.  Why?  Just look at it from the customer’s perspective.  Say you sign a $100K five-year deal with only the first year paid up-front.  And say the software’s not delivering.  It took more work to implement than you thought.  You’ve fallen short on the requirements.  It’s not performing very well.  You’ve called for help but the company can’t fix it because they’re too busy doing other 5-year non-prepaid deals with other customers.

What do you do?  Simple:  you don’t pay the invoice when it comes.  Technically,  yes, you are very much breaking the contract that you signed — but if the software really isn’t delivering, when the vendor calls you say:  “sue me.”

Since software companies generally don’t like suing customers, the vendor – especially if they know the implementation failed – will generally walk away and write it your receivable as bad debt.   If they are particularly devious (and incorrect) they might not even take it as churn until the end of the five-year period when the contract is supposed to renew.   I wouldn’t be shocked if you could find a company that did it this way.

Most sophisticated SaaS people know that SaaS companies shouldn’t be run on TCV or bookings and are well aware of the problems doing so creates with ARR, revenue, and cash.

However, I have never heard anyone make the simple additional point I’m making here:  in a frothy environment dubious companies can create a fictitious bubble around themselves using TCV.  However, because non-prepaid multi-year deals only work when the customers are happy, if the company is out over its skis on promises and implementations, then many of the customers will not end up happy, and the company will never collect much of that TCV.  Meaning, that it was never really “value” in the first place.

Beware Greeks bearing gifts and SaaS vendors talking TCV.

SAP Cloud for Analytics: Tilting at Windmills

Back in the early 2000s when I was running marketing at Business Objects, Gartner’s then-lead BI analyst, Howard Dresner (known as the father of BI and the person who named the category) started pushing a notion called enterprise performance management (EPM).  Back then, EPM meant the unification of BI and planning/budgeting.

The argument in favor of EPM made sense and was actually kind of cool:  with BI you could ask any question, but BI never knew the correct answer.  What did that mean?

It meant that BI tools were primarily tied to operational systems and could tell you the value of sales/salesrep for any quarter in any region.  The problem was that BI didn’t know what the answer was supposed to be.  BI knew the cost of everything and the value of nothing.

The solution was tie to BI to financial systems, which were full of targets and thus could allow us not just to know the value of any given metric, but what the value of that metric should be.

It sounded great and I bought in.  More importantly, so did the category:

Then what happened?  In my opinion, pretty much nothing.  Sure Hyperion reps could increase deal sizes by trying to drop Brio licenses across the whole financial department, as opposed to just FP&A.  Cognos could cross-sell Adaytum, with the help of an overlay sales force.

But did integration happen?  No.  BI and financial planning/budgeting  consolidated, but they never converged.  This is interesting because it’s rare.  For example, by contrast, CRM really happened.  SFA vendors didn’t just acquire customer service vendors and marketing vendors — the three applications came together to create one category.

That didn’t happen with EPM.  You could always ask someone who worked at Hyperion my favorite question, “which side did you work on?” and you always heard either, “oh, the BI side,” or “oh, the finance side.”  You never, ever got asked to clarify the question.

Over time, EPM came to mean financial planning, budgeting, and consolidation (along with associated reporting/analytics) — and not the unification of BI and financial planning.

What did this prove?   You can put the two categories under one roof via consolidation, but the actual markets are oil-and-water and don’t mix together well.  Why?  Two reasons:

  • BI is a platform sale, EPM is an applications sale
  • BI is sold to IT, EPM is sold to the finance department

So other than selling to a completely different buyer with a completely different value proposition, they make excellent candidates for integration!  Put concretely, if you can’t talk about inter-company eliminations, AVB reports, AOPs, topside journal entries, long-range models, FX rate handling, and legal entities, then you can’t even start to sell EPM.  I marketed BI for 9 years and we talked a totally different language:  aggregate awareness, multi-pass SQL, slow-changing dimensions, and star schemas.  The two languages are not totally unrelated.  They are nevertheless different.

Despite this history, many vendors still seem hell bent on mixing EPM water with BI oil.  One cloud EPM vendor positioned themselves for years as a leader in “BI and CPM” somehow thinking the rock-bottom acquisition of a cheap scorecarding tool made them a player in the $15B BI market.

To be clear, I view EPM and BI as cousins.  Yes, in EPM we make scorecards, dashboards, and reports.  Yes, in EPM we do multi-dimensional modeling and analysis.  No doubt.  But we do it for finance departments, we tie our planning/budgeting systems to the general ledger and we are focused on both financial outcomes and financial reports.  Yes, we also care about integrating models across the organization — sales, marketing, services, and operations.  But we are not trying to sell generic infrastructure for making reports and visualizations across the enterprise.

Put simply, in EPM we use BI technologies to build financial applications that tie together the enterprise on behalf of the finance department.

Surprisingly, SAP didn’t get the consolidation-not-convergence memo.  This is somewhat amazing given that SAP is a strong player in both BI and EPM, but somehow hasn’t seemed to notice not only that the two markets never converged but also that there is a very good reason for that.  They are still tilting at windmills fighting to integrate two categories not destined for integration with a vintage-2002 message.

Here’s the press release:

SAP Redefines Analytics in the Cloud

WALLDORF — SAP SE (NYSE: SAP) today unveils the SAP Cloud for Analytics solution, a planned software as a service (SaaS) offering that aims to bring all analytics capabilities into one solution for an unparalleled user experience (UX).

Built natively on SAP HANA Cloud Platform, this high-performing, real-time solution plans to be embedded with existing SAP solutions and intends to connect to cloud and on-premise data to deliver planning, predictive and business intelligence (BI) capabilities in one analytics experience. The intent is for organizations to use this one solution to enable their employees to track performance, analyze trends, predict and collaborate to make informed decisions and improve business outcomes.

Note, that in addition to my strategic concerns, I have a few tactical ones as well:

  • This is a futures announcement without a date.  The service “planned.”  The “planned benefits” are stated.  The only thing I can’t find in the plan is an availability date.
  • Pricing hasn’t been announced either.  So other than knowing what it costs and when it will be available, it was an informative announcement.
  • While SAP is claiming that it’s previously announced SAP Cloud for Planning is included in the new offering, I have heard rumors on the street that SAP Cloud for Planning is actually being discontinued and customers will be moved to the new offering.  At this point, I’m not sure which is the case.

In the end, I’m not trying to beat on SAP in general.  I don’t love the Hana branding strategy, that’s true, but Hana itself (i.e., columnar, in-memory database) is a good idea.  I have no problems with SAP BI’s products — heck, my fingerprints still remain lightly on a few of them.  In EPM, we compete with SAP, so my agenda there is obvious.

But the thing I object to, the tilting at windmills, is that they are still banging the unify EPM and BI drum.  SAP’s new analytics may eventually end up a reasonable or good BI solution.  But if they’re betting serious chips on unifying BI and EPM it’s misguided.