Standing in front of thousands of Dynamics resellers at Microsofts recent partner conference, Ballmer settled on thanking his resellers profusely for working so hard during the previous quarter. If you couldnt read between the lines and see a preannouncement for a good quarter for Dynamics, you werent paying attention.
A couple of days later, I was reading the coverage of SAPs genuine preannouncement that license growth would only be half the rate that analysts had estimated. And there was the ying to Ballmers yang: a statement by SAP head Henning Kagermann, quoted in the Financial Times, that his companys poor performance was due to having lost one or two percentage points of market share to rivals Microsoft and Oracle.
Its been relatively easy being SAP for the last two or so years, but the companys recent preannouncement, Ballmers non-preannouncement, and a top notch Q4 from Oracle, heralds the end of the free ride.
While one quarter is hardly a trend, its safe to say that SAP had no reason to assume that its competitors would continue to make life easy for SAP. Particularly Microsoft - it was as inevitable as a soggy day in Redmond that Microsoft would finally get its act together and start duking it out for the top spot, partnership with SAP notwithstanding.
True to the new competitive environment, Ballmer couldnt help mention his erstwhile partner SAP as an example of how much Microsofts Dynamics AX flagship has hit the big leagues. Microsoft is talking a lot about how it is moving functionality away from SAPs R/3 - the back office standard at Microsoft - to AX, so attendees were treated to a video highlighting such a shift at a Microsoft disc manufacturing facility in Puerto Rico.
Back on Track
Meanwhile, Ballmer described AX as enterprise class, scaling up to the needs of even the biggest companies. Not too bad for a company that two years ago was hemorrhaging customers, partners, market share and money on what looked like a flight of fancy gone terribly wrong.
As for Oracle, the last quarter was also a watershed. By any measurement, Oracles application license growth outstripped SAPs, unless you look at a three-year compound growth window. But even that number is largely irrelevant: The perception that Oracle is very much back in the applications game is not to be denied. It wont take more than a couple more quarters like the last one to solidify the point once and for all.
So where does SAP go from here? Quarterly reporting is the bane of the long-term strategist, and to a large degree SAPs best answers to this one bad quarter - in terms of software and business innovation - wont become evident for several quarters to come.
So SAP will go back to trying to out-maneuver and out-execute Microsoft and Oracle in the sales trenches. That wont nearly as easy as it used to be: Both competitors have proven themselves to be worthy opponents, and making Kagermann eat his promise that SAPs year-end estimates will still hold has become the prize that is motivating the Oracle and Microsoft sales forces as never before.
In the end, SAP has had the advantage over the last five years of working on internal development and productization while its competitors have spun their wheels in the M&A world. Those advantages now have to start coming out more, or SAP risks being forced to fight a war on someone elses turf.
As the last quarter proved, counting on Oracle and Microsoft to be their own worst enemy isnt going to work anymore. SAP now has to win, instead of just letting its rivals lose. Or else.