Its Time for the SAP xApps Program to be Terminated

by Shaun Snapp on January 5, 2010

What This Article Covers

  • What is the xApps arrangement?
  • Why is it such a problem and so anti-competitive?

The SAP xApp program has been a commercial failure. This is good because the xApp program is not much more than a marketing agreement between SAP and smaller vendors. SAP co-opts best of breed vendors, and provides them with more market exposure. It also confuses clients as to what software vendors are doing what and seems to violate the principle that the company doing software development receives the compensation.

How The Arrangement Works

The xApp program is where software vendors agree to give over 40% of their revenue on a software sale in order to co-market with SAP and be brought into their accounts. However, it gets worse. Software vendors that are on the SAP price list have to give over between 60 and 70% of the software license, and furthermore, the money from the customer is first paid to SAP. SAP then is responsible for paying the third-party software vendor on a schedule that may not be immediate.

There are a number of problems with this program, and they are listed below:

  1. SAP can and does pretend that it has far more functionality that it actually does. So SAP salesmen can say that “we have that capability through our xApp,” which is another way of saying that they don’t have it at all.
  2. Clients end up getting very confused as to who is doing what. Is the functionality within SAP, is it at the third-party vendor? Who is doing what?
  3. The integration is almost always oversold. SAP in fact invests very little in integration process and creates just a basic enough integration to tell customers “the solution is integrated.”
  4. The resulting solution often ends up being less than the best. In order to insert more SAP functionality, some parts of the third party vendor’s functionality and SAP functionality are inserted, not because this results in the best solution but because then a new “product” can be said to exist.
  5. With SAP taking 40% to 70% of the revenues for the software that was due to the creators of the software, the xApp program takes revenues from where the work was done, and gives it to where it was not done, which is SAP. (That is interesting, because I thought we were all about compensating the creators of intellectual property in the US system.)
  6. The xApp program is really just a Trojan horse by SAP. Through “working with” the third part vendors to integrate them to SAP, SAP eventually hopes to replace all of these vendors with their own products, which will work eerily like the software of the third-party vendors. I show in this article on the history of advanced planning software much of the APO design appears to be taken from SAP’s joint venture with i2 Technologies in the late 1990′s (listed below). SAP co-opted work from Commerce One before dumping them and effectively ending the company, and after evaluating SPP, I am noticing many concepts that seem directly copied from MCA Solutions. For vendors, partnerships with SAP never last long and often result in bad outcomes for the smaller vendor. Because SAP is so powerful, there is a lot of fear of speaking out against them, so these facts do not tend to get aired in published material or on the web. (If I worked for any of the large consulting companies, I would receive pressure from a senior partner to remove this article.)
  7. Living in the US means being exposed to lengthy and constant contentions regarding the market, and how well the market works. (Europeans who visit here know this, but they mostly try to keep silent on the matter.) Well, this arrangement is decidedly anti-market, and is essentially a concession granted to SAP due to its monopoly position in the marketplace. Its simply unfair to both be subjected to extensive free market drivel by people with very little understanding of economics and then also observe the large anti-market conglomerates like SAP engage in monopolistic practices. It would be fair to say that SAP likes the free market about as much as Goldman Sacks does.

xApps for Inventory Optimization

I believe at one time there somewhere around 140 xApps. How many there are currently is unknown to us as we no longer hear the term, and the term may have been changed by SAP and the program renamed. The area we know best is inventory optimization where SAP partnered with two firms, SmartOps and MCA Solutions. The 3 year agreement with MCA has now expired. In the example of SmartOps, they provide the inventory optimization and SAP integrates to them. It’s important to understand, that the inventory optimization capability is part of SmartOps’s product and does not have anything to do with any of SAP’s products. Instead SAP integrates to SmartOps, as it would integrate to another application.

The Best Approach When Dealing with xApps

In my view, it’s far better to approach the vendor (such as SmartOps) directly and buy the software from them rather than buying it through SAP. Furthermore, this will allow the software vendor to better service the customer because more of the revenues are flowing to those that actually created and maintain the solution. Intellectual property rights are a huge issue……..when a larger company feels as if their intellectual property is consumed without proper compensation (as the entertainment and pharmaceutical industry lobbying and public relation programs can attest) however, when the perpetrator is a large company benefiting from the intellectual property of a smaller company, all of a sudden the issue becomes more grey, and the relationship gets called “a strategic partnership.” The US intellectual property protection system is where intellectual property rights seem to be relative. Large companies have infinite intellectual property rights (and the right to expropriate IP that they had nothing to do with creating), medium-sized companies have medium-sized intellectual property rights, and individuals have none whatsoever. It takes a very fancy degree from the best law school to not notice this.

Conclusion

xApps have not done anything positive for the software market or for clients. SAP is asking that companies pay a toll to SAP for a very small amount of work in creating partnerships with software firms. xApps have been unsuccessful in the marketplace, but less for the reasons listed above and more because SAP has a very hard time working with other software vendors. However, the fact the SAP can even attempt such a program leads to the conclusion that SAP has become too big, and like Microsoft is now causing a negative or a smothering effect on the industry. In the US system, this is when the Federal Trade Commission is asked to come in and check to see if any anti-trust rules are being broken. The FTC has been barely active recently as false free market dogma has combined with industry capture of this critical regulatory apparatus, and as the top officials at the FTC have been corrupted by corporate money. However, anti-trust regulation is no joke, and is critical to properly functioning markets. Its time for the FTC to turn its eye to the enterprise software market.

Post Script

As I write this addition it is now two years since I stated that I thought it was time for the xApps program to die. At this point I can confidently say the xApp program is dead. While there are a few vendors that are on SAP’s price list like SmartOps, in general most vendors who wanted to have this partnership with SAP have already been burned and the program is no longer active. I have declared this in the following prediction, related to the end of the line for Solution Manager.

References

For those interested, a basic introduction to US anti-trust law can be found below. Also companies can be reported for violating anti-trust laws at the link below this.

http://www.ftc.gov/bc/antitrust/index.shtm

http://www.ftc.gov/ftc/contact.shtm

Shaun Snapp

Shaun Snapp is a long time supply chain planning software consultant, author & as well as the Managing Editor at SCM Focus. He focuses on both SAP APO as well as best of breed applications for demand, supply and production planning.

Latest posts by Shaun Snapp (see all)

{ 2 comments… read them below or add one }

Tom Dorn March 5, 2010 at 11:08 pm

What is the real story with SNP?

I read an article this week from AMR written by two junior analysts.

A Call To Action for SAP’s New Leadership: Shine
a Light on Supply Chain Management
by Noha Tohamy and Michael Burkett.

The following is the last paragraph from the article.

One key requirement is to make it worthwhile for the
sales organizations to sell and implement successful
SCM projects. Like I’ve already mentioned, the sales
organization still doesn’t view supply chain management
as a large enough dragon to slay, resulting in
missed opportunities to expand the presence of SAP
SCM. For example, responding to a recent demand
planning and inventory management RFP, SAP offered
SmartOps as a useful addition to APO. And although
SmartOps is a great tool for multi-echelon and multienterprise inventory optimization, the customer’s
needs were well within the capabilities of SAP SNP.
Given SmartOps high price tag, this move negatively
impacted APO’s winning odds.

So, here’s to hoping the new Co-CEOs will finally realize
the potential for SAP in supply chain management
and aim to gain the market leadership that has so far
has eluded the software giant.

I am interested in your perspective.

Why dont they understand the difference between what SNP can do and what SmartOps can do. What can you tell me about the prcing information? Why dont customer just buy from companies like SmartOps directly.

Tom D.

admin March 5, 2010 at 11:36 pm

I don’t know the RFP details of which you speak, but SNP has no inventory optimization and multi-echelon capability. It is designed on the standard APS concept of every location being planned individually and where the only functionality which incorporates service level based planning is safety stock (which is not actually service level based planning).

SAP was originally opposed to getting into advanced planning. They told i2 back in the 1990s that “only a fraction of our customers are interested in your product.” Now this part is where I have to declare this is my opinion only…and that is that SAP got into APO essentially to satisfy the analysts. If you check the analyst write ups at the time it was all about how ERP was dead and advanced planning was where it was at. So SAP responded by partnering with i2, and then dumping them but taking some of i2′s IP out the door with them. SAP periodically takes the IP of any vendor they partner with and then attempts to create their own product, and this is what concerns me about the SmartOps arrangement. All you have to do is remember what happened to Commerce One to get an idea of what happens to companies that get too cozy with SAP. I tried to write this in a publication, and it was removed, so its important to consider that media that covers IT is highly censored.

As for why customers don’t just buy SmartOps, they are not allowed to if the account is SAP originated. SmartOps has signed a contract to that effect. So they can only sell their software direct to non-SAP customers. This is why I think its time for the FTC to take a look at SAP because these are monopolistic practices. I like to joke that because SAP is German they are unaware that we have anti-trust legislation in the US. However, I digress. I do think that customers could force the issue if they said that they would either buy SmartOps direct or bring in a different MEIO vendor, of which there are several. At that point SAP would relent, but its important to understand that companies are often getting exceedingly poor advisement from their consulting partner. I am familiar with an account that could have greatly benefited rom MEIO software, but because it was not 100% SAP, they decided not to use it as their consulting partner advised against it (they had no consultants they could bill hours for SmartOps). So the fact is that many software purchase decisions are simply the wrong ones for the company.

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