Open Sources | Rodrigues & Urlocker » SAP: We spend lots of money, therefore we provide value

February 08, 2007 | Comments: (0)

SAP: We spend lots of money, therefore we provide value

TAGS: Open Source

I spoke today at the Credit Suisse Disruptive Technology Conference, right after Shai Agassi spoke. He spent his time trumpeting just how wasteful his business model is. At least, that's how it sounded to an open sourceror like me (and to the crowd, it seemed).

Referring to the company's efforts to create a Software as a Service offering to go after the mid-market Shai repeatedly said, "We spent $1 billion developing it, and will spend another $400 million building out our distribution channels." He must have boastfully regurgitated that line 4-5 times in the course of a half-hour.

Only a large, proprietary software company that has completely lost touch with reality would think this was something to boast about.

We ran out of time, but I had raised my hand to ask Mr. Agassi why it takes him $1.4 billion to come up with a product and distribution model that open source companies routinely do for under $10 million, and much more efficiently (and with huge economic benefits for the world). I mean, really. His investors should be running for the doors when they hear just how expensive it is for him to eke out meager returns in a market that is ripe for open source.

This is not to say that SAP makes weak software. It generally makes good software. But its model for developing it and distributing it is old-fashioned and anti-customer.

This is not dissimilar to Microsoft's repeated chest thumping about how much it spends on R&D. Who cares? If it doesn't translate into customer value, no one cares how much money you wasted failing to satisfy customer needs. I'm not saying that Microsoft doesn't deliver customer value; rather, I'm saying that the R&D investment is not a measure of customer value. The only thing that matters is what comes out of the labs and gets used by customers, not how much it cost to fail to do so.

It's like a hotel I recently stayed at in New York City, which tried to make me happy about the fact that it didn't have a coffee maker in the bathroom: "Due to electrical limitations in our landmark building...." I don't care what the reason is, I want the coffee maker, and the fact that the hotel is "landmark" is immaterial. (Actually, I don't drink coffee, so I wasn't put out at all, but you get my point.)

Every proprietary software company out there needs to take note: there is a better, more efficient, more cost-effective way to develop and distribute software. It's called open source, the same model that SAP's Peter Graf pilloried at OSBC last year. (Talk about not knowing one's audience.) The same model that is challenging nearly every area of software today, and will certainly challenge every last vestige of proprietary software tomorrow (because CIOs are buying into it so heavily today.)

Proprietary software is about delivering bits to customers. Open source is about delivering value. It's baked into the license or, rather, into how the license forces open source software/service vendors to generate income. This is a huge positive for customers.

Mr. Agassi: With that $1.4 billion you are wasting I could build hundreds of open source startups/projects that would create a massive amount of customer value. Why don't you do that, instead?

Posted by Matt Asay on February 8, 2007 05:35 PM

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