The Dance of Two Giants
SAP and Tata Consulting Services announced this week that they're getting closer together. The new announcement describes how Tata will help long-term SAP customers migrate to newer SAP architectures. Additionally, Tata will install Business One applications in the growing software markets of India and China.
Because I love history, let's take a trip in the way-back machine and understand how SAP has worked with integrators previously. I've been observing SAP for 20+ years and this is how I see them expand markets. When SAP sees a new market opening up for it in a relatively virgin country, it has followed a predictable path. First, SAP works with the in-country subsidiaries of its pre-existing customers to identify and enhance the software to meet the new country's requirements. Next, SAP courts in-country integrators to promote the solution to their customer base. These integrators sell, implement and somewhat support the product. Third, SAP develops its own in-country support/services organization and begins to thin out some its marginal in-country integrator partners. If it doesn't thin them out, it classifies them into groupings based on their strategic importance to SAP. Lastly, SAP could further cull out even more integrators and retain more of the service revenues for themselves.
At any point in time, SAP may have the same integrator firm in different roles in different countries. Surprisingly, few integrators see this occurring or seem to care. Regardless, I love SAP's strategy as it virtually assures them maximum revenues, minimal risk and maximum market share over time. And, they get third parties to help them achieve great results.
In a InfoWorld article by John Blau (see "SAP, Tata cooperate on Web services"), there's a quote from SAP spokesman Bill Wohl "Tata is an important partner for many reasons; the company has a strong footprint in India and other Asia markets where SAP aims to grow, and it has a huge global IT infrastructure". I believe that quote clearly states SAP's intent.
Here's what I predict:
- SAP will exercise other deals like this to further its penetration in China, India and other markets
- Tata is a good choice for helping European and other Western firms migrate off of R/2 and old R/3 installations. Why? If a company spent tens of millions installing the original SAP solution, they'll want the least expensive route possible to migrate to a newer version. This is a great opportunity for a low labor cost play.
- Migration services have traditionally been a small money maker for integrators. For example, integrators that hoped to win big with M&D conversions to SmartStream didn't make a killing. Neither have others who want to help de-install other software products.
- BPO providers and hosted solutions will be attractive to Indian, Chinese and other software buyers in emerging and developed markets. This will cut into sales of some software licenses. How great this will be is still to be determined.
- Tata should do well with this arrangement and the faster they can expand it into other countries, the better for them. SAP, of course, will win, too.