Lately, there has been some degree of turbulence in SAP’s cloud strategy (to put it mildly) with Vishal Sikka and Shawn Price both leaving the company in the same week.

Before the departure of these executives, I had a pretty good understanding of SAP’s cloud strategy – at least in its general characteristics – and blogged extensively on a variety of associated topics.   Very broadly, this strategy focused on HANA as the platform on which a series of cloud applications were based.  This approach was manifested in a myriad of flavors ranging from Business Suite on HANA in the HANA Enterprise Cloud (HEC) to a partner application using HANA XS in the HANA Cloud Platform (HCP) (SAP’s PaaS), or Ariba or Hybris running on HANA.

This blog will explore the question whether SAP’s cloud strategy has changed following the above-mentioned  departures and other recent events (such as the layoffs).

NoteAlthough it may be possible to describe SAP’s cloud strategy very broadly (as I tried above), there are so many different facets involved that it is almost impossible to write a sequential analysis of this strategy.  I’m going to look at particular facets in detail.


Platform vs. applications

Following the departures of Sikka and Price, there was suddenly more attention on apparent signs of tension in SAP’s cloud strategy  – in particular between an emphasis placed on platform (especially regarding HANA) vs. an emphasis on applications.

There has been some suggestion that there was too much focus on platform at the expense of applications in SAP’s cloud strategy.

The challenge ahead for SAP will be stepping up its cloud game. Hana is there in the background as the “powered by Hana” platform on which SaaS apps and managed deployments will run. But techno babble about platforms is not why decision makers choose cloud providers. They choose them for their depth and breadth of capabilities and the degree to which they integrate with and complement on-premises applications that, at most large companies,  aren’t going anywhere any time soon. [SOURCE]

It is critical to understand  that there is a heavy interdependence (in marketing-speak, synergy) between these two aspects.   Like a rope, they are tightly intertwined – giving each other strength.    SAP needs both.  CEO Bill McDermott suggests correctly that both tendencies are important:

SAP is a 50/50 company, technology and applications. We’ve said that the real excitement is for applications that can re-imagine what it means to run your business on HANA.

In a recent interview with ASUG,  Bernd Leukert also emphasized this interdependence but placed greater emphasis on applications rather than platform: “the platform has to unleash its value through the applications.”

How does the greater emphasis on applications manifest itself?

A new gang in SAP’s cloud strategy emerges and is triumphant

Two years ago, I blogged about three gangs that I saw in SAP’s cloud organization and how they interacted (some might say competed) with each other.

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Note: I’m using “gang” in a nice way (sort of like Our Gang) – my goal isn’t  to associate any SAP employees with a criminal organization.


Based on recent changes, I think there is a new gang that has emerged which is primarily focused on a particular type of cloud application rather than a platform.   In 2012, I had already identified a gang called “SaaS” that was focused on applications in the cloud – albeit SaaS applications.   For this new emergent gang, the type of applications in focus is different than that of the SaaS Gang.

In my opinion, the new gang is currently focused on the idea of migrating existing OnPremise customers to the HANA Enterprise Cloud (HEC) where the core SAP applications (Business Suite, etc) are available on HANA.

NoteI know that such non-SaaS cloud-based application existed in the past but the masive organizational /marketing/sales power that supports them is a much newer phenomenon.

Some might suggest that such hosted applications are not true / real cloud applications in that they are not SaaS applications but that is primarily a definitional issue.

In an interview with the diginomica team, CEO McDermott described the strategy in these terms: “In our transition, every asset will run on HANA in the cloud. You can take that and cash that check. SAP’s core has to go into HANA cloud but we will provide choice.” [SOURCE]


In my opinion, this “core” refers to existing OnPremise applications.

In a recent blog concerning this week’s Sapphire,  blogger Ray Wang suggests that SAP will focus on its existing maintenance customers at the expense of internal innovation:

Constellation believes that organic innovation will be curtailed while the focus will remain on keeping the maintenance cash cow alive.  Many partners have signaled that Waldorf is undoing the work of Vishal Sikka starting with a reemergence of ABAP.

I think the story is a bit more nuanced and is reflected in the emergence of the new Non-SaaS Applications Gang which is focused on providing cloud-related benefits to existing customers via the HEC.

If you look at applications / solutions available on the HEC (Business Suite on HANA, SAP NetWeaver Business Warehouse,  Analytic Tools, EPM, GRC,  NetWeaver Portal, mobile, etc.),  these are the core applications that most existing customers currently use.

Partners are also moving their solutions to the HEC (One example is the recent agreement between Open Text and SAP to support ECM deployments on the HEC).


Note: As the roles / responsibilities associated with such HEC-based applications demonstrate there are still many remnants of the OnPremise world that remain in the HEC-based applications.


Note: The HEC can also be used for other scenarios (Big Data with Hadoop, etc.) but such scenarios are no longer in focus and appear to have lost momentum.


This focus on non-SaaS applications is also evident in the number of sales-related job offers from SAP. There are 108 cloud-related jobs. Of these, 41 are offers that relate directly to the HEC.

The importance of this new gang is also evident in new support / service options:

With enhanced service offering for cloud migration, the SAP Services organization offers customers choice and simplified migration of SAP applications to the cloud. Customers benefit from a simplified migration experience with the new comprehensive cloud transformation services to migrate existing SAP applications to SAP HANA Enterprise Cloud. This includes options for integration to on-premise SAP applications and other SAP cloud solutions, including those from SAP companies SuccessFactors and Ariba. Maintenance, support and upgrade services will continue under customers’ existing maintenance agreements for the migrated applications. With more than 15,000 professionals and several delivery centers across the globe, SAP Services will help customers migrate to SAP HANA Enterprise Cloud, offering more simplicity and faster speed. (My emphasis)

The recent ability to consume such HEC applications via subscriptions provides an additional financial incentive for such customers.

Let’s create a baseball card for this new gang.

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Why did I select Bernd to be the leader of the Gang?  I couldn’t find anyone else.  As CIO, Ingrid-Helen Arnold leads cloud operations and the SAP HANA Enterprise Cloud, and runs SAP’s internal IT environment but I think Bernd is the ideal leader for this gang with its current scope.  As McDermott responded to a question about HANA and HANA cloud/platform:: Bernd Leukert (who now heads global development) put the suite on HANA so this guy understands the power of HANA better than anyone else”.


Note: This gang already existed previously in the form of SAP’s SME cloud offerings.  For example, SAP partners have hosted Business One in the Cloud for years (here is one example from 2012). As this offer from PT demonstrates, the transition to Business One on HANA in the Cloud is also in progress. Yet, the new gang focuses on a different market – larger existing customers.


To some degree, the recent agreement with Microsoft regarding Azure also reflects this focus but to a lesser degree in that fewer applications are available in this environment (of interest is the Business Suite albeit not on HANA). Yes, I know that AWS also supports such SAP applications and Cloud Appliance Library (CAL) but I have the feeling that relationship between SAP and AWS has cooled off a bit recently (though it would be nice to see HEC being able to run on AWS).

What happened to the old gangs?

The HANA Gang

The HANA gang has been transformed.  In 2012, the focus was on creating new applications (primarily SaaS) that were based on HANA.  Although there are/were a few HANA based SaaS applications (EPM OnDemand, etc), this tendency really didn’t take off.  Today, HANA is a platform and the underlying foundation for all cloud applications.  Cloud acquisitions are transitioning to HANA (for example, Ariba) and the HEC only supports applications running on HANA .  There are also IaaS and DBaaS offers that are based on HANA.

In 2012, I would have predicted that this Gang would dominate all other Gangs. At the present, however, this Gang has been pushed into the background. This change is also reflected in the broader evolution of HANA with its transition from the limelight to becoming a fundamental technology whose presence is a given – the emphasis has moved on to other more business-oriented / centered topics.

The SaaS Gang

This gang could be renamed the Line of Business (LoB) Gang and includes Ariba and SuccessFactors.  In terms of contributing cloud users and revenue, this gang is the most powerful.  Of all the gangs, I find the evolution of this gang the most intriguing in that there is some degree of functionality overlap with existing OnPremise applications and this leads to a certain degree of tension between both worlds. For example, some say that the OnPremise SRM is being sunseted and that existing customers should move to the appropriate Ariba modules.  Something similar is occurring between Employee Central and the OnPremise HR suites.

Indeed, organizational changes in this area (as described by Jon Reed in a recent blog) shows that a melding of the OnPremise and Cloud worlds is currently in progress.

At the highest level, this question is at least partially answered, with SAP confirming that Shawn Price will not be replaced. That means, technically speaking, Rob Enslin ultimately owns cloud.

As SAP sees it, there should not be a separate line of cloud leadership in the organization. Example: on the HCM side, Mike Ettling owns all of HCM, on-premise and cloud, and reports into Enslin.

When you drill further into products, the plot thickens. Not every cloud product has a confirmed leader at this point. I was able to confirm Chakib Bouhdary now heads Ariba, also reporting into Rob Enslin. Sameer Patel leads collaboration (Jam), on-premise and cloud, ultimately reporting into Bernd Leukert. [SOURCE]

It is this organizational change that has the potential to have the greatest impact on the fundamental culture of SAP:

As the departure of Vishal Sikka grabbed most of the media attention, another organizational change, probably with a bigger impact, did not get as much coverage as it deserved. SAP has decided to merge the existing cloud organization into its main organization. This is a very bold move. If a company wants to successfully establish new business models, it is almost mandatory to set up an organization outside of the mainstream teams to allow for the development of the new DNA. SAP had built a cloud organization around the acquired teams of Successfactors and Arriba and the SAP cloud business was doing well over the past few quarters. As the new business grows, points of tensions can grow between the different sales teams (esp., if not padded by generous and expensive double compensation models), different product teams and product architecture approaches. At some points, the cost and complications of these tensions become so high, that it becomes necessary to merge the organizations. Finding the right point in time for that is very difficult. SAP has decided to do this now. [SOURCE]

These LoB SaaS are also important for those OnPremise customers that are reluctant to move core applications into the Cloud. As described by Sven Denecken, SAP’s SaaS applications provide the ability to create “networked ERP” environments.

I am passionate about cloud, and I am passionate of my ERP background. Yes, I stated it: ERP. Both is needed to succeed. But do not believe the dreamers that want to build ERP again – from scratch. Lets leapfrog this attempt and build on what works that is truly stable and global and reliable – towards the “modern ERP” which is a “networked ERP” – leveraging innovative technology and cloud consumption models – as a hybrid extended deployment reality.  [SOURCE]

The support of such hybrid environments is critical and is also a trend whose importance is backed by recent research:

In addition, the numbers planning to use SaaS alongside on-premise ERP — for example in ‘two-tier’ ERP deployments — leapt by more than half to 41 percent. Taken together, the survey shows that 65 percent of enterprises expect to be using SaaS in some ERP role before the end of 2015 — a massive increase of two thirds on what respondents were saying a year ago. [SOURCE]

Yet despite its importance, this Gang isn’t as powerful as the non-SaaS applications Gang – at least at the present.   Sometimes, I get the feeling that this Gang should be patient – its time will come soon enough.

The Netweaver Cloud Gang

This Gang has evolved into the HANA Cloud Platform Gang be careful this term now refers to a wide variety of cloud-related offerings ranging from IaaS to DBaaS to PaaS.  The PaaS offering  (I’ll call it HCP) has gained importance in acting as an extension platform for other SAP offerings. This functionality is most evident regarding extensions for SuccessFactors.  Other important components provided by the environment are the HANA Cloud Portal and HANA Cloud Integration – each of which are critical in SAP’s networked ERP concept. Despite continuous improvements  in functionality,  however, this Gang still languishes in the background, not receiving the attention it deserves.    Perhaps, there will be announcements this week which will demonstrate its importance.

I have no idea who currently leads this Gang – Björn Goerke was its leader in 2012 – perhaps he will return.

Conclusion

“It was a different idea of how we saw the future and that’s why I left. I wish them the best. It ended in a way that I left abruptly. That’s how it goes in big companies.” Vishal Sikka after his departure from SAP  [SOURCE]

Vishal’s statement could refer to a variety of things (strategy, organization, etc) but for me, it highlights a fundamental question: how does SAP really view the future in terms of cloud applications / strategy.  The emergence of the new Applications Gang with its focus on the HEC is just an intermediate step. In a comment on a blog post that I wrote, fellow Mentor John Appleby presented an interesting view.

I’ve always felt like HEC was an attempt to move the market forward rather than move into the hosting market wholesale. JHS told us in June it was intended to be a short term business whilst there were margins to be made.

The question then becomes what comes after the HEC? The applications being promoted in the HEC are largely existing OnPremise applications – enhanced with HANA – but still old applications.   They aren’t the future.

The move to the cloud is more than just technological – it impacts expectations as well:

While the company has not hesitated to say that it is in transition, Nomura analyst Rick Sherlund says the key will be convincing customers that SAP can still create new products “that reflect the user-friendly culture of the cloud.” [SOURCE]

Where then are the new applications and what will they look like?


Blogger Ray Wang suggests that the new applications will come from acquisitions:

In order to meet its financial targets and avoid attrition of the customer base, SAP would have to roll out new applications at a faster pace or acquire at a faster rate to achieve their targets.  Many believe that SAP has not successfully rolled out enough applications or platforms that customers want to purchase.  Constellation believes SAP will have no choice but to make more acquisitions in areas where customers have been pursuing a surround SAP strategy.  Some areas include customer engagement, big data, integration, internet of things, and mobile.

My opinion is that acquisitions alone won’t provide the revolutionary applications – it is the combination of different SAP assets that is the most powerful model (for example, SuccessFactors + FieldGlass or Hybris + SeeWhy, Ariba extensions running on HCP).

For such applications to appear in the marketplace, the existing gang structure must evolve again. As the current organizational changes regarding LoB applications demonstrate, the distinction between OnPremise and Cloud are disappearing – and this is the way forward.

The non-SaaS Application Gang  – though powerful at the moment –  and the applications it protects must also adapt itself / themselves.

As fellow blogger Blogger Vijay Vijayasankar suggests – this transformation requires the platform.

Similarly – apps that were created decades ago need to evolve without being constrained by pace of platform evolution . For the “cloud company powered by Hana” to be a reality – both apps and platform business need cloud as a vital component .

The presence of over 100+ SapphireNow sessions concerning the Internet of Things makes me hopeful that this journey – regardless of its costs on existing structures – has finally begun and is taken seriously by SAP.

Some might have noticed that my Gang definition is primarily based on technology (SaaS vs non-SaaS, etc).  Just as the changes in organizational structure regarding LoB demonstrate, these technological borders must disappear as well. There must be one “Applications Gang” in which technology is secondary.   Raymie Stata, current co-founder and CEO of Hadoop startup Altiscale and ex-Yahoo CTO has a useful definition of an application as opposed to platform:

“We distinguish what we call applications from tools. Tools are still horizontal. A Platfora, a Tableau — those are still horizontal tools. They certainly raise the level of abstraction versus Java, but they don’t have any what we call domain specificity. So an application to us is something that actually solves a domain-specific problem. … When you say ‘attribution analysis,’ that’s where that domain-specificity comes in that that’s to me what qualifies as a real solution.” [SOURCE]

It is this domain specificity which must be in focus of this new Gang rather than technology.  I get the feeling that the increasing emphasis on industry solutions in SAP’s cloud strategy (more in an upcoming blog!) also reflects this realization.

Update: SAP just announced the formation of a new Industry Cloud organization.

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19 Comments

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    1. Richard Hirsch Post author

      If you look at much of the analysis that happened following Vishal’s departure, it depicted the conflicts between platform and applications to be be more heated than a debate.

      D. 

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          1. Guy Lamoureux

            Carelessly using serious words is not cool.

            War is not cool.

            Thank you Mr Hirsch for changing your title. As they say on my planet “Peace and long life”  😉

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  1. Martin English

    Rich,

    The big issue I have is the naming convention (apart from your Netweaver references which went obsolete overnight 😈 ). Besides ERP on HANA, the HANA Cloud Platform runs and supports stuff that’s totally unrelated to HANA, and this is causing confusion in the marketplace and amongst developers (both existing SAP Developers and the ‘non SAP’ developers that SAP claim they want to attract). As SAP reaches out to the rest of the world, they have to start using the same words to describe things as the rest of the world does; especially when I know I can be using the HANA Cloud Platform without using any HANA technology.

    Some might have noticed that my Gang definition is primarily based on technology (SaaS vs non-SaaS, etc).  Just as the changes in organizational structure regarding LoB demonstrate, these technological borders must disappear as well. There must be one “Applications Gang” in which technology is secondary.

    As an SAP customer, I don’t care where my Application runs. I will rely on my Technology advisors (including SAP themselves) to advise me on what technology (DBMS, OS) or platform (on-premise, PAAS or remote hosting, IAAS or SAAS) to run this platform on. SAP (and btw, analysts as well) needs to be aware that there are customers who, individually, have valid reasons (version control, network latency, system performance management, security, etc) to run their applications on all four technology models. The focus for each of these models may be so different that the technology gangs need to remain, but as you say, they need to be subordinate to the business of selling stuff that works (i.e. applications).

    OTOH, as a SAP BASIS Administrator, I still haven’t got my head around what role there is for me in the SAAS world. While there’s some sites already dreading the End of Life of their current on-premise systems, there’s also still a lot of organisations willing to work without SAP support at all (I did an OS/DB migration of a production 4.7 system earlier this year).

    hth

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    1. Matthias Steiner

      Hi Martin,

      I’d like to chime in here and clarify a few misunderstandings:

      Besides ERP on HANA, the HANA Cloud Platform runs and supports stuff that’s totally unrelated to HANA, and this is causing confusion in the marketplace and amongst developers (both existing SAP Developers and the ‘non SAP’ developers that SAP claim they want to attract). As SAP reaches out to the rest of the world, they have to start using the same words to describe things as the rest of the world does; especially when I know I can be using the HANA Cloud Platform without using any HANA technology.

      As I wrote in a recent blog post SAP HANA Cloud Platform (HCP) evolved into a much broader offering and every available package IS based on SAP HANA. If you have a look at the SAP HANA Marketplace you will be able to see this. Yes, you can still acquire HCP w/o HANA, but such packages are intended to serve scenarios when customers already have a HANA instance (e.g. in combination with HEC) as we sure do do want to charge for SAP HANA multiple times.

      In regards to your POV regarding reaching out to external developers… well, I stated my personal opinion here: A new home. I truly believe that HCP is a prime example of SAP’s engagement to win external developers…

      Best regards,

      matthias

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      1. Martin English

        Thanks for the feedback, Matt

        I think I meant the HANA Enterprise Cloud. The one I access via a HANA Cloud Library. To start the ABAP on MaxDB trial. This was not a deliberate mistake, but it’s a good example of the confusion between the two.

        But there’s a definite issue with the message I am receiving from SAP – For example, in your march 5 blog about the HCP, there is no mention of the HANA Cloud Library at all. As far as i can see, using the new site, from http://hcp.sap.com/developers.html a new developer can register on the hanaondemand trial site, but not the HANA Cloud Library.

        is the Cloud Library going to stay ? will I able to trial or enable my customers to trial, newer versions of the Business Suite / ERP ?

        Moving from ECC6 to HCP is not an upgrade. It will be disruptive to the business, no less than a migration to workday etc, so SAP still have to support the premise customers for a while yet.

        thanks

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        1. Matthias Steiner

          Hi Martin,

          well, my announcement blog was focused on HCP and not the broader cloud message. CAL is a vehicle to manage and deploy predefined system images to IaaS providers, which is disjunct from the scope of PaaS. Sure, there are side-car scenarios where the two can play hand-in-hand e.g. as outlined here: How-to setup an ABAP based backend system using Amazon Web Services and the SAP Cloud Appliance Library

          CAL does provide HANA-based images too…

          In regards to the HEC vs HCP messaging, I provided a basic statement here: The HANA Cloud Platform evolves further: Reflections on Wednesday’s press conference

          I know for a fact that people are working on providing a comprehensive HEC & HCP positioning paper. I’ll help amplify that once it’s out… in the interim the above mentioned statement made by me should be a solid baseline…

          BR,

          matthias

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          1. Richard Hirsch Post author

            I know for a fact that people are working on providing a comprehensive HEC & HCP positioning paper.

            That will be an important document.  😉

            D.

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  2. Matthias Steiner

    Hi Rich,

    another well-researched post, yet I disagree with the synopsis. I don’t think that the recent changes in our org chart have any impact on our cloud strategy! In fact, Vijay nailed it: platform and applications go hand-in-hand. For that matter, Bernd seems to be the best possible person to lead these efforts as he’s been THE application guy for a long time and now he’s also in charge of technology. Of course, he’ll reach out to other technology-focused executives to help him drive this further. There’s been rumors and natural choices, but until these are announced publicly I leave it to that…

    The way I see and wrote about it in the past is to compare a platform to a university. No matter how great it is – it’ll always be judged by its graduates (=apps)!

    So, nothing major has changed… HANA is single platform going forward and it’ll power all existing and upcoming apps coming from SAP, regardless of being run on-remise or in cloud flavors (HEC or HCP). Matter of fact, the idea is to develop applications that can run on-premise and cloud – making the runtime destination a mere deployment choice. Mobile Documents is a good example and front-runner for this concept.

    Cheers,

    matthias

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    1. Richard Hirsch Post author

      Hi Matthias,

      I used the recent org changes (especially in the area of LoB) as an example of the correct direction in that the organizational structures based on technology disappear and are reformed based on domain-specificity. This is also necessary as the cloud acquisitions are more tightly / deeply integrated into the company.

      I agree that HANA is the underlying platform going forward but what I want to stress is that the HEC can’t be the end of the journey. I fully understand the business need besides HEC’s current importance but customers and the greater ecosystem have to be shown the complete journey so that they can prepare themselves.

      Matter of fact, the idea is to develop applications that can run on-premise and cloud – making the runtime destination a mere deployment choice. Mobile Documents is a good example and front-runner for this concept

      I have no idea how this would work if the application in question was a SaaS application running on HCP? Would the customer have a local version running OnPremise?

      D.

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  3. Srinivas Kari

    I think SAP has a very deep problem – messaging. SAP continues talking about its platforms – HANA, products and features. They never talk about the Business outcomes that the software enables. SAP should stop messaging its products as if they were technological innovations and start messaging SAP as a business brand.

    SAP also needs to start thinking best of breed – Salesforce and Oracle financials are getting this right.

    This is the best example I have seen of messaging:

    A Day Made of Glass… Made possible by Corning. (2011) – YouTube

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  4. Chris Kernaghan

    Richard – it is a well written piece as always.

    Your conclusions on the future of the HEC, are interesting – I couldn’t comment on the positioning with regard to how long SAP will continue to provide hosting. Although it is obviously a clear pitch to help customers create flexibility, lower costs of HANA ownership and provide good quality hosting and management.From my own point of view, I am hugely excited to be part of platform which enables customers to build easily and effectively upon HANA to create new applications and processes which vastly affect how they work.

    Perhaps a chat offline to discuss would be good 🙂

    Thanks

    Chris

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    1. Richard Hirsch Post author

      Chris,

      I’m not suggesting that HEC will / should disappear at some point -it just can’t be the final target for SAP’s cloud activities.  I envision that new types of applications (perhaps hosted on HCP) using HEC-based environments / data as a far more relevant / future-proof model.

      I’m always open to offlline chats…. 😉

      D.

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      1. Chris Kernaghan

        Richard,

        It was more of a clarification on the comments from John Appleby in your piece than an assessment of your own conclusions – which I may or may not agree with based upon knowledge from my new position within SAP – LOL

        Chris

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  5. Gregory Misiorek

    Richard,

    i read your post and most of the comments, but i must say that i’m still confused. it’s not your doing as you have obviously put a lot of effort in writing and provided excellent feedback to your readers, but the more i see something aaS and HxP and their variations i can’t help but see more complexity.

    i especially appreciate Martin’s efforts to highlight the existing confusion around the development process and i can see why someone without a background in SAP can see this brave new cloud world as simply overwhelming.

    i almost started longing for the “early” days in 2011, when HANA was on cloudshare and i could upload my flat files and start experimenting with aggregations. now, that was simple.

    rgds,

    greg

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    1. Richard Hirsch Post author

      Hi Greg,

      As Martin’s comments demonstrate, things become more complicated when you add the developer perspective. There are many choices and many platforms – yet SAP is working to make things easier for devs (for example, through a single site for HCP)

      D.

      (0) 

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