OEM, a threat or an opportunity for the software industry? Why is OEM important for the Software industry?
What is OEM, according to Wiki OEM means: An original equipment manufacturer (OEM) is a company that makes a part or subsystem that is used in another company’s end product.
OEM is most of the time related to hardware manufacturers. Car manufacturers are a great example, car manufacturers don’t manufacture cars, the car you bought was not made entirely by the car company you bought it from. It was essentially just put together by the car company from parts made by hundreds of other companies.
Do you know that most of the things in the vehicle are outsourced, airbags, spark plugs, navigation units, air conditioners, sensors, dashboards. Sometimes even an engine (EG Lotus use a Toyota engine) or a transmission (Volvo XC90 T6 had a GMC transmission that was prone to failure). It depends on the vehicle really, and you would be surprised how little the car company actually makes in some cases.
OEM’s rely on their ability to drive down the cost of production through economies of scale. Also, using an OEM supplier allows the purchasing company to obtain needed components or products without owning and operating a factory.
OEM is the lifeline for the car industry, Without OEM the car industry of today will not exist.
Is this the lifeline for the IT industry?
As an example, a hardware OEM, will purchase another vendor’s servers or storage systems, and rebrand and resell the vendor’s equipment with small modification, like boxing. Alternatively, it may incorporate and bundle the vendor’s products with its own technology for resale. IBM and HP are companies, which purchase systems from other vendors and resell them under their own brand.
Yes, outsourcing the manufacturing of hardware components of a product allows companies, which are working with original equipment manufacturers (OEMs), to reduce labor costs, focus on core business, and improve worker productivity. These manufacturers can then concentrate on the things that most enhance a product’s value, R&D, design, and marketing, for instance.
OEM software is also common but maybe not as well known as OEM hardware; Microsoft Windows is a long term example. The Windows OEM version is usually licensed on a per-system basis (per PC), which means that you cannot install it on another computer. This means that an OEM version of Windows is tied to the specific computer build you install it on.
The responsibility and support is also an important factor of the OEM solution. In fact, most OEM licensed software comes with no tech support. That has to be provided by the system builder, like the pc manufacturing company. There are also OEM version of security suites, system utilities and productivity software.
More and more software companies have seen the value to embed technology from other software companies. One of the examples is Tagetik (http://www.tagetik.com). This company delivers Corporate Performance Management (CPM) Solutions. Tagetik embeds SAP Technology (HANA) in their solutions According to Forrester (http://www.tagetik.com/resources/analyst-reports/forrester-wave-epm-2016#.WEVSceYrKM8) this solution is in the leader’s quadrant.
The Tagetik solution is built on top of SAP HANA. This solution is combining Tagetik software with SAP technology, to be able to deliver an intuitive, fast, accurate and easy-to-use CPM with the power of SAP. Interesting to see in this quadrant is also SAP as vendor for CPM solutions.
Competition drives innovation of OEM Vendor and Partner solutions.
This is interesting, the solution of an OEM partner can be better than the solution of the company (SAP) which provides the software building blocks. See the Forrester quadrant above, about CPM solutions. This competition will drive the innovation and product enhancement of both, the OEM vendor and its OEM customer.
SAP is known as a software company for applications. Most people are still thinking SAP delivers only ERP software. The reality is that from the SAP revenue less than 50% is coming from ERP software. SAP is growing in the different software areas (Cloud, Database, IoT etc.). One of the growing areas is OEM. This division is responsible to sell SAP technology to OEM partners. This is a rather new area for SAP, after the acquisition of Business Objects and Sybase, people with the background and knowledge to support OEM partners became a part of the SAP. Since a couple of years, SAP has founded this new division. The focus of the OEM division is to find partners, which will embeds SAP technology in their solution. We have a program for these partners, from technical enablement to a go to market program. Tagetik is just an example and why are they embedding SAP technology? Of course, they could built everything by their own. However, they have looked in the market to found a vendor with technology that can be embedded in the solution. The in-memory technology from SAP is unique and Tagetik focus is not on the “plumbing” of the solution. They were looking for a faster time-to-market, to reduce risk and work with cutting-edge technology. More companies will follow this route; the focus of the software industry should be on marketing, designing, innovation, new UX technology and buying building blocks instead of do everything by yourself.
Thank you for taking the time to read this blog post. Please feel free to add comments or ask questions below. Should you want to discuss or find out more about how you can partner with SAP to embed SAP technology into your own products please feel free to contact me – firstname.lastname@example.org – and I will direct you to the relevant regional OEM team.