A1S Is to Applications What AS/400 Was to Systems

September 24, 2007 Timothy Prickett Morgan

Product demonstrations by IT vendors during product launches are by necessity short, sweet, and convincing to whatever point that the vendor is trying to make. Provided there is not a system or software crash, of course. Instead of going to Intel Developer Forum in San Francisco this week, which I would normally do, I decided to sit tight in New York and attend the launch of SAP‘s project “A1S” software suite, the company’s first Web-based, online, full application suite for midrange businesses.

I know that I only saw as much of the A1S product, which will be sold under the brand name Business ByDesign, that SAP’s top brass wanted me to see when I attended the launch event last Wednesday. And I know that people have tried to sell hosted applications to midrange shops before and failed miserably. But what I saw leads me to believe that SAP has a good chance of meeting its goal of having more than 100,000 customers worldwide before 2010–a big increase from the 41,200 customers it has today. If my gut feeling is right, SAP is about to tap into a potentially huge customer base that is absolutely sick of writing and supporting applications and buying and housing the systems that they run on. And, ironically, SAP is going to use the same integrated product line and reseller sales channel approach that made the AS/400 such a successful system nearly two decades ago.

The funny bit–and I mean funny, like you just smashed your knee on your desk really hard and it hurts so bad you can’t even curse–is that I think a lot of AS/400, iSeries, and System i shops are going to hear the A1S sales pitch over the next year as SAP ramps up the technology and then its marketing machine, and they are going to give it a whirl. Many of those who try the Business ByDesign applications–and you can try it for free to really take it for a test spin, not just rely on promises and a few demos from a vendor before getting in over your head–are going to be i5/OS and OS/400 shops. And they may not be willing participants, either. IT managers and application programmers are going to be told, point blank, by the CEOs or owners of their businesses to see if the A1S applications can suit their companies’ needs. Many of them, if what I saw in the demo is an indication of the code, will be tempted to lie to save their jobs.

The name you choose for your company and your product is important, and it was no accident that the most successful minicomputer in the world, the Application System/400, had “Application” slapped in front of the traditional “System/XXX” naming scheme IBM used from the 1960s until the Mach 2 rebranding in 2000, which brought us the zSeries, iSeries, pSeries, and xSeries. IBM has half-returned to its old ways of naming as of 2006, with the System z, System i, System p, and System x. The point is that applications were the heart of what drove the AS/400 business, and generally speaking, that meant RPG applications that were created by thousands of developers. At its peak, the AS/400 market boasted 8,000 software development companies and 28,000 applications, including many applications that ran in S/36 and S/38 emulated modes on the box. Imagine what would have happened in IT if, at the top of its AS/400 game, IBM had created a portable, virtualized RPG runtime environment that ran on Power, X86, or any other chip you could name, embedded in any operating system, and talking to any database over open protocols. But IBM caught the Java bug, and RPG remained tied to the AS/400 under its various names, and many of the companies and in-house developers that made a good living off of RPG either switched to Java or hunkered down. IBM is down to some 2,500 or so key developers for the i5/OS platform today, and that’s being generous by counting applications that run in the PASE AIX runtime environment.

SAP is the nickname of the German software giant that for all intents and purposes made the modern ERP software market. Its name is short for Systeme, Anwendungen, Produkte in der Datenverarbeitung, or Systems, Applications, and Products for Data Processing in English. Its products, R/2 and R/3, were short for real-time data processing. R/2 ran on mainframes, and R/3 ran in client/server mode on mainframes, Unix servers, and Windows boxes. The company’s follow-on products have added supply chain, customer and sales management, business analytics, and other modules to core suites. SAP Business Suite is the current high-end product, All-In-One is for midrange customers, and Business One is for small businesses. All products run on SAP’s NetWeaver middleware and all are sold with perpetual software licenses, installed by consultants, and are relatively expensive.

SAP has not explained what the code name A1S stands for, and it wants people to use the Business ByDesign name instead–and yes, that space is missing on purpose because some marketeer thinks it is clever and some trademark bureaucrat will let the name be trademarked. But the impulses behind A1S make it pretty easy to guess what A1S stands for. “Ein Anwendungen, Ein Systeme” was probably the first pass, and then SAP probably just put the “ein” in the middle to make “Anwendungen Ein Systeme.” If you wanted to encapsulate the idea, in English, you might say “One Application, Invisible System.” Or maybe, “Application and System Are One.” You might even say Application System/One, because SAP was founded by a bunch of ex-IBMers who thought software was a great business to be in and they had a sense of humor.

By SAP’s reckoning, as I report elsewhere in this newsletter, there are 1.2 million businesses that are using a mix of PC and server applications as well as manual processes to run their businesses, and some 600,000 of them are sophisticated enough to need the applications inside the A1S suite. SAP has identified 50,000 such customers in the United States and 16,000 in Germany, where the software is being tested now by real customers. How many of those companies, do you reckon, use an i5/OS or OS/400 server to host a mix of home-grown or third-party applications? A1S is a hosted application, and it runs on SAP’s Linux-based blade servers and the MaxDB database that SAP co-developed with MySQL. There is not only zero System i play here, but Windows, Unix, and the mainframe are also pretty much shut out of the opportunity, too. SAP could support these other platforms with the A1S suite, but it knows that in order to make money, it has to pick its hardware and operating platform, simplify it as much as possible, and run it at top efficiency.

The thing that I found most striking about the A1S applications, which are called software as a service (SaaS) or on-demand, is that SAP is claiming that the integrated suite has as much functionality as the R/3 release did when it was launched–and then some, since it has SCM, CRM, and other features built in. This is not a dumbed-down version of Business Suite, but rather a whole new code-base. And, in particular, it is a code base that was designed with modeling tools so it would be easily supported and tweaked by SAP’s own tools, which generate code riding on top of NetWeaver and MaxDB, allowing it to be changed quickly and, presumably, supported cheaply. In other words, SAP is masking the complexity of writing code from the user so businesses that do not have deep programming and systems skills can nonetheless get the benefits of an SOA-style application. The only way SAP can do that and still be in business is to not let customers touch the code while at the same time having a way to add functionality quickly and seamlessly, as A1S customers most surely will be requiring–particularly if there are 10,000 of them as SAP hopes by the end of 2009.

The modeling software that generates the code also allows companies to tweak the workflow of transactions and information, and it is designed to organize transactions in terms of departments and employees with particular tasks–just the way business people think about business. In the demonstration I saw, moving work from one employee to another was simply a matter of a few mouse clicks. The modeling software allows a graphical presentation of the company and the work moving around the company, and if you drill down at any point, you can drill deep enough to actually see the code that links bits of work. This is important for compliance, so you can see how it is all linked and who has access to what. It looked a bit like the engineering deck on the Enterprise-D, and “programming” the applications looked about as complicated.

The analog on the AS/400, of course, was that the single-level storage and integrated database allowed programmers to focus on business logic, not lower-level disk and memory management, database access methods, or how to get data to screens. All of this was done, transparently, by the system. If the AS/400 masked the complexity of a rather sophisticated system, A1S will mask the complexity of a rather sophisticated stack of integrated ERP, SCM, and CRM applications.

The most surprising bit about the A1S suite is how SAP intends to sell it. To date, SAP has sold perpetual licenses through direct sales and then fleets of consultants come in to customize the code to a particular customer. This was expensive, but a lot less expensive (in theory) than having companies write their own code. A1S turns this method inside out. Since the code is only going to be modified by SAP, there is not much for consultants to do. And SAP, despite its largess, cannot reach 600,000 potential customers worldwide. But the vast base of midrange hardware and software resellers–many of them disappointed AS/400 and iSeries resellers who have been marginalized in the past decade–know exactly how to reach potential customers who are sick of supporting their mixed bag of applications. And so SAP is mimicking the successful reseller strategy that was used brilliantly to sell the initial AS/400s back in 1988. SAP will let resellers book the revenue for A1S sales, and then get paid a royalty.

This is, of course, exactly how servers and their operating systems get sold today, and it is the main reason why the AS/400 did so well in its salad days. IBM let the resellers make some money, IBM made some money, and everyone was happy–including the customer, who got a very slick system that could do things that were technically beyond the capabilities of their own IT shops.

Right now, SAP has about 12 million end users sitting at screens using its software worldwide. And it does not seem impossible to me that within three years, there will be another 12 million seats. Should this come to pass, the size of the SAP end user base would rival the peak size of the mainframe end user base (about 25 million seats in the middle of the 1990s), and it would surpass the 20 million seats that the AS/400 had about a decade ago.

All I know is that there is going to be a lot of Linux iron supporting those seats, and if IBM had any sense, it would figure out how to help the System i customer base put together a competitive alternative that combines RPG applications with SOA extensions, System i hosting utilities, and DB2/400. All of the pieces are there. What is missing are IBMers who want to capitalize on the opportunity before it is lost, and it seems likely that IBM will be happy to just get its slice of the blade server sales and maybe end up hosting A1S facilities.

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