Duet: Captain and Tennille for Enterprise Computing?

There have been lots of duos over the years. Some have been unbelievably successful, others...not so much. Captain and Tennille, a husband and wife super duo of the 70s, certainly had their moment in the spotlight but; let's be frank, haven't exactly stood the test of time as mainstream hit-makers. They have, however, maintained a loyal fan base among their core constituency.

After spending a fair amount of time better understanding Duet (formerly Mendocino) at SAP SAPPHIRE last week, I've come away thinking that this partnership may ultimately go the same route...a strong start, a foundation of core supporters, but an uncertain long-term future.

All kidding aside, I've been intrigued by Duet [ne Mendocino] since first hearing mention of it last year. The history of the initiative dates back almost two years, when a not-so-secret meeting between SAP and Microsoft's top dogs took place as both companies explored ways to work together to further their respective causes and insulate themselves from impending threats to their IT dominance. The result? Duet.

What is Duet?

Officially, the joint product is called Duet|for Microsoft Office and SAP and is designed to allow users access to SAP applications through Microsoft Office productivity tools. The initial release covers four "business scenarios" with an eye toward rolling out additional scenarios on a regular basis.

The initial scenarios covered are:

Time management -- The idea behind this module is to create a more efficient and accurate scheduling and billing process. With this module, users can input their schedules (appointments, billable hours, etc...) into the all-too-familiar Outlook calendar interface and the data is automatically fed into the requisite mySAP ERP.

Budget monitoring -- Budget monitoring is a relatively simple concept, leveraging SAP's BI tools and Microsoft Outlook. Essentially, it allows for rules-based scheduling and delivery of BI reports as needed. For example, "Deliver the regional sales report to my Inbox every Monday at 8 am EST." Or, "Notify my Inbox if Department X's actual travel and entertainment expense = 90% of the projected monthly allowance."

Leave management -- Users wishing to take leave (e.g., vacation, bereavement, maternity) can make the request via Outlook and, based on SAP's defined workflows, the request is routed to the requisite personnel. If a person needs formal approval, the request would send an email alert with the details to the user's manager; who would then approve, amend or deny the request. If the company allows an automated approval (based on a record of vacation time available, for example), the request would automatically be routed into mySAP and HR, payroll and anyone tagged to the user (i.e., affected coworkers, supervisors) would be notified.

Organization management -- Allows centralized access to HR data, training and job postings, org charts and personnel records and profiles through the Outlook contacts interface. Role-based access is driven through the mySAP HR apps.

In and of itself, these scenarios aren't that awe-inspiring. Helpful? Sure, particularly for road-weary sales reps and administrative assistants handling a busy executives schedule and time/expense reporting. But ultimately the power of Duet only comes if (when?) SAP and Microsoft make good on their promise to roll out additional scenarios as well as tools to help 3rd party adoption.

Dennis Moore elaborates on Duet's potential with the "Brotherhood of Bloggers"

Dennis Moore, General Manager of Emerging Solutions for SAP Labs, heads the Duet initiative within SAP and was courteous enough to spend some time with the "brotherhood of bloggers" at SAPPHIRE. We had a lively conversation with Dennis on many topics [which I'll cover in an upcoming blog post] but spent a fair amount of time on Duet: where it is today, where it could go, and the hurdles that SAP & Microsoft face in realizing the best-case scenario.

• Upcoming functionality by way of "value packs" -- Two value packs are planned for release in the 2nd half of 2006. Collectively, these packs will add another five scenarios (bringing the total to nine) including recruitment, travel, purchasing, sales activity and analytics. What's unclear is how in depth each of these scenarios will go (more on this in a moment). The value packs will also extend Duet into beyond English into French, German, Japanese, Spanish and potentially several other languages.

• Why now? -- One of my fellow bloggers asked Dennis, "Why now?" The simple answer is, "because Hasso and Bill sat down and agreed that collaboration was necessary. Dennis gave us a different answer though no less credible. In essence, this kind of integration wasn't possible before a model-driven application environment. XAML drives the push/pull of data from SAP apps into the Office environment; this wasn't possible years ago. Along the same lines, Microsoft has finally opened up Office in ways it never had before.

• Can other partners get in on the act? -- This remains to be seen in my estimation. At first blush, SAP and Microsoft will tell you that it's not only possible, but they are relying on 3rd party developers extending the Duet interface. Moore contended that "every point of integration between Microsoft and SAP are publicly available, and licensed for use." I haven't personally seen the documentation on this, but I'll take him at his word. Fellow SAPPHIRE blogger Ismael Ghalimi offers his take on the possibilities for 3rd parties to leverage Duet:

One thing that got me really excited was to learn than Duet was built using web service interfaces that have been made public and are free to use for third-party software vendors. Even though the Duet product itself includes some kind of middleware that bridges the gap between mySAP Business Suite 2005 and Microsoft Office 2007 and requires customers to buy a license for it, nothing should prevent a third-party vendor to re-implement such a piece of middleware for other office productivity suites.

Granted, Microsoft Office has such a large share of the market that it would make an effort like this questionable at best, even though there must be a small market for some integration with OpenOffice. What’s more interesting in my view is integration with Office 2.0 suites, such as Zoho for example. Integration with Gmail and Google Calendar would be interesting as well. And why not using it for integrating SAP with Salesforce.com?

While Ismael is technically right, I'm not sure it's going to be as easy as he hopes. SAP and Microsoft "jointly own" the code used to create Duet and it's unclear whether a 3rd party extension of this (that isn't vetted by both parties) would violate any contractual service/maintenance terms of a Duet license. It's fairly clear that Duet, at its core, is about creating further lock in within both the SAP and Microsoft user bases.

• The economics of Duet -- Final pricing (Duet won't be formally released for another month) hasn't be finalized but Microsoft has publicly discussed a $125 per PC pricing strategy. In addition, users must be running mySAP 2004, Microsoft Office 2003, Exchange Server 2003 and Windows 2003 Server. SAP hopes that Duet, when fully baked, expands the number of SAP "users" within an enterprise. Atmel, an early Duet pilot customer, has discussed growing its SAP user base from 10% of current employees to 75% over time. If that number turns out to be half right, this could be an enormous economic incentive for SAP. For Microsoft, this is about adding another layer of value from its core Office applications. Making it less likely that customers will look seriously at open source alternatives or web-based initiatives by Google, for example.

While it's not hard to see the enormity of the opportunity Duet presents, there are material hurdles ahead for the successful realization of Duet within the marketplace:

1) Costs per user appear significant -- Pricing hasn't been formalized, but if we're to take the $125 per user as a starting point, and add in the prerequisites of running recent versions of Office and mySAP; this very quickly gets cost prohibitive to roll out beyond targeted user groups within an organization. There's a reason only a small subset of users within an enterprise have direct touch points to R/3 and mySAP. And on the other side, while virtually everyone touches Office in some way, an additional $125 per CPU is a significant incremental expense. Can SAP & Microsoft establish a clear enough value proposition to support this pricing? If major price concessions are necessitated, will the revenue impact to both parties be enough to move the dial?

2) Microsoft and SAP's interests aren't necessarily aligned -- Obviously both companies want to create as much lock in within their customer base as possible. However, it's unclear that Microsoft and SAP's long-term goals regarding Duet are aligned. SAP isn't putting all its eggs in one UI basket. Project Muse (which makes visually appealing UIs from Adobe and Macromedia technologies), SAP Portals, and mobile initiatives (including a Blackberry interface) are all in the offing. Microsoft, meanwhile, sells its own business applications (Dynamics) and has it's own set of integration touch points (called Snap) that tie into Dynamics. Dynamics has already begun a marketing push extolling the virtues of Snap versus Duet (kudos to Zoli for pointing this out). Since both vendors are free to price and go-to-market independently, there could be channel conflict and an uneven marketing message to joint customers.

3) Will SAP and Microsoft embrace 3rd parties? -- SAP BI integration with Excel is nice, but the fact is a great many SAP users also run a best-of-breed BI solution (e.g., Business Objects, Cognos, Hyperion). What happens if users want to call BO query and reporting functionality into Outlook? On the flip side, if an enterprise is standardized on Lotus Notes, would SAP stand in the way of creating similar integration points between Notes and mySAP apps? What if a large customer wanted to pull Google enterprise search into the mix? What happens when SAP says, "OK" to that but Microsoft balks?

Color me cautiously optimistic, but prepared for much less. To be clear, I'm a shareholder of both companies and, in an ideal world, Duet would be a sea-changing partnership that generates profitable, incremental revenue and creates customer lock in for both companies. But the reality of the situation is my investment decision (or future decision to part ways with either stock) is not predicated on the success of Duet, nor should it be. In and of itself the two companies should be complimented for getting this product to market. But therein lies the problem potentially. When actually agreeing on a product name and delivering the code for four basic business processes are considered major accomplishments, it begs the question of how strong the relationship will be at the first sign of trouble.

Related Articles:

• SAP without SAP: Duet (Zoli)
• Duet is Nice but Duos are Better (Ismael)
• Duet: Dead Until Each Turns (Vinnie)
• Vendors: I'm fascinated by Duet (Charlie)
• Do It! (James Hsu)
• Sapphire Orlando 2006 (Dennis Moore, SAP)
• Computerworld: SAP's Dennis Moore on what to expect from Mendocino [now Duet]

SAP software sapphire06 sapphire enterprise 2.0 blogging duet microsoft MSFT woodrow

Note: At the time of this writing I, and/or funds I maintain discretionary control over, maintained a long equity position in both MSFT and SAP.

Comments

[Sangeeta Patni]

Dennis,

Thanks for sharing your thoughts on the SAP/MSFT partnership and its importance to both the companies.

However, I am curious to know why it was thought prudent to choose IBF as the development environment, rather than the old, stable Office Add-in interfaces for building MS Office connectivity. Office Add-in interfaces have been used by developers and solution providers for a long time now, and provide fairly deep interfacing functionality - and best, work for all MS Office versions from Office 2000+ onwards. Choice of IBF, on the other hand, forces Office users to upgrade. A fairly expensive propositon for most enterprises.

- Sangeeta Patni
Co-founder and VP-Engg,
Extensio Software
www.extensio.com

[Jason Wood]

Dennis -- Thanks for the kind words and the insightful detail. From an investor perspective, a lot of times we tend to dismiss a lot of significant underpinnings fo an initiative if we can't see the clear picture in terms of headling financial metrics.

For example, the question I get when Duet comes up is, "will SAP and Microsoft's EPS or revenue growth rates increase as a result?"

The simple answer is "yes." But most investors, because of your companies' respective sizes, view it as a "rounding error" which, in its current form, may be the case.

HOWEVER, if you can continually build off what Duet started (no easy task, but one I know you and your team are committed to), then we're onto something massive.

As a shareholder of both companies, I'm rooting for the initiative, and will continue to tell you all when I think you're on course or when you're falling off course.

All the best,

Jason

[Dennis Moore]

Jason --

Very thoughtful and interesting analysis. I think your blog is the first independent place anywhere where I saw the scenarios so clearly defined. I am so psyched SAP really opened up to bloggers -- it's like we finally get to hear the thoughts of tons of smart people who are all helping us improve.

Many bloggers, press, analysts, and customers have focused on the question of how strong is the relationship between Microsoft and SAP. If this relationship were based purely on Duet, I would guess there should be plenty of room to question how durable is the relationship. However, don't forget Microsoft and SAP have been working together solidly and successfully for about 15 years, with greatly aligned interests in almost every area. We collaborate on Windows, SQL Server, Visual Studio, .Net, IE, Office, and much more. We are a very large customer of theirs, and they are a very large customer of ours. This is a durable relationship that produces great value for both companies, all our mutual customers and partners, and the market as a whole.

There are areas in which Microsoft and SAP compete vigorously, areas where we are not yet aligned, and areas where we may never be aligned, but the vast majority of our touch points are mutually beneficial. This is what makes our relationship so strong.

Duet is a major watershed partnership for both Microsoft and SAP. SAP is the first major ISV to commit to and exploit the Microsoft Office System as a platform. We adopted many of the latest developments in Office to make this product work, and we even pushed the envelope substantially (Duet is based, for example, on IBF 1.6, which was developed to a great degree around the requirements of Duet). This is SAP's first joint product with any vendor (as far as I can find). The product brings together the best of the desktop world with the best of the enterprise world. It's the first major product to be delivered with fully modeled (XAML) applications delivered through an open, Enterprise SOA technology basis. Duet also serves as the hub of our focus on enterprise Information Workers.

There are a lot of other signficant aspects to this effort, not the least has been the market acceptance of and demand for this product. If only for this reason, Microsoft and SAP have committed to the market to put our best efforts into this product.

On a side note, a lot has been made of the number of scenarios supported by Duet. Let me clarify -- a scenario is not equal to a transaction. Most scenarios are very sophisticated -- for example, the full process of time recording, approval, integration with all related systems (CRM for billing, PS/cProjects for project accounting, FI/CO for capitalization of R&D, etc.) is all included in our time management scenario. The integration of reporting and analytics has the potential to cover literally thousands (or more!) of existing reports (should we call it "thousands of scenarios?") plus new analytical applications built as SAP xApps for Analytics, plus much more. The model-driven and "live model" approach of Duet allows us to extend the product quickly and often with new scenarios, and will ultimately allow ISV's, SI's, and customers to add their own contributions into the mix. And the product is built according to ESA (Enterprise Services-Oriented Architecture), with open and published web services that anyone can plug into, for even more innovation and extensibility.

Thanks for sharing your thoughts, as well as allowing others to add their thoughts. I look forward to my next encounter with "the brotherhood of bloggers!"

--

Dennis Moore
General Manager, Emerging Solutions, SAP
www.duet.com

[Jason Wood]

Sangeeta -- Thanks for the comment. The interesting thing from your perspective will be go-to market strategy. In smaller firms I can see a willingness to embrace a 3rd party SOA adapter approach, but in large enterprises where you can't get your foot in the door, SAP and Microsoft have a fairly daunting ability to force their will.

The real question to ask is, "are software buyers rational?" Unfortunately I don't think history suggests they are (as a whole).

[Sangeeta Patni]

Quite right. As pointed out in your Point 3, Duet will be of limited use to users if it cannot talk to any other data source except SAP.

We have built MS office intergration technology on the top of a light weight SOA based middleware, making it possible for Office end-users to talk to multiple data sources, without the expensive Duet middleware and upgrades.

- Sangeeta Patni,
Extensio Software
www.extensio.com

[Zoli Erdos]

Jason, great analysis, my two comments:

- Not sure what the $125 covers: whether SAP will charge additional user seats per Duet user or not. If they do, I am sure it will be a reduced price (fractional users). This is basically what Dennis hinted to as middle-ground between the MS and SAP pricing strategy.

- Lotus Notes: I think what you're talking about exists, that's IBM's new Harmony product.