The News

SAP has recently announced the completion of the acquisition of Callidus Software, Inc. Unsurprisingly, CallidusCloud’s assets shall get consolidated under the umbrella of SAP Hybris leveraging the customer relationships that the existing leadership team, which shall continue to lead their team, has built. CallidusCloud is a leader in sales performance management and in the CPQ area and also has some more interesting assets, notably their contract lifecycle management offering, which ties nicely into the CPQ piece. The CPQ software has a (first) working integration into SAP’s Cloud for Sales, which got announced in September 2017 and that gets continuously improved. One seemingly simple, yet powerful feature of the CPQ software is the indicator for margin health that gets updated as a sales representative works upon a quote. The software’s ability to generate multi-level workflows based upon changes of prices or contract clauses creates an efficient workflow, which includes the customer when using the portal based delivery of documents during negotiations. All in all the software is geared towards making the sales process efficient. CallidusCloud’s solutions shall be sold standalone as well as integrated into SAP solutions and a roadmap shall get announced at SAPPHIRENOW in June 2018. I have done a brief initial analysis of this acquisition right after the plan got announced and followed up with some musings about how CPQ can be delivered in a customer experience fashion.

The Bigger Picture

With CallidusCloud’s CPQ SAP now has at minimum three configuration engines that can get used by customers:

• ERP Variant Configurator
• SAP Hybris CPQ
• CallidusCloud CPQ

A fourth one comes into the picture if I add the Internet Pricing Configurator, IPC, a Java engine which runs embedded in SAP CRM and that is, using ‘condition technique’, mostly compatible to the configuration engine within ERP. For tech aficionados: The user exits that are available to manipulate how the access sequences are used, are working differently, and require Java skills, as opposed to ABAP skills. SAP Hybris CPQ can be seen as an advanced version of IPC, which got moved under the Hybris umbrella as SAP correctly sees CPQ as an important part of the glue between frontoffice and backoffice. Still, although being a Java engine, it is deployed on premise only – as far as I know, while CallidusCloud is, of course, a web based system. To my best knowledge SAP has about 3,000 customers that are using the ERP Variant Configurator and/or SAP Hybris CPQ and/or IPC. I am more than happy to get corrected on both of these two pieces of information. On top of SAP’s own configuration engines there are partner engines, for me most notably, In Mind. In Mind is a cloud based CPQ engine  with a focus on the manufacturing industry. It is built on top of the SAP Cloud Platform. The company got founded by former SAP people with significant experience in the manufacturing industry and configuration. One could say that one of their objectives is to close the gaps in the configuration area that SAP did not address. I had the pleasure of working with some members of their team and am still impressed about their knowledge and dedication. Then there are of course more third parties. In summary, customers have choice. But, they have choice. Which means a challenge: Which software to look at in which situations? Of course the different products have different strengths and weaknesses. The usual conundrum of software selection. And right now there is little advice on what to do, at least up to and until SAPPHIRE NOW.

My PoV and Advice

One thing is for sure: Going forward, CallidusCloud will be strategic for SAP; maybe not to the extent as Hybris E-Commerce was back when it was acquired, but CallidusCloud will make up an important pillar in SAP’s strategy. SAP Hybris CPQ and the Variant Configurator are on premise products. They are particularly strong when it comes to heavy duty configuration and to Solution Configuration. They also work well within the SAP ERP (and supposedly S/4HANA) ecosystem. With graphical user interfaces that can get bolted on top of them, companies that have complex configuration requirements and that do not need or want a cloud based engine get one of the more powerful tools that are around. Being a Java engine, SAP Hybris CPQ can also be integrated into a Hybris Commerce environment. If CPQ shall be used web based and out of offices by salespersons then the first choice for an SAP customer is CallidusCloud. Doing the whole process, including the initial contract generation piece and keeping an overview on the state of negotiations, is a huge benefit. CallidusCloud also may continue to be a good choice for non-SAP customers. Being a long standing Salesforce partner the integration into Salesforce at this point is rather better than the integration into SAP Hybris – although this is likely to change. Additionally, I have heard mixed accounts about Steelbrick, Salesforce’s own CPQ solution. However, CallidusCloud CPQ is far less about solution configuration as SAP Hybris CPQ, although I have seen some prototype functionality that suggests a move into this direction. If a cloud solution with stronger configuration capabilities than CallidusCloud currently offers is needed, then there is In Mind. With or without CallidusCloud CPQ it is worthwhile for customers to have a look at their CLM solution, which can be implemented standalone.

Advice for Customers

This leads me to the following recommendations for SAP customers:

• If you already run SAP Hybris CPQ, continue using it until you realized a meaningful ROI, as it will stay around. There are too many customers for SAP to abandon it.
• If you do not yet have a CPQ and are at least initially not too heavy on the configuration then CallidusCloud is the first option to look at – unless you are cloud averse, in which case it is SAP Hybris CPQ. But be aware that the setup of CallidusCloud is, and will likely continue to be, easier than the setup of SAP Hybris CPQ.
• If you are heavy on configuration and solution configuration, want a cloud based CPQ solution, and ideally are in the manufacturing industry, then have a good look at In Mind. The caveat that I, sadly, need to make here is that the position of In Mind as a company got somewhat weakened although they are still on SAP’s price list.

Advice for SAP

It is good that SAP intends to provide a roadmap already at SAPPHIRE NOW. In order to alleviate fears and mitigate the FUD that the competition doubtless creates, it should be pretty precise, aggressive, yet credible. The roadmap should especially consider guidance to customers on when to choose which of the existing solutions. It is almost inevitable that there is an overlap of use cases that cannot get resolved; still this is a much needed piece of advice. The second important part is, of course, detailing how especially the integrations into SAP Hybris Cloud for Sales and SAP Hybris Commerce will develop. Tight integration is a key asset. Third, I’d hope to hear about an easy-to-implement license conversion program for those customers who have just bought in to SAP Hybris CPQ, knowing that they will not need its full powers, and wish to migrate. While this might not be a great number of clients, it would show an immense customer orientation, help against the still existing image of SAP being hard to deal with, and be a quick and easy way into reference implementations. Lastly, and knowing that this is a difficult proposition, the announcement of an easy migration path from SAP Hybris CPQ to CallidusCloud would be the icing on the cake.

The News

On January 30, 2018 SAP announced that its subsidiary SAP America, Inc. has entered into an agreement to acquire Callidus Software Inc., a leader in sales performance management and CPQ software. With a price tag of around $2.4 bn this is the most expensive acquisition SAP has announced in quite a time. With this acquisition SAP gets closer to the target of assembling the “most complete and differentiated portfolio to manage today’s customer experience” and claims that the combination of the CallidusCloud Lead to Money suite in combination with its own (Hybris) customer engagement suite creates a “leading solution portfolio”. SAP intends to consolidate the CallidusCloud solution set into its Hybris portfolio, with the sales cloud being the technical integration point of the software. As usual, the existing management team will stay on board.

The Bigger Picture

According to the most recent Gartner Magic Quadrants for Sales Performance Management (dated 15 January, 2018) and Configure, Price, and Quote Application Suites (dated 29 January, 2018) SAP catapulted itself into the leadership position of Sales Performance Management and into a visionary position in the CPQ market. Forrester Research already in their Forrester Wave: Configure-Price-Quote Solutions, Q1 2017 placed CallidusCloud into the leader section of their wave. With SAP’s Hybris solutions, including Gigya, SAP already has a powerful customer engagement suite, albeit with some gaps, a significant of which got plugged with this acquisition. While SAP CPQ is fairly capable on the C and P there is some deficiency on the Q. And it bases on grandfather IPC – not a bad engine, but one that is getting tired. Friend Paul Greenberg’s reaction to this acquisition is:   https://twitter.com/pgreenbe/status/958668991182057472 According to Paul, CallidusCloud would have been a good acquisition for Oracle, Salesforce, or Microsoft, too. Definitely for Microsoft, which does not have a significant CPQ that I know of. For Oracle and Salesforce this in my opinion is more of a perhaps, which then would have been more around making life difficult for the competition. Both already have a strong CPQ, and both are doing well in the Sales Performance Management area. The onus was on Microsoft and SAP in this case. Now Microsoft, as in the case of e-commerce, is the last one without owning a solution. It also should not be forgotten about the good Contract Lifecycle Management (CLM) capabilities of CallidusCloud. CLM is an important addition to CPQ, as contracts are negotiated as well as prices for product configurations, especially in large enterprise B2B environments. Just look at a contract as a configurable product. While CLM does not sound anywhere near as sexy as CPQ, I know of cases where the CLM is as important as the CPQ itself. And it is one of the portions of a deal that takes considerable time, where speed and convenience, combined in a powerful tool, are crucial. CallidusCloud has been a long-time partner of Salesforce, which in 2016 acquired Steelbrick. Likely as a reaction to this, CallidusCloudCloud entered into a strategic agreement with SAP to integrate into SAP Hybris Cloud for Sales in January, 2017. This agreement had its first real tangible result in September 2017 when CallidusCloud announced the first version of an integration into SAP Hybris Cloud for Sales. Last, but not least, while I do not buy the “reinvention of the front office”, this acquisition shows the importance of end-to-end processes. Integrating CallidusCloud sales enablement and CPQ into the front office software (SAP Hybris) facilitates efficient integration into the more transactional oriented back end. It is part of the back office of the front office, so to say. We are closing a circle here: There is no clear cut differentiation between systems of engagement and systems of record. This is especially true in times of channel agnostic commerce.

My PoV and Advice

This was an important, even a necessary, move for SAP. SAP, for quite a while, had a gaping hole in the cloud based CPQ area, which could be filled in a reasonably short area only by an acquisition. Possible targets for this have been companies like CallidusCloud, FPX, or companies dedicated to the SAP Cloud Platform, SCP, like Inmind Cloud, which is a CPQ solution built on SCP with a focus on manufacturing industries. As said above, this acquisition plugs some gaping hole in SAP’s solution portfolio. Remaining holes include a more manageable standalone ‘experience platform’ to augment Hybris Marketing, a competitive standalone CMS and DAM, better functionality around sales contracts (e.g. renewals), a story around the conversion of web sites and e-commerce, to name but a few. Regarding the ‘experience platform’ CallidusCloud might have a thing or two that can help augmenting it. Being integrated into SAP Cloud for Customer CallidusCloud’s CPQ very nicely augments SAP Cloud for Customer by enabling a set of important processes to an extent that probably only Oracle is able to deliver: With a seamless integration into the ERP back end. Further, this acquisition rounds off sorely missing functionality in the SAP Revenue Cloud. Revenue Cloud is strong where it comes to (repeatedly) bill for electronic products. It lacks in the ability to configure products, other than fairly simple subscription products. In other words, it is weak where CallidusCloud is strong. The combination of CallidusCloud CPQ & CLM and SAP Cloud for Sales is a good value proposition already now. While it may appear less as one piece than Salesforce with Steelbrick the round story delivered by this combination is able to convince customers not going the Salesforce route. With Salesforce currently being the perceived gold plated standard of all things CRM, this is quite a feat. CallidusCloud’s ability to directly include incentives and commissions as well as give a margin health indicator for a quote may sound like a small thing but in fact is a powerful tool. The integration of CallidusCloud into SAP is a priority for CallidusCloud for quite a while now, as is the integration of its own solutions into a coherent one. While back in October 2017 it was still visible that this integration is early stage, it also showed a huge potential. Businesses that chose CallidusCloud as the CPQ working alongside SAP Cloud for Sales now have a validation for their choice. CallidusCloud has some The bottom line is that for SAP customers the topic of CPQ is no reason anymore, whatsoever, to look outside the SAP ecosystem. Also, with this acquisition SAP also bought itself a good number of net new customers, especially in the Salesforce world. The combination of the facts above should throw some wrench into Salesforce’s gear and somewhat limit its growth options. And growth is essential for Salesforce, which delivers good solutions, at a high price point, and with low profitability. Salesforce is not an Amazon that can sustain a low profitability situation eternally. In closing, there is an interesting kink. CallidusCloud is built on .Net. While this supports the openness story it somewhat weakens the SCP story until there is a .Net runtime and development environment available for it. It will be interesting to observe what happens here. Reprogramming CallidusCloud on SCP is hardly an option.