Following SAP CEO Henning Kagermann’s presentation at SAP's fourth annual analyst summit, Shai Agassi, president of the Product & Technology Group, laid out the company's technical vision. He believes that SAP is in position to lead the chasm-crossing from the client-server model to enterprise SOA, and become the dominant software platform.
He cited Geoffrey Moore's Crossing the Chasm, in which the author states that the first company to cross the chasm--to transition from one technology generation to the next--can galvanize 80- to 90 percent of the ecosystem. An ecosystem doesn't want to adopt multiple platform standards, and would rather have one strong platform, one backbone running core processes, to build around.
Agassi then offered benchmarks, which he said will be a tipping point for SAP and the industry in moving to a next-generation software and infrastructure platform.
First, having 10,000 customers running on SAP's enterprise SOA platform, NetWeaver, which he expect to have by the end of 2007. Secondly, when 80 to 90 percent of key business processes are covered by services. Agassi also expects to reach that point by the end of 2007. Third is how many xApps are built on SAP's NetWeaver platform. "In my view, when we are at 500--20 xApps per industry--we are there," Agassi said. "Then the industry is tipped to the next generation, Enterprise 3.0, and innovation will take front and center in this new market." Currently, about 150 xApps are available.
Agassi also described the shift from client-server to a new stack, with commoditized parts at the bottom of the stack and the high value in the business process platform. "Process is the next platform," he said.
SAP is building its services directory and ecosystem in several ways to reach critical mass by the end of 2007. First is building composite service itself, such as Duet, which integrates Microsoft Office and SAP. Agassi called it the popcorn approach, heating up underlying processes and services that pop out to become enterprise services, which are then published on a wiki with code samples. A second effort germinates from in-house teams building processes and extending them. Third are Industry Value Networks (ISN), which get customers from specific industries to work together with ISVs to create some level of standardization of processes, objects and data types. Today, SAP announced a new ISN for the forest and paper products industry, and plans to add 20 more industry verticals with ISN initiatives in the next 12 to 18 months.
Fourth, users will be able to automatically generated processes. "We took every single CRM service and have tools so that anyone can generate a Web service," Agassi said. "They are ready to consume, available from within NetWeaver and Web service complaint technology."
"There is no doubt the strategy is sound," Bruce Richardson, chief analyst at AMR Research told me. "The challenge continues to be the digestion of it, dealing with the time and cost of upgrades to embrace these innovations, particularly for big companies. For a company like Genentech, every dollar it can save in IT can be put into drug discovery, so spending on upgrades has to show how it improves competitive positioning, but at some point they will have to upgrade."
For the ecosystem of developers and integrators, SAP's base of almost 40,000 customers all running the same thing is the most attractive potential customer, said Jim Shepherd, senior vice president at AMR. Currently, SAP has about a 22 percent share of the enterprise applications market and 11 percent for middleware (NetWeaver).
SAP believes there is winner takes all potential versus Oracle, and is racing to get to the promised land of enterprise SOA with a robust process platform and what the company says is a non-disruptive migration path first, even if many customers are not yet ready to make the leap. Agassi expects that by the end of 2007, enough of the pieces will be in place--10,000 customers and plenty of services and xApps--to give SAP a lead versus the competition.
During a press luncheon, Agassi further explained his view of crossing the chasm. "The first one to cross the chasm takes leadership not just in marketshare but also mindshare, defining what is goodness for a market," Agassi said. "Then there is a question if it becomes standalone or evolves to converge with another market, such as middleware joining applications." In the pre-chasm phase, companies want to buy tools, but in the post-chasm phase, customers want solutions, he added. "If you look at the market, we are post-chasm in middleware, the early majority doesn't rule any more. Post-chasm buying is much stronger than pre-chasm. SOA is in the chasm."
Oracle's approach is that the database and middleware are converging, and it is layering in its applications. Agassi said the databases, identity management and other elements in the stack are commoditizing, and customers aren't going to pay SAP for the additional functionality.
Agassi added one more factor to his success formula, the ratio between the IT spend on operations and innovation. "That will be our hardest test. Otherwise this industry cannot grow 10x in the next 10 years."
Agassi also laid out the latest roadmap for SAP's product portfolio, and touted the company's "switch framework," which allows the company to release enhancement packages for mySAP ERP 2005 every six months or so and gives customers the option to upgrade.
SAP Product Roadmap: yellow=2006 products; blue=2007 products; red=acquired products; green=partner products