SAP CEO Henning Kagermann's Sapphire keynote (see ZDNet coverage of the event) didn't reveal any surprises. SAP is riding high after a good quarter and feeling confident in its ability to deliver on its ambitious strategy to establish enterprise SOA across its product line and enter the on demand application with a new business suite aimed at the lower mid-market.
Kagermann dismissed competitors with a wave of the hand.
"We are not arrogant, we are the market leader. We cannot learn from the competition, but we watch them. If you look at who is running the backbone of largest companies, it is us, so we are learning from customers. They give us best the possible knowledge of what is going on in the market," Kagermann said during an interview I attended with a group of fellow bloggers.
“We believe we are in the lead,” he continued. “It’s not so much about how many clients we can take over from the competition. Enterprise software is pretty sticky. We have a clear indication of where we are heading.” Most SAP customers exist in heterogeneous environments, and have multiple, overlapping enterprise software providers. “Our first objective is to convince customers that SAP is the strategic vendor of choice,” he said. Without mentioning Oracle by name, he said, “SAP co-innovates the future while our competition consolidates the past.”
“We know there are companies out there innovating faster than us. It’s OK with me. Over time we will enter these spaces, particularly with A1S we will have an entire on demand suite.” He noted that 65 percent of SAP's revenue ($12.8 billion US in 2006) comes from small- and medium-sized businesses, what SAP calls SME (E for Enterprise). SAP has been slow to adopt the on demand model, but based on presentations by several company executive, including Chairman Hasso Plattner's discourse on the future of business suites, the tide has turned.
A1S is slated for volume shipment in 2008 and is aimed at mid-market customers, typically with 50 to 500 employees. It is more horizontal than SAP’s higher-end products, such as the A1 suite for the upper mid-market, and is designed from the ground up with an enterprise services architecture. It doesn't have the deep vertical slices of A1, but will include some vertical capabilities, such as blended manufacturing and project accounting, according to Scott Lutz, vice president of marketing for SME.
He also said that A1S will have a standard price per month per user (he mentioned $160, but he said it was just an example), no matter how much functionality of the suite is used. Customers will be able to try before they buy and deploy the end-to-end business suite within a week, he said.
NetSuite, like SAP's phantom A1S, is an on demand suite covering the sweep of back office applications. I asked Kagermann whether he viewed NetSuite as a competitor. He responded, “They have been working on it for eight years. It cannot be a very modern technology.” Workday, a company founded by PeopleSoft founder Dave Duffield, is also working on a complete business suite based on an SOA architecture, and claims that it will have feature parity with SAP in 18 months.
NetSuite CEO Zach Nelson responded to Kagermann's assessment of his on demand suite as follows:
In terms of what SOA supposedly delivers--encapsulation, loose coupling, reusability, etc.--we have it in spades (and yes, to “the core”) with NetSuite’s SuiteFlex architecture. But from a customer perspective, the term SOA is meaningless. Not a single one of our customers has ever asked us for "SOA." I think SAP is using inherently meaningless terms like “enterprise SOA” to obfuscate how ridiculously far behind they are in this market when compared to NetSuite. Right now, SAP can say A1S is anything because it is nothing. It actually sounds like warmed up R/3 with warmed up NetWeaver to me.
Kagermann characterized salesforce.com as a company doing some CRM business in the mid-market. "Salesforce is like best of breed in the old days. It's always an advantage, but you cannot be best at everything worldwide. That's our advantage--we can run an entire business.”
Kagermann seems to dismiss the fact that salesforce.com is on doing $1 billion annual revenue (about nearly 10 percent of SAP’s revenue) and has opened its Web-based, service-oriented platform to developers. On the other hand, salesforce.com currently lacks deep applications beyond SFA and CRM and the industry vertical specialization and best practices that SAP can embed in its on demand suite.
Nor does Kagermann view mid-market competitors such as Lawson, Microsoft and Aggresso as a barrier to success in launching A1S. “You don’t have to get rid of them. The market is huge; there are so many clients out there and so much demand. We are not betting on A1S alone. We would still be the [mid-market] leader without it.”
He also wasn’t concerned about getting to market rapidly: “The transition [to A1S] is challenging, but it’s not critical to our future if it slips half a year.”
Based on the adoption of SAP ERP 6.0 (formerly MySAP 2005) and NetWeaver, Kagermann declared that the mass adoption of enterprise is underway. SAP ERP 6.0 adoption rose from 225 in April 2006 to 2,547 currently. NetWeaver adoption has grown from 5,881 to 13,068 production environments year over year to date, he said. SAP expects 75 percent of customers to move to SAP ERP 6.0 by mid-2008.
He attributed the increasing acceptance of enterprise SOA to the accelerated pace of change—such as increased M&A activity that required an integration platform and the rapid pace of consumer product introductions (one every 3.5 minutes, he quoted) and the need for competitive differentiation through innovation, which a more adaptive service-oriented software infrastructure can more enable.
He used the phrase “business network transformation” to describe the next phase of IT to the crowd of 15,000 Sapphire attendees. “It’s about reaching outside the company, it’s about agility and transformation, connecting and reconnecting business partners on the fly and reacting to changed preferences.”
“Today IT cannot support flexible business network. You have to start re-architecting applications. We said let’s be bold again and we are ready today when you need it.”
Kagermann laid out SAP’s roadmap, which leads increasing toward a more pure enterprise SOA platform and ecosystem. “You have to build the right infrastructure to mesh different systems into one performing network, integrated into distributed, heterogeneous environments. It’s about speed through process automation and in reaching down into automation layer—the vision of the silent transaction.”
Stripping away the keynote rhetoric about business network transformation and the dream of silent transactions, SAP, especially the now departed Shai Agassi, made a big bet on SOA a few years ago, setting out to completely revamp its core engine and products, decomposing its applications into thousands of enterprise services and creating a framework for composite applications (NetWeaver). Oracle is attempting the same feat with Fusion, but has to weave a comprehensive set of services out the mass of acquired applications and then figure out how to migrate customers on a variety of platforms to the new enterprise services world.
SAP’s stated goal is to grow from 39,000 customers to 100,000 by 2010, substantially increasing the footprint and influence of its platform and growing its ecosystem, apparently without going the big acquisition route to acquire seats. From the outside it appears to be a highly disciplined and focused conquest to develop and market a comprehensive services-based applications platform, the system of record, geared to serve every customer segment, industry and user role.
Oracle has similar ambitions, but isn’t as far along the path. Microsoft wants to own the SMB solutions market. Salesforce.com and NetSuite are in the mix. Many smaller, point products fill particular needs. The end game is pervasive platforms with vibrant ecosystems and services marketplaces and model-based development paradigms that make it relatively easy to change and automate business processes.
The challenge for SAP, which has had most of its success at upper end of the market, is appealing to customers down market. To that end, the A1S business suite and go-to-market plan, and whatever the company intends to do with its small business offering, Business One, will have to be major successes for SAP to reach its magic number.
I wouldn't bet against SAP being able to alter its DNA at this point, given that the company professes to understand it is creating a new business with A1S, not a new product. Also, IT shops (at least IT architects) are growing to appreciate the benefits of SOA. There is more receptivity to benefits of the demand model, and SAP has the money to invest in market development and code.