SAP sheds light on 'enterprise in a box' strategy

ERP specialist has given more details on the plans behind its upcoming A1S business and product suite aimed at medium-sized companies

SAP has given more details on its upcoming mid-market suite of applications which, it claims, is a new business for SAP rather than just another product.

Speaking at a press conference in London to announce the company's latest results, the company's chief executive, Henning Kagermann, said that the A1S launch, planned for September, was unique in the company's history and would see SAP going after a completely new market.

"We have never done a launch like this in our history. It is not a product launch and we should not compare it to a product launch, like the new CRM products," he said. "It is a new business and, with new business, that means a new product, on entirely new technology, addressing an entirely new market and entirely new customers, with different demands."

The company's second-quarter results beat analyst expectations, with licence sales up by 22 percent, the steepest rise since the third quarter of 2004. The company also claimed to have 26 percent of the ERP market, up from 25.1 percent in March.

However, the German software maker's financial gains this quarter may be adversely affected if it is forced to pay a fine resulting from the ongoing intellectual-property case with Oracle involving its TomorrowNow subsidiary.

SAP has been working for around three years to develop a new business suite and a way to take it to market. Code-named "A1S", the applications are aimed at the lower-end of mid-sized companies, and part of SAP's plan is to grow its user base from around 39,000 customers to 100,000 by 2010.

"A1S is designed to go after an untapped part of the mid-market for us, which is the quick-consumption model, where people are looking to get a suite of enterprise-class capabilities which they consume very fast, and so it has been designed broadly, but not necessarily as deeply, as our current capabilities when it comes to vertical industries," said Léo Apotheker, deputy chief executive and president of global customer solutions and operations.

He added that SAP is already working with clients on A1S developments so that it will be able to demonstrate exactly how the system performs in the real world when it is eventually launched. "We are working with clients right now and will present the launch of the new brand while also presenting live customers; that gives you a feel of the reality — I think everyone can show a nice demo."

Clarifying exactly what A1S will actually comprise is not easy but, broadly, the product can be seen as part of SAP's attempts to extend its reach and to embrace the hosted approach to application provision that has seen companies such as CRM provider disrupt established on-premises software providers, such as Siebel.

The challenge for SAP when it comes to the web is the same as Microsoft is facing when it comes to hosted versions of its Office software: how to make use of the web without undermining the existing and established business model.

SAP is trying to solve the problem of how to tap into the market for hosted applications without giving its high-end customers cheaper alternatives by pushing separate products and business models, as is the case with A1S.

Kagermann was keen to address the question of why, if the A1S product is going to be so innovative and exciting, large enterprise customers shouldn't be looking at it too.

"I personally talked, the first time, to the user groups and I can say that they understand very well what we are doing; they understand that this is designed for the specific needs of the mid-market and you cannot design one product that fits all requirements. We are at a time when we are bringing out different products and suites to the market based on the same technology platform; that is key," he claimed.

He added that the immediate advantage for large enterprise clients when it comes to A1S is that they can see an opportunity in the future to have alternative offerings from the same vendor for their small subsidiaries. "They see a huge opportunity to link or integrate suppliers of smaller size in an automated way because they can use this system," said Kagermann.

SAP is also keen to keep its large enterprise customers on side, while it diverts so much energy and resources into a product not aimed at them, by pushing the innovation benefits that developing A1S has had on the entire company.

"We will leverage some of the innovations for the enterprise-sized clients just as we leverage our experience from the enterprise clients into the set-up of the suite system, as it's an enterprise in a box," said Kagermann. "It's not like in the automotive industry where innovation only goes top-down; in our case it goes top-down and bottom-up. So you will see over time more clarity, and our large clients are very happy with the set-up."


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