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SAP Challenges Oracle by Boosting Flagship Software Speed

January 11, 2013

SAP Challenges Oracle by Boosting Flagship Software’s Speed

Visitors pass beneath a SAP TechEd banner at a technology conference in Madrid, Spain. SAP, based in Walldorf, Germany, has about 22 percent of the market for software that lets companies manage tasks such as payroll, inventory and product management. Photographer: Angel Navarrete/Bloomberg

SAP AG (SAP) unveiled the biggest overhaul to its mainstay enterprise software in two decades, in a move to cement its dominance in that market while springing an attack on Oracle Corp. (ORCL:US)’s database business.

At an event in Palo Alto, California, the German company showed a much faster version of its Business Suite software running on top of its Hana database. By speeding up business tasks from pricing airline tickets to predicting weather, SAP is pushing to replace database software from Oracle, Microsoft Corp. (MSFT:US) and International Business Machines Corp. (IBM:US) that customers use to process and analyze information, SAP executives said.

“This is like the fight for the mobile phone -- the best companies in the world are competing,” Hasso Plattner, co- founder and supervisory board chairman, said in an interview. “I’m comfortable because I see a clear path ahead.”

The move bolsters a core product, which still accounts for the bulk of SAP’s revenue, after a switch in focus in the past three years to expand into mobile and Internet-based software. The company, which has traditionally had to rely on databases supplied by Oracle and IBM, is also betting new features will convince customers to choose its own product.

Investors reacted positively to the news, sending SAP shares up 1.9 percent to 61.75 euros at 9:13 a.m. in Frankfurt. The stock has advanced 47 percent in the past year. Oracle added 0.7 percent to the equivalent of $31.91 in German trading.

‘Strategic Position’

“SAP is serious about expanding its strategic direction in the database market,” Rick Sherlund, an analyst at Nomura Holdings Inc., said in a note yesterday. “We view the Hana initiatives as a strategic positive in repositioning the company for growth.” Sherlund has a buy rating on the shares.

SAP’s Hana software stores data in faster computer memory instead of on slower disk drives, and lets customers handle business transaction data and its analysis in the same system, instead of buying two different products.

“We’re dramatically challenging the database market with a new value proposition and a next-generation technology,” Jim Hagemann Snabe, co-Chief Executive Officer, said in an interview in Frankfurt. He called the new Business Suite the biggest breakthrough in applications since SAP released the R/3 software in 1992.

SAP is pricing Hana so customers won’t need to pay more in licensing fees that they do for existing databases that handle processing and analysis needs for their SAP software, executives said. About 40,000 SAP customers run its applications on Oracle or IBM databases.

Market Share

“If they use Hana they will get a comparable price even though you could argue it is the best and fastest database in the market,” said Snabe.

SAP, based in Walldorf, Germany, has about 22 percent of the market for software that lets companies manage tasks such as payroll, inventory and product management, according to Panorama Consulting Solutions. Redwood City, California-based Oracle has a 15 percent share, followed by Microsoft with 10 percent.

“This is their flagship product, they have to get this right,” said Ray Wang, CEO of Constellation Research Inc. “If the performance difference is creating a huge competitive advantage, I would imagine that a lot of people would consider” adopting Hana, he said.

SAP is targeting close to 1,000 customers using some components of Business Suite using Hana by the end of the year, said Bernd Leukert, executive vice president for application innovation.

Profit Estimates

Plattner said SAP may exert more influence with computer makers over how servers running its products are designed.

“I see that SAP will have a bigger role in designing servers,” Plattner said.

Analysts project that the company’s operating profit grew 12 percent to 5.27 billion euros last year, according to data compiled by Bloomberg. That would beat the company’s forecast range of 5.05 billion euros to 5.25 billion euros. SAP is scheduled to report earnings Jan. 23.

SAP introduced the technology in 2011 and has since worked to boost its adoption through subsidies and encouraging startups to develop applications to take advantage of its speed. Its goal for last year was to more than double Hana revenue from 160 million euros.

SAP has tested the Hana-driven Business Suite with more than 10 customers including Deere & Co. (DE:US), the largest agricultural equipment maker. Deere will be able to use the software to offer services to farmers who have Deere equipment, including weather and crop advice based on weather patterns, Aiaz Kazi, SAP’s head of technology and innovation platform marketing, said in an interview.

‘Real Time’

The technology would let a beverage manufacturer optimize delivery routes by showing a real-time overview of stocks in stores across a particular region. A large airline is using it to determine ticket prices for individual customers on the fly.

Kurt de Ruwe, the chief information officer of Bayer AG (BAYN)’s MaterialScience unit, which is one of the pilot clients, said the time required for common data analysis tasks were cut to 3 seconds from 30 seconds, while costs went down 20 percent from the previous setup.

“We couldn’t believe how fast the data came back,” de Ruwe said in Frankfurt. “Today we are constrained by time, but with Hana our outlook could change.”

SAP plans to offer all its programs on the Hana platform eventually, and to announce as early as May that tools from its SuccessFactors and Ariba units will run on Hana, Kazi said.

SAP said it will start providing a rapid-deployment feature this quarter for implementation within six months for customers migrating to Hana. Still, Snabe vowed that Business Suite would continue supporting rival databases.

He said SAP is trying to train a workforce for quickly delivering the new software and adjusting it to clients’ systems, to avoid a “skill gap” that could slow adoption.

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net; Cornelius Rahn in Berlin at crahn2@bloomberg.net

To contact the editors responsible for this story: Kenneth Wong at kwong11@bloomberg.net; Tom Giles at tgiles5@bloomberg.net


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