International -- Information Technology: Software
Can SAP Swim with the Swiftest? (int'l edition)
The battered software giant needs to catch up with the Americans. But it's hauling a lot of history
Hasso Plattner was feeling the heat. At an SAP users conference in Berlin in May, analysts and customers were pressing the co-CEO of Europe's biggest software company for hints that the slow-moving giant would make a bold move to catch up to U.S. rivals on the Web. Plattner, looking grim and jet-lagged, had little to give them. At one point he showed his frustration by admitting: "I don't know what we're doing wrong."
Just weeks later, though, at a Las Vegas convention on June 14, a rejuvenated Plattner took to the stage. The cause: a fresh-cut deal with Net software hotshot Commerce One Inc., until now a rival, to combine forces and build business-to-business marketplaces on the Web.FIRST STEP. Plattner is betting that his Commerce One deal could be the beginning of a turnaround for SAP. The German company will buy $250 million of Commerce One stock, nearly 3% of the company. In exchange, SAP will sell to its own customers the Net startup's suite of e-markets software, which will be jointly branded with SAP's own. The move puts SAP into a market growing at triple-digit speed and places the company at the heart of e-commerce, a revolution that was passing it by.
The deal is one piece of Plattner's grand plan to transform the company from a Web also-ran into a dominant player in the Net software realm. The $4.9 billion SAP, the world leader in so-called enterprise resource systems, already supplies the software that runs the internal operations, from finance to managing inventories, of 13,000 companies. The next steps are to build links from the inside of these companies to the emerging e-marketplaces, tying together suppliers and customers so they can do speedy transactions online.
Yet SAP has been in the midst of a full-blown crisis of confidence. It has been left out of a flurry of e-marketplace deals, while Commerce One has been winning over SAP's longtime customers, including DaimlerChrysler. Discouraged SAP salespeople have been defecting, with entire teams evacuating. And the stock has plunged 50% since March.
In the millisecond Net-speed era, Plattner's company, both its structure and its product, is panting to catch up--and not only to Commerce One. A slew of swift, new Web companies, such as Ariba Inc. and i2 Technologies Inc., have been darting between SAP and its customers. Meanwhile, archrival Oracle Corp. has been growing faster in SAP's core markets. Oracle could even overtake SAP as the No. 1 seller of corporate applications.
The Commerce One deal helps staunch the bleeding. But SAP still must undergo a corporate culture transformation. Today, important decisions, even in Silicon Valley, must often travel nine time zones to the east, where they confront the German command structure. No advertisement, for example, can run on the mySAP.com Web site, colleagues say, until Plattner vets it for size, color, and placement on the screen. "People have great ideas, but somehow down the line they're always getting stopped," says Marc Elmhorst, CEO of Impress, a German company that refits SAP programs for the Web.RACEHORSE. The key is Plattner. The co-CEO not only leads SAP's march to change but also stands squarely in the way. Although he's working hard to transform plodding SAP into a racehorce, Plattner has to relinquish far more power. This doesn't mean simply delegating to co-CEO Henning Kagermann and a handful of board members, but instead freeing up thousands of managers and engineers. So far, the small steps he has taken simply slow down the German giant's decline.
SAP's challenge is one shared by established technology companies throughout the world--and especially in Europe. Increasingly, the Web is driving their business. And yet they can't adjust to it simply by putting up Web pages or opening satellite offices in Silicon Valley. Indeed, the Web is the tool of a new business culture, one that plays by starkly different rules--and where pizzazz can often trump size.
This frustrates and bewilders many of the marketers and engineers at SAP's sprawling headquarters in rural Walldorf, Germany. Referring to the host of new Web competitors, which often grab markets before developing products, SAP's marketing chief, Gunther Tolkmit laments: "We're facing paper tigers, but we have a harder time fighting them than real problems."
Fact is, the paper tigers are real problems. And SAP is learning to its dismay that these offspring of Silicon Valley's New Economy not only run fast, but bite with sharp teeth. Worse, they're staking claims to explosive markets that SAP can ill afford to miss. SAP's core market for internal operations is expected to inch up at only a 5% clip, from $16.9 billion in 1999 to $21.4 billion in 2004, according to AMR Research, a Boston-based consulting group. Meanwhile, AMR sees the rest of the corporate applications software market, where the upstarts are frolicking, tripling in the same period, to $57 billion. So the upstarts could trap a shriveling SAP in its core market, the so-called back office.
Plattner is trying to remodel SAP for this new world. Bucking German tradition, he persuaded the company's board to grant stock options to more than 10% of the 22,000 employees. This should help SAP compete with the equity firepower of Silicon Valley. He's also creating semi-independent companies that will eventually issue stock--and ideally, operate free of SAP bureaucracy. The most important of these is SAPMarkets, launched in May and based in Palo Alto, Calif., which will become the on-the-ground partner of Commerce One. And early this year Plattner took on the purists at SAP headquarters, making room in the company's offerings for competing products. "That was a religious war, and Plattner came out on the side of the pragmatists," says one source close to SAP. The company also has streamlined the product installation process. "Our old projects took 18 months or two years. Internet speed means four weeks, six weeks," says Wolfgang Kenma, CEO of SAP Americas.
Meanwhile, the battle with the upstarts is hitting SAP's finances. Plattner has hiked ad spending and instituted a costly bonus plan to retain the salesforce. This contributed to a 45% fall in profits in the first quarter, while revenue growth slowed to 10%. In the U.S., where Silicon Valley upstarts have greater credibility, SAP's sales fell 3%.
Analysts applaud the Commerce One deal and predict SAP will recover to 10% earnings growth this year. With that partnership, says analyst Merijn Nederveen of ABN Amro in Amsterdam, "SAP can call U.S. customers with good news. That's a change."NO SHOPPING. Still, Plattner, 58, a crack yachtsman with a Ferrari collection and $7.5 billion in SAP stock, can't afford to go car-shopping in Milan or take to the high seas yet. He's busy coddling customers, hunting for much needed wins in the U.S. Gordon Jones, chief investment officer of Beyond.com, was impressed last fall when Plattner met with him for an hour and a half in SAP's Palo Alto offices. Jones signed up for $1.5 million of software licences, designed to revamp the dot-com's finances and billing. That's SAP's core market. But Plattner has yet to sell Jones on SAP's new Web products. "We're still undecided on those," says Jones.
While Plattner can often charm his way to deals, the future of SAP hinges on his ability to pull off a broad cultural revamp, one that refocuses the entire company toward customers. Founded by two IBM veterans, Plattner and his colleague Dieter Hopp, SAP established a culture in which engineers ruled supreme. It was these technicians who painstakingly assembled in their own computer language the company's internal processes. Yet these massive software programs, called R/3, forced companies to bend their own operations to the company's software. SAP engineers, supported by an army of consultants, were thus reengineering the world of business.
Then came e-commerce. SAP didn't yet have products and urged customers to wait. Customers, especially in Web-crazed America, paid little heed. They needed to link sales forces to the Web and bought programs from Siebel Systems Inc. They were eager to tie together chains of suppliers. SAP was working on a program, but i2 Technologies already had one. Now, Siebel and i2 boast market caps of $28.1 billion and $20.1 billion, respectively, within shouting range of SAP's $34 billion.
Plattner has been on to the threat for two years. That's when he put thousands of programmers on the job of redesigning SAP's geeky interfaces. As the company's software traveled from its labs to the broader public on the Web, white formulas on black screens no longer sufficed. SAP needed clear presentation and colorful graphics on the Web.
And it got it right. When Nvidia Corp., a Santa Clara (Calif.) graphic chipmaker, sized up SAP's applications against Oracle's, SAP won by a vote of 10 to zero, says Joseph Sura, the chipmaker's vice-president for information technology. Its software was easier to use. "SAP definitely gets the Web now," says Sura.
Last year, Plattner launched a more ambitious project, mySAP.com. It was both an umbrella concept for SAP's Web strategy and a brand for the new versions of its software that had been adapted to work on the Web. Customers, employees, and partners of SAP's corporate customers see personal views of the information they need to make purchases or to collaborate. The page also offers e-commerce links, plus e-mail, sports, weather, and news. SAP might leverage its strength in the corporate software to become a workplace portal. Plattner did the math and came up with 100 million possible users at client companies. "We can be bigger than AOL," he said at the launch of mySAP.com a year ago.
That hasn't happened yet. While SAP has sold some 3 million discounted licenses for mySAP.com, few big customers are installing the program. Still, things are looking up. After the dot-com market collapse in March, the brain drain at SAP slowed--and even reversed. H. Brian Neill, an eight-year veteran sales executive, left SAP's Charlotte (N.C.) offices in February. He says the B2B procurement company he went to sold a concept but lacked a product. After the stock collapse, he returned to SAP.
With the Commerce One deal, Neill and his SAP colleagues finally have a hot e-markets product. Yet SAP's new team is no sure thing. SAP was an early investor in Commerce One. When the two companies tried working as partners in 1997, cultural problems arose. Noelle Leca, now an Alcatel executive, was working for Commerce One at the time. She traveled between SAP's Palo Alto laboratories and headquarters in Walldorf, Germany. "They were on completely different pages," she recalls. The partnership soon died in all but name, though SAP held on to the investment. Now, SAP is investing in a second chance with the e-markets darling. The question is whether SAP's thrashings in the U.S. have taught the giant how to operate at Net speed--or if it is still too slow for the Commerce Ones of the world.By Stephen Baker in Walldorf, Germany, with Spencer E. Ante in New YorkReturn to top