What Will SAP Do Next?

Few technology analysts have followed German software titan SAP (SAP) as long as Bruce Richardson has. In 1991, he attended its first major U.S. conference, a small affair in New Orleans. At the time, SAP was a $300 million business selling software big companies used for such functions as inventory management and financial planning.

During the conference in New Orleans, SAP introduced what was then a revolutionary concept called client/server computing. The idea, courtesy of the software gurus at SAP, was actually fairly simple: Big corporations could replace their mainframes with new software that took advantage of increasingly powerful PCs connected to server computers.

By 1996, SAP had grown into a $1 billion company. Today, it's pushing $10 billion in annual sales and ranks as the world's third-largest independent software maker, behind Microsoft (MSFT) and Oracle (ORCL). Richardson, the chief research officer at the tech consulting company AMR Research, was at another SAP conference, on May 17 in Boston, where he took a break from meetings with company executives to talk with BusinessWeek Online Technology Editor Jim Kerstetter. The following are edited excerpts of their interview:

Q: So, I understand you met with the top four execs at SAP. What did they have to say?

A: It was widely expected that they would announce their Salesforce.com (CRM) killer. But they decided to stay on message about their enterprise services architecture. They're talking about Hewlett-Packard (HPQ) building some sort of appliance to do unbelievably fast analytics. They're talking about a partnership with Cisco (CSCO) to build networking equipment optimized to work with SAP. And they're talking about several other partners.

But until you have the details on what's in the box, it's difficult to say more specifically what they will be doing. Really, this was about SAP showing their enterprise services strategy, and that it's on track.

Q: What does the Web services stuff, or enterprise services architecture (as SAP calls it), mean to customers?

A: It means rather than going out and buying additional software and upgrading, [you're] buying a can of paint and a brush [and not] paying someone to remodel your house. It means you won't have to wait three years to get new functionality from SAP. You can add it to what you already have.

Q: How long will customers have to wait for this?

A: We're at a point now where all we can talk about is technology, because little of the functionality really exists yet at SAP or other companies. There's some talk about the new Apple (AAPL) operating system and how it has the ability to link to third-party components. Now, there's a fear about how viruses can embed themselves into corporations through this technology. There are issues like security and backward compatibility that still need to be worked out.

Q: So when will we see products?

A: The problem with SAP is that, once you become a $10 billion company, first you define the strategy, and then there's a ramp up to delivering on it. It's going to be some time before this is aggressively moving into the marketplace.

Q: We're talking years?

A: Oh yeah. After SAP first talked about its initial client/server product in 1991, it wasn't until about 1996 that it started to become mainstream. We're looking at 2010 or 2012 for this. But right now, this is all about "mind share" and keeping Oracle on the defensive.

Q: Let's put this in perspective. How large has SAP become?

A: When you talk to the SAP execs and you ask, "Who are you worried about?" their answer is the only possible threat in the next 5 to 10 years may be some large Indian IT services firm that learns to build composite applications and can mimic or replicate the functionality that SAP has and do it all in new code, and not worry about being backward-compatible with the 27,000 customers SAP already has.

To put it another way, they've built a $10 billion business on those customers. To double in size by 2010, they figure their customer base has to get to 100,000 customers [because they've hit all the big companies and need to target small and midsize companies in order to keep growing]. They want to be as ubiquitous as Microsoft.

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