Posted by: Steve Hamm on May 8, 2007
SAP’s going to have a hard time hopping on the software-as-service bandwagon without blowing up its $12.4 billion traditional software business in the process. That message came clear to me today when SAP board chairman Hasso Plattner give a keynote speech at the Software 2007 conference in Santa Clara, Calif., and talked to reporters afterwards.
SAP CEO Henning Kagermann announced a few months ago that the company will later this year deliver its most important new software product in a long while. The software, code-named A1S, is an entire new suite of run-the-business applications delivered over the Internet as an on-demand service. From Plattner's speech, it was clear that the new software is a big deal for SAP. He said the company has been building it in stealth mode for three years, and 3,000 programmers are working on it now. "It's a viable alternative to on-site computing," he told an audience of about 2000 people.
But the company is sending mixed signals about how big the market opportunity for the software is and how capable it will be. SAP describes its target as the lower end of the middle-size corporate market--which doesn't sound like a very big business. And Plattner seemed to blow hot and cold on the product in the meeting with reporters after his keynote. At one point he said most sizable corporations wouldn't find this package compelling. Yet, in answer to other questions, he said the new package will allow for lots of customization and will have 2,500 application programming interfaces that software engineers can use to write extensions to the basic functions. Also, the software is designed to that other applications within companies can easily be integrated with it. That makes it sound like it's mighty capable indeed, and even some large corporations might find it compelling.
What's going on here is that SAP has to market its new product without cannabalizing its old cash-cow products. That's going to be very difficult. It's clear from the stellar performance of Salesforce.com that on-demand services have struck a chord with corporations of all sizes. And now Dave Duffield, founder of PeopleSoft, has a new company called Workday that's about to release a whole range of run-the-business applications in the on-demand mode. So SAP has to be in the game. Yet most all of its revenues and profits now come from old fashioned software.
Bruce Cleveland, a venture capitalist who used to run the on-demand division for Siebel Systems, now part of Oracle, did a good job of summing up SAP's challenges in a response to an e-mail from me today: "As long as they're a public company, I don't believe they can make this transformation. It's absolutely the right strategy, but the internal DNA of the company will defy their ability to support both business models." Cleveland should know. That's partly what led to Siebel's collapse, which forced it to sell out to Oracle.
SAP has successfully made several transitions before--from mainframe software, to client-server, and then to Web-based software. This move promises to be more challenging, though. And Plattner, who engineered the earlier migrations, is no longer running the company. Already, one of SAP's top technologists, Shai Agassi, has quit due partly to conflicts with Kagermann over the strategy. Who knows what tribulations are yet to come?