SAP’s strategy straight from the top

TORONTO – SAP AG is counting on its partnership with Microsoft, its decision to open up NetWeaver to ISVs and its experience with 30,000 customers to stave off competition in the business software space, according to the president of the company’s Americas division.

In a rare Canadian visit to Toronto this week, Bill McDermott said CIOs are caught in an “expectation gap” between what CEOs want and what IT department are capable of delivering. Like its rivals, he said SAP wants to become the “trusted advisor” that helps them reduce complexity in their businesses, particularly those associated with managing large enterprise resource planning or customer relationship management systems.

“You can’t outsource it if you haven’t fixed it yet,” he told in an interview Thursday. He gave the example of a retail customer with more than 100 different financial systems. “There’s no point in handing off the business process management of that until you have harmonized those systems.”

SAP’s middleware product, NetWeaver, aims to help customers do that by building reusable software components that better link disparate systems, otherwise known as a service-oriented architecture. SAP rivals such as Oracle and IBM offer middleware products of their own, but exactly a year ago the company said it would take the unusual step of turning NetWeaver into a platform for use by third parties. Much in the way Sun Microsystems allows developers to create applications out of Java, for example, SAP is planning to make NetWeaver subject to a “community process” that will determine how it evolves.

McDermott admitted the decision around NetWeaver marked a cultural shift for what had been a mostly proprietary software company.

“It’s been liberating,” he said. “SAP is already the standard, so there’s no threat to have other companies building on top of your platform.”

McDermott referenced Vendaro, a Palo Alto, Calif.-based firm that built a price and margin management module for use in SAP environments. The tool would allow customers, for instance, to adjust their pricing on products that see an increase in demand, as well as make changes to those that aren’t succeeding in the market.

“It would have taken us a year to develop,” McDermott said. “There are all these ideas coming from people who are brilliant, but who aren’t necessarily within SAP.”

In an earlier interview with, IDC Canada software analyst Joel Martin said NetWeaver is seeing considerable traction in Canadian enterprises. 

“It’s gone through the trial stages of many companies,” he said. “It’s something that can allow (SAP) to focus on the business process platform, and also allow them to adopt applications as they need them to expand their base.”

SAP’s most important partner is Microsoft, since two thirds of all its software implementations run on Windows. Two years ago, the firms pledged to integrate NetWeaver and .Net more tightly, which has resulted in a project code-named Mendocino that will allow Office users to tap into back-end SAP applications.

“That will open up a very nice revenue stream for SAP,” McDermott said, because having more Office users “touch” SAP systems means they will be considered additional seats of SAP installations.

As Oracle bought up scores of firms to better compete in business software, SAP launched a program called “Safe Passage” where it would guarantee a smooth transition to its own product line. McDermott said at least 200 major customers have already ripped out Oracle and replaced it with SAP, and he expects about 400 more this year.

“Customers were so disillusioned by Oracle and their strategy,” he said. “So many of them had already chosen to work with other firms which Oracle then acquired. Imagine how it felt to be forced to deal with a culture that’s well-known for having a reputation of heavy-handedness, of applications that don’t perform well . . . there are multiple thousands of customers out there who now won’t have a real platform until 2008, or if you believe some analyst reports, 2013.”

Not long after Oracle announced its acquisition of Siebel, SAP announced it would come out with its own hosted CRM product. Like Siebel On Demand, SAP is offering a hybrid model whereby customers could start out with hosted CRM and then later, if they choose, own it themselves. McDermott acknowledged that model didn’t work very well for Siebel, but he said SAP has other advantages.

“For Siebel, it was all about today’s revenue,” he said. “To be in an annuity business fought against the logic of companies like Siebel. At SAP, we’re talking about a much more financially secure company with a diversified business model.”

McDermott recently gained additional responsibilities when SAP decided to merge his North American operation with its Latin American group, a move he said would bring more unified support to its integration partners.

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