SAP plans to push the utility model forward

SAP hopes to present itself as a safe haven for customers during the turmoil of consolidation among its major rivals in the business application software market.

The focus of the German supplier's plans to maintain its dominance of the applications sector is a strategy roadmap that will exploit emerging utility computing technology - what the supplier calls the adaptive computing infrastructure.

'We will push the adaptive enterprise very strongly,' chief executive Henning Kagermann told delegates at SAP's annual Sapphire user conference in Orlando last week.

'The market is ready for the utility model. Hardware is a commodity. We take full advantage of this. We have to bring the benefits to customers as soon as possible.'

Kagermann believes that software suppliers are well-placed to help customers introduce utility-style infrastructures because they are closer to the business processes within an organisation.

'Application providers know best when peaks in demand will come - it is up to us to find a way to allow you to dynamically adjust requests to the resources you have,' he said.

The company announced its first product development to support this objective. Its NetWeaver integration platform now supports virtualisation capabilities that allows it to dynamically adjust software resources across a blade server farm infrastructure. If one blade is nearing overload, NetWeaver will automatically assign tasks generated by its mySAP business application to another server to ensure the best performance.

Kagermann says that users of business applications are undertaking a consolidation of their own - moving from multiple installations of software from several vendors accumulated over many years to a single application environment.

He cited the example of oil giant Shell, which implemented many different installations of SAP software using different versions and now wants to migrate to a standardised system to improve integration. Pharmaceutical giant Novartis also revealed plans to replace legacy systems in more than 50 countries with mySAP applications.

Bruce Richardson, senior vice president at analyst AMR Research, says SAP is playing to the conservative mood of the market and the confusion caused by Oracle's $6.3bn hostile takeover bid for PeopleSoft.

'The main message was that SAP, as your trusted partner, wants to help you get total cost of ownership under control,' he said.

'SAP executives talked about the negative impact that acquisitions have on customers and repeated their offer to meet with executives who might be looking for a stable vendor. We agree with one SAP executive who said: "For the next two years, we can't lose." Compared to the current manoeuvres by Oracle's and PeopleSoft's chief executives, SAP's executive staff comes across as the senior statesmen for the software industry. It's a little too conservative, but it seems to sell well these days.'

In a troubled sector, SAP has grown its market share in the past two years. Analyst Gartner says worldwide revenue for new enterprise resource planning (ERP) software licences totalled $5bn in 2002, down from $5.5bn in 2001. But SAP extended its lead in the market, with its licence revenues accounting for 25 per cent of all sales.

Kagermann hopes that the combination of its adaptive enterprise strategy and customer consolidation will continue that success. He says that there is considerable scope to increase the proportion of its existing customers' budgets spent with SAP - what he calls the 'share of wallet.'

'Growth is a challenge for us in an industry where growth is declining,' he said.

'In some areas we have a lot of the market but only 10 to 20 per cent of the wallet, which is too low. How much we can have depends on the sector. In consumer goods, we could fight for 80 to 90 per cent. In other areas where we are not so strong maybe it could be 40 to 50 per cent. We might be replacing other packaged software or legacy software. There is still much growth from our installed base.'

Part of that growth is likely to come from encouraging the thousands of companies using the R/3 ERP application - the foundation of SAP's dominance of the market during the 1990s - to migrate to the newer mySAP environment.

'There will be a formal push to move customers on from R/3,' Peter Robertshaw, European marketing and business development director, told Computing.

'We need to prove the additional functionality is worth the effort. There needs to be a reason to move, but it's different for different people. For some, it's about using NetWeaver and integration with the outside world. For others its about introducing web services. The debate about corporate governance also comes to the fore.'

At times, the conference was inevitably overshadowed by the latest developments in Oracle's hostile bid for PeopleSoft.

Oracle announced it was increasing its offer price to $19.50 per share on the final morning of the event, just minutes before chairman of SAP's supervisory board and founder Hasso Plattner was due to give his keynote speech.

Plattner - never a big fan of Oracle chief executive Larry Ellison - delayed his appearance by some 20 minutes to prepare a response to the news that many analysts believe could tip the balance of PeopleSoft shareholders in favour of the acquisition.

'It is not a surprise how he [Ellison] behaves,' said Plattner.

'I hope PeopleSoft users will be strong enough to say to Oracle: No way. If they wanted to replace Oracle's 11i software with PeopleSoft's application, that would make more sense to me.'

Other SAP executives also responded to the interest of delegates in the much-anticipated consolidation of the sector.

'It's bad manners in our industry to do hostile takeovers,' said executive board member Shai Agassi.

'We have a responsibility towards our customers. We never let them down - that's the definition of maturity.'

And Kagermann says that SAP has no plans to follow the acquisitive path of its rivals.

'We don't want to buy market share,' he said. 'In our industry it's more than ever about trust and ability to deliver on commitments. We hope to give an indication to the market that there is an alternative in terms of trustworthiness.'