SAP Focuses on SMBs, Unconcerned by Oracle's Sun Acquisition

By Nicholas Kolakowski  |  Posted 2009-10-28 Print this article Print

SAP reports quarterly revenues that fell by 9 percent thanks to a decrease in spending on business software, but increased adoption of its products by SMBs may help it through economically challenging times. The president of SAP North America suggests that SAP is unconcerned by the seemingly imminent acquisition of Sun Microsystems by Oracle.

The future of the enterprise will be a hybrid, at least when it comes to software as a service, the president of SAP North America told eWEEK in a recent interview.

"Businesses will likely have to have both on-premises and SAAS [software]," Rob Enslin said during an Oct. 21 customer event in New York. "On-demand applications certainly are significant, but when you run mission-critical applications, so many other factors need to be taken into account; these potentially keep those mission-critical applications on premises."

The cloud "is going to be a realistic option for mission-critical applications," Enslin added, "but it's going to take time."

The future of software, and how businesses use it, is certainly on the minds of SAP executives in the wake of the company's Oct. 28 quarterly earnings call. As reported by a number of news outlets, including Bloomberg, the software maker is predicting a 6 to 8 percent dip in software and service revenue for 2009. The company's total revenues for the quarter fell by 9 percent year over year, even as net income rose 12 percent.

Earnings and revenue were expected to be higher. While the drop in SAP's numbers may be largely chalked up to the effects of a still-moribund economy and an attendant cut in IT spending by major corporations, it calls into question what SAP can do to regain some of its footing.

That effort will be dependent, in some part, on SAP making its software road map appealing to current and future clients.

To compound matters, one of SAP's major rivals in the enterprise space, Oracle, is seemingly on the verge of removing all roadblocks to its acquisition of Sun Microsystems. That $7.4 billion deal was already approved on Aug. 20 by the Department of Justice, although European Commission regulators have been urged by some software industry groups to block the takeover in Europe.

So far in 2009, Oracle has launched a number of new applications and capabilities, such as a suite of solutions through its Oracle Accelerate program, designed to deepen companies' access to business intelligence, transportation management and other functionality. Many of SAP's offerings touch on those same areas, including enterprise-critical applications such as BI and data warehousing.

Publicly, SAP is taking care to show a lack of concern over Oracle's Sun acquisition.

"I don't think it's going to impact us," Enslin said. "Oracle will have to compete against IBM, [Hewlett-Packard] and others; whereas we've always had good partnerships."

Recent deals include an agreement with HP to integrate SAP BI applications with the HP Neoview platform and an expansion of a partnership with Novell to cover governance, risk and compliance solutions.  

There is also a difference in the strategies that both companies are willing to share with the outside world. Oracle CEO Larry Ellison recently expressed interest in taking market share away from IBM in the systems business, and recent Oracle releases such as Fusion Middleware 11g aim to consolidate enterprise-network aspects such as IT governance and service-oriented security into a single homogeneous stack.

SAP, at least according to Enslin, does not have Oracle-style aspirations to make itself into the newest end-to-end software, service and infrastructure company.

The focus instead will be on its core products, such as the next version of SAP BusinessObjects Explorer announced on Oct. 27 during the SAP TechEd conference in Vienna, Austria, layered with additional functionality and applications courtesy of the cloud.

"Developed apps on demand that plug into platforms like Business Suite 7," Enslin suggested, will become the "significant play" for companies. SAP Business Suite 7, unveiled in February, is designed to allow companies to create and manage efficient and flexible business processes; IT players including IBM partnered with SAP for the rollout to customers.

During the Business Suite 7 launch event in New York on Feb. 4, SAP co-CEO Leo Apotheker referred to Business Suite 7's ability to enact processes across multiple parts of a company, as well as integrate those processes with advanced analytics, as indicative of "the future of enterprise computing."

Apotheker said, "We actually have a vision of how business should evolve in the future ... We believe that the world is evolving toward business networks."

The continued focus on cost-cutting by small and midsize businesses and the enterprise, he added, will only boost SAP's fortunes in the long run.

"Customers want things with immediate returns. 'How are we going to cost-cut?' 'We have a good supply chain, but where is the revenue going to come from?' They want to squeeze whatever they can out of what's left of their budgets," Enslin said. "The shift now is around analytics, which is where things like [SAP BusinessObjects] Explorer come into play."

SAP seemed to recognize companies' generally squeezed IT budgets by allowing customers to cherry-pick the functions of Business Suite 7 needed for their businesses without necessarily upgrading to the entire platform. This also allows SAP to appeal more strongly to SMBs, which have become an increasing part of its revenue model.

With businesses cutting back on software spending over the past year-and perhaps continuing to do so into early 2010-smaller businesses may help SAP reverse some of its current financial trends. An Oct. 28 statement by Apotheker seemed to suggest as much.

"Despite the continued tough spending environment," the co-CEO wrote as an accompaniment to SAP's earnings report, "we are pleased to see further progress in the evolution of our volume business as a result of smaller deals."

Nicholas Kolakowski is a staff editor at eWEEK, covering Microsoft and other companies in the enterprise space, as well as evolving technology such as tablet PCs. His work has appeared in The Washington Post, Playboy, WebMD, AARP the Magazine, AutoWeek, Washington City Paper, Trader Monthly, and Private Air. He lives in Brooklyn, New York.

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