Microsoft, SAP is a Deal to Watch

By Larry Dignan  |  Posted 2004-06-08

Microsoft, SAP is a Deal to Watch

Autumn Bayles, chief information officer for Tasty Baking Co., expects the May 11 Web services alliance between SAP and Microsoft to make it easier for the $250-million-a-year Philadelphia snack cake company to become more efficient.

"Its definitely good for the future," says Bayles, whose widely dispersed users operate SAP software, using Windows computers on their desktop—as do two-thirds of SAPs customers. "I expect there will be some future benefit."

Along with other customers of the two companies, Bayles is watching SAPs tango with Microsoft. Under the agreement announced last month, the two companies said they would work together to "deeply integrate" their software for creating enterprise applications that run over the Web. That includes Microsoft s Web services platform, called .Net, and SAPs NetWeaver integration framework.

The alliance promises to make it easier for developers who use Microsoft tools such as Visual Studio .Net to create programs that run on Windows machines and access SAP data and functions over the Web. SAP applications and the Microsoft Office suite will also be able to work together more easily.

During the course of the DOJ-Oracle trial, Microsoft admitted that it looked into merging with SAP. Click here to read more.

Which raises some potentially strategic questions: Who will get the better of the partnership? Will Microsoft use the ability of its developers to access SAP applications and data to woo large corporations? Will SAP get stronger because its applications will be easier for Windows computer users to operate? Could these two titans even merge—assuming antitrust regulators would allow it?

There are no quick answers. How this partnership plays out is worth watching because one of these important suppliers—or both—may wind up with more of your budget dollars.

According to Microsoft Chairman Bill Gates, the alliance will give mutual customers "a key competitive edge."

Columnist John Pallatto says that the Microsoft-SAP agreement shows SAPs growing market strength. Click here to read more.

For instance, corporate customers could mix and match portal products and development tools from the two software giants. A customer could use Visual Studio .Net to create portal components that run on SAPs enterprise software. Products that integrate services available through Microsoft .Net and SAP NetWeaver are expected to arrive in August and stretch into 2005.

Next page: Pact could enable Microsoft to sell servers to large enterprises.

Microsoft could sell

more servers to large enterprises ">

According to Pacific Growth Equities analyst Brendan Barnicle, Microsofts pact with SAP could allow the Redmond software company to sell more servers in the very large enterprise arena, where companies count their revenue in billions of dollars a year. So far, Microsoft has been strongest with smaller companies.

AMR analyst Eric Austvold says the move could undercut Microsoft. He sees the buddy routine with SAP as a bow to the open-source movement. "This relationship is good for SAP and its customers, but its a potentially tricky one for Microsoft," says Austvold.

SAP could use Microsoft to put more of its applications on employee desktops, says Austvold. That would make it hard for Microsoft to put its own enterprise-class applications there or to gain adherents.

Then, if Linux or another "free" operating system gains ground, SAP stays in place—while Microsoft fades.

SAP applications reside on 10 percent to 15 percent of desktops during a deployment, says Austvold, adding that SAP could use Microsoft to boost that share to 50 percent in a few years. If Linux and other open-source software gain more momentum, SAP s NetWeaver platform, based on Java 2 Enterprise Edition architecture, could boot Microsoft in some places.

SAP is also scoring allies in the hardware arena. Click here to read more.

For now, the companies dont expect any conflicts.

"We dont control the customer; the customer controls us," says Shai Agassi, a member of the SAP executive board. "Its ludicrous to think Chevron [an SAP customer] would buy a word processor from me. Its also ludicrous to think Chevron would buy its enterprise software from Microsoft."

When asked whether there could be future deals between SAP and Microsoft—including a merger to lock down the enterprise and the desktop—Agassi noted a deal would never pass regulator scrutiny. "Lets make the case that were not stupid," Agassi says. " We couldnt go out and buy J.D. Edwards or PeopleSoft either."

Tom Steinert-Threlkeld contributed to this report.

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