Agassis Departure Wont Help SAP Fend Off Oracle

Opinion: Shai Agassi's resignation from SAP was certainly the best thing for both parties. But it won't make it any easier for SAP to win its battles with Oracle in the courts or in the midmarket.

While SAP wants the public to believe that everything is under control, it is giving a great impression of a company in turmoil.

The departure of Shai Agassi as president of SAPs Product and Technology Group is only the latest in a string a bad news that has dogged the company in recent months.

The resignation comes a week after Oracle filed suit claiming that SAPs TomorrowNow customer support subsidiary had gained repeated unauthorized access to a password-protected customer support Web site and downloaded vast libraries of software and documentation.

SAP executives were quick to deny that Agassis departure had anything to do with the lawsuit or that the company failed to hit financial projections in two fiscal 2006 quarters. But SAP is clearly sailing in stormy waters, and it is under pressure to demonstrate that it can fend off this legal challenge from Oracle and remain on course to return to robust growth in relatively short order.

Its also losing its top application platform strategist just at the beginning of a software development program in which the company will invest $370 million to $493 million over the next eight quarters in the new A1S midmarket suite. The company is counting on this suite to increase it earnings by $1 billion over the next four years and nearly triple its customer base by 2010.

/zimages/1/28571.gifClick here to read the details about Shai Agassis resignation from SAP.

Agassi led the charge in the development of SAPs NetWeaver Web services platform as well as the MySAP e-business application integration product. These products allowed the company to make a full transition from old-style client/server software to Web-based application development.

With the new A1S product, SAPs goal is to deliver an ERP (enterprise resource planning) package that is affordable by midmarket companies with 100 to 1,000 employees. This is a market that the company estimates is worth as much as $15 billion.

The new A1S product line has to be a success for SAP because not only is Oracle posing a legal challenge with the TomorrowNow suit, but it is also determined to eclipse SAP as the worlds top ERP software vendor.

SAP has consistently tried to contrast its strategy of steady organic growth through the development of its own product line with Oracles massive effort to grow rapidly by spending tens of billions of dollars to acquire companies and software technologies. At last rough count, Oracle has acquired nearly 30 companies large and small over the past four years.

However, Oracle Chairman Larry Ellison has challenged SAPs product strategy by noting that with A1S SAP is trying to address different market segments with different product lines. SAP has the long-established R/3 client/server business application suite for its largest customers and then began addressing midmarket customers with NetWeaver and MySAP. Now it is developing the A1S product line to go after the lower half of the midmarket.

Ellison contends that once it completes the integration of its many corporate acquisitions in its Fusion product line it will have a single product line that it can pitch to all market segments. He claims Oracles product strategy represents a more coherent approach that will allow it to supplant SAP as the top ERP software company.

/zimages/1/28571.gifTo read more about the Oracle lawsuit, click here.

Clearly, it is critically important to SAP that its A1S product strategy succeeds in delivering the new broad midmarket sales that the company needs to generate new sales growth and revenue.

The problem is that the midmarket may not prove to be the rich, new frontier that the company is counting on. There are a lot of companies besides Oracle and SAP trying to sell business application software into this market, not the least of which are Microsoft, and NetSuite.

Midmarket companies may not be willing to take on the expense and maintenance costs of a broad, complicated ERP suite from SAP or Oracle no matter how its been packaged and priced for smaller organizations. Thus, SAPs hopes that the midmarket will deliver rich future rewards may be overrated.

Instead, SAP may find that it is struggling to fire up a maturing market that at best can produce single-digit growth just as it is trying to fend off Oracles relentless legal and competitive offensive.

By any measure, it was not a good time for the companys top platform strategist to take a walk. But there is no question that SAP needs top management that is prepared to make a long-term commitment to helping the company achieve its ambitious business goals. It was clearly best for Agassi to move on to new interests and for SAP to make the management changes it needs to in order to stay on course.

But in the months ahead, SAP may find that a rapid return to growth and stability proves elusive as it continues to battle Oracle in the courts and in its global markets.

John Pallatto is a veteran journalist in the field of enterprise software and Internet technology. He can be reached at

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John Pallatto

John Pallatto

John Pallatto has been editor in chief of QuinStreet Inc.'s since October 2012. He has more than 40 years of experience as a professional journalist working at a daily newspaper and...