SAP Foresees Scant Interest in On-Demand ERP

BURLINGAME, Calif.—SAP will gradually expand its on-demand application offerings, but it doesnt see widespread interest in an on-demand enterprise resource planning suite for midmarket companies, according to Leo Apotheker, president of SAPs Customer Solutions & Operations organization.

“In our dialogues that we have with many of our midmarket customers, we dont see any big attraction for complete suites to be supplied as an on-demand service,” Apotheker said.

When midsize companies decide to implement a new ERP system, they are generally trying to automate and improve the efficiency of a few key business processes that will help them be more competitive and profitable, Apotheker said. That also means “you want to maintain complete control over the one or two business processes that are core to your business,” he said.

Companies in this situation are going to be wary about implementing on-demand applications as opposed to on-premises applications where they can control and customize the application to best suit their needs, he said.

/zimages/5/28571.gifClick hereto read the details about SAPs acquisition of Virsa Systems.

Members of SAPs executive board were here April 6 for a conference for its developers in Silicon Valley. Apotheker, CEO Henning Kagermann and Chief Technologist Shai Agassi participated in a press conference to talk about the status of their current product and market development strategy.

Kagermann said that while SAP will gradually expand its on-demand product line beyond the current CRM (customer relationship management) offering, this business model will “be an additional revenue stream.” It will never become SAPs core business, he said.

Furthermore, Kagermann said he is not concerned that software as a service will “cannibalize” its on-premises enterprise software market or pose a serious competitive threat to its midmarket position.

NetSuite on April 5 announced Version 11 of its on-demand ERP suite of financial, CRM, accounting and inventory management software with the stated purpose of winning over more midmarket customers.

Kagermann indicated that he isnt seriously concerned about new competition in the midmarket space because “we are the market share leader in the midmarket” and the company only expects that share to grow at its competitors expense.

One of SAPs key targets for the next four years is to expand its customer base from about 32,000 to about 100,000 by the year 2010.

“We measure ourselves against Oracle, Microsoft and Sage Software, and we have gained market share” against all three of those companies, he said. SAP is generating 40 to 45 percent of its software revenue from midmarket companies.

SAP is not worried that Oracle will gain market strength as a result of its prolonged multibillion-dollar corporate acquisition spree that it has been pursuing since 2004, Kagermann said.

The company believes that it will be far easier to maintain a tightly integrated product line by focusing on its native applications rather than making a large number of big acquisitions that have to be linked to the established product line in costly and time-consuming projects, Agassi said.

A recent exception was the acquisition announced on April 3 of corporate risk management software provider Virsa Systems. Agassi said this was a carefully targeted acquisition of a strategic product that could be quickly integrated with the rest of the SAP product line.

Kagermann likened Oracles massive corporate acquisition campaign to “going out and buying body parts and trying to make a body out of it, which is very difficult.”

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