SAP – A Humble Giant From The Reality Land? Part 3: Market Impact

Part 3: Market Impact
P.J. Jakovljevic - August 3, 2001

Event Summary 

During its international e-business conference, SAPPHIRE, on June 12-15, SAP AG (NYSE: SAP), the leading provider of business software solutions, released a spate of upbeat announcements in its effort to portray itself as a reformed vendor of choice for all aspects of e-Business, including planning and collaboration. As an illustration thereof, SAP cited that its flagship mySAP.com suite has met with remarkable success in the market. SAP reached a major milestone in 2000 when the number of licensed users of its mySAP.com platform reached 1 million. Since then, more than 3 million additional users have reportedly licensed mySAP.com.

About This Note: This is a five-part note covering the announcements at the SAPPHIRE conference, the market impact of those announcements, the challenges SAP faces, and user recommendations. Part Five will contain links to the previous parts.

Market Impact 

SAP has exhibited an amazing ability to gradually change, while remaining with both feet on the ground and somehow keeping up with the trends. It is no longer the heavy SAP from a few years ago, although it continues to be a stalwart behemoth. The company has broken away from its traditional unitary ERP mindset and is moving in a direction to penetrate most of the prospective markets in the realm of e-Business. To that end, SAP's strategy to un-bundle itself into disparate centers of excellence was with the aim to become more efficient and competitive. SAP AG, SAPMarkets and the recently announced SAP Portals reflect the approach to build upon SAP's recent open integration strategy to rapidly exploit new technologies for current and future customers. Each entity has the respective expertise and lead responsibility for sales and development of mySAP.com components, exchanges and portals. The desired effect should be the improvement of time-to-market for new solutions.

Moreover, SAP has even abandoned its proverbial stubborn policy of only developing functionally superior software in-house. To that end, SAP has become more focused on partnerships and working with other vendors that specialize in e-business software. The recent partnerships with Yahoo! and the partnership with IBM (see Part One) along with recently reinforced wedding vows with Commerce One speak in that regard, while the portals OEM alliances with its fierce enemies might have left some speechless. We believe the alliance with IBM has a true mutual potential. Training thousands of IBM consultants on the mySAP.com suite should tremendously speed up its adoption.

Since SAP's most recent focus is on new sexy application areas such as CRM, PLM and SCM, it needs plausible implementation partners to succeed, and it is difficult to think of any more appropriate partner in that regard than IBM GS. Also, IBM's decision to license and integrate SAP's enterprise portal technology for use with IBM's WebSphere Portal Server considerably fortifies the new SAP Portals business. On the other hand, SAP will make expanded use of the IBM WebSphere Application Server within its MarketSet development. IBM hopes to increase the use of DB2 and WebSphere via partnerships to primarily compete against Microsoft and Oracle. Also, one should not neglect IBM GS' opportunity for providing consulting, implementation and outsourcing services around mySAP.com.

Consequently, at SAPPHIRE user conference, SAP articulated a sound e-business strategy, which is also quite ambitious and will have to be substantiated in the forthcoming period though. Its product's componentization, openness and outward-looking strategy should be appealing to both current and potential users nonetheless. SAP's alleged humility and non-insistence on locking customers into its technology would virtually leave Oracle as the only apparent proponent of the 'one-stop shop' mantra.

Being Open and Flexible Pays Off 

One can wonder what stands behind SAP's decision to be more open and flexible though - a sudden epiphany of being unable to be all things to all people or some deeper reasons? Whatever the case may be, the decision was wise and pragmatic. As an illustration, TEC recently facilitated an ERP software selection for a division of a large global corporation with over 50 divisions using a plethora of diverse ERP packages (over 30 different packages deployed worldwide, with the 'winning' vendor having 4 instances of its product within the corporation). The chances of any single vendor succeeding in swaying the corporate management to adopt its product as a corporate-wide standard, even if that product should be a good fit everywhere, are very slim. However, linking these disparate systems through portals and private exchanges, would not be a far-fetched idea. That is where SAP can obtain a significant portion of new business, on top of being able to participate in any other software applications selection corporate wide, which would also be with less scope and much simpler owing to the possibility of selecting only a pertinent applications component.

SAP Is More Competitive 

Furthermore, we believe SAP now can afford to compete on a component per component basis, having basically reached its limit in capturing most of large customers in the market with an integrated product suite. The SAP R/3 product suite has long been one of the strongest in terms of feature-function for most of vertical industries as well as for horizontal administrative applications.

Where SAP has traditionally lagged though, was the simplicity of implementation and users training partly owing to deep intricacies and interdependencies of modules within R/3. The somewhat facetious comments that SAP R/3 has been more complicated than the US Tax code have not been that far from the truth. By breaking up the huge monolithic R/3 into a subset of mySAP.com components, SAP should be able to more quickly fix or add new functionality independently of other pieces. And once any applications vendor has established component architecture, it becomes easier and safer for IT departments to customize the system.

Additionally, componentization proves to be crucial to enable ERP systems to support e-business activity since the new e-commerce capabilities are being delivered as individual components. Componentization also helps the vendors extend the core ERP system with SCM, CRM, and other collaboration solutions. Also, componentization would not only make it easier for the SAP to enhance mySAP.com but also make it easier for customers to upgrade the software. With componentization, a customer could incrementally upgrade only selected components without having to upgrade the entire solution, which usually would entail a colossal effort.

Big bang implementations are becoming a matter of past and have often been cited as the main reasons of large implementations fiascos. Users are also becoming savvier and are able to discern when Toyota's functionality and price would suffice instead of opting for unneeded, complicated and expensive Cadillac's features. All the above reasons indicate SAP's increased competitiveness in the lower and medium end of the market in the future.

This concludes Part Three of a five-part note on recent developments covered by the SAPPHIRE e-business conference. Part One covered Alliances and Partnerships. Part Two covered SAPs expanding functionality. Part Three discussed the Market Impact. Part Four will discuss SAP's strategy.