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SAP Ascendant

In this report, we'll go over some highlights of last week's Sapphire. In the next, we'll talk more reflectively (and at greater length, alas) about SAP's long-term prospects.

The Keynote

Before an audience of 4000, Henning Kagermann set the tone for the year, not with words, which were forgettable, but with mood and body language. "They've won," whispered a friend of mine as he watched the little lift in Kagermann's step. "We've won," said Kagermann, Apotheker, and McDermott at the crowded press conference later on in all but words.

This is a mistake. SAP may be beating out its current competition. But SAP's biggest opponent is not Oracle or PeopleSoft: it is time and the inadequacies of its own product and organization. SAP's success over the next 10 years will not be determined by what Oracle does. It will be determined by its ability to deliver value to its wonderful customer base. Today, SAP rates no more than a C+ at delivering value, certainly nothing to strut about.

The immediate cause of Kagermann's optimism was the fact that companies are focusing once again on growth instead of cost-cutting. He's right in this; a focus on growth is good for SAP, because it's always hard to sell people who are cutting back on the notion of spending money to make money.

With the new climate, Kagermann can at least assert once again that SAP is providing the leading technological innovations that companies need to impel growth. The record doesn't necessarily support this--the vast bulk of their product set is growth neutral or even (dare I say it?) growth-retarding and as to innovation, SAP has been a notorious follower for several years, not a leader. But it's comfortable ground for SAP, and, who knows, maybe SAP can start to make it true.

In this election year, there have been two events with largely partisan content, and at SAP's their audience proved to be largely Republican and (perhaps not coincidentally) one that was comfortable with Kagermann's assertions about SAP's leadership. The audience seemed to share his optimism; there's stuff to do, let's do it, I heard any number of people say.

And stuff is being done, according to several of the SAP business partners that I talked to. More than one is staffing up quickly just to meet current demand and is planning, for the first time in years, to hire ahead.


The keynote matters; the announcements usually don't. In this case, only two are worth mentioning:

  • SAP and Microsoft are announcing a partnership to develop tools that will allow their (competing) application development environments to interoperate more effectively. Most importantly, .NET users will be able to access SAP objects; Netweaver developers will be able to acess Microsoft Office suite. Nothing but praise for this; both companies are serving the larger developer community and fostering creativity and innovation.
  • SAP and IBM will go to market with an end-to-end retail offering (IBM point of sale systems and SAP merchandising systems). the goal the first year is $200 million. If they come close to achieving this through sales of SAP, it will hurt Retek and JDA materially.

Several people saw this pairing of announcements as a subtle slap at IBM, which, by all accounts, is a little irked by Netweaver. More on this in the second piece.

Netweaver, Netweaver, Netweaver

The Netweaver stack may still be virtualware, to some extent, but "Netweaver, Netweaver, Netweaver" was the theme of the conference. At Netweaver presentations, audiences were standing room only; if you couldn't find a seat, you could always go to the nearby booth and get your free copy of Netweaver for Dummies. By contrast, the SRM or CRM theaters were virtually empty.

SAP's vision for Netweaver is a) that it will provide the platform that will keep the applications living and growing for the next ten years and b) that it will allow the SAP application set to morph into one that primarily provides applications for knowledge workers. (Today, most apps are largely meant for clerks.) I'll give my view of this vision in the next piece. Suffice it to say that neither Shai Agassi's keynote nor Hasso's really made this clear.

One pressing question--whether Netweaver can generate revenue for SAP--has been answered in the affirmative. I know of at least six 8-figure (total revenue) Netweaver deals closed in the last six months. In an earlier age, many of these would have been called portal deals or integration framework deals, because the buyer was focusing on that part of the stack. But from what I know, it's fair to say that the notion of a stack and the possibilities that the stack holds out appealed to them and thus it is fair to call them "Netweaver" deals.

Not that every claimed deal is entirely real. I talked recently about future plans to one SAP customer that Shai listed as a Netweaver client during his keynote; in the conversation, they never mentioned Netweaver.

For some time, I've thought the xApps were the most innovative and high-potential part of the stack. So far, I'm wrong. The xApps that are actually delivered are by no means numerous; just as disconcerting, the list of xApps changes every year. This year, I saw a couple of xApp demos, which, er, fell well short of adequacy. The xApps are Agassi's pet; the inability to get them going does not reflect well on his leadership.


SAP marketing has established the company as a relative leader in the RFID area. I talked briefly to Claus Heinrich about what they have done, and it shows you that sometimes, leadership can be gained rather easily.

It's important to understand that there are two kinds of tags: expensive ($100), rewritable tags, that, for example, the US Army uses on the pallets it sends to Iraq and cheap, "slap and ship" tags that are nothing more than a glorified bar code. (These are the ones Wal*Mart wants on their pallets.)

The excitement (and the complications for enterprise apps) is all around the cheapies. But for now, SAP is rising above the fray, at least publicly, and concentrating on storing information (such as last update) about the expensive tags.

Project Vienna

I also got some word on the mysterious Project Vienna from Peter Zencke, who is in charge of the project. Vienna has been widely described as SAP's attempt to update the R/3 data model, and the prevailing wisdom is that it is the successor to Netweaver. This wisdom is so widespread that it is apparently slowing upgrades, according to one knowledgeable, neutral observer. Why go to mySAP, people think, why not wait for Vienna?

It is widespread, but according to what Zencke said, it's quite wrong. Project Vienna is trying to come up with a better technical solution to a universal problem in the apps field: the fact that the underlying data structures are not as semantically flexible as they need to be.

To understand that little mouthful, look at Zencke's example. A "customer" in most business apps is a company. But in retail, a "customer" is usually a person, and in health insurance, a "customer" is a family. For human beings, it is easy to understand that you can't do the same thing with data about companies as you do data about families. But for applications, this is much harder.

Project Vienna envisions a more flexible data structure for "customers," one that allows the application to take into account what kind of being the customer is and what form of relationship is being entered into. This is a difficult, difficult problem; the fact that SAP is addressing this shows how long-term its thinking is and how willing they are to spend on R&D that has little immediate return and no immediate market consequence.

Bill McDermott

When Bill McDermott took the SAP job, former colleagues were somewhat doubtful about his abilities to succeed. Well, he's proved them wrong. I asked several people what accounts for this. A couple of responses:

  • Salesmanship. Bill is a good salesman with "exceptional presentation skills." He goes into top accounts and wins deals.
  • Keeping promises. Apparently, when Bill makes a promise to a customer, he remembers what he says, and he makes sure that the organization comes through. This is ordinarily not seen as value-added behavior in the software business, but in his case, the ROI for SAP seems to be positive.
  • Sales Organization. "SAP Americas has become a sales-driven organization, one that knows how to do sales right. They have too many salespeople, which means that the ones who aren't working can get dropped quickly. And they've structured things so that there are million-dollar commissions. That's so much better than spreading the wealth. Every salesperson just aches to be one of those millionaires."

Bill's success (in an improving American economy) does not bode well for managers of other SAP country organizations. According to one of our European correspondents, managers in France, Switzerland, and one of the Eastern European countries have recently been replaced.


With business cases that show rock-solid ROI now being a prerequisite for a new sale, SAP now has at least four different organizations or groups providing ROI tools or services. Kagermann's claims about reducing TCO would probably be more credible if the organization, from development on out, had a more coherent approach to understanding and justifying the value that the applications provide.


As we will see in the next piece on SAP, SAP is not only the leading provider now, it is the only provider that is devoting significant resources to making sure that it will be a leader for the next ten years.

This much everybody knows. What seems to be lost in among all the kudos (and, alas, self-congratulation) is that SAP is still a deeply flawed company, one whose product and organization delivers far less value to customers than they should. At this Sapphire, one clearly saw that SAP wants to do more with its assets and that in some cases, it is succeeding.

But what I saw did not seem to me to be enough. Over the long run, SAP is more vulnerable than it thinks it is. To stay the leader, SAP needs to do even more, and more of what is done needs to be done right.

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