Article

SAP executives seek next-generation ERP

Matt Danielsson, Site Editor

BURLINGAME, Calif. – To capitalize on its recent success, SAP is looking to find new routes to market in the next several years, including a new wave of what it calls strategic products that could transform the ERP market, according to SAP CEO Henning Kagermann.

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We're not looking at the end of this market, we're looking at the beginning of the next generation.
Shai Agassi,
president,  product and technology groupSAP AG

Kagermann gave a keynote speech to SAP developers and press last Thursday, outlining the company's strategic direction over the next several years. He was joined by SAP board members Shai Agassi and Leo Apotheker for an open Q&A session with the press.

SAP is currently adding hundreds of enterprise services for the mySAP Business Suite, Kagermann said, and it's also on target to launch its mySAP All-in-One software on NetWeaver across all industries. The software, which targets the midmarket, is the first set of applications to be services enabled.

Other focus points include analytical xApps and ESA connectors that can bridge the gap to legacy R/3 systems. Kagermann also talked about the first signs of the "next wave of strategic products" set to appear in the near future.

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This "next wave" is the new technology cycle that will set the tone for the next 10 to 15 years. The next generation of products will extend NetWeaver and allow customers to leverage a service-oriented architecture using older versions of SAP.

Agassi said SAP is ahead of archrival Oracle Corp. in services-enabling its entire application stack on NetWeaver. The battle between SAP and Oracle has intensified in recent months, with Oracle's integration of its various acquisitions into a Fusion suite and SAP's focus on internal development and smaller, targeted acquisitions to add features.

"We're not looking at the end of this market, we're looking at the beginning of the next generation," Agassi commented about the transformation of the ERP market.

Oracle predicted an ERP market consolidation years ago and has largely fulfilled its own prophecy, Agassi said. As a result, SAP has a product ready to install today, while Oracle has little more than PowerPoint slides.

"When we do acquisitions, we do it from the edges of the solutions," Agassi said, pointing out the difference in complexity between integration of retail and ERP cores. "It's hard to buy half a heart."

SAP has made some acquisitions, most recently compliance firm Virsa Systems Inc., but the rule of thumb is to stick with organic growth, according to Kagermann.

"We believe organic growth is a better strategy," Kagermann said. "Our pipeline of creativity is so high, there's no need to reach out to other sources of innovation."

SAP has 21% of today's addressable market, which amounts to about $50 billion, Kagermann said. By 2010, the number could grow to $70 billion. SAP hopes to have grown from 32,000 to 100,000 customers by that time, with 40-45% of revenue coming from the midmarket, versus roughly one-third today.

The geographical hot spots for growth are the U.S. and Asia-Pacific, Kagermann said.

He also showed a comparative graph between SAP and its closest competitors -- IBM, Microsoft and Oracle. Pointing out that although SAP is the smallest in terms of market capitalization and total revenue, it nevertheless has by far the highest price/earnings (P/E) ratio.

"This means that the expectations are high," Kagermann said. "But [our] much higher P/E indicates the market believes in our vision."


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