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SAP's McDermott on retail strategy, CRM, Oracle, part 2

BOSTON -- SAP America CEO Bill McDermott discusses the CRM market, SAP's failed bid for Retek and Oracle's plans to lure SAP NetWeaver customers onto the Oracle E-Business Suite. has been successful with its on-demand model, and Siebel has moved in that direction. Why has SAP stayed away from that strategy? has established a revenue track in the small customer space. It's certainly not a big one. Certainly, they're not making a lot of money. They spend almost 60% of all their profits on advertising and only $10 million on R&D. So when you have more than a billion that can go into R&D, there's no doubt that whatever Salesforce does, SAP can do better.

Salesforce provides good service if that's what you want. If what you want is a disconnected CRM application. You can manage your pipeline and communicate with your customers, that's fine. When you get into business process CRM, most of the customers I talk to say they also have service management issues: 'I have to go into my service records,' 'I also have billing issues where I need to know if a customer is current or if they are a good customer.'

I would dispute the claim that Siebel is doing well in on-demand. In fact, I don't think they're doing well. The reality is that it's further created complications for their customers in an already complicated world where they're not sure what Siebel does.

SAP does hosting. We do have an on-demand model and we'll be talking about more of this in the future. Stay tuned. Analysts and competitors have disputed some of the numbers that SAP gives of its CRM users? How many SAP customers are really using CRM tools?
I'm not sure the analysts are making something out of this as much as the many of the failed CRM vendors.

I think you should look to examples where SAP is not only winning on integrated CRM, but what's really going on now. EarthLink has a standalone call center run by SAP, Forrest Labs chose SAP over Siebel. A high-tech manufacturer located out on the West coast chose an SAP call center for 60 locations around the world, 16 different languages and 10,000 users.

Bill McDermott
Oracle executives have said that SAP NetWeaver customers are using the Oracle database and that's their foot in the door to get SAP customers. What is your response?
I think that's the most absurd thing I've ever heard. Up to about half of PeopleSoft and up to about 60% of the [J.D. Edwards] population that [Oracle] has in his install base run DB2 or some non-Oracle database.

The reason why that's an absurd claim is because we give customers a choice. You can run Oracle, you can run IBM, you can run Microsoft. We know that the database is the commodity in this discussion. We know the business application is truly the high value payback because it changes the way you run your business.

The companies I talk to don't want to go on any forced marches. They want to go on a completely open system. And as you know, we happen to be the biggest reseller of Oracle databases in the world. That's because we go wherever our customers want us to go. What was the strategy to enter a bidding war with Oracle for Retek?
We were the first bidder on Retek. We came into Retek at $8.25 a share and Oracle came over us at $8.50 and then we basically said $11 [was our] best and final [offer].

For us, Retek was nice to have. If you play the game of Monopoly, Marvin Gardens is a nice to have. Let's face it guys, it's not Park Place and it's not Boardwalk. They had no choice because if they lose Marvin Gardens, their story gets even worse. For them they had to have it, and for us it was nice to have, and we got over it pretty quickly. The fact that some say Oracle ended up overpaying, did that have any relevance when you decided to make your second bid for Retek?

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It wasn't a big deal at $8.50. When we made a call at $11 a share, I think that was pretty bold. We were either walking away with it at $11 a share or we were walking away with it at $11 a share. It was hard to figure out what was better: To get it or to see them get it and pay too much. Analysts have said that one challenge for SAP has been the U.S. market. After Retek, what is your strategy to get a grasp on it?
What you focus on in life expands. We're really focused on retail. We built a tremendous workforce, experts, people that know retail cold, inside and out. Our business applications, forecasting, replenishment and merchandise management very nicely complement the business suite of SAP applications powered by NetWeaver. When our customers see SAP against the competition, including Retek and Oracle, they disproportionately choose SAP. You say you have partners coming on board with the ESA strategy. Do you have any specifics on how you are going to support these partners?
We are aligned with the partners at the hip. It's very important that they win in this endeavor and our customers win. Our role is to play the platform role. We provide the platform, the customer gets the innovation and growth they need from the platform. The partner is breathing in that innovation. SAP should not be the company that has to develop everything or develop all the innovation. SAP should be the open market leader that lets others jump on top.

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