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SAP to shift focus off its core ERP suite

SAP projects a shift in the way it generates revenue, hoping its partnerships and new licensing strategy will generate cash from products produced on its Business Process Platform.

SAP plans to shift a significant amount of revenue growth from its core ERP business suite to the analytical and composite applications generated from partners and ISVs on its NetWeaver platform, according to Werner Brandt, chief financial officer and member of SAP's executive board.

Environments have become too complex and also probably financially infeasible for any vendor to have all talent in-house.
Charles King,
principal analystPund-IT Research

Speaking to executives and investors at the 8th German Corporate Conference in Frankfurt, Germany, this week, Brandt outlined SAP's strategy over the next five years, citing a significant shift off its core enterprise resource planning (ERP) suite.

In 1999, according to Brandt, 90% of revenue was generated from sales of SAP R/3 business software. The revenue shift began last year when sales of SAP's supply chain management, customer relationship management and other additional modules began producing a larger share of revenue for SAP, Brandt said.

By 2010, Brandt said at least 50% of revenue will be generated from products developed off the NetWeaver application and integration platform. Those products -- a mixture of embedded analytics and xApps, which are composite applications that collect data from various core applications-- will be a key driver for SAP, Brandt said.

"We will deliver new solutions between transactions, analytical capabilities and collaboration capabilities across organizations and their partners," Brandt said in his presentation, which is available at SAP's investor Web site.

Using partners and independent software vendors to collaborate on developing new technologies and reach a broader customer base is a growing trend among software vendors, said Charles King, principal analyst at Hayward, Calif.-based Pund-IT Research.

"As IT solutions at the enterprise become increasingly complex, it is going to be beyond ability of any single IT vendor to be an end-to-end solution provider," King said. "The environments have become too complex and also probably financially infeasible for any vendor to have all talent in-house."

Larger acquisitions are not a topic for SAP to support our growth strategy.
Werner Brandt,
chief financial officerSAP AG

In the near future, look for SAP to focus on increasing business in the banking, insurance and retail industries, areas where SAP holds the least market penetration, Brandt said.

SAP is also focusing on partnerships with other software vendors to penetrate the markets. At its recent Sapphire user conference in Boston, SAP rolled out a claims management product with Accenture to reach the insurance and banking industries. SAP is also partnering with IBM to reach retail customers, Brandt said.

SAP will also make small strategic acquisitions to bolster its presence in specific industries, Brandt said.

"We are committed to do fill-in acquisitions," he said. "Larger acquisitions are not a topic for SAP to support our growth strategy."

Brandt also highlighted SAP's partnership with Microsoft in its Mendocino project, which integrates SAP data into all of Microsoft's Office products. The goal is to penetrate a broader user base and inject SAP into daily collaboration and office activities, Brandt said.

SAP's Enterprise Services Architecture (ESA), which is the result of the transition of NetWeaver to a Business Process Platform supporting Web services, will be key to SAP's business model, Brandt said. The transition will result in enabling customers to use and integrate a variety of products -- SAP, non-SAP and homegrown applications.

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"It's important for our customers that they don't see this as a revolutionary trend because then they would struggle with all the investments they made in the past," Brandt said. "We need the Business Process Platform to provide a stable environment for the enterprise services we will offer."

King said customers are already taking the transition to a services-oriented architecture (SOA) one step at a time. Once gains can be seen in small projects, IT architectures will evolve toward an SOA.

"SAP is taking a single stand and saying this is our strategy and the strategy is going to change a bit depending on the partner we're playing with," King said. "The ESA strategy is big enough and flexible enough that it can accommodate a broad range of partners and unique customer groups."

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