Hennig Kagermann, chairman and chief executive officer of German business software vendor SAP AG, used the company's Sapphire international customer conference last week in New Orleans to announce a key software development partnership with Microsoft and plenty more.
Shortly after the event, which attracted about 8,000 SAP customers, Kagermann sat down in an interview with the IDG team to talk not only about the implications of the Microsoft deal but also about the general direction of the company as it moves deeper into its new service-oriented architecture.
Q: Some say SAP will benefit the most from the deal with Microsoft to deepen the integration between the companies' two platforms. Would you agree that SAP is the big winner?
Kagermann: No, the customer is -- as you would expect me to say -- but this is really the case. We have many customers who use Microsoft products. The large ones, in particular, want interoperability between our two platforms. They will be happy to see us invest in this interoperability.
Q: Aren't you a bit concerned that by agreeing to a deeper integration of the two platforms, you could be opening the door for Microsoft to move even more aggressively into your space, especially in the mid-market?
Kagermann: No, the move helps both sides. If we didn't make our systems more interoperable, it could be that customers would have to pick a winner (or go with only one vendor). I wouldn't say that we are always the winner, but I would say that a lot of our applications work in our favor. The deal makes it easier for each of us to (remain successfully competitive) where we are.
Q: But isn't the mid-market an area where SAP and Microsoft are directly butting heads -- where cooperation between the two companies ends and competition really begins?
Kagermann: This is true: Microsoft offers business solutions in the mid-market, where we also are. Although we are competing in this area, the competition is about applications, not platforms. I don't think companies in this market would buy both solutions; they can't afford both. Most would go for either the Microsoft or the SAP solution.
Q: So you really want to make it easier for customers to choose among applications, say Microsoft's Office and mySAP CRM (customer relationship management). This sounds a bit like a Lego approach, doesn't it?
Kagermann: Yes, some customers may want to pick Office together with several of our applications. This integration is beneficial for us.
Q: Is it really? While such integration may help your customers link to products from different vendors more easily, aren't you concerned about losing your ability to lock them in with such openness?
Kagermann: We don't want to lock in our customers. This isn't a good strategy. Customers fear being locked in. I see this when SAP reaches a certain level of "share of wallet." This triggers a response at the board level, where members begin to discuss whether their company is becoming too dependent on SAP. They have two choices: either they take on another vendor; or they demand that their key supplier be open and flexible enough to provide choice. I believe SAP is strong enough to provide such openness and flexibility.
Q: Now that you have established a fairly detailed road map with Microsoft for integrating your platforms, how about IBM Corp.? Do you have a similar plan in mind for WebSphere?
Kagermann: We already have some integration with WebSphere. The retail partnership we announced with IBM at Sapphire would not be possible without some interoperability between NetWeaver and WebSphere. This integration may not be as broad as the integration with Microsoft, but that doesn't mean IBM can't broaden it. We aren't excluding IBM; we are willing to negotiate. But it's their choice. With Microsoft and SAP, the two companies are doing more integration because both want more. IBM doesn't appear to want more.
Q: Why not?
Kagermann: Maybe IBM believes that the two companies are bigger competitors because the solutions of each are Java-supported. There are some areas where I believe greater interconnectivity is possible but IBM doesn't see a market.
Q: How about hosted services?
Kagermann: We don't want to offer a lot of hosted services ourselves. We have a hosting company but this is a small business for SAP. It helps us gain experience and get products ready. We're more interested in hosting agreements with partners of whom we already have several, including IBM. In short, we don't want to invest in hardware and data centers because we don't view this business as really high-margin.
Q: Not even a CRM-on-demand service?
Kagermann: This is a good question. This type of service could be an option in the future but I don't see much demand for it today. A move in this direction would require us to build up a new line of business. To be honest, we have higher priorities.
Q: Have you given any thought to a subscription-based pricing model?
Kagermann: Yes, to some extent. We already have a rental model, whereby customers can rent software on a yearly basis. This offer has been around for a while but hasn't been so popular.
Q: How about allowing customers to rent software on a monthly basis?
Kagermann: This isn't an option for us. We're not like Salesforce.com, where you just switch on service.
Q: Where's the big difference between Salesforce.com and SAP?
Kagermann: They don't install software but host services centrally. They have an ASP (application service provider) model.
Q: But you also have a foot in the hosting door.
Kagermann: It's good to have this capability, in principle. Some customers want special hosted services, such as upgrade hosting. Offering this kind of hosted service is more in our interest.
Q: Are you planning to expand your consulting business with the planned acquisition of SAP Systems Integration AG?
Kagermann: Most of the services around SAP products are provided by consulting partners of SAP. They account for around 80 percent of the consulting services, although this differs somewhat regionally. Our share of the consulting business worldwide is around 15 percent but in Germany, our home market, it's about 30 percent.
Q: Will your move into Web-based services require you to get more involved directly in consulting?
Kagermann: No, but we will need to change the service portfolio of our consultants a little bit. They will need to focus more on integration, new product introductions and quality issues and less on implementation, as they have in the past.
Q: Any plans to buy up a big, global consulting group?
Kagermann: No, if we bought a big consulting company, we would lose all our other consulting partners because they would view us a competitor. This would be a dangerous move. We have always said that if we go for a service consulting company, it will be a small one focused on integration and technology services. Or we may look at some consultants in China but no big ones.
Q: And how about acquisitions, in general, to expand your business?
Kagermann: At our recent annual shareholders' meeting, I outlined our strategy and mentioned that acquisitions are part of our growth strategy. This doesn't mean that we will go after a big company but that we are looking regularly at smaller ones.
Q: Now a question or two related to users. Some have complained about your configuration and release management service. Still a problem?
Kagermann: No, we have simplified our release management a few months ago. With the launch of mySAP ERP (enterprise resource planning), we have introduced a much simpler maintenance strategy.
Q: You like to use the words simplicity and flexibility. Will life for users be simpler and more flexible with your move to a service-oriented architecture?
Kagermann: Yes, definitely and for a few reasons. For one, the user interface is through the portal, making navigation much easier. It's also much easier to change the user interface without having to modify the entire software. For another, the new technology is not transaction-based but more alert-based with embedded intelligence. It has a completely different look and feel.
Q: And what about ROI (return on investment), another one of your frequently used terms?
Kagermann: Today, management boards want a business case. They aren't about to let the CIO (chief information officer) go out and buy the latest stuff, as many did during e-business era. But while many companies talk about ROI, not all of them are able to measure it. This is a real challenge.