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SAP CEO: SAP can't afford SaaS for now!

26th Nov 2008
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SAP's software as a service offering is ready to go and is the "coolest app ever written". But don't expect it any time soon as the firm fears it will be too successful and erode its on-premise margins.

By Stuart Lauchlan, news and analysis editor

It's become an all too familiar refrain in recent months: now is the time to invest, not cut back, on software deployment. Vendors ranging from through NetSuite to Oracle and Microsoft have all been pushing the notion that an economic downturn is a time in which to use technology to survive and to thrive. Or in other words: please, please don't stop spending money!

Last week it was the turn of German giant SAP, whose incoming CEO Leo Apotheker popped up at various intervals to comment on the state of the economy and its knock-on impact on the market in general, SAP more specifically and particular on subjects such as the firm's move into the software as a service (SaaS) market. "It hasn't gotten any worse," he said at one of his pitstops. "There's business out there. We just need to continue to move ahead."

But that could be easier said than done of course. Last month, SAP withdrew its 2008 sales forecast and reduced its profit-margin target, citing the economic slump. Clients had trouble financing some orders, and closing deals was harder. Apotheker admits that 2009 will be “tough” and that SAP has to lower expenses. Intially it aims to eliminate 200 million euros in costs this quarter by slashing travel expenses and freezing hiring, but there could be worse to come.

"We have a vested interest in making sure customers come out alive, and we will work with them as much as we can, but have to also protect our own interest."

Leo Apotheker, incoming CEO, SAP

“I think you have to be rather naïve to believe that 2009 will be a high-growth year,” said Apotheker. “You have to look at those things that you can control, which first is expenses. And you can't have strong feelings about the top line. Depending on how the quarter comes out, we either we have to adjust the plan, or continue.”

But he insisted that investing in software such as SAP's was a good thing to do for even cash-strapped customers. “Companies struggling with top line revenue must create efficiency, using technology to change processes, and then innovate,” he said.

That said, SAP itself is putting the brakes on one particular piece of innovation: the Business ByDesign SaaS offering that was announced with a great fanfare over a year ago and has since ground to, if not a halt, certainly a stagger. Apotheker insists it is "ready and done," Version 2.0 is in the wings and ready to go and that overall "it's the coolest app ever written."

There's only one problem: SAP can't afford to release it in case it's enormously successful.

Hurting the margins

The SaaS revenue model that Business ByDesign represents would erode the traditional revenue model and margins that SAP is used to with its on-premise offerings – something that the likes of pureplay SaaS vendors such as and NetSuite have claimed would be the case for a long time.

“We would be hurting our margin, and hurting our stock," Apotheker admitted. "We are releasing it slowly because we are aware of the economic situation out there," he said. "And if we were to release it right now... just compare the profitability of many on-demand vendors... and you'll see that if you are an enterprise vendor that is running at the margin we are running at, if we release it now, we would be hurting our margin.

"I think you have to be rather naïve to believe that 2009 will be a high-growth year."

Leo Apotheker, incoming CEO, SAP

"We have a vested interest in making sure customers come out alive, and we will work with them as much as we can, but have to also protect our own interest,” he went on, but added: "The gale winds blowing are also blowing in our direction. We want to come out stronger, and we will. We want to look out for our customer, bring innovation to our customer, and make sure we bring our own cost and infrastructure in place so that we weather the storm."

Apotheker insisted that SAP remains committed to giving its customers a choice of either on-demand or on-premise computing – just not at the moment! “It’s arrogant to dictate to customers. Better to ask them and respond to what they need,” he said. “What we can do is to combine the two worlds, there are certain things you can’t run in the cloud because it can collapse. No consumer company is going to run billing for 50 million customers in the cloud. It doesn’t make sense. We’re giving people the opportunity to run the two things together. Try to give everyone a choice. People will do what they always do. They’ll do return on capital and what makes more sense.”

SAP also plans to create a unified user interface for all its applications in a bid to make them easier to use. "There's one thing that all of us in the enterprise software business didn't do well, for lack of trying," Apotheker said. "We focused on functionality at the expense of figuring out how to make software easy for people to actually consume. We understand that, and we will make sure that you can actually consume real software."

Apotheker currently shares the CEO role at SAP with Henning Kagermann, but from January onwards it's going to be increaingly just him at the helm as Kagermann's contract winds down towards his retirement in May. It's a tough time to be taking over the top spot. “There's a real storm out there. It's pretty bad. It's basically driven by a shortage of liquidity. It happens to be a global problem,” he added. “I don't know how bad it's going to be. Sometimes you wonder if there's some masochistic streak in talking about recessions.”


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By JohnPaterson
28th Nov 2008 08:28

There’s a well known saying in the IT world "if you don't eat your own lunch, someone else will". Hewlett Packard were well known for adopting this in full, always launching new printer ranges that jeopardized the sales of existing ones.

Oracle will dine well next year!

John Paterson

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