Sapphire 09 interview: SAP's new CEO Leo Apotheker

A new era at SAP begins next week when Henning Kagermann formally steps down from his current co-CEO role and Leo Apotheker will be left firmly in charge. Stuart Lauchlan caught up with Apotheker at the Sapphire 09 event in Florida to discuss the recent rifts with customers over support fees and to find out what's in store for the firm over the coming months.

By Stuart Lauchlan, news and analysis editor

"It's interesting that so many people still have the view of SAP as an ERP company," says Leo Apotheker on the eve of taking over from Henning Kagermann as sole CEO of the German applications giant. "It is not our biggest money-maker. It's way less than half. ERP is very important but once you have it in place, you need many other things to be a process-driven company. We are number one supplier of business intelligence; we are the number one provider of CRM."

That last claim might be the subject of considerable debate as the firm is unable – or unwilling – to disclose how many customers are actively using the CRM functionality in its products as opposed to have simply taken delivery of it along with the ERP functions they have deployed. Apotheker makes the claim that it's not that customers don't use the CRM capabilities, just that they haven't finished deploying. Why this should be when he also claims that the ERP capabilities can be up and running within weeks is another matter...

But Apotheker is taking on the mantle as SAP's main man at an interesting time, both for SAP itself and for the wider software industry. "The baby boomers are retiring, the new workforce was born in digital age. The way they want to interface with software is markedly different," he notes. "Software has a bright future and we want to play in it. Enterprise software has to be utterly robust. We want to have all the nice ideas in social networking that links back into the business suite in a seamless way.

"One of our big beliefs is in hybrid software. All our offerings will be available on demand, in The Cloud or on premise." (You can read more on SAP's Cloud strategy on MyCustomer.com sister site BusinessCloud9.com).

New world order

This transition to a new world order in the software market has wider ramifications beyond delivering products in a new way. There's also the whole question of related issues such as maintenance and support. Recently, SAP found itself at loggerheads with its customers after deciding that they had to accept a new, widely unpopular Enterprise Support framework. Concessions have now been offered and the installed base placated, but the incident exposed the difficulty and potential pain that a firm like SAP, with a huge legacy customer base, can have in migrating to a new way of doing business.

It also caused a nasty public rift between the vendor and its installed base, although Apotheker chooses to pitch this as learning experience. "The Enterprise Support debate was an interesting experience and I take full responsibility," he says. "It gave us an opportunity to sit back with our customers and figure out why there is such a thing as support. In the dialogue we had, it became interesting to see if support should be redefined.

"Traditional support offerings date back to the early 1990s and probably the 1980s. People paid maintenance in order to get the latest releases and to make sure that if something goes wrong they get support. But this was to do with a single application running within the four walls of a data centre. Now people want networking and to connect to enterprise solutions that are not even in the building. The old concept of enterprise support doesn't exist anymore. That is why we have designed our new KPIs. Think about business continuity, for example. How much does it cost an enterprise when a system goes down for half an hour? Considerably more than they pay for a year of enterprise support!"

But, ultimately, customers need to be happy that they're getting value for money and in this instance, customers felt that they would end up paying out more money and not see the value. "That's what SAP Enterprise Support is all about," insists Apotheker. "We believe that it offers unparalleled value to our customers and that it is a game-changing offering. There is no other software vendor that has sat down with customers to talk about KPIs that we have to meet. We have said there will be 30% value generation over four years."

Salesforce.com CEO Marc Benioff recently called for the death of the old model of paying for support, something that Apotheker claims to find ridiculous. “I read in the papers that some SaaS [software as a service] CEO believes that enterprise support shouldn't be paid at all as it means lock in. That's just a bloody joke!" he says, with the slightly strange addendum: "If you run SAP you can decide not to pay support, but if you run a SaaS solution you have to pay every month. Who is locking in who?" That said, he admits that as CEO of SAP he would never recommend that anyone implementing an enterprise SAP solution should think about not paying for support.

Takeover rumours

As Apotheker was talking in New York on the eve of the Sapphire user conference in Orlando, an old familiar rumour reared its head again: the prospect of Microsoft making a takeover bid for SAP, a deal which both companies have discussed in the past but, to date, rejected. "The industry is consolidating and disaggregating at the same time," says Apotheker, neither confirming nor denying the rumour. "We have been part of the consolidation through things like the acquisition of Business Objects. But you have to ask whether these things add value for shareholders and customers before you do them. Our customers believe that an independent SAP is the biggest value they can get."

Value is a critical factor, he argues, adding that he doesn't reckon Oracle's recent takeover bid for Sun Microsystems might have the opposite effect for customers. "It's a question of business models," he argues. "We are talking now about 21st century business networking and flexible partnerships. The vertically integrated enterprise of the 20th century is not such a great idea for the 21st century. Secondly, hardware is a tough business to be in - really tough. I understand that Oracle is going to stay in the hardware business. That is their privilege, of course, but I believe that what customers want today is choice all along the value chain.

Apotheker also points out that hardware and software are two clearly distinct categories. "Clearly, you need software to run on hardware to make it worth value. But as you move up the stack, any application that runs on a piece of hardware is a different business. If you create an optimised stack on one piece of hardware you are not doing innovation any favours. If someone comes out with a new piece of hardware, what do you do? You need to be out there and finding new ways of getting ubiquitous software that can run anywhere. Oracle will optimise its stack for Sun hardware. What does that mean for other hardware?"

The new era at SAP begins next week after the firm's shareholder meeting, when Kagermann will step down from his current co-CEO role and Apotheker will be left firmly in charge. He knows there are big challenges ahead ("Shall I list them alphabetically?"), but argues that SAP is fundamentally in a good place to ride out the current economic downturn. "SAP had a decent quarter. Our software revenues stayed roughly flat, which, given the period we're in, is a big achievement," he says.

"We have a business model where more than 55% of revenues are recurring, which gives us a significantly higher stability than before. We are not giving any sales guidance for the year, but we have a hypothesis that our software-related revenues will stay flat-ish or slightly decline for the year. But in the medium term, SAP will be a growing company - and growing in double digits."

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