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Walldorf, Germany

Our European Correspondent

We are proud to introduce to Short Takes readers our mystery European correspondent. A man who grew up in Walldorf and has been covering the European applications market ever since the days of punch cards, he is our go-to guy when we want to understand anything east of Iceland. (We split the Icelandic coverage.)

DD. I have to confess, I still don't understand what R/3 Enterprise is. In fact, I'm not even sure I know what mySAP.com is.

EC. Do not worry, my little friend. No one else does either. Do you remember, at the Nice conference, mySAP.com was the name of a business. That year, Hasso and his staff gave out lovely, multi-colored business cards that said they worked for mySAP.com.

Later, it became clear that this was SAP's product for the Internet age, the successor to R/3.

With a successor announced, SAP was quick to arrange for a transition. Termination of maintenance for R/3, credits for the R/3 license, the normal transition program.

There was resistance, though.

DD: Was this because no one quite knew what the product would be or what advantages it offered?

EC: I leave that up to you. Let's just say that by popular demand from the German user organization, the life of R/3 got extended. R/3 Enterprise (what had been R/3 version 4.7) was announced at Sapphire 2001 for shipment to existing customers only.

DD: This is like R/2 and R/3. R/2 continued to get some upgrades, but R/3 was sold to new customers. But won't that slow upgrades?

EC: The story isn't over. After Sapphire, SAP secretly started to backpedal. Early this year, R/3 Enterprise started to be sold to new customers, but only in the U.S. Then in April, SAP announced a new option to extend maintenance for older versions by one year against an increased fee. And some time in the second quarter, SAP started to sell R/3 Enterprise to new accounts in the UK. As of today, it can be sold to anybody who wants it.

DD: In this climate, doesn't that make sense?

EC: It's certainly pragmatic. These are tough times. I'd say that SAP thinks that small steps are better than no steps.

DD: Then what's the downside?

EC: This new behavior (I hesitate to call it a strategy) has three potential consequences.

  • It prolongs the life-time of older modules driving up cost for SAP.
  • It reduces the ability of the customer base to absorb new technology.
  • It raises the bar for mySAP.com

With R/3 Enterprise available, the value proposition of mySAP.com must become even clearer and more compelling before the older and larger accounts will migrate. At the same time, if R/3 Enterprise is selling, SAP will be tempted to defer the difficult task of articulating its strategy and the mySAP.com value proposition. My guess is that this will not occur until January. Business is too tough, and SAP is busy making concessions to make the numbers.

DD: Thank you, EC. I may not be any clearer, but I feel better about it. Anything else going on?

EC: Oracle has been able to snatch business away from SAP in the Middle East. (That's well to the east of Iceland.)

As you know, SAP has been struggling there. In the giant region between Morocco and Iran, SAP has been operating for six years and has won some 70 customers--not too many. Although SAP has attractive verticals such as Retail and Oil and Gas that address some of the needs of that region quite well, some things are missing that hamper sales. There are no public sector solutions, and, worst of all, SAP has not been successful in creating an Arabic version. Oracle, with its usual persistence, has an Arabic version and has been able to snatch some business away.

We expect Leo Apotheker to address this situation at some point, but in the interim, there is no clear strategy. If and when the region sees more peace (we Europeans see the pending action against Iraq as a potentially key event), some dormant markets like Iran could wake up, and something will have to be done.

DD: Thanks, EC

EC: You are welcome. I'll be back in September with the news of the summer.

We are about to release a report on Strategic Sourcing. The next issue will present a short summary.

Remember, a more readable version of this report is at www.b2banalysts.com/new/research/shorttakes/7112002.html. For a full list of recent Short Takes, look at www.b2banalysts.com/new/research/shorttakes/recent.html.