Chasing the Big Deal
Our European correspondent files his report from Lisbon. This
is the first of two reports on SAP's September.
The Lisbon Sapphire was poorly attended, and the biggest deal
was some big deals that weren't quite what they seemed.
In the next issue, we talk about what happened next.
Attendance at Lisbon was 7000, but not more than 3000 (probably
only 2500) were customers. The rest were all SAP people and partner
staff, a stunning imbalance.
Great discomfort on SAP's side was created by an article from Financial
Times Deutschland saying that SAP was making money with inflated
hotel prices and charter flights. While SAP "briefed"
the author of the article to the contrary, nothing in the way of
a correction was published so far.
Henning Kagermann presented on the first day, Hasso Plattner being
unavailable sailing in a regatta in the Mediterranean that day.
He focused more than usual on technology. Open integration, realtime
enablement, Web Services, ROI - all the standard ERP-buzzwords were
there. [Does this sell at all any more? --Ed.]
Presenting along with Henning were four heavyweight customers:
DaimlerChrysler, Ford, Caterpillar, and UBS. All had been difficult
to migrate to mySAP. At the conference, they were positioned as
converts and big wins, but the backstage story is a little more
complicated.
Siemens is going
to have 135000 users (most of them are SAP-users today) and will
install SAP's portal for a planned 400000 users. SAP is
positioning this as the largest license deal in its history, but not
specifying by what terms. Most of the money for this deal was probably
paid for already in a horse trade involving stock Siemens Business
Services once held in an SAP subsidiary. This stock was sold more
than a year ago to SAP, and SBS got a corporate upgrade to mySAP.com
for Siemens in return. Under GAAP, this now may start to appear
as license revenue, not in one shot, but at the pace Siemens
will implement. No details on this were mentioned.
DaimlerChrysler will use the SAP travel management component in
conjunction with PeopleSoft HR management and ADP payroll. (What
an interesting combination. At the least it shows a new level of
account management qualities of the parties involved.) In true global
fashion, it will also use SAP CRM wholesale templates for its south-east
Asia organizations. Progress with large customers is not easy at
these times.
Ford for the first time appears on SAP's customer list with a solution
addressing its spare parts logistics.
Hasso Plattner appeared on day two and
tried his best to defuse the rumours about his retirement
to the supervisory board.
In the press conference, he did say (quite rightly) that only
going faster will save him from Microsoft.
[Business One, the new SME application developed by board member
Agassi's father is taken quite seriously in Europe as a possible
new revenue source. We are less confident.--Ed.]
The much
awaited list of new Business One partners was not presented.
Instead, Leo Apotheker positioned the new mid-market solution
over and over again as the solution for subsidiaries. It seems
that SAP strategy for the SME part of the market is still not set.
One of the "subsidiary customers " for Business One will
be Osram Light Consulting [Osram has historically been an
SAP early adopter and cheerleader. This will be an interesting test
case of the subsidiary strategy. -- Ed.]
There are currently about half a dozen
pilot customers in the SMB-market in Germany, among these one of
SAP's event agencies. Localized versions will be available for Austria,
Switzerland, Denmark, Finland, the Netherlands, Norway (later in
2002) and the US (early 2003). We expected news on the partner front,
but SAP did not divulge any additions to the quite small list of
Business One partners.
While the SAP keynotes carefully avoided any touch of vision, Shai
Agassi once again showed his capabilities. Delivering
by far the most visionary presentation of the show, he gave more
shading to
the previously communicated ideas about integrative applications
- which he calls xApps. In a jam-packed room (yes, there are people
who know he knows), he outlined 3 prototype applications that SAP
will have ready by the end of this year:
- mergers and acquisitions
- resource and program administration (due 12/02)
- employee productivity (slated for mid-2003)
The interesting part is that these xApps will not
hold any data. Instead, data will be owned and provided by the original
applications.
The resource and program management xApp will ship for customers
in the pharmaceutical and aerospace industry and will integrate
with Microsoft Project, PeopleSoft HCM and financials, and
the Oracle e-business suite. Altogether something that SAP would
not have touched before, a clear indication of a different business
approach, albeit dictated by economic necessity rather than a dash
of liberalism.
If the concept proves viable, scalable and passes cost of ownership
scrutiny, it will be a serious challenge to existing application
paradigms. It will extend the lifetime of many legacy applications
not boding too well for SAP's current business. XApps are not widely
discussed inside SAP and I think, not even fully understood. Many
of the current projects involving SAP replacing legacy solutions
could have been solved with xApps.
One of these projects is the SASPF project of the German military.
A staff member of this organization outlined the project - huge
by any standard. The budget is 700 million Euro and there will be more
than 45000 users. No contract has been signed yet but implementation
has started already (yes, there was laughter in the audience when
the speaker revealed this detail in unexpected candour). Since many
changes will have to be applied to the SAP software (including massive
changes in the support for mobile components [there, but slow
to develop--Ed.] and the inclusion of
a new object called "force"), the military wants to enter
a strategic development partnership with SAP. Again, no contract
has been inked yet.
Well-informed sources, however, speculate that no significant money
will be paid to SAP before 2003. The project has already started
and will extend into 2006. Technically, it involves a great deal
of application integration. SAP's new approach, xApps, are not part
of the Specs. SAP is speculating to leverage the pending deal in
sales to other military forces such as Denmark, France, and the
US.
Everybody was speculating on an imminent profit warning during
the days preceding Sapphire. It did not happen. Gerd Oswald, executive
board member for services, believed a 5-10% growth might be realistic.
No profound statements of any sort from Henning Kagermann or Leo
Apotheker on this matter. SAP is still seeking a CEO for the US
and once again Leo Apotheker reiterated that there will be one in
2 months. We remain skeptical on this issue. [We were wrong. SAP
announced after this was filed that Bill McDermott will become head
of US operations. More on this in the next Short Take -- Ed.]
SAP is doing a great deal of cost cutting and has started to dispose
of some of the underperforming employees even in Germany (what a
cultural change!). The algorithm employed is an interesting one:
it focuses on older employees shunning education and working short
hours. In the past, these staff members held bullet-proof positions
- but that was the past.
I am confident [September 15] that SAP will match expectations
on profit and earnings. I am less confident on growth. The 5% growth
might be achievable through services, where business is less transparent
anyway. Rumour has it that SAP is contemplating another price increase
on maintenance, but that will not impact FY2002 results.
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