SAP and Enterprise 3.0

Over numerous articles in the past, I have talked about some emerging players, which are redefining the enterprise software landscape. These players are working on cutting-edge applications, which bring vital, but non-core entities like vendors, suppliers, and even customers within the folds of the enterprise. And these applications are being delivered on-demand without the baggage of legacy systems or lengthy and cumbersome implementation phases.

Any evaluation of key players in the Extended Enterprise and on-demand trends will be incomplete without analyzing the leaders in enterprise applications—SAP and Oracle. In this piece, we look at the former.

SAP AG (NYSE: SAP) is the world’s largest business software provider and the third-largest independent software vendor. Incorporated in 1972, SAP today has a market capitalization in excess of $60 billion and a footprint in 120 countries.

Though some of the largest companies in the world use SAP applications, the company’s solutions also cater to smaller and niche segments. The company has more than 25 industry specific solutions, which incorporate its customized SAP Business Suite applications. The SAP Business Suite are developed on the SAP NetWeaver platform, and includes applications like SAP ERP (Enterprise Resource Planning), SAP CRM (Customer Relationship Management), and SAP SRM (Supplier Relationship Management), SAP SCM (Supply Chain Management), and SAP PLM (Product Life-cycle Management). For the mid-sized companies segment, SAP offers its All-in-One solutions. SAP Business One is specifically aimed at the small business segment. SAP also provides on demand options for its CRM and SRM applications.

In 2006, SAP’s total revenue grew by 10% to €9.4 billion from €8.5 billion in 2005. The total revenue growth, though impressive for a company with SAP’s size, was less than the 15% mark that the company had projected. Therefore, while net income rose by a staggering 27% to €2.0 billion from €1.6 billion and adjusted EPS were €1.61 compared to €1.25 in 2005, the company’s shares did not do that well. Oracle’s acquisition spree, which placed it in direct competition with SAP in the business applications software market, also contributed to SAP’s ordinary performance in the share market.

SAP has announced new initiatives acknowledging the changes in the business applications marketplace. The company is investing heavily in its enterprise service-oriented architecture (SOA), which it feels will define the technical standards to help integrate various enterprise software applications currently in use. For the mid-sized and small business segments, SAP is also developing “A1S”, a code name for an on-demand enterprise solution. The company is also planning to use a “try-run-adopt” model where small business could customize A1S and use it before actually purchasing the solution from SAP.

The very fact that SAP is seriously considering these alternatives gives credence to the fact that on-demand and Extended Enterprise trends have truly arrived. In the upcoming months, we’re likely to see more SaaS /SOA / On-Demand announcements from the SAP camp. However, what I don’t expect to see, is too many acquisitions in the space. I did suggest Citrix as one exception, but players like Rightnow, Omniture, Taleo, Concur, etc. are more likely to find their exits in the arms of Oracle or Salesforce.com, or in a category consolidation roll-up, rather than SAP. SAP’s Enterprise 3.0 journey is likely to continue to be an organic process, as it has been through its long and steady history.