News

SAP Competes with ‘Organic Growth’

• By John K. Waters
• April 12, 2006

BURLINGAME, CA—How do you stay at the top of the heap in the business software game? If you're SAP, you do it through “organic growth,” not blockbuster acquisitions.

That's the word from SAP CEO Henning Kagermann, who talked with reporters last week during his company's annual Developer Kickoff Meeting (DKOM06) in Burlingame, CA.

“The second-best strategy is acquisition,” Kagermann says. “The best is organic growth. We are not just doing organic growth because we have no other choices.”

The comment was aimed squarely at rival Oracle Corp., which has spent nearly $20 billion over the past two years to expand its core database business into the SAP-dominated business apps market. Kagermann was unimpressed with Oracle's appetite for big, headline-grabbing acquisitions (PeopleSoft, Siebel Systems).

“We are the market leader,'' Kagermann says. “It's no surprise that a distant number-two player wants to catch up.”

Kagermann was joined by sales and marketing exec Léo Apotheker, and locally based Shai Agassi, president of the company's Product and Technology Group, for a post-keynote Q&A with reporters and analysts.

Agassi expanded on Kagermann's discussion of SAP's growth strategy, and couldn't resist a direct dig at Oracle. The key difference between the two companies, he says, lies in Oracle's tendency to ''acquire an industry solution that is at the heart.''

“When we do an acquisition it’s at the edge of the solutions,” Agassi says, “which is different from buying half of a heart… Oracle is buying half body parts and trying to make a body out of it.”

In fact, Agassi expects SAP to grow faster than the rest of the industry this year—15 percent to 17 percent in sales of new software licenses—through internal innovation and small-scale acquisitions, such as the company's recently announced purchase of Virsa Systems, a privately held supplier of regulatory compliance software.

SAP is also reaching beyond its traditional large customers to pursue sales in the midmarket, a strategy that began in 2000. In fact, Apotheker says that he expects sales to companies with fewer than 25,000 employees to account for nearly half SAP's total software sales this year, up from 30 percent.

Kagermann, Apotheker, and Agassi were among 80 top SAP execs who met in Silicon Valley last week for the annual DKOM06.

Kagermann's event keynote centered on the evolution of a unified SAP platform based on the company's NetWeaver enterprise services repository. NetWeaver is the foundation for SAP's “power solutions,” including its mySAP all-in-one business process platform.

The company expects to finish development of the mySAP suite within the next four years, as well as its Enterprise Services Architecture (ESA), Kagermann said. ESA is SAP's “blueprint for service-based, enterprise-scale business solutions”—basically, a platform for providing consistent business services around SAP.

Among the company's other goals for this year is the development of hundreds of additional services for the mySAP suite.

The most important trend in the business software market itself, Kagermann observes, is the rise of so-called “ecosystems” of supportive technologies.

“Business in the future is not business in an enterprise,” he says. “It's business in an ecosystem. You just can't do everything yourself if you want to remain competitive. We try to invite others with great ideas to innovate on the platform.”