But Henning Kagermann, chief executive of SAP, the US$10 billion market leader, says new competition, changing economics and fast-moving technology are driving the 34-year-old company to rethink how it builds its software and how to sell it.
SAP is forging ahead with a new services-based architecture, and archrival Oracle is right behind the company. The big question is whether SAP's more than 33,000 customers will buy into the plan -- and buy new software -- this year, next year, or not at all.
At the company's annual user conference in Orlando, Florida, this week, Kagermann sat down with ZDNet Australia CNET News.com to discuss why SAP and Oracle are wrestling for services business and how Microsoft has gone from being a prospective acquirer to a respected partner.
Q: You said this morning that SAP is closing in on completing a product revamp next year. So what's the next big R&D investment for SAP?
Kagermann: There's never an end. Such a road map brings us to a certain point. It's like when we had a road map to bring R/3 (applications) to market years ago. That's a big investment. But later on, there are normally so many requirements coming from the market for new features that you are constantly evolving. You have to give customers new concepts, and the risk is whether you can do that, and will it work, and are you first?
Once the concepts are out, then the risk is lower. It's proven, and you get more customers. This is like the transition from client-server to a services-oriented architecture, which is a bigger step and a bigger risk.
Kagermann: Yes. This is a bigger step -- because the other one was more a technology step, where you rewrite some of the application, but then they run as they did before. But SOA is really about how you build an application. It has nothing to do with the hardware underneath it. Therefore, the switch is tougher and if you apply some of these new concepts, you are never sure if it's really working, if it's not too slow, all of those things, all of those risks you have.
What about your customer base? How far along are they in moving to a services architecture?
Kagermann: Well, the customer base has to do a lot. I think there has been some introduction in the customer base. But I believe the first big wave will come this year.
SAP has been, more or less, the first company bringing those applications to the market. The first was last year with ERP 2004, but we had no services in. With ERP 2005, we now have over 500 services, so now you can really say this is ERP on a services architecture. Over time, you can imagine that we will have 1,000 or 1,500 services. But with 500, you can already do a lot.
I think customers now see that this is a step where it makes sense to switch from client-server, because they already, with these services, have 70 percent of what they need and the rest comes in smaller chunks, so it's worth doing it.
Are there certain types of companies that are more likely to be moving to a services architecture sooner? Such as telecom or financial services companies?
Kagermann: Yeah. It's more popular in companies that have less packaged software, like financial services companies. But we do something different. We are not just bringing a services-oriented architecture to the market which helps companies to connect their various legacy systems, which is sometimes the IBM approach. Our case is to also rewrite the applications, which is a significant step.
So for SAP, a services architecture isn't just an integration strategy?
Kagermann: No, it's a re-architecture of the software. Software which is designed this way looks different internally. Flexibility is part of the design.
That must impose a steep learning curve on your customers' in-house developers.
Kagermann: Yes, that's true. For the people who implement it, the businesspeople, it is not a big learning curve. It's more learning about what they can do with this new architecture. There are more opportunities, and people have to learn how to use them. But for the in-house developer, it is a big step. It's a different mentality and a different way to design software. So we'll see.
With IT staffs shrinking, do you see the people doing this sort of development within companies as the more experienced programmers? Are there new people being attracted to this sort of development because of the new technology and this new approach?
Kagermann: There are new people coming in. But companies are trying to shrink the number of in-house developers. But I believe for large companies there will always be some in-house development. There will always be some percentage of software that they do in-house. You can't, 100 percent, get rid of it. Otherwise the standard package would be too large and too complicated to meet every company's needs.
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