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Article
Is SAP Still On?

"On-premise, on-demand and on-device," said Bill McDermott, SAP's new co-CEO. But with the recent rebellion by their customer base against SAP's cost increases, as well as significant revenue and corporate culture challenges, can the CEO duo of Snabe and McDermott turn the company on to new directions and better performance?


Full Article Below

"We are on-premise, on-demand and on-device," says Bill McDermott, "and we can orchestrate like no other," when prompted by Joe Kernan of CNBC's Squawk Box. Joe asked if they had the time to execute the new plan and not be acquired. A fair question, considering SAP's 4th quarter results and the subsequent changes and downsizing of the company.

Jim Snabe discussed changes in the company, specifically, "on-Demand and Mobile solutions to drive top line growth and"... "changes to the organization to be more efficient"... "and becoming 'entrepreneurial.'" SAP has, of course, offered hosted options (which is not a true On-Demand/SaaS offering) for many years, and last summer outlined their SaaS strategy. Some applications that they've
              Bill McDermott (left) and Jim Snabe
acquired were already multi-tenant, true SaaS (such as Clear Standards and Frictionless). In fact, the multi-tenant architecture that SAP is using going forward is based on the Frictionless platform. Just a couple of weeks ago SAP announced a new suite combining all of their SaaS BI products. The bigger question is whether this is truly a more aggressive move into SaaS by SAP. That move is made difficult by the massive investment already made, both by SAP and their customers, in on-premise systems, and because the architecture of R3 is difficult to migrate into a single instance with so many users of custom software and multiple releases.

Of note, rival Oracle seems to have reconciled their various approaches to platforms: on-premise vs. on-demand, as well as a successful hosting service - making several profitable business lines. So, it can be done, but as we have said, this is a major commitment.

Becoming more entrepreneurial will also be a huge challenge for the massive, Waldorf-headquarters-centric company. Efficiency always helps, but obviously price hikes will be used to gain better margins in the future. 

Bill McDermott spun the customer support cost increase scheduled by calling it "elegant and complete," creating a two tier model. One is at higher cost - elegant - i.e. the Enterprise, coming at a whopping 22% over time. Even the everyman's services, the so-called Standard, will be 18%, which is above industry benchmarks of around 16%.

This does not bode well for the TCO metric used by many CIOs and customers to gauge part of the value proposition. However, SAP's COI (Cost of Integration) is much better than rival Oracle: that still has challenges with its FUSION roll-out and the confusion associated with their competing products.

How to get around these staggering support costs? Don't buy software that you don't need. User requirements are still loaded with we might needs. Research shows that most people never get around to using those.

CNBC staff had a few humorous statements about the co-leadership announcement of last month. But in fairness to SAP, they have done very well in collaborative-type leadership models since the inception of the company, creating their market leadership in enterprise software.

When people make negative statements to us on SAP's future, I often repeat the Mark Twain quote: "The reports of my death are greatly exaggerated." In spite of the bad press and the changes in performance on revenues and share price over the last few years, most financial analysts are positive on SAP's prospects.

For SAP's announcements at cebit you can go to http://www.sap.com/about/newsroom/topic-rooms/events/cebit2010/index.epx

You can see the full interview on CNBC.Com at Two for the Tech Helm

You can stay current with SAP's valuation and analysts' commentary at the MarketWatch interactive chart here:  http://www.marketwatch.com/investing/stock/SAP/charts


To view other articles from this issue of the brief, click here.



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