The SAP Niche on the IT Market

Professor Dumitru OPREA, Ph.D.

Alexandru Ioan Cuza University of Iasi
Faculty of Economics and Business
Administration
Ph.D. Student Valentin Măzăreanu
Alexandru Ioan Cuza University of Iasi
Faculty of Economics and Business
Administration

Abstract
We could say about SAP that it improved the way in which the business was run 10 years ago. The
revolution continues today, the company going in a direction through which it wants to change the
entire software industry. Regarding this aspect, Shai Agasi, member of the Board of Directors at SAP,
said: “We could have sat back and waited for the storm to pass, but it never will. Instead, we decided to
lead it”.

Keywords: Sap, Oracle, software development, software customers, competitive advantage,

challenges, software standards.

From idea to project

About 33 years ago, on April 1, 1972, five former IBM employees founded SAP –
“Systemanalyse und Programmentwicklung” (“System Analysis and Program Development”) in
Menheim, Germany. Their vision was to develop and trade a standard software that integrates all the
business processes. The idea came to them from the time they were working as system consultants at
IBM, when they saw that more and more clients were developing software programs that were very
similar if not identical in function. A second part of the vision was involving the software capacity of
on-line data processing, in real time, with a process focus on the computer screen.
Over the years, their vision transformed SAP from a small business located thousands of miles
away from Silicon Valley into an international rank company, the group SAP being nowadays a world
leader in providing business software solutions. If at the end of the first year of activity SAP stated a
profit of 620,000 DM, in 2004 it registered a record revenue of 9.5 billion of USD and a profit of 1.5
billion of USD, the analysts expecting an increase of 11% for 2005.
A short summary of the way in which SAP answered to the market requirements could be found
in the words of Henning Kagermann, SAP Chief Executive1: Ten years ago, software customers
wanted stability and reliability, and we gave them that. Now they want competitive advantage,
differentiation, and most of all, speed.
SAP started its activity with nine employees, successfully implementing its first contract to the
ICI Germany branch. After the second year, when a SAP Financial Accounting (RF) System was
implemented to the pharmaceutical company Knoll and to the cigarette producer Roth-Händle, the SAP
system gained rapidly the reputation of an excellent standards package, and the demand increased
accordingly. The success didn’t stop the development of new products, appearing thus a new standard
product, Material Management (RM) System, which included purchasing, inventory and invoice
checking modules. The SAP systems benefits are now noticeable, the data flowing very easily between
the two systems. From its fifth year of existence, SAP turns into a limited liability company and
1
Reinhardt, Andy, SAP: A sea change in software, in Business Week, 11 July 2005, P. 18
changes its name into “Systeme, Anwendungen, Produckte in der Datenverarbeitung” (Systems,
Applications, Products in Data Processing). To the end of the 70’s, the new generation of powerful
computers (mainframe) provided the base for the development of the R/2 system. In the same year, it
starts the expansion abroad, with two contracts signed in Austria. The tight relations with the clients led
to a constant development of the existent modules, new systems being created at the same time – Cost
Accounting (RK) System. On its 10th anniversary, 236 companies in Germany, Austria and Switzerland
were already working with the standard SAP programs. SAP GmbH turns into SAP AG in 1988, a
stock company, which is now listed on several stock exchanges, such as Frankfurt Stock Exchange and
New York Stock Exchange, under the symbol “SAP”. In mid 1992 SAP lunches the R/3 system, a
system compatible with the client-server technologies, through which it breaks into the medium
companies and multinational subsidiaries market. R/3 system, which later became SAP R/3 Enterprise,
had an enormous success and a record increase that was not foreseen even by the most optimistic
analysts of the time.

Present challenges

Today, SAP means over 27000 clients in 120 countries, that use more than 91500 software
programs, braches in over 50 countries, 77 training centers, 2000 assistance consultants, 9000 SAP
consultants, 120000 partner consultants, 8000 software developers and a complete coverage of all
activity domains, both private and public sectors, including retail, financial services, high tech, defence,
health and education fields.
But, as above quoted, the time of demands based on stability and reliability has passed. Now,
the SAP clients embrace active business models, so that their requirements lie on obtaining a
competitive advantage, differentiation, and speed. Moreover, the Internet reshapes the expectations the
users have regarding the software, in terms of easy to use and clearness. Facing the opportunity of
outsourcing, changes in regulations, globalisation and especially fast technology changes, the
consumers don’t afford to waste years waiting for new improvements to the existent applications to be
released. SAP understood this thing and made huge steps in order to provide users with an enjoyable
experience in the use of their own applications: Today, our software is easier to learn, more intuitive to
use and quicker to adapt to users' ways of working, thus empowering users to reach new heights of
productivity and satisfaction2.
“Continuous improvement!!!” This is the motto behind a success business like SAP. The
courage to evolve in order to meet the permanent changing needs of its own clients is the ideal that
leads the company to the future. And the final purpose is to determine the user to say: “SAP software
works the way I do”3. The SAP company seeks to offer in the following years entirely changes
products, more flexible than everything it offered so far, products based on web services. This
technology allows the use of messages sent through the Internet with the purpose of linking software
application pieces working on different computers. Basically, it is about a component piece of an
application that is made accessible through open protocols, allowing the consumers to share more
easily the information and to interconnect old and state-of-the art systems. Functioning on the SAP
NetWeaver platform that support innovation and facilitates business changes, the new mySAP Business
Suite solutions help companies around the world to build a sound relationship with their clients, to
enhance the collaboration with the partners, to improve the purchase chain efficiency and the business
operations. SAP NetWare platform let the already existent applications to focus especially on a
business problem, providing thus an answer in a quite short time, supporting a return on investment in a
much shorter time and an improved cost management4.
The reliability in the SAP platform comes also from the encouraging reactions of the clients
towards this technology. At the SAP convention on May 2005, the vice-president for Europe of Cisco
Systems declared: “SAP is setting the standard that other application vendors will inevitably have to
follow”5. The prospect is obvious: the success the NetWeaver platform has in the business environment

2
http://www.sapdesignguild.org/editions/philosophy_articles/overview_philosophy.asp
3
Enjoy SAP: A success story, at http:// www.sapdesignguild.org/editions/philosophy_articles/enjoy_success.asp
4
A window to SAP, SAP Info, no. 125, March 2005, p. 8
5
Idem 1, p. 19
could lead to defining a standard for business applications development, such an achievement being
comparable to that of Microsoft Windows for desktops or servers. In such a case, SAP would face a
new market niche, formed by the small enterprises that couldn’t afford so far integrated SAP solutions,
but would be able to implement other companies’ solutions, compatible to the NetWeaver platform.
Besides, SAP announced the availability of other companies such as Microsoft, EMC, Adobe, Intel,
Cisco Systems for providing applications compatible with the new software approach.
Still, until then, SAP makes different market studies to see what in the attitude of the small and
medium companies to its solutions. In such a study dated on July 8, 2005, to the question: Do you
already use a SAP solution for small and medium enterprises? 73.11% of the answers were Yes,
because it can carry planning processes, 9.24% answered No, but we consider doing it, and 17.65%
said First, we want to see other analytical methods6. In a study done on March 4, 2005, a promising
answer for the future of SAP solutions was also obtained to the question Did you ever shift form
another business software solution to the SAP, to which 49.43% answered Yes, and it was very good,
14.94% said I run SAP software from the beginning and 35.63% answered No, but we think doing it.
But the fields of activity addressed by SAP do not restrict only to business. SAP for Public
Sector ensures the environment for creating a flexible and effective governing, by connecting
electronically administration to the citizens, companies, providers and other organizations, through the
Internet. With respect to the implementation of this solution to the public sector in Romania, the
Minister of Communication and Information Technology, Zsolt Nagy, declared: It is necessary that the
information systems in administration be inter-operative. We need a common informatization strategy,
and for an efficient administration, the implementation of these information systems from the central
level to the local one7.
SAP approaches the financial-banking field too, this being one that orients more and more to
standard software applications, SAP replacing the intern software of the banks. This fact is confirmed
by a study developed by European Business School, about which professor Dr. Dirks Schiereck, from
the Finance-Banking Department, said8: Our survey is the most detailed analysis of the ERP solutions
used so far in the international banking industry. According to this study9, which is based on a research
run between March – September 2004, almost 50% of the participant banks were already using an ERP
package, and 14% have already thought of implementing such a solution. Most of these companies
were located in Germany, fact explained by the SAP’s sound presence on the market. However, SAP
proved to be the most important provider of ERP in Germany as well as at the international level,
despite the fact that in the locations outside Germany have been also mentioned the names of other
companies such as Oracle or PeopleSoft (still existent at that time, but further purchased by Oracle).

The fight for supremacy

The challenges for a company like SAP don’t come only from its clients. SAP is in a continuous
competition, represented for the moment mainly by Oracle Corporation. The fight between these two
companies is almost idyllic, comparable to some extent to rivalries like Windows vs. Linux, Yahoo! vs.
Google, Intel vs. AMD, Pepsi vs. Coca-Cola, McDonald’s vs. Burger King …And we talk here about a
taught fight, carried in the forefront, materialized in attacks on the competition, through acquisition
policies of companies in the same branch with the purpose of getting their clients. It seems that in this
fight SAP started on the wrong foot, from the moment of launching the new eBusiness strategy,
mySAP.com. According to some marketing analysts, the promotion campaign, with an approach of “if
we build, they will come”, was cryptic and confuse, this due maybe to the fact that the product itself
was cryptic and confuse at that time, too. Basically, MySAP.com extended the R/3 back-end software
based on a client/server technology in order to include front-office applications based on web, trying
thus to enter a new market and to sell more products to the already existent clients. Unfortunately, even
in the opinion of a SAP representative, mySAP.com wasn’t only one product but several of them,

6
http://www.sap.info
7
SAP solution support the European integration, Efinance Magazine, nr. 58, June 2005, p. 8
8
Market survey, http://www.sap.com/romania/company/press
9
ERP in Banking 2005 – An Empirical Survey, hppt://www.erp-survey.com/ERP_in_Banking.pdf
randomly set under the same name. This wrong step let a niche open to Oracle and other rivals who
gained market shares with an aggressive promotion campaign10.
According to Lawrence j. Ellison, CEO Oracle, who among other things refers to the rival
company by saying just “sap” and disrespects its wish of spelling its name 11, another fact that may slow
SAP’s success is the programming language in which the applications are written, an old one, ABAP12.
As an answer to this and as a long-term strategy, SAP is striving for attracting new independent
software developers who would write applications compatible with NetWeaver. George Paolini, SAP
Executive Director, forecasts a number of 500 of such applications finished and offered by the end of
200613. Simultaneously, through the SAP – Microsoft partnership, it is intended to integrate the SAP
NetWeaver and Microsoft.NET platforms. The SAP clients can thus gain a higher level of productivity
and efficiency through the new Visual Studio.NET 2003 – an integrated development kit for the Portal
through .NET.
The fight for gaining the rival company’s clients undertook new forms in the case of this
rivalry. Thus, in January 2005, SAP announced that it would offer 75% software credit to the clients
who would leave Oracle for SAP14. In response, Oracle offered for the clients who would leave SAP
for Oracle a 100% credit.
The rivalry between the two companies doesn’t stop with words: Oracle literally stormed
PeopleSoft company, purchasing it in December 2004 for 10 billion USD, after which it moved to a
body-to-body fight with SAP in the attempt of purchasing Retek company, which was already courted
by the German company. Oracle finally succeeded to buy it in March 2005, for 600 million USD,
almost double of its market value. New companies acquisition seems to be Oracle’s fight tactics against
SAP, the first one purchasing one by one the companies SiteWorks Solutions in January 2004, Oblix in
March 2005 and ProfitLogic Inc. in June 2005. Also, the certitude that Oracle fights against SAP comes
from a former declaration of L.J. Ellison: the sure sign of a struggling software company is that it starts
writing checks instead of software15.
We end here the presentation of Oracle vs. SAP, with the words of Leo Apotheker, member of
the SAP Executive Board: we sold in the United States alone as much application software as Oracle
did globally16, a situation which, at least for the moment, leaves the German company a moment of
rest. But this is just for the moment …

European conscience

Peter F. Drucker said: Business has only two basic functions: marketing and innovation.
Marketing and innovation produce results. All the rest are costs. We see innovation almost at each step
at SAP. As for marketing, after a slight hesitation in the start of mySAP.com, the German company
reconsidered its policies and understood that the messages it sends have to be consistent and clear about
everything it does, because the client has to know why he should invest in new products. The SAP’s
future announces to be a very interesting one: the fight with Oracle makes the German company to
think of the possibility of purchasing companies like Siebel Systems or Salesforce.com, companies that
built their name in the Customer Relationship Management field and, thus, it could strengthen this
position, too. Within this context, SAP future policies could be extracted from he message sent by
Henning Kagermann, CEO SAP, on the occasion of CeBit exhibition, this year: Europe must build up
its own IT industry and reduce its dependence on the United States if it is to stay competitive.

10
Gilbert, Jennifer, SAP goes all out, http://www.business2.com/b2/web/articles
11
Larry’s War: Oracle vs. SAP, http://news.com.com
12
Advanced Business Application Programming, a language of SAP AG
13
Idem 1, p. 20
14
SAP tries to lure small firms from Oracle, http://news.com.com
15
Idem 11
16
SAP gaining on Oracle?, http://news.com.com
 Bibliography

1. ***, A window to SAP, SAP Info, no. 125, martie 2005

2. ***, EnjoySAP: A succes story, la
http://www.sapdesignguild.org/editions/philosophy_articles/enjoy_success.asp
3. ***, ERP in Banking 2005 – An Empirical Survey, descărcabil la http://www.erp-
survey.com/ERP_in_Banking.pdf
4. ***, Soluţiile SAP sprijină integrarea europeană, Revista eFinance, nr. 58, iunie 2005
5. ***, Studiu de piaţă, la http://www.sap.com/romania/company/press
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8. Gilbert, Jennifer, SAP goes all out, la http://www.business2.com/b2/web/articles/
9. Hines, Matt, SAP tries to lure small firms from Oracle, la http://news.com.com
10. http://www.sap.info
11. http://www.sapdesignguild.org/editions/philosophy_articles/overview_philosophy.asp
12. Reinhardt, Andy, SAP: A sea change in software, în Business Week, 11 july 2005

Aparut in Oprea, D., Măzăreanu, V., The SAP niche on IT market, The Proceedings of the International Symposium
„Innovative Applications of Information Technologies in Business and Management”, 14-15 Octombrie 2005, Iaşi, ISBN
973-716-189-0