SAP: On-demand has its limitations

Ask Henning Kagermann, chief executive of SAP, the world's largest enterprise applications maker.

Kagermann, who has served as SAP's CEO for the past six years and has been a member of the company's executive board for the past 15 years, has witnessed challenges arise to the industry's licensing model and software delivery system, traction gained by consumer-oriented applications among enterprise customers, and a consolidation among the large enterprise applications companies.

In a wide-ranging interview with CNET News.com, Kagermann sat down last week to address these issues, as well as whether he will continue as CEO when his term expires next year.

Q: With the success of Salesforce.com, everyone is talking about on-demand applications. Where are you on that?
Kagermann: We have not changed our strategy. We have this mixed environment and run a hybrid model. We do it for good reason. Our customers want flexibility, so, over time, they can make the decision to source us in, or upscale the functionality and integrate us into the back end.

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Henning Kagermann tells developers that SAP has plenty of ideas for growth.

You can do this on-demand for certain areas and certain functions, but not for everything. Everybody starts with salesforce automation because it makes sense since it's not very structured. It's simple and more office-like. But the more you come from this type (of system) to the core of CRM (customer relationship management), the more difficult it will become to do it on-demand. People don't want to share the data with others.

Nonetheless, all this talk of on-demand seems to be bringing a sea change to the way customers want to pay for their software. They either want to pay it as they use it or at the end. Where do you think licensing models are going?
Kagermann: It will be very stable in the years to come.

We have had this debate for the last four years: Should the license model be different? Should everything be on-demand?

But I have spoken to many clients and they want to own (the software). They are happy with this model. So, therefore, there will be some additional new profit models, that is true, but the core will still want to license. You can ask me again in one or two years from now.

In a year or two, will you still be around as SAP CEO? Your term is expiring at the end of 2007, so will you ask to stay on?
Kagermann: With this process, normally, you discuss those things a year before the term expires. I would say the first quarter of next year, or so, would be the time to discuss it.

Back to on-demand and licensing--some customers complained about spending hundreds of millions of dollars on SAP and feeling not much closer to wrapping up its installation and implementation. Some talked about the lure of a service-oriented architecture (SOA) and XML and keeping their investment in SAP, but any future investments will be done with point solutions. What do you say to these types of customers?
Kagermann: I have not met such a customer. But if I met such a customer, I would tell him that over time he will spend more money because it's very difficult to manage such a heterogeneous environment of point solutions--even if it's on top of an open platform.

I would expect that the customer will try to check and test the flexibility of the SOA architectures and bring point solutions in, but, nevertheless, he has the maintenance and managing of different suppliers, etc.

How are you doing with building out the ecosystem of NetWeaver, your back-end middleware? I understand you have about 1,000 independent software developers building applications to run on it, but how many of these applications are getting into the mainstream?
Kagermann: I would say a significant number of players are doing this already, in particular, if you look to the industries. One of the first composite (applications) was done by Accenture for the oil industry.

I was trying to look for solutions, so I went to the partner and said show me. But what I learned was that it was not really a lightweight composite--but a really a big application.

Instant messaging, wikis and blogs are examples of something that started in the consumer market and migrated to corporate America, which, of course, wants its own beefed up and secure version. Will we ever see the day when SAP will enter through the backdoor by marketing applications as a consumer play, with hope to later find its way to the enterprise?
Kagermann: Today, a lot of people think this, but I am not convinced. Most companies make a final decision from the top, than have a democratic process that moves up.

In our case, enterprise applications run the business. That is very different than coming in with some features that are nice to have and support some people and their productivity. But SAP is running the business and, if the application is down, then the company is out of business. That's the difference.

They select us because they believe, or trust us, to run their business. The customer is betting, in part, that the success of his company relies on our ability to deliver. This is the difference. I think you can move from the non-mission critical to the critical, but never the other way around.

What do you think about blogs and wikis?
Kagermann: I think, in principal, it is good because people share information and share knowledge, which I think is always good.

The question is, however, what is the quality of all this knowledge? This is something I watch from a distance. Somebody has to be accountable. If it becomes too much into the areas where it is critical for customers, then I think it is better that they rely on the office resources.