SAP's rising star on being No. 1

With its two closest competitors duking it out for the No. 2 spot, SAP is enjoying the view from a perch atop the business applications market.

While 2002 turned out to be a dismal year for most corporate applications sellers, the German software maker actually managed to eke out a modest 1 percent increase in sales--good enough to help the company retain its No. 1 rank. More importantly, SAP registered 13 percent growth in the much-coveted category of license revenue. That's important, because these higher-margin contracts are viewed on Wall Street as a barometer of how well a software company's core products are selling.

But it's not all milk and honey in SAPland, as the competition is growing increasingly feisty. Both Oracle and PeopleSoft are trying to bulk up through acquisitions, while Microsoft is elbowing its way into the fray. What's potentially even more worrisome to SAP is a reputation for making maddeningly complex software that's mammoth, rigid and doesn't like to talk to other business systems.

But as the company embarks upon a much-touted initiative to fix that problem, new leadership will be guiding SAP. Company co-founder and technology visionary Hasso Plattner, widely credited with being the charismatic force behind SAP's rise from an obscure start-up 30 years ago, earlier this year relinquished the job of co-chief executive.

One new leader SAP is grooming to fill the void is Shai Agassi. The 35-year-old Israeli joined the company in 2001 after SAP's acquisition of software maker TopTier. He was promoted to join the executive management board last year, and SAP further expanded his duties in February. As the youngest board member and the only non-German in the company's executive inner circle, Shai is considered SAP's rising star. But now, he has been handed the task of leading the company's technology development strategy--an assignment that could either earn him more laurels or short-circuit a dazzling ascent through the ranks. Agassi recently sat down with CNET News.com to discuss the challenges SAP faces and changes in the enterprise software business.

Q: Larry Ellison's claim at OracleWorld was that he can make SAP and other business applications cheaper to run by operating them over a grid without any changes to the applications themselves. Is this possible? Or is he dreaming?
A: God bless him. I would like to see it happen.

You haven't seen it happen?
I haven't seen him do it without any modifications to the application. There is enablement that needs to happen. You need to wrap the application in the right way, so it knows that it is self-cognizant and self-described to know, "I need that much compute power to run."

Do you doubt Ellison's claims that are related to running SAP on a grid system?
I haven't been in his meetings, and I haven't seen his presentation so I don't want to speculate about what he said and what he's shown. I would like to see it happen.

You were promoted to be a member of the SAP executive management board last year, and your duties were further expanded in February. As the youngest board member, the newest to the company and the only non-German, what are you bringing to the table? How are you putting your stamp on the company?
I think sometimes companies tend to focus on what they used to do. There's a great saying by Picasso that if you just try to do what you did last year, over time you will lose your innovation, you will lose your drive and lose the appeal you have. Well, that's a paraphrase. But sometimes you have to bring in another fresh view and to have an outsider that's an insider, which is what I do.

Is it ever tough being the outsider?
The perception the world has of SAP and the reality of SAP are very different. It's a very pluralistic, multinational company. It's the most global company I think you can imagine. If you look not at our board but our extended board, we have a guy from New York. We have a guy from Australia. As you know, I'm from Israel.

Hasso Plattner, SAP's former CEO, stepped out of his day-to-day management of the company in May. How is the company changing, if at all, under the leadership of Henning Kagermann?
Henning is great. He's probably one of the smartest people in the world. And Hasso is fantastic in the sense that he recognized early on that he needed to mentor his successor. So we laugh about it, but Henning has been in the ramp-up for the last 20 years. He has been mentored by two of the best in the business, by Dietmar Hopp (SAP supervisory board member) and by Hasso. And the transition has been probably one of the best-managed transitions in our industry.

I don't think Oracle wants to buy PeopleSoft because they're trying to block competition. I think they're trying to do it because they're trying to compete with us.

With Oracle and PeopleSoft vying for the No. 2 spot in the business applications market, everyone seems to openly acknowledge that SAP is No. 1. How does SAP stay on top? Is it going to be a matter of bringing out new and better technology, or will it be a marketing game from here on out?
I don't believe that marketing is the long-term sustainable model. You don't market your ideas; you market what your customers have done with them. And that's exactly what we're doing.

To some degree, SAP is the trusted innovator. We won't jump in headfirst and bet the farm on something. But we will test the waters. We will figure what the best approach is and then take you with us down the path. And usually, when we take you down the path, we show you the path for the next four, five, even 10 years.

Do you think an Oracle merger with PeopleSoft would be anticompetitive?
I don't think it's necessarily in the best interest of PeopleSoft customers. For that matter, in most cases, I don't believe that any acquisition is done in the best interest of customers. One could argue that J.D. Edwards customers are not best served by the integration with PeopleSoft. Is it anticompetitive? I don't think they're doing it because they're trying to block competition. I think they're trying to do it because they're trying to compete with us and then it's hard to say if it's anticompetitive. But I think that question is reserved for the U.S. Department of Justice and their evaluation of the case.

What kind of technology is SAP cooking up that's really going to wow people in the next five years?
There isn't one silver bullet. I think NetWeaver is our next foundation--just like three-tier client server was our foundation 10 years ago. NetWeaver is our foundation for the next 10 years. You'll see a lot of players imitating us over these next 10 years, but I still believe that we will drive this.

What is NetWeaver, and how is it different from what came before it?
One of the things we're doing this time is we're bringing in our technology platform, which is sort of our secret sauce for how the applications are so robust and scalable. But we're opening up the platform so that people can build with it, including other players in the industry, such as integrators or developers. And we don't care if they're our partners or competitors--they can use our platform and build on it.

All the guys who predicted that we'd be dead are niche players right now.

SAP launched its NetWeaver initiative in January to make development and setup of business applications easier. Coming up on a year later, what does SAP have to show for it?
What we've shown for it is a lot of customers and what they've done with NetWeaver throughout the year. We've had case studies from Nokia and from Siemens, from Lufthansa. And we had small companies like Check Point. They've just completely changed the way they talk to their customers and distributors.

What is it adding to SAP's bottom line?
The benefit for us is that the customer is deploying SAP in a much more strategic way than it did before.

How so?
Think back five years ago. Customers viewed us as the ERP (enterprise resource planning) company, with all the other players around us telling everybody how we're going to die. And Siebel will win the battle, and i2 Technologies will win the battle, and PeopleSoft will win the battle, because we were the back-end business processes that were not interesting, and they would wind up doing the front-end, interesting processes. Well, five years have passed, and we're actually doing all the processes. And all the guys who predicted that we'd be dead are niche players right now.

Are you guys having the last laugh?
I don't think it's the last laugh. I think in a lot of cases, it's sad to see what happened to those companies. It's also sad to see what's happened to some of the customers that have bet on them and have these systems still running and are trying to figure out how to put all the pieces together. They got recommendations from some trusted advisors to go and do a pluralism of application approach. And that model is extremely expensive. It shifts a lot of money to the advisors, but it's extremely expensive for them.

Who were those advisors?
The people that came in and said, "All you need to do is put in CRM (customer relationship management), and you don't need to think about where you get your CRM from."

Who said that?
In general, there was a wave in which people said best-of-breed software is going to win. We have that situation right now, and it's not going to go away. They just need to question if that's still the best way, and who gave them that advice. To a certain degree, we are taking the responsibility on ourselves. But we're the only vendor saying, "We recognize your situation, and we're trying to help you right now." We're not having a laugh; we're having a lot of hard work.

We've been hearing about Web services for a while. What's happening with it?
What's new is we're starting to see the emergence of very few players that have all these integration facets in one platform. It's almost like the car industry. We go from the thousands of players to very, very few--five or six--that can actually put in one platform, fully pre-integrated. And that is a very big change, because when you get to a complete solution, you move from early adopters to people who like to dabble and build to the Main Street--the people who have to have it. And we look at five to 10 times growth in any market when that happens.

What does that mean for IT managers?
That means that instead of seeing ERP, CRM, SCM (supply chain management), PLM (product lifecycle management), HR (human resources) and you name it--all these buzzwords in the application space, shipping as separate entities--you will see a collection of services--in the vicinity of tens of thousands of services.

Why would a business, a CEO, be interested in something like that?
For the techies, this creates a whole new wave of innovation. They can build on a whole new platform. The CEOs are excited for a very simple reason. It changes the total cost-of-ownership equation. Integration has become the highest cost of IT in most of the companies you see today in any industry. If you can find the formula that actually reduced the cost of operation through preintegration of these layers, then you save a lot in operational costs that you can then invest back into innovation.

What kind of innovation?
A lot of people talked about the improvements in supply chain--cutting four of five days out of a 16-day process. But you look at innovation in product definition and product design, and you may actually cut three to six months out of a 12-month cycle. The impact on a company is significantly bigger.

Where do you look to see that?
You look at innovation in mergers and acquisitions and post-merger integration, and if you have a better engine to integrate other companies, you may be the integrator versus being integrated into somebody else. These are new areas where we did things in the past on paper or spreadsheets and PowerPoints. We're moving now into a well-defined process that allows me to do it in a predictable and sustainable way across my businesses, across the world--from the design to the launch of a product, from recruiting people to a postmortem on projects, from premerger deal rooms to a postmerger reorganization. There are all these processes that we've never done before.

Do you think grid computing is legit or a marketing device?
Grid is extremely interesting for very specific business application needs. It doesn't live in a vacuum. It's the application vendors that make it interesting, more so than the technology vendors per se.

Is SAP developing new software around grid computing?
We've built a number of applications that actually are grid-enabled. Some customers right now are early adopters, and they're using our applications on the grid model.