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Commentary: SAP's tough, not invincible

Internet hype has fallen out of favor, and SAP is back in. But being the biggest competitor doesn't mean the company is delivering the best value to businesses on all fronts.

By Bruce Bond, Gartner Analyst

Almost every success story has one or more components that just happen to work out favorably. In SAP's case, that component was the Internet.

During the mid-1990s, the Internet seemed

See news story:
SAP marches to its own beat
to be SAP's future undoing. The company was considered by many to be unable to adapt its monolithic and inflexible products to the new business paradigms that the Internet demanded. Its competitors, such as Oracle, were saying that the Internet should be at the core of all applications and that an investment in SAP was an investment in the past.

However, it is the Internet--or more precisely, the crash of the Internet hype--that has businesses seeking more prudent, proven approaches to solving business problems. Internet hype has fallen out of favor, and SAP is back in.

Of course, good fortune is rarely effective without skillful execution. SAP has made the right moves in a number of key ways. The company has managed to reinvent itself into a more nimble operation and has built additional revenue through new products and services sold to its large installed base of customers. SAP has increased the functionality of its products so that they are often comparable to "best of breed" products. That functional improvement and SAP's ability to offer the benefits of integration have enabled the company to compete effectively against best-of-breed competitor, such as i2 Technologies and Siebel Systems.

However, being the biggest competitor does not mean that SAP is delivering the best value to businesses on all fronts. Its customers should not, for example, expect real-time external integration to be easily accomplished even after the company implements its new mySAP technology--scheduled for the second quarter. The cost and time to complete SAP upgrades continue to be concerns to some customers--although Gartner believes that upgrades will begin to become less disruptive with the next release of R/3 (R/3 Enterprise).

Although there are numerous instances of smooth SAP installments, the company's reputation as the most difficult and costliest product to implement remains intact. This requires prospective buyers to be particularly diligent in their efforts to justify SAP implementations to senior management as well as to plan and staff the implementations.

And many prospects and customers are still unsure what mySAP.com really is, requiring the software maker to expend energy, time and money to explain it. These problems continue to provide opportunities for competitors, suggesting that although it is tough to beat now, SAP may not be invincible in the long run.

SAP remains financially strong in the post-Internet age, despite predictions to the contrary. It has closed the Web-enabled window of opportunity for competitors to displace it as the leading generator of business application software revenue for at least three years.

The company has consistently made the correct strategic decisions, and from a total application software revenue perspective, it is effectively preventing competitors from catching it. Through 2004, Gartner expects SAP to generate more revenue from business application software licenses than any other vendor. SAP customers and prospects, in turn, will be able to more easily justify new or continued investment in the company's offerings.

SAP customers should continue to invest in SAP products and services. But they should also plan for continued challenges with external integration and product upgrades--although with upcoming product releases, the challenges should be less daunting.

(For related commentary on SAP's third-quarter 2001 financial results, see gartner.com.)

Entire contents, Copyright © 2002 Gartner, Inc. All rights reserved. The information contained herein represents Gartner's initial commentary and analysis and has been obtained from sources believed to be reliable. Positions taken are subject to change as more information becomes available and further analysis is undertaken. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of the information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof.