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9/20/2007
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Five Questions For SAP's Leo Apotheker

Will SAP's new on-demand software cannibalize license revenues, and what are SAP's chances of being acquired? SAP's Deputy CEO answered those questions and more.

SAP took a dive into the software-as-a-service market Wednesday with the unveiling of Business ByDesign, a subscription service it'll offer to midsize companies starting next year.

In an interview with InformationWeek editor at large Mary Hayes Weier following the New York event, SAP Deputy CEO Leo Apotheker responded to competitors' predictions of civil unrest within SAP; explained why he thinks Business ByDesign is different from competitive offerings; and talked about SAP's stance on consolidation within the software industry.

InformationWeek: Many people, including analysts and CEOs from companies that only sell software as a service [Salesforce.com, NetSuite and LucidEra], say there's no way SAP can offer subscription-based software without cannibalizing revenues it gets from licensed software. They predict it'll create a civil war within the SAP sales force. Is that a concern?

Apotheker: Those people saying that don't know us very well. We have been developing this whole business model and product for the last four years. There's been a tremendous readying inside the company to really support this business model. We understand that if we want to take SAP to the next level we need to be a partner to the business community, [one] that can really reach out from the very small to very large company. We didn't dump this stuff on the market to see what happens; we're doing this in a very organized fashion.

We have more than one product to sell and more than one customer segment to sell to. We feel very comfortable that this will not create a civil war, but will create peace, harmony, and lots of revenues.

InformationWeek: Oracle has said it will offer any product on demand. How does your strategy differ from Oracle's?

Apotheker: It all started four year ago. We looked at the market and looked at the technology. [With our] platform, SAP Netweaver, we realized we had an opportunity on our hands to meet an untapped [market].

We've created Business ByDesign from scratch. This is not some code we took over; it's a completely new design. It's enterprise SOA by design. We are exploiting all the capabilities of modern technology by design.

InformationWeek: SAP has made a strong point today that Business ByDesign is not appropriate for companies requiring "deep vertical integration." What do you mean by that?

Apotheker: Industries are not equal to each other. What a life science company needs or a retailer needs beyond general purpose applications [is] specific vertical capability. SAP All In One [on-premise software] has a very deep vertical solution.

Business ByDesign is more broader based and hasn't got very specific functionality, and it will take [SAP] some time to get there.

InformationWeek: You've said Business ByDesign is specific to customers between 100 and 500 employees. What happens when a company grows beyond 500 employees; will you suggest they move to licensed, on premise software?

Apotheker: I think it will scale and we'll continue to develop. It's not the final version. Partners will add to it. It's just the beginning and not the end.

InformationWeek: I've got a broader industry question. The software industry continues to consolidate, and SAP CEO Henning Kagermann has said in the past that he wouldn't rule out the possibility of another company acquiring SAP. Is that still true?

Apotheker: If you are a publicly traded company, you can never rule out that you could be acquired, or that you could acquire someone else. SAP is doing very well. Our customers like us to be independent, and we don't see any reasons to change that.

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