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Billion Dollar Bet

Inspired by a relative newcomer, SAP is banking on its Web-services-based NetWeaver to become an IT-platform vendor.
Agassi's greatest strength may be his ability to get others on board with his vision. "One of the things that is most impressive about him was to really take that personal vision and turn it into the vision of the company," analyst Greenbaum says. "That wasn't easy. He was a newcomer, very young, and an outsider." Agassi came to SAP when TopTier Software Inc., the enterprise portal company he founded, sold, and then stayed with as CEO, was bought out by SAP in 2001 for about $400 million. About 90% of TopTier's people still work for SAP today, says Aliza Peleg, managing director of SAP's North American labs, herself a former TopTier employee.

"Once SAP was committed [to NetWeaver], we knew we'd be very, very successful," says Peter Graf, SAP's VP of market strategy. "But it took someone like Shai Agassi to emotionalize it and get everyone rolling in the same direction."

According to Kagermann, SAP's evolving services-based architecture will make it easier for businesses to ramp up or down, as business conditions dictate, an important idea given the extended downturn of the past three or four years. "We have an architecture that allows them to switch between bullish, innovation, [and] growth, or bearish and conservative," he says. The idea of using Web services to piece together and pull apart complex but flexible information systems in new processes that suit the business needs of the moment is appealing. And if SAP does it right, it may meet again with the astounding success it enjoyed at the start of the client-server era.

It was SAP's early bet on client-server software that won over Reebok. In 1988, CIO Burrows (who was at a different company at the time) met Plattner and heard his ideas about client-server computing. "I started listening to Hasso talk and thought, 'I'd better pay attention to where this is going,'" Burrows recalls. "It planted a seed in my mind that SAP was certainly a company that was worth watching." Nearly 10 years later, after Burrows had joined Reebok and the company was choosing the software to run its business, Burrows went with SAP.

SAP's gamble is that IT leaders increasingly will respond to its platform vision the way Burrows and others responded to its client-server architecture revolution: by opening up their wallets. "There was a profound change that caused companies to go out and replace business systems and infrastructure," says AMR's Shepherd.

Will SAP's Web-services vision result in a similar change? Financially, the company is regaining strength. At the end of last year, SAP execs predicted 2004 would bring improvement and still say they expect software revenue to increase about 10%. So far, so good. The company reported revenue of $1.9 billion for its first quarter ended March 31, compared with $1.8 billion the same period a year ago. SAP's operating income increased about 12%, to $395.2 million. ERP, Kagermann says, is the company's fastest-growing product area.

As a free offering, NetWeaver won't contribute directly to SAP's revenue growth. But Meta Group analyst Dennis Klappich offers a comparison about how it will contribute to SAP's success. "Think of Microsoft. Back in the '80s, people started writing stuff for Microsoft," he says. As more and more people did that, it solidified Microsoft's position as a platform. "Say 10 years from now there are 1,000 composite apps for SAP, and then there's another vendor who is still cobbling together different things," he says. "Who wins? SAP."

That's Agassi's goal. He's confident, seemingly without a shred of concern that a multibillion-dollar company's future is riding on his idea. Says Agassi, "We will become the platform for businesses' growth."

--With John Foley