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11/11/2005
04:25 PM
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SAP's Architecture Shift

Software vendor plows ahead on its Web-services approach with good results, but its efforts are far from complete

SAP's high-stakes gambit to rip apart its enterprise-applications suite and build it on a service-oriented architecture is showing results but is by no means complete.

Recent SAP customer contracts with Applied Materials, Carrier, the North Carolina Office of the State Controller, and more than a dozen others boosted its software sales 20% in the third quarter to $707 million compared with the year-ago quarter. The strongest software growth, 258% to $51.5 million, came from SAP NetWeaver, a service-oriented application and integration platform.

SAP's move to deliver slivers of applications called composites as Web services on the NetWeaver platform seems to be working, but it's far from finished. Mendocino, a composite application built by SAP and Microsoft that merges Microsoft Office products with SAP platforms, will begin shipping in December, with general availability in the spring. Analytical apps also will be launched next year. But SAP hasn't finished converting all its mySAP platform into Web services.

"Until they take that giant application and break it into thousands of Web services, I don't consider the application a service-oriented architecture platform," AMR Research analyst Jim Shepherd says.


The small- and midsize-business market made up 40% of SAP America's revenue last quarter, CEO Bill McDermott says.

The small- and midsize-business market made up 40% of SAP America's revenue last quarter, CEO Bill McDermott says.


Photo by Barbara Johnston/Philadelphia Inquirer
SAP's move has proved a bold one. Companies typically rewrite their apps out of desperation when they're struggling to recover, not when they lead the market. SAP also is attracting businesses with less than $1.5 billion in revenue, specifically in the United States, with its Web-services approach. Small- and midsize-businesses made up about 40% of the $237.8 million in revenue SAP America garnered last quarter, says president and CEO Bill McDermott.

Pacific Cycle LLC has its reasons to invest in SAP NetWeaver. The bicycle maker uses radio-frequency identification technology to tag cases and pallets. "Our current enterprise-resource-planning platform running a former version of SAP doesn't really handle RFID well," says Ed Mathews, director of IT at Pacific Cycle. "The new versions of SAP will." Mathews is deciding whether to upgrade to SAP's ERP platform that runs on NetWeaver in late 2006 or early 2007.

Meanwhile, Oracle, SAP's closest rival, has set its sights on the enterprise-applications market. It has mainly focused on acquisitions, spending about $18 billion this year on companies that include PeopleSoft, retail specialist Retek, and CRM software maker Siebel Systems. SAP responded by investing an additional $50 million in research and development. Internal growth is helping the company grab a bigger share of the ERP market, SAP AG's CEO Henning Kagermann said at an analyst briefing last week. "It was one of the best investments SAP ever did," he said.

SAP's CRM business grew 71% in North America in the third quarter, with Allen Family Foods, Bose, Jim Beam Brands, and Warner Chilcott signing on to the mySAP CRM platform. The Siebel acquisition will push Oracle's global CRM revenue this year to $1.73 billion, up from $286 million in 2004. This puts Oracle squarely in line with SAP's estimated $1.73 billion in CRM revenue this year, according to AMR Research.

Project Fusion, Oracle's vision for its next generation of enterprise apps, will fuse numerous code structures to build product suites. The suites will leverage Oracle Fusion Middleware and provide access to Java and composite applications built on a service-oriented architecture. Oracle Fusion Middleware is a portfolio of software designed to integrate with non-Oracle products and databases across a variety of vendors, including IBM, Microsoft, and SAP. Oracle's road map puts the first Fusion release in customers' hands by 2008.

Maybe, but integrating software applications and code sets from the string of Oracle's acquisitions could complicate finishing Project Fusion. "When Oracle bought Siebel, because it has so many applications, it was like buying the Vanderbilt mansion with 345 rooms," says Dale Hagemeyer, research director at IT advisory firm Gartner. "You can see it on paper, but until you spend the time to visit all 345 rooms and compare the square footage, it's difficult to see what you really have."

Oracle having its hands full could work to SAP's advantage: Gartner predicts Oracle won't finish Project Fusion until 2010.

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