Growth for SAP Easy as One, Two, Three

By Sam Sliman
President, Optimal Solutions Integration, Inc.

Growing recessionary talk has industry pundits scrambling to pare down their projections for IT spending in 2008. Earlier this month IDC lowered its forecast for the global IT market, predicting 5% growth in 2008, compared with 6% in 2007. Also this month, Forrester lowered its expectations for U.S. and global IT spending – Forrester’s second downward adjustment in the past two months. The analyst firm now predicts that U.S. business purchases of IT goods and services will grow by only 2.8% and not by the 4.6 % Forrester posted in December – a number Forrester nearly halved from its original 8% published in October 2007.

In a weak attempt to cover the full spectrum of economic possibilities, Gartner issued a research note in October advising CIOs to prepare two budgets – one based on the marginal but steady budget growth most IT organizations have enjoyed this past decade; the second based on a budget decrease of at least 10%.

And now for the good news. In the face of this economic uncertainty and forecast flip-flopping, SAP maintains that it will not only stay the course but that the company will actually achieve significant growth in the coming years. For 2008 SAP predicts that overall sales will grow between 24% and 27%. As far as sustaining growth past 2008, according to SAP CEO Henning Kagermann, it’s as easy as one, two, three for SAP.

One: Strengthen core business, drive SOA adoption

Perhaps conceding a bit to the sluggish economy, SAP says it expects a modest 12% to 14% year-over-year growth in 2008 for software and software-related services in connection to the company’s core, stand-alone offering that includes the SOA-ready NetWeaver business process platform, the SAP Business Suite of enterprise applications (ERP, SCM, CRM, etc.), and various SAP Web services and composite applications (xApps).

The NetWeaver platform, introduced in 2003, is vital to SAP’s enterprise SOA strategy and is the key growth driver for SAP’s enterprise applications suites. According to SAP, NetWeaver presently has around 30,000 implementations worldwide and generates revenue in the neighborhood of $871 million.

Composite applications (xApps), which are comprised of enterprise services and run on the NetWeaver platform, enable SAP customers to test the SOA waters in a safe, cost-efficient, iterative manner. Today, more than 2,000 enterprise services, provided by more than 1,000 developers, are available to SAP customers. Since 2003, SAP has branded and brought to market more than 60 xApps – not including mobile business xApps, analytic xApps and several hundred smaller xApps embedded in other solutions. SAP is bullish on the future of xApps, predicting that in time xApp sales revenue likely will top revenue from ERP licenses.

Two: Tap the midmarket, sell Business ByDesign to SMEs

During the company’s recent press conference on its 2007 financial performance, Kagermann made it abundantly clear that SAP sees the midmarket as a ‘greenfield’ opportunity, and believes its newly launched on-demand Business ByDesign solution is the key that will unlock this lucrative market.

Said Kagermann, "We expect new innovations like SAP Business ByDesign to help us capture tremendous opportunities in untapped segments in the midmarket [and to] augment growth going forward."

In addition to the $184 million SAP spent on BBD in 2007, the company plans to invest a further $257 million to $331 million in BBD in 2008. SAP will start selling BBD in 15 more countries this year and expects to have 1,000 BBD customers by years’ end, up from its present count of 150. SAP projects BBD to add about $1 billion to annual revenues from 2010 onwards.

Three: Make large and small customers smarter, bring BI to business users

 SAP’s headline-grabbing acquisition of Business Objects was viewed by many as a move forced by Oracle’s Hyperion buy. However, when considered in the context of SAP’s recently launched Business User Group, the Business Objects purchase appears more like a strategic business-growth initiative.

In regard to the acquisition, Kagermann states the obvious: “The recent acquisition of Business Objects makes us the clear leader in business performance optimization products. This will help us further penetrate the fast-growing business-user segment and will be another driver of growth as we move ahead.” Kagermann notes that SAP will sell and up-sell to approximately 30,000 non-SAP customers gained through the acquisition.

SAP groups BI together with GRC and CPM and places all of these high-demand apps under its newly created Business User Development Group. The Business User Group’s mission is to develop and sell to both large and SME customers a discreet set of apps that are separate from SAP’s established ERP, SCM, and CRM suites. In doing so, SAP believes it will extend BI capabilities to 50% of users in an enterprise, which is a huge increase from BI’s current 10% to 15% penetration. By extending its reach into new segments—SME and business user/BI apps—SAP figures to double its addressable market to approximately $75 billion by 2010.