How Big is SAP’s Wal-Mart Win?

By Rory Doherty
Editorial Director, Optimal SAP Advisor

How big is SAP’s recent Wal-Mart win? It’s tough to put an exact dollar value on the deal as mum’s the word for both companies when it comes to the financial particulars. But gauging from what we do know-a global rollout of SAP ERP Financials for the largest company in the world ($350B revenue, 2M employees, 6,775 stores) with one of the world’s largest, most complex IT infrastructures-a potshot guess of hundreds of millions, most would agree, would be in the right ballpark. Yes, SAP’s Wal-Mart win is a big deal – for a lot of reasons.

Big for investor confidence

If there is one thing the market doesn’t handle well, it’s uncertainty. The acquisitions of Business Objects and Yasu, the introduction of Business By Design and with it, SAP’s SaaS foray and mid-market push, and the constant saber-rattling of Oracle all create an atmosphere thick with change. Given this fact, it is important there be no doubt in Kagermann’s leadership and no indecisiveness in SAP’s direction.

Announcing the Wal-Mart win in tandem with solid third quarter financial results-where SAP reported a 10% rise in profit due to license sales-the Wal-Mart deal goes a long way toward reassuring the market that despite a transitioning business environment SAP is still very good at doing what it has always done best: namely, selling business-critical software to the world’s largest companies. The lion’s share of SAP’s revenue presently comes from the largest of its 41,000 customers, and Wal-Mart has the markings to be yet another large, long-term SAP customer.

Coming as it does during this time of intense competition and challenging transition, SAP’s Wal-Mart win bolsters credence in Kagermann’s solid Q4 outlook and buys time for the wisdom of his acquisition decisions and mid-market strategy to play out.

Big dog in retail

In 2005, Oracle attempted to get a leg up on SAP in the hotly contested retail sector with its acquisition of Retek. While Oracle’s outbidding SAP for Retek won the company many news headlines, it did little to help Oracle win new retail customers. According to Martin Schneider, an analyst with the 451 Group, by acquiring Retek Oracle accomplished little other than saving itself from losing maintenance and license revenue to SAP. According to Schneider, Oracle, in essence, “spent more than $600 million to retain its own customers.”

Worldwide, more than 850 retail and wholesale customers signed with SAP between March 2006 and March 2007, yielding a total of 4,100 retail customers. In an announcement made on March 28, 2007 at the World Retail Congress, SAP reported strong growth in the retail industry in emerging economies, including Brazil, China, India, Russia and Ukraine. SAP’s recent Wal-Mart win, coupled with its strong performance over the past year, further solidifies the software giant’s ‘big-dog’ status in the retail market.

Moreover, SAP’s Wal-Mart win will likely drive even greater success in the retail sector. For many years, Wal-Mart, like many large retailers, has relied heavily on internally developed technology systems. For over a decade this strategy worked well for Wal-Mart, helping the company gain a significant competitive advantage.

But over the years, competitors have caught up to Wal-Mart’s technological advancements, and today, Wal-Mart faces IT parity. In the face of increased competitive pressure, Wal-Mart has lessened its reliance on homegrown IT systems and has selected packaged software from SAP to support the retailer's global expansion and its need to efficiently respond to changes in the business and regulatory landscape. This about face on packaged software represents a double win for SAP, for where the mighty Wal-Mart goes, other retailers are sure to follow.

Big for the SAP ecosystem

SAP’s position as the leading enterprise application vendor across multiple customer and product categories has created a booming economy for numerous developers, resellers and integrators.

According to IDC analyst Albert Pang, "While SAP is on a run-rate to post more than $13 billion in total revenues in 2007, the real size of the SAP-induced economy could be many times that amount. After all, the vendor has amassed a global network of more than 800,000 SAP service partners and developers whose livelihood will be irrevocably shaped by the SAP ecosystem, which appears to become a thriving economy in its own right."

With Wal-Mart in the fold, that economy just got another shot in the arm.