CEO Henning Kagermann expects 45 percent of revenue to come from the mid-market by 2010.
April 6, 2006
SAP CEO Henning Kagermann set some long-terms goals for the company Thursday, saying the German business applications giant expects to get almost 45 percent of its revenue from the mid-sized market by the year 2010.
Mr. Kagermann made the comments during his keynote speech at SAP’s DKOM developer summit in Burlingame, California, which is the traditional yearly kickoff for the company’s developers from its eight labs around the world.
Mr. Kagermann and other directors of the Walldorf, Germany-based company were visiting Silicon Valley for a board meeting, reflecting the importance of Silicon Valley and the U.S. market for the German company.
Mr. Kagermann tried to stress the fact that SAP is a global company with a statistic that about 80 percent of the company’s sales comes from outside of Germany. The Valley, he said, “has not lost the innovation.”
“We are here because it’s a unique place because we find so many new ideas,” he said. “There are other places [such as Asia], but they are not where Silicon Valley is and Europe is behind most places.”
Stress on Mid Market
Just like most other software companies such as Microsoft and Oracle, SAP is also targeting the mid-market for growth—typically companies with between 100 and 1,000 employees.
Currently, 31 percent of the company’s $8.5 billion in annual sales come from mid-sized companies, Mr. Kagermann said, and he plans to increase the number to between 40 and 45 percent by 2010. The addressable market for SAP’s products by then will be $70 billion, he said.
He also predicted that SAP would have more than 100,000 customers in four years with about 50 percent of the company’s revenue coming from new products such as its NetWeaver platform. Currently, SAP has about 26,000 customers, making the target easier said than done.
“This is not too ambitious of a goal because we have done this in the past,” Mr. Kagermann said.
The fight to capture the mid-market will not be an easy one as SAP is faced by competition from Microsoft with its Dynamics platform, Oracle, the Sage Group, and smaller on-demand companies such as Salesforce.com which offers CRM software over the Internet and NetSuite which offers a complete ERP suite on demand.
Just a day earlier, San Mateo, California-based NetSuite announced a new version of its integrated ERP suite with NetSuite 11 which uses new technologies such as AJAX, can be customized for specific industries and specific functions.
But Mr. Kagermann said he did not feel threatened by the large players as SAP had gained market share in the mid-market against all of them in the last year.
As for the pure on-demand players, SAP executive board member Shai Agassi said the company’s offerings are different.
The Hybrid Model
“We’re not just looking at the on-demand model as a stand-alone business, we are looking at companies that want to go with the hybrid model that want some parts of their business on premise—usually mission-critical elements such as financials,” Mr. Agassi said.
While SAP has offered CRM software on demand recently (see SAP Launches On-Demand CRM), the company is still mum on whether it will start offering other ERP solutions such as financials or human resources on demand.
“Which parts of our code base we decide to move to the hybrid model, we’ll determine based on the demand we are seeing in the market,” Mr. Agassi said. “[It has to be] low-risk deployment such as CRM.”
When asked about whether SAP’s strategy to grow organically and make fewer and smaller acquisitions was the right one as opposed to Oracle CEO Larry Ellison’s, Mr. Kagermann said Mr. Ellison was wrong. “Otherwise we would do different things,” Mr. Kagermann said.
“We do it because we believe it’s a better strategy and we have a lot of good ideas,” he said. “There is no need to reach out and source the innovation.”
SAP rival Oracle has scooped up more than a dozen companies in the last 18 months spending about $18 billion to acquire them, including two large acquisitions PeopleSoft and Siebel Systems.
Mr. Agassi said Oracle “has missed the wave.”
“My belief is that they have declared the end of the world a bit too early,” he said.
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