Walldorf / San Francisco: Leo Apotheker wants you to know that he is content to run a straightforward software maker that focuses on what it has always done well: Writing programs that help companies manage their operations, including payroll, sales and inventory.
Apotheker, chief executive of the German software giant SAP AG, has watched his leading rival Oracle Corp. go on a buying spree, snapping up at least 50 companies in the last four years. Oracle’s latest mega deal, the planned $7.4 billion (Rs35,372 crore) acquisition of Sun Microsystems, Inc., will thrust the software maker into the computer hardware business.
Business strategy: SAP’s chief executive Leo Apotheker argues that the company’s software-only strategy positions it as a more neutral player than Oracle and IBM, which sell software, services and hardware. Hannelore Foerster / Bloomberg
Giants such as Oracle and International Business Machines Corp. (IBM) have been on a relentless mission to persuade companies to buy as much of their computer infrastructure as possible from one place. It is a strategy that has them encroaching on the turf of specialists such as SAP.
Many in the technology industry say businesses would prefer to deal with fewer vendors. But Apotheker does not agree. “I have never, ever heard a customer expressing the faintest wish for having everything delivered out of one hand,” he said in an interview. “Someone is probably trying to imagine wishes that they would like to hear.”
It is not clear, however, that SAP has a firm grip on what customers really want, either. The company has fallen well behind rivals in efforts to offer a “cloud computing” product, in which customers essentially rent applications and use them online instead of buying the software and maintaining it on their own machines.
SAP also got an earful from customers when it tried to raise prices in the mid of the recession, and it had to temper its stance. The battle, which played out in the news media, left a normally focused SAP looking clumsy and stubborn, said China Martens, who covers SAP for The 451 Group, an independent technology research firm. “That would have never happened in the past,” she said.
Apotheker, a sharp-tongued manager who took the helm of SAP in May, has the challenge of trying to buff his company’s tarnished image.
SAP is still the leader in the market for business applications. In 2007, SAP led with 10% of the $88 billion market, well ahead of Oracle’s 6.6%. In crucial segments, such as enterprise resource planning, SAP had 22% of the market or almost twice of Oracle’s 12%. And the numbers should hold relatively constant for 2008, according to IDC, which is still working on its tally. Still, the worldwide recession forced Apotheker to lay off employees for the first time in SAP’s history. Revenue from software sales tumbled 37% for the first six months of 2009, compared with the previous year. And a stock worth nearly $60 (priced as an American depository receipt) lost half its value during the downturn and has yet to fully recover.
“The real question is whether SAP can put something on top of what we already expect it to do in its core business,” said Knut Woller, an analyst at UniCredit in Munich.
Instead of the big acquisitions beloved by Oracle, Apotheker said, SAP will focus on smaller deals and in-house development. The company also plans a 2010 release of its much delayed effort in cloud computing called Business ByDesign.
Apotheker argues that SAP’s software-only strategy positions it as a more neutral player than Oracle and IBM, which sell software, services and hardware.
Indeed, consolidation has its downside, said Karl Liebstuckel, head of DSAG, an association of German SAP customers. “It would be desirable enough to get all these services in one place,” he said. “The negative side is that the big companies get a certain pricing power.”
However, some industry players say SAP may eventually be forced to merge with another company as the consolidation trend creates closer ties between software and hardware.
“If Oracle can really make a fast, full package for customers, it will put SAP at a disadvantage,” said Seth Ravin, chief executive of Rimini Street, a start-up in Las Vegas that services SAP software. “I think it will be harder and harder for SAP to remain independent.”
Though SAP entertained an acquisition overture from Microsoft Corp. six years ago, Apotheker is having none of it today. “It is in the best interests of our customers, shareholders, our employees and all of our stakeholders for SAP to remain a strong, growing, profitable, independent software company,” he said.
He added that the board supported him fully. The founders of SAP, who include the company’s chairman, Hasso Plattner, own a 28.7% stake, which is large enough to block a hostile deal.
Apotheker is a German citizen, born in Aachen. Within SAP, he earned his stripes by beginning to turn around the company’s foundering American operations in 2002. Slowly, he stopped a staff haemorrhage and increased the focus on Internet-based products, while also running SAP’s global sales and marketing.
A top agenda item now is to finally release Business ByDesign, SAP’s attempt to expand its market to smaller companies through the cloud computing model. SAP has been late to the field, allowing companies such as Salesforce.com, Inc. and NetSuite Inc. to carve out significant positions.
“They have bungled the whole cloud computing trend,” said Patrick Walravens, co-director of technology research at JMP Securities Llc. “It has been one mistake after another.”
Apotheker disputes the notion that SAP is acquisition-shy, and he points to its purchase of Highdeal SA, a French designer of billing technology for the telecommunications industry, as a case in point.
But Apotheker says SAP prefers to develop products in-house. “We focus on engineering our stuff to the best extent humanly possible,” he said.
©2009/THE NEW YORK TIMES