Is it inevitable then that the enterprise software market is going to be reduced to an even smaller number of key players?
I believe there will be a few large players with a comprehensive offering that enterprises -- especially the larger ones -- will more and more look to because the more we support their core business processes, the more strategic the relationship becomes. It will reduce to a number -- I don't know if it is three, four, five, whatever -- not one, but a few. I don't think there is space for many midsize companies because either they become the more complete solution provider, or they stay in a niche and they cannot generate enough revenue to make the jump to the large ones. This middle size, I think, will go out.
Where does all of this leave SAP? Do you need a merger partner?
We want to be one of the larger ones. We think we have the position. We have the market share, and we have the customer base, which doesn't mean you have to do everything. But we get more and more clients who now have 50, 60, 70 percent of their business running on SAP. It means there's a push for us to complete our enterprise applications.
Speaking of Larry Ellison, what do you think European regulators will do if Oracle wins its case against the US Justice Department?
I think to some extent they would follow the Department of Justice. This is not an official position of SAP, but just my personal opinion.
One of the big questions in the Oracle-DOJ trial was whether or not Microsoft plans to sell applications software to big global firms and compete head-to-head with SAP, Oracle and PeopleSoft. Considering your recent merger talks, what do you think?
Whatever I heard from [Microsof] is that they are focusing on the mid-market exclusively. So they never talked about the "up market".
One software company that's getting a lot of attention these days is Salesforce.com, and their big IPO last month looks like a major validation. Are you worried about them and their motto that the traditional enterprise software model is dead?
No, it's not a model that could replace today's model. What Salesforce is doing is they pick a few services which are not strategic and give this in a generic way to some clients. This would never replace customer relationship management; it will never replace a suite.
If over time clients like this model, I think we are prepared to do the same. But it's not, in any case, a threat to our model because who in the world would ever give his entire customer-facing process to somebody else? Nobody.
Why not do what Siebel has done and go after Salesforce now? After all, you're looking for growth, and this appears to be a growing market.
Yeah, but rushing into it without a clear, good value proposition that might be a better one than what Salesforce offers makes no sense. I think we have some time. But I don't see a huge market, otherwise we would do it.
Have you formed a vision for SAP over the next five years that perhaps differs from the vision of previous SAP chief executive Hasso Plattner? Or is your position to just keep your head down and continue along the same path?
Last year, we started to define a five-year strategy. You will see us moving to a complete enterprise services architecture, which will be finished in 2007. We are building all our applications based on one open platform. We are separating our applications over time into more stable components that provide services and bring faster innovation to the first-movers in the market. So we're trying to solve this issue of an innovator's dilemma, of serving a big installed base that is more conservative and new customers who want to be leading-edge.
The innovator's dilemma is an interesting one. How do you respond to the criticism that SAP has been slow to innovate in recent years? Is it fair to say SAP followed rather than led some of the recent technology waves, such as customer relationship management and e-commerce?
I think everybody has a different view on this. I think SAP, as viewed from the outside, might be slow because we sometimes enter a market at a point when others are in. But when we enter the market, it's a promise for our clients that we are successful and in for a long, long time. This is part of our value proposition, part of our reputation. SAP cannot enter a market and go out. We cannot, like Siebel, go to Latin America and, when business is not coming, just step out. We can't. This is part of our brand.
Do these technological shifts you describe -- Web services and new architectures -- change who you consider to be the competition?
Web services brings an overlap in the competitive landscape, you are right. Because of Web services, we now have some overlap with IBM. We have a broader overlap with Microsoft than five years ago, that's true. It's not black-and-white any longer.
Do these competitive changes make SAP more vulnerable to attack?
If you are not changing, then you might be vulnerable. But we have been on this track now for already 18 months. Everybody is saying we are leading. Our clients feel we have the right pace. So I feel more than comfortable. For us, it's an opportunity.
What's the big deal about Web services anyway?
People want to leverage their investments. There is no chance to come back with the next killer app, and say, "OK, take everything out." They've invested too much. With enterprise services architecture, SAP can help them leverage, bring total cost of ownership down and bring the flexibility.
This resonates well with our clients, and most important, it's not revolutionary. The client would kill us if we came with a revolutionary idea. What they want to have is getting their bucks out of the investment, while having a vision for the next year so that they don't miss the trend and they have more competitiveness.
Are the days of the software megadeal gone? Will customers ever regain their appetite for really big software projects that SAP is famous for?
Customers are buying more incrementally. It's not the big replacement of information technology infrastructure we used to see. So I think deal size goes down on average. We have less large deals, but we have more deals. I personally don't believe that we will come back to see old days, but I also believe that we will see the bottom very soon.
Will IT spending bounce back then?
No, IT budgets will not grow. People look at total cost of ownership and they all try to squeeze out and try, if they have 3 percent IT expenses, to bring it down to 2.5 percent -- some bring it down to 2 percent. But, if you look at where really the value is created, it's with the enterprise applications, which is sometimes less than 10 percent [of the IT budget]. Therefore what is a commodity today, such as hardware, I think will be cheaper and will go down. There is enough demand for applications, so therefore the amount of application spending will grow [and] therefore the application market will grow.
