For many global business giants, SAP is a make or break
buzzword. For sprawling enterprises, spread across many countries, the monolithic business intelligence of R/3, its
flagship product for many years, has been key to competitive survival. But R/3 has been under fire for the very same
reasons–it’s cumbersome, elaborate and time consuming implementation, hand holding and skill ramp up processes. In November of last year, SAP made most of this legacy into history. In a brilliant insight of product development, the management of this German software major, decided to move the product and its associated services into the realm of the internet.
SAP R/3 became an open, browser accessible, front-end application, rechristened as mySAP.com. And Henning Kagermann was responsible for converting customer specific feedback into the framework of mySAP.com. Kagermann joined SAP in 1982, having studied mathematics and physics from the universities of Braunschweig and Munich.Â
He has been part of the Executive Board since 1991 and Co-Chairman since 1998. Excerpts of the interview with Arun Shankar at Singapore during SAPphire ’99.
What was the strategic thinking behind the launch of mySAP.com?
In the beginning of the year , we were sitting together and looking from a strategic point of view–what are the next moves. We found that just any new internet product for the market is not what the market wants to have. And we said–okay let us have a very focused strategy, let us not just add two or three new internet-based products, let us think about what is the future and we came up with mySAP.com. The good news was that because we prepared ourselves over the last three years most of the ingredients were already there. The only new concept was the Marketplace and that is not so difficult to create if you just start thinking about it. So it was not new for us–it was only new to say how we are committed. But not from a technology point of view or how to do it.
You have now redefined your company as an ecommerce and internet company. What are the internal changes that have taken place to support this repositioning?
We have restructured internally for two reasons. The first is speed and second is decision making. We felt with this focus it makes a lot of sense and every board member is more focused than in the past. In the past, we had restructured because it was not good to have developers here and field people there. You have to understand both sides. Now we have restructured for quality and quick decision making. We tried quite hard over the last two years to launch a lot of initiatives to change the internal organization. A lot of things have happened in the last two years to prepare our organization and it is not the end, by the way.
MySAP.com appears to be built around a server computing architecture, allowing a thin client to be used. But in the Indian installed base of R/3, we have not heard much about the successful usage of thin clients as ERP front ends?
That is completely wrong. We have a very thin client and that is the reason why browser access is so easy [in R/3]. Oracle has a fat client, PeopleSoft has a fat client and a two-tier client architecture. SAP started with three-tier client server architecture. Have you seen a better user interface? I saw Oracle’s–compare it with ours.
To come to your point of view, you are right–browser access is now easier. That has nothing to do with a thin client. Now you do not need an installation–you can just take the browser and access the server. But we are the first ones doing it. R/3 is built as a server-based application and we invented the three-tier client server architecture. We are the only ones with this architecture and this is one of the key success factors of SAP. A lot of applications have two-tier architecture–look at Oracle. That made it easy for us when the internet came. We have a thin client–otherwise it takes you years to rewrite the code. But that was not the case.
How will the transition to an ASP model affect the revenue of SAP?
I will be honest. It is too early for us. Next year,  we will see it as a rental model. Even if that is the case, it is not a problem. If 10 to 20% of our customers are not buying software but renting it–this is normal. It is just a change of the business model. I think it will not affect SAP as a company.
Do you think the market is ready for transition to ASP deliveries?
I think the market is ready. I am not cent percent sure if it is only the SME, which will go for the rental model or also the big ones. I foresee a lot of public sector deals on the rental model for budget reasons.
When does a customer look at renting the software in comparison to buying the software?
From a customer’s point of view, it is a question of risk. Today, if the customer feels, they will go with a software for several years–four, five, six, seven years, the buying model is cheaper. It is like a house–if you want it for life or a long time, you buy it. If you do not know or if you are mobile or you want to move–you rent it first. This is a matter of risk. So if the customer says, ‘I will keep it for at least ten years,’ and makes the calculation for cash flow–definitely, the cheaper model is to buy it now. That is how the pricing is done.
If the customer feels innovation cycles are fast and they do not know what is happening in
two or three years time–they can have the rental model. And the customer can step out in four or five months or two or three years time and it is cheaper. The customer can decide which is the better model.
We feel as long as users are using the system, that is the value the company gets at the end. If there are no users then only transaction can happen. If mySAP.com is used only as a backbone engine, then you are charged according to transactions. Why should I charge per user if there are no users. The two pricing models co-exist.
As part of the ASP initiative, what will be your role in deploying of server farms?
We will do it with partners, because it is their core expertise. In the plan and build mode and in the evaluation and implementation phase we already have some experience. In the evaluation phase, SAP is very well prepared. In the implementation phase, we will start to get expertise, but we will have partners. Like in the consulting area, we need enough business to have expertise to improve the product. But 80% of the business will be done by partners.
How is product development for R/3 and mySAP.com being managed?
From a technical point of view, the components we are using for R/3 and mySAP.com are the same. We will not have two development groups–it makes no sense. Now everybody is working in the direction of mySAP.com. It would be ridiculous to have two HR or B2B procurement products.
Is there a lack of SAP specialists globally?Â
Yes. But not in all areas–maybe in business intelligence and
datawarehousing. I think there is a lack of consultants across the world, if you want
to really create a comprehensive ecommerce solution. Â