SAP CEO To Huddle With Microsoft's Ballmer On Co-Opetition

SAP AG

With Microsoft just finalizing its acquisition of ERP software maker Navision and making an aggressive push in the midmarket, Kagermann said his aim is to draw clear battle lines as to where the two software makers will partner vs. where they will compete. "Otherwise, we confuse the sales force," he said.

SAP has a similar arrangement with IBM, where there is some overlap, said Kagermann. "With other big partners we have a joint pipeline. We say, 'OK, this is where we partner together, we don't compete, but here we know it is competition and OK, fine, let's compete,' " he said. "But you should not compete in front of a client."

Kagermann said his concern is that SAP goes into an account and then Microsoft goes into the same account, saying, 'By the way, we have better enterprise software.' That cannot be the case.

"My concern is that we have to find a way with Microsoft to cooperate in a way that where we partner, we partner and we are not going in and competing against each other," he said. "Where we compete, we compete."

Kagermann's comments came in a question-and-answer session with CMP Media editors Friday. SAP on Thursday reported its first quarterly loss since 1988. For the second quarter ended June 30, SAP reported a loss of 232 million euros ($234.2 million), compared with a profit of 116 million euros in the same period a year earlier.

Kagermann said SAP is used to co-opetition. For example, he said, the ERP software maker battles Oracle in accounts but also supports the Oracle database.

Microsoft's Navision acquisition puts the software giant into an enterprise segment where it will have to provide more extensive support, said Kagermann.

He said the Navision acquisition will force Microsoft to adopt a different partner strategy because it is a more sophisticated product than it currently has in its software lineup.

"Microsoft has to change their channel strategy as well if they want really to go for enterprise software in the small to midsize market," he said. "Our strategy is at the very low end to acquire different channels than we have today."

Partners selling the midmarket ERP solutions need to have strong consulting and professional services organizations, said Kagermann.

SAP is recruiting solution provider partners to attack the midmarket, he said. However, he said, only 1.5 percent of SAP's U.S. license sales currently go through channel partners. He said SAP is aiming to increase that to 2 percent to 2.5 percent over the next year.

SAP is now offering a new product called SAP Business One, a less complex ERP offering aimed at small and midsize businesses.

SAP Business One is based on TopManage software from SAP's acquisition of TopManage Ltd. in March.

SAP has undertaken an aggressive effort to reduce the "pain" points in the midmarket to increase solution provider margins and lower the overall cost of the SAP solution, said Kagermann. He said that solution provider margins are up, in some cases, from 5 to 10 percent to 15 percent. Of course, Kagermann said, solution providers have got to be "smart" in terms of their selling costs.