CRN Interview: Shai Agassi, SAP

Shai Agassi, the SAP executive board member responsible for product design and marketing, gave his perspective on SAP’s channel approach, the software giant’s latest moves and the competitive landscape in an interview with Industry Editor Barbara Darrow at the Sapphire 2006 conference in Orlando, Fla. SAP used the annual event--this year combined with the Americas SAP Users Group conference--to announce the general availability of MySAP 2005 ERP, a new business-intelligence accelerator and an updated plan to offer "hybrid" on-premise and hosted CRM based on the same code foundation.

CRN: What’s your reaction to Sun Microsystems’ news that they're open-sourcing Java?

AGASSI: Before I comment on anything, I would like to see what the announcement is and understand it. We are a Java licensee and are happy with the license and have a relationship with Sun around that. If they change the nature of that license model, we would study it. I still don't understand it, so I don't want to comment.

CRN: What are you seeing among SAP’s enterprise accounts in terms of Linux adoption?

AGASSI: We definitely see Linux as the fastest-growing operating system platform for our application server and database server. But obviously, it's the fastest-growing from a very small point. It's not going to go away. It's going to be a significant play, but we also have a significant market share of customers coming in on Windows. My personal feeling is that Linux servers are coming in at the expense of other Unix-based servers. Windows is still strong. Unix, in the aggregate, is staying at about the same spot.

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CRN: Some VARs and integrators say they get mixed messages from SAP. Even some original BusinessOne partners say they ran into too much conflict with SAP sales. Can you address this perception that SAP is not very partner-friendly?

AGASSI: You mentioned small and large. Here's some interesting data. If you talk to some partners--we have Accenture, IBM, EDS, Cap [Gemini]--they're driving business in the billions of dollars around SAP. They probably influence business in the tens of billions of dollars for us. I would love to get a partner who would drive tens of billions of dollars in my business, [but] where I would also influence tens of millions in their business. So far, my definition of partner-friendliness is somebody that I drive 100 times what they influence for me, that I drive to them.

We're the most partner-friendly company in the world. We've been there. We've created tremendous opportunity for everybody who works around us. We have a great symbiotic relationship [with partners]. It's not that we don't need them or they don't need us. We both need each other and provide each other with tremendous value.

And we both focus on customers. Now, can you please everybody at all times? Absolutely not. Is there a great opportunity around SAP? Yes, absolutely.

We don't design our business without going through every single channel at all times. When Leo [Apotheker, SAP’s executive board member charged with sales] thinks about taking a product to market, he doesn't say, ‘Let's keep this product only direct sales.’ In some cases they have the expertise, in some cases they don’t. Not every partner has the same skill set, expertise and sales skills for every product.

CRN: Well, with Duet [SAP’s project with Microsoft to make SAP’s back end accessible via Office front ends], that was an interesting contrast. SAP said it will not put Duet through its partners. Meanwhile, Microsoft is putting it through its partners. The same with your new business-intelligence appliance [developed with Intel, Hewlett-Packard and IBM]. It’s unclear whose channels or if anyone's channels are selling it or if it's going direct.

AGASSI: When you have an HP or IBM SKU, every HP partner can sell it. Every IBM partner can sell it.

CRN: So you're saying that SAP partners can sell this appliance and Duet?

AGASSI: I've never blocked anyone from buying a server from HP. Why would I block them from buying one I actually worked on?

CRN: So SAP partners can sell it?

AGASSI: Sure, I'd love that.

CRN: In terms of the Microsoft relationships, clearly, BusinessOne competes with Microsoft Business Solutions [MBS] in the midmarket. When do you start worrying about Microsoft coming into SAP’s enterprise business?

AGASSI: What does Microsoft say?

CRN: It's kind of changing. At first, they said they were not an enterprise play. Now they're saying they'll come into the enterprise through subsidiaries, departments and divisions.

AGASSI: To really do complete enterprise systems, you need to fail first. You need to learn. There are not a lot of enterprises today that are willing to give you the luxury of failing at their expense. We started in 1992 with R/3 and had the luxury of going to Chevron and Hershey. No one remembers that we actually are extremely successful at Hershey. What they remember is the failure. We have learned from those failures, whereas others have not even reached that point. By making Hershey successful, by making Chevron successful without failure, by making these companies scale and grow, the ecosystem of knowledge around that success is SAP. But to get there, you have to try and fail at first. CRN: So when does Microsoft get there?

AGASSI: I think we've created a very nice fence in the midmarket, and we have a gentleman's fight in that arena. That's one of the differences you see between the relationship we have with Microsoft and the relationship we have with Oracle. You don't see Microsoft or SAP taking ads in the Wall Street Journal, changing data, inventing all kinds of numbers just to shoot at each other, even though we're in a battle in the midmarket. It's a gentleman's battle. We tell the truth, and we try as hard as possible to win. But we do it in a gentleman's way.

Whereas what I see in other competitors is sometimes desperation moves. When you go and hire 12 taxis, put signs on them and have them drive around this show, you're in desperation mode.

CRN: Isn't that just [Oracle CEO] Larry Ellison being Larry?

AGASSI: I think you make a clown out of yourself, and you can't expect a serious enterprise company that comes to Sapphire to look at 12 circulating taxis and think, 'This is a company I'd like to partner with for the rest of my life.' You make a clown out of yourself. When you skew your numbers that you just reported in an SEC report and you take a line from my presentation, cut the beginning and the end, and put portions in the Wall Street Journal, you make a clown out of yourself. And it just plays into our hands. But it plays against the industry. One clown in the industry makes us all look less serious.

CRN: What do you see in enterprise accounts in terms of database underpinnings for SAP? Is there a migration to or from Oracle databases?

AGASSI: The pain/gain equation on databases is very different than pain/gain migrations on applications. You don't see a lot of companies that need to upgrade their database whenever they change their business process, their business model or their interaction with partners. Database is a horizontal technology. You change it when you go significantly upscale and need more or different capabilities. Applications are different. When your business changes or industry changes, the model in which you conduct business changes. You need new functionality and, to do that, you need to stay up to date with a company that's always investing and not looking at leaving applications on a five-year-old release. Our customers continue to upgrade and buy new applications. As a result, they're up to date.

CRN: What percentage of R/3 customers have moved to MySAP?

AGASSI: As of now, close to 80 percent of our R/3 customers have done a MySAP contract. Two or three years down the road, we'll probably be at 98 percent. We are at the point where this is the tail end of the migration.

We continue to see customers upgrade their core and bring up their core. We'll probably see some thousands of migrations in next 12 months, probably somewhere on the order of 6,000 to 8,000 in the next 18 months, by the end of 2007. This is not something that may happen or will happen. It is happening right now. We just went to general availability on ERP 2005; we need to measure that. We have had a few hundred customers in limited release. [We] need to make sure nothing is wrong. Now that we've gone through the ramp-up program, and went [general availability] yesterday, I think we're on a good track.

If you look at the alternatives Oracle puts out there, that they can announce Project Fusion 18 months ago and [there are] still no details on core products. They say they're halfway through and then acquire a new CRM application. Is that halfway through? How does Siebel CRM plug into the rest? What happens to all my applications? How will the migration happen? What infrastructure do I need? These are big questions, and we're 18 months out. Customers are getting less and less patient. No information is coming out. They try to obscure it by talking about us. They need to start talking about themselves.

CRN: It seems Oracle's integration of PeopleSoft went pretty smoothly. It was surprising.

AGASSI: What's smoothly? The head of HCM/HR [human capital management/human resources] for PeopleSoft 8.0 to 8.4 is at SAP. The head of HCM for PeopleSoft 8.8/8.9 is at SAP. The head of analytics and SRM at Peoplesoft is at SAP. The head of CRM at Siebel is at SAP. The head of industry solutions at Siebel is at SAP. The head of customer data hubs is at SAP. The head of UI at Oracle is at SAP. The head of mobile solutions for CRM at Siebel is at SAP. I can go through the list. The top echelon of people at these companies are no longer there. Of the 12 people managing applications at Oracle, PeopleSoft and Siebel on the day of the acquisition’s announcement, more of them work at SAP than at Oracle today. They say that's just a few people out of thousands, but if you lose the heads of the groups, those are important people. CRN: A lot of R/3 users put it in for Y2K issues, and many are probably at the point where they want to move. At the same time, there's talk about a lot of discounting in enterprise apps. A lot came out in Oracle hearings about discounting. Are you seeing price pressure there?

AGASSI: At Oracle? Yes. [Laughs] If you look at our business, we see interference coming in from desperate players. But when you understand that your investment in SAP will pay off over 15 years, if they start an implementation today, that will be their system of record for the next 15 years. If you try to go cheap on that and save a few bucks on the acquisition part, you forget, you're going to 8 percent more maintenance a year with Oracle. That compounds and aggregates to become a lot more expensive than our stuff, if you plan to put them in for just five years.

CRN: What percentage is your maintenance fee?

AGASSI: Seventeen percent. Theirs is 25 percent. They make all kinds of announcements, but it's the quality of the product, how fit it is for your industry. If you're an oil company, and if there's no other oil company in the world buying from Oracle, how much innovation are you going to get unless you get an SI and build your own? Chemical makers and retail, all these industries, we have customer commitments that assure you we'll always be in that industry

CRN: Even at the desktop level, there's a lot of inertia. People don't want to move to the new [Microsoft] Office, to the new whatever. If companies are in R/3, can they stay there if they’re happy?

AGASSI: We don't force them. I even have customers who run R/2. We don't force them out. Why do they want to run R/2? It's their choice. Is it good for their business? I don't think so. If you run your business on antiquated [software], you're not adapting fast enough, and other people have advantages. We don't force you, but we keep bringing innovation into the market around the latest release. The things we've done with Microsoft on Duet, you've seen what we've done with new experiences. At the process level, getting more productivity out to people. We've added hundreds of new processes, new functionality into ERP just in the last year. If they want to take advantage of it, they can.

CRN: How does the stuff you're doing with the new Muse interface--direct access from Linux, Mac and Windows desktops to SAP--affect what you're doing with Duet? Does that undercut what you're doing with Duet?

AGASSI: No, it reinforces it. It's different uses for different experiences, all driven from the same processes, same scenarios. Duet is one experience, and it's very important for those who want to use very lightweight processes. If I just want to book my next trip to Germany, I want to go back to the last trip, which hotel, which car company, and make sure it bills to the right location and that's it, I want to do it from Outlook. It puts everything in the right place, fills in my T&E report, does all I need to do, but all I see is Outlook.

If I'm the manager who manages T&E for the whole group, I may want to look at it from a different perspective. I may want to do analytics, drill [down] into transactions, approve/disapprove. I get a deeper look. In the past, we tried to do one-transaction-fits-all. We went to self-service. We took the HR application to provide that transaction to the employees. Employees didn't want to see the HR application transaction. I want to see what I want to see in the way I want to see it. Duet is a significant milestone in that.

CRN: IBM positions itself as the best infrastructure partner for applications companies. Do you see IBM that way? Is IBM a competitor or a partner to SAP?

AGASSI: I think you have to look at it in the following way. One, we are very, very close partners with IBM at a variety of different levels. IBM is a very, very big company and one of our best partners around system integration. On the hardware side, we do a lot of work with the hardware guys. On DB2, we do a lot of work with DB2 guys. When you get to WebSphere, their message is a very awkward message. What they try to tell you is to stay on the application you have today, put WebSphere on top of it, and you don't need to do anything in your applications. You can freeze them and, by the way, call our consultants to build you any new innovation. We don't believe in that approach, fundamentally IBM or not IBM, we don't believe you should freeze your applications and continue to build on your own from that point on. What happens to best practices? Do you start building a whole new UI, your own process controls, doing your own app development?

There is a role for IBM, but [I’m] not sure of [WebSphere] sitting on top of applications. I think it's a role fit for people who want to build from scratch. We're fit for people who want to buy their best practices and compose their differentiating processes on top of the best practices. And that’s where we come in naturally with NetWeaver.

CRN: How much thought do you give to and NetSuite as competitors?

AGASSI: Six percent of my CRM thoughts.