Earlier this month, SAP gave industry analysts a preview of its plans for 2007. If the software vendor delivers on its strategy for the coming year, it will give its customers several new products and put considerable pressure on its competitors. Much of the competition will take place over mid-market companies, including those that rely on the System i.
Among the announcements that SAP made at the briefing, the biggest one for current customers was the unveiling of the first "enhancement package" for mySAP ERP 2005. As I explained in an article two months ago, mySAP ERP 2005 will act as the platform for all the functional enhancements that SAP will make through 2010, including service-oriented architecture (SOA) enablement. At this month's briefing, SAP stated that it intends each year to ship two to three mySAP ERP 2005 enhancement packages that customers can deploy at their discretion. The first enhancement package, which is available immediately, adds hundreds of "enterprise services" (SAP's name for Web services) that enable new functions in the following areas.
- Financial management—The package provides additional features for credit report monitoring, analytical tools for collections management, and integration with external credit information providers.
- Human capital management—This area gains new analytical tools for human resources professionals as well as service-level agreement (SLA) monitoring.
- Industry-specific enhancements—For retail firms, the enhancement package integrates SAP's recent acquisitions of Triversity's point-of-sale and Khimetric's price optimization software into mySAP ERP. Manufacturers will benefit from greater integration with software for manufacturing execution, work instruction, and quality management.
At the briefing, SAP claimed that more than 700 customers have upgraded to mySAP ERP 2005. The company also stated that it expects more than two-thirds of its users will upgrade to this version by 2010. That may be overly optimistic on SAP's part, as many of its customers are running heavily modified versions of R/3 that will be extremely difficult to upgrade. What the software giant has working in its favor, though, is the fact that it is enhancing mySAP ERP 2005 for another four years. This gives it plenty of time to make an upgrade to the product increasingly attractive.
SAP's Big Mid-Market Play
Besides offering a roadmap for its existing customers, SAP revealed fascinating details about a new product line it intends to ship in mid-2007. The solution, which will largely be targeted at mid-sized companies, will be nothing short of revolutionary for SAP. It will not contain a single line of R/3 code; it will allow non-technical users to model how the software supports nearly all business processes; and most surprising, it will be a fully hosted, on-demand offering.
The solution, which SAP currently calls "Enterprise SOA by Design," will be the first offering that is fully based on Web services and the vendor's NetWeaver middleware platform. This will make it a simpler and more flexible environment in which to work than mySAP ERP. The tradeoff, however, is that initial releases will undoubtedly lack functionality found in SAP's on-premises products. Customers who need this functionality can continue to get it from mySAP ERP or mySAP All-in-One. Those who do not—and who value fast deployment times and a cleaner, model-driven architecture—will gravitate to the new offering.
While Enterprise SOA by Design will be a hosted solution, it will not be one of those "one size fits all" offerings that cannot be customized. SAP intends to ship multiple packages that are preconfigured to meet the needs of specific industries. Each package will be highly configurable via scripts that are written in easy-to-understand business language. Once the applications are up and running, SAP will provide remote service and support that will include what the vendor calls "invisible upgrades" to the applications during off-peak hours.
From what SAP said about Enterprise SOA by Design at the briefing, it is clear that the offering looms large in the vendor's plans to become a mid-market leader. By 2010, the company wants to add 65,000 customers to its current base of 35,000. It intends to get almost half of those new customers from the mid-market and generate 50% of its revenues from new products. To achieve those goals, it will heavily market its new hosted offering to customers that have traditionally chosen midrange solutions from smaller vendors. That could force rival vendors such as Infor, Lawson, Oracle, and QAD to rush hosted software packages to the market. While most of these vendors are already fielding such solutions, SAP's entry could force them to broaden their offerings and enrich them with value-added services.
In short, SAP's embrace of the "software as a service" business model could prove to be a watershed event that leads much of the software industry to follow suit. That's my opinion...but what do you think? Feel free to share your insights by clicking on the "discuss this article" link below. Let's see whether System i users are ready to follow SAP's lead.
Lee Kroon is a Senior Industry Analyst for Andrews Consulting Group, a firm that helps mid-sized companies manage business transformation through technology. You can reach him at
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