SAP targets small firms in regional expansion

PUBLISHED : Monday, 13 February, 2006, 12:00am
UPDATED : Monday, 13 February, 2006, 12:00am

SAP executive board member Leo Apotheker, wary of the journalists who were present, promised the corporate communications staff he would give a boring speech before the company's annual internal field kick-off meeting for the Asia-Pacific last week.

But Mr Apotheker, also president of customer solutions and operations at SAP, could not resist throwing a jab at rival Oracle.

He said it was management's goal to reach or surpass SAP's recent record results every year this decade. Aggressively executed, this strategy could inevitably seal its rival's fate and that would mean 'game over', he said.

SAP, the world's leading business management software supplier, planned to drive more new growth from the small and medium-sized enterprise (SME) market and the Asia-Pacific, where software revenues last year increased 25 per cent to a new high of ?363 million ($3.35 billion) from ?289 million in 2004.

The company also secured 1,500 new corporate customers in the region last year, which it said represented an average of more than six new clients per working day.

That bolstered the German firm's total worldwide revenues last year of ?8.51 billion, up 13 per cent from ?7.51 billion in 2004.

'The record-breaking performance of the Asia-Pacific last year takes us closer to our goal of tripling our customer base by 2010,' Mr Apotheker said.

SAP has more than 32,000 customers and plans to boost that number to 100,000 by the end of the decade.

Mr Apotheker said the company could end up with even more clients as it deepened its relationship with independent software vendors, value-added resellers and other channel partners in about 120 countries and territories.

SAP, which once focused on large enterprises, now saw greater opportunities for growth by working with mid-sized firms (those with 100 to 999 employees) and smaller enterprises (one to 99 employees).

It estimated that large enterprises, with 1,000 or more employees, comprised just .06 per cent of SAP's total addressable market worldwide, but had annual information technology investments worth US$503 billion. SMEs, which accounted for more than 99 per cent of business opportunities worldwide, spent about US$529 billion a year on IT.

New product launches this year will place greater emphasis on SMEs and this could expand SAP's addressable global market from US$30 billion at present to US$70 billion by 2010.

'We plan to continue growing this year,' said Hans-Peter Klaey, president and chief executive of SAP Asia-Pacific.

He attributed SAP's performance in the region last year to its channel-based business, which signed about 1,100 new SME customers.

The SME market segment now makes up more than 50 per cent of the company's annual Asia-Pacific revenues.

This has led SAP to grow partner programs for its applications software business and for its developer platform NetWeaver. These include enterprise resource planning, customer relationship management, product lifecycle management and supply chain management.

The newly launched PartnerEdge, for example, employs a system of value points to recognise and reward partners of all sizes and types.

Unlike other channel programs, it recognises partners not only for sales transactions but also for capability-building activities such as training and customer satisfaction.

Simon Dale, vice-president and chief technology officer at SAP Asia-Pacific, said the region had been the company's fastest growing in terms of partner-developers. Its developer network grew to 60,000 members in the region last year, a 70 per cent increase from 2004.

Mr Klaey also claimed SAP Asia-Pacific accelerated market share gains over the past three years from 46 per cent to more than 70 per cent, trumping rival Oracle.

But Kit Yau, senior research manager at International Data Corp Asia-Pacific, was not convinced. She said: 'Their market share estimates are too robust and rosy.'

Ms Kit said it would take two to three more years to see how Oracle's expansion efforts in the applications software market would pan out. Oracle has snapped up about 10 rival firms since December 2004 in a bid to catch up with undisputed market leader SAP.

Arics Poon, managing director at Oracle South China and Hong Kong, said the company's regional performance continued to be strong. For the quarter to November 30 last year, Oracle Asia-Pacific reported a 17 per cent year-on-year jump in total revenues to US$469 million.

For SAP, the proof of whose strategy is working could be gleaned from who was hiring and who was firing.

This year SAP expects to add about 3,500 new employees to its already hefty workforce of about 35,800.

Mr Apotheker saw this as sweet vindication for SAP's steady approach to internal growth, compared with Oracle's US$18?billion acquisition strategy to boost its market share by buying its closest competitors.

After its merger with PeopleSoft, Oracle said it would lay off about 5,000 staff to pare its total worldwide headcount to about 50,000. But 2,000 job cuts were announced last week as it completed the acquisition of Siebel.