Weekly Review: It's the Least SAP Could Do

If anyone wanted proof that Web services has ceased to be a passing fad and become a mainstream trend, then confirmation came with last week's news that SAP has embraced the technology.

SAP is the archetypal establishment vendor, with an incumbent market lead in the heavyweight enterprise resource planning (ERP) software used by the world's leading companies to run their operations. The teutonic reserve of its German management holds it back from chasing after every passing fad. If SAP adopts a new trend, then you know it's gone mainstream.

It's worth taking a look, though, at the precise extent to which SAP has committed itself. There are lessons to be learnt from SAP's equally prescient adoption of application hosting and the ASP model two years ago, which it formally announced at its European user conference in May 1999.

"We have outsourcing over the 'Net as a strategy that starts now," co-chairman and CEO Dr. Hasso Plattner had told delegates at the conference in Nice, France.

Early ASP partners took SAP's apparent eagerness as a green light for their efforts to bring its software to a wider market of small and midsized companies. But, as I noted in another review earlier this year, many of them subsequently foundered.

That's not to say that SAP itself failed to leverage the ASP model. It launched its own hosting division, SAP Hosting, in June last year, and subsequently named HP and EDS as hosting partners for its direct sales of hosted solutions to enterprise customers. Meanwhile its B2B joint venture with Commerce One, SAP Markets, also uses hosting partners to provide a hosted option for its services.

In addition to HP and EDS, SAP authorizes a highly selective channel of ASPs as partners, who are allowed to offer hosted solutions based on its software. At last count, the worldwide channel comprised just 12 companies. No wonder, then, that SAP's other co-chairman and CEO, Henning Kagermann, told ASPnews in July last year that ASP-related revenues would account for no more than 10 percent of its revenues this year and next.

Control and Self Interest Pays Off
SAP's strategy whenever confronted with any meaningful new trend is not only to embrace it, but to both embrace and control it. The company has certainly managed to do so with the rise of application hosting, keeping most of its customers in a direct relationship when they turn to hosted solutions, while it manages its closely watched and restricted ASP partner channel on a tight rein.

The same is true of its adoption of Web services. SAP is simply planning to upgrade its proprietary application server, on which all its applications are built, to support Web services standards such as SOAP. This will mean that its own applications can become available as Web services, while it will be easier to integrate external applications and services into the SAP environment using the same standards.

This is something that SAP would have had to do anyway, since if it hadn't, customers would have turned to third-party platforms to do the integration. The fact that SAP has felt obliged to do it is a strong endorsement of the significance of Web services, but it doesn't mean that SAP is an eager convert. It has merely taken the smallest necessary pragmatic step to make sure that the advent of Web services doesn't leave it at a competitive disadvantage.

It did the same in relation to ASPs, and in hindsight its decision not to go overboard in its enthusiasm for the model looks very smart indeed. The company clearly knows how to adapt to new market developments without being distracted by them from its long-term commercial self-interest.

This review of the week's news highlights is by ASPnews.com founder and consulting analyst Phil Wainewright. A comprehensive news digest is published every month in the ASP News Review newsletter, available exclusively to subscribers.