Gravity levels the odds

By CHRIS BARTON IT editor

Hasso Plattner is grumpy.

"Last year we tried everything to convince you, the world, or partners, our prospects that we produced a very profound ebusiness solution," says the co-chairman and chief executive of the German software maker SAP.

"We made big progress but we suffered [a lack of] visibility because some of the proponents of the novus economus took the limelight ...

"This has changed ... We are back to reality. Gravity came back and took place."

His use of English may be a little creative, but he makes sure the 9000 people attending Sapphire, the company's annual customer conference held this year in Lisbon, Portugal, get the message.

The gathering, which includes 300 press and analysts, has just been treated to a video of the fleeting history of the new economy. A father takes his young son through a museum showing the relics of this aberrant era.

Debonair dotcom executives toasting their success with champagne are frozen in time - like displays in a glass case. In the next display, they are minus their shirts.

Hadn't they heard, says the child, of integrated software, inventory management or price to earnings ratios?

But now gravity has taken place, it's time for the novus, novus economus (the new, new economy) - where apparently opportunistic models disappear, and there are more realistic business plans, timelines and decisions on how much money can be spent.

Mr Plattner is still grumpy about the betrayal SAP suffered during this period: "Some of our partners traded us for other companies ... Why was this happening? Why have we lost our appeal?"

In part he blames Y2K. SAP had a surplus of consulting staff ready to deal with the expected chaos of a century date-change problem that did not happen.

But demand for SAP's core R/3 software - business management applications inexplicably known as ERP (Enterprise Resource Planning) for companies to coordinate internal operations like manufacturing and purchasing - had begun to wane.

"We lost some money ... People said you don't need ERP any more, you can just use services hosted on the internet."

SAP's response to the traitors was mySAP.com, a new internet-enabled application, built in 1999.

ERP in this guise was much more outward looking. Through the internet people could talk to both people and systems anywhere in the world any time. More importantly, systems could talk to systems.

According to Mr Plattner, "this is new," bringing not only more competition, better response times and lower costs, but also the possibility of a silent ecommerce.

Here, where one company's global automated systems talk to another's global automated systems, business never sleeps.

SAP began adapting to "the new situation" as early as 1996, but "not knowing where we were going."

At the time it was basking in the success of R/3 - software that took all the data necessary to conduct a business and, with German precision and efficiency, encapsulated it in an "egg."

The concept, for businesses to have their processes integrated inside R/3 software, was a worldwide success.

Today 13,000 companies in 100 countries run about 30,000 installations of SAP software and the multinational has 50 subsidiaries and 25,000 employees around the world.

New Zealand customers include Carter Holt Harvey, Gallaghers, Air New Zealand and TransAlta. There are also installations in the Government and health sectors.

Fiscal 2000 revenue was $US5.5 billion ($13.4 billion), an increase of 23 per cent over fiscal 1999. Net profit rose 5 per cent to $560 million.

But the dream of having every business contained in an R/3 eggshell - and then having R/3 eggs communicating with one another - is now dead.

SAP installations were mostly multimillion-dollar affairs which took time to bed down.

And software, like business, doesn't stand still. Enhancements and upgrades took more time to complete. Customers felt locked in and some were beginning to find applications such as the procurement of maintenance, repairs and operational supplies could happen more efficiently over the internet.

In short, SAP wasn't keeping up with change. "That was our problem," he said.

"We make mistakes - it was a conceptual mistake. We have to set up systems in the world that have the inherent flexibility to change over time without necessity to be replaced completely."

SAP's answer to its critics is mySAP.com - internet facing software that isn't R/3 but which hooks back into customers' existing R/3 investment.

More importantly, integrated processes can exist without R/3, connecting across the boundaries of multiple systems from competing vendors.

"We don't have the system in the eggshell any more."

SAP's latest moves in the new, new economy are two new business units.

The first, SAP Markets, builds private and public internet exchanges, providing software and integration services through its year-old joint development deal with Commerce One - and competing with rivals like Oracle and Ariba.

Businesses use exchanges to trade goods and services with their partners, suppliers and customers as a way to help reduce costs and simplify transactions.

The second, SAP Portals, draws on SAP's $400 million acquisition of enterprise portal maker TopTier, which in novus economus vein had just $20 million in revenue in 2000.

The venture will employ 700 people initially, and has announced an alliance with Yahoo! It aims to provide a single-screen view of the information that employees need to do their job. As well as delivering services like news the portal software can be programmed to provide alerts to problems with the delivery of orders and provide instant collaboration tools with business partners, such as allowing access to dealers sales projections or marketing plans.

The three pillars of SAP's novus, novus world are three pieces of management software - for customer relationships, supply chains and for the emerging field of product lifecycles.

In its first-quarter results for 2001, SAP not only bucked the downturn trend in the technology sector, reporting a 29 per cent jump in revenue to $1.33 billion and net income up 109 per cent up to $104 million. Sixty per cent of revenue in the quarter came from the company's internet-related applications.

Customer relationship software had sales of almost $60 million, while supply chain products yielded $91.5 million. SAP still lags its rivals in these areas.

Siebel is the customer king with first quarter revenue of $588 million and supply chain specialist i2 had sales of $356 million.

But the numbers do put SAP well up the rungs of the ladder in both sectors. And the company has something neither Seibel nor i2 has, a massive installed base of customers to sell to.

All of which should be making Mr Plattner happy. The company remains positive growth will be around 23 per cent for the next six months.

But after that no one is making any predictions. There is also a big question of whether Europe will avoid the downturn that has decimated the US technology sector.

Perhaps even in the new, new economy more gravity has yet to take place.

* Chris Barton attended Sapphire 2001 as a guest of SAP.