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While Marc Benioff may rail against the status quo in the enterprise software business, not all software buyers will join in the chorus, according to one of Benioff's chief competitors.

Web-based business software sold by companies such as Benioff's Salesforce.com will likely augment, not replace, large, complex enterprise systems, SAP Chief Executive Henning Kagermann told The Wall Street Journal on Tuesday.

Kagermann said that while some of the main selling points for Salesforce and other Web-based services make sense--namely, better usability and productivity--corporate buyers are a notoriously conservative bunch.

Kagermann: Big software is here to stay.

(Credit: SAP)

A slicker user interface and easier access to corporate applications answer only some of the needs of big business. Security, a uniform data model and corporate-wide compliance with regulatory rules are more pressing for C-level executives, he argues.

Clearly, Henning's argument is biased toward his company's product line. But he may have a point: it's more difficult to manage Web-based systems implemented piecemeal at the departmental level. Regulatory compliance is becoming a corporate nightmare, and companies need all of the help they can get.

Still, much of the real innovation is taking place at companies like Salesforce and Google, as well as at many smaller firms hard at work defining the next wave of cloud-based business software. (Microsoft is making strides here, too).

SAP, for its part, is still struggling with its on-demand strategy.

As Rishi Chandra, product manager for Google Enterprise, said earlier this month, technology innovation is being spurred by the consumer market, which will, in turn, drive demand for better business systems.

Some things never change. For decades, CIOs have been a conservative lot. And for decades, end users have demanded more.

Clarification: This story was updated at 3:24 p.m. PDT to clarify details of the SAP Enterprise Support plan for new customers.

SAP said on Tuesday that it plans to release a pair of tools that could ease the process of customizing how business software works.

The company launched the tools, NetWeaver Business Process Management and NetWeaver Business Rules Management, at its Sapphire conference taking place this week in Orlando, Fla.

Combined, the tools make it possible to alter and modify business process rules, which determine how SAP's financial, human resources, and accounting software works. "In SAP, we have delivered a business process model. But users cannot change models," said Peter Graf, SAP's executive vice president of global marketing.

Henning Kagermann, SAP co-CEO

(Credit: SAP)

Graf said that traditionally, to change business process rules, IT and businesspeople would meet and "IT would go away for two months and build something, and then it would not be what business wanted."

"(With this announcement) we have introduced a level of abstraction, a repository of Web services, defined so customers can use them, and then can combine them to put together a new business process," Graf said. "This is a way for IT and businesspeople to look at the same visuals and decide on a process and make it work."

Graf said that the tools can be used by both IT developers and business process analysts and do not require hand coding. "They are more universal in nature," he said.

The tools are currently in beta testing and will be available later this year, SAP said.

Separately, the company announced a new service plan intended to provide support for SAP's software and the composite processes, built atop a service-oriented architecture, that work with other software.

For new customers, the SAP Enterprise Support plan replaces standard support contracts, and costs 22 percent of a customer's software license fee annually, Graf said. Enterprise software is traditionally sold with a maintenance plan, which can cost up to 25 percent or more of the overall licensing fee for the software alone. SAP's standard support costs 17 percent of a customer's software licensing fee annually, Graf said.

Research in Motion is teaming up with SAP to integrate key enterprise software onto its Blackberry devices in a move that could mobilize business applications in the same way it did for corporate e-mail.

The two companies said Friday at a joint press conference in New York City that SAP's customer relationship management software will be natively integrated into BlackBerry devices. This means that sales professionals will be able to access their CRM application as readily as they get e-mail on their BlackBerrys.

RIM and SAP had already offered customers a browser-based solution for accessing CRM applications. But this new approach means that CRM information will be pushed to BlackBerry devices much the same way that corporate e-mail is pushed to BlackBerrys. The application will work over cellular networks and will work with all versions of BlackBerrys. The software will be available in the next few weeks, executives said.

The companies plan to expand the relationship over time. And over the next several months, they will integrate all of SAP's enterprise software applications with the BlackBerry.

RIM pioneered the mobile push e-mail model. And its BlackBerry phones lead the market in companies both large and small. Today it has over 150,000 BlackBerry servers installed in 135 countries.

But even though it's considered the leader in the corporate smartphone market, the company is facing stiff competition from companies, such as Microsoft and Apple. Apple's iPhone was originally targeted at consumers, but it's been gaining traction among business users. In March, Apple announced it was licensing software to work with Microsoft Exchange e-mail servers in an effort to provide corporate push e-mail to iPhone users. The company has also announced virtual private network capabilities and has added security features that should help corporate IT managers better manage iPhones on corporate networks. The new software upgrade will be available in June.

Meanwhile, RIM has also been addressing the consumer market with devices like the Pearl. It's also added multimedia features to its phones that allow people to store and listen to music and watch videos on their phones, features popular with some consumers. The company has also struck deals with social-networking Web sites like Facebook to bring those applications to Blackberry users. And most recently, RIM has been rumored to be working on a clamshell style phone that flips open. This handset would compete with basic-feature phones from companies such as Motorola.

Corporate customers still the core
But RIM's co-CEO James Balsillie emphasized that the company is still very much focused on its corporate customers, who make up the bulk of its base. And he said that many of the features and functionality developed for BlackBerrys are also very useful to corporate customers.

"In the media, the B to C (business to consumer) angle gets all the attention, because it's sexy," he said. "But actually the same core enablers are massively transformative to enterprise productivity. When people think of mobile video, they think of watching a music video on their phone. But they don't think about what it means for businesses to do things like training."

Balsillie said that the enterprise may actually find new multimedia features even more useful than consumers. But as RIM rapidly expands its customer base, the company has faced growing pains. And in the last year, it's encountered two major network outages that have annoyed many of its corporate customers.

Balsillie acknowledged the network issues of the past. And he said the company is constantly working to ensure that outages don't occur in the future.

"We are not perfect," he said. "And I can't stand here before you and say we've been perfect. But we aspire to perfection. And we take our responsibility to provide 100 percent uptime to our customers with the utmost seriousness. And when something happens we make sure that service is restored and no packets are lost."

Business software maker SAP on Wednesday reported a steeper-than-expected drop in its first-quarter profits, due mainly to acquisition costs and the slumping dollar.

The company said net income fell 22 percent to 242 million euros, or $376.7 million, from 310 million euros in the year-earlier quarter. The latest quarter included charges of 130 million euros related to the 4.8 billion euro acquisition of French software company Business Objects, Dow Jones reported on Thursday.

SAP Co-CEO Henning Kagermann.

(Credit: SAP)

One bright spot, however, is software-license fees, a closely watched indicator of future maintenance-and-consulting revenue, which rose 11 percent to 622 million euros. Software and related service revenue rose 15 percent to 1.74 billion euros.

SAP has already said it will delay the rollout of Business ByDesign, its new on-demand software for big companies. That decision is likely to affect earnings later this year.

The company had predicted it would have 10,000 customers and $1 billion in revenue from Business ByDesign by 2010. On Wednesday, however, SAP said that it would take 12 to 18 months longer to achieve those goals.

SAP has traditionally served larger companies with its business management software and has more recently launched a plan to target smaller firms, through which it will compete with Microsoft, Salesforce.com, NetSuite, and other players.

SAP announced that its on demand enterprise suite Business ByDesign roll out is moving slower than previously expected.

The company said that it would take 12 to 18 months longer than the original target of 2010 to reach $1 billion in revenue and touch 10,000 customers in the mid-market globally. For 2008, SAP expects to have less than 1,000 customers across six countries.

SAP wants to make sure it doesn't flub Business ByDesign, which represents the future of the company. The company pioneered client/server ERP software, but has been slow to enter the rapidly growing on demand arena. SAP has said that it has deployed 2,500 engineers over the last four or five years to create Business ByDesign, which the company touts as the most complete on-demand suite across applications and industries.

(Credit: SAP)

SAP's plan is to provide 2,100 service interfaces in Business ByDesign, which will mesh with each other but will not be customizable, according SAP founder Hasso Plattner.

NetSuite has been working on its on-demand suite for ten years, coming out with new versions yearly. And, salesforce.com is expanding its platform to include ERP capabilities, such as CODA's financial applications built on the Force.com platform.

Plattner differentiates Business ByDesign from salesforce.com by virtue of the completeness of the SAP suite. For SAP, software is about serving larger businesses with a complete, integrated suite of applications with "wall-to-wall functionality," Plattner said.

At a recent debate, salesforce.com CEO Marc Benioff challenged SAP founder Hasso Plattner.

Plattner was asked by Benioff if he would consider buying Salesforce.com. "It always makes sense to look into something. If the Apex platform (the Salesforce.com platform) is really as good a he thinks it is, we should look even more," he said.

Plattner also had some advice for Benioff. "We have many things in common. Let me give you some advice, but you might not take it because you are younger: don't overestimate your platform."

Perhaps SAP has been overestimating its ability to deliver an on-demand solution. JMP Securities analyst Patrick Walravens contends that Business ByDesign doesn't have a single data model, but instead different workstations in silos, and is now working to rectify that situation. So far, SAP isn't talking.

SAP has stumbled in earlier attempts to move its business applications online. The company's initial foray into hosted applications was marked by shifting product plans and murky delivery schedules. SAP eventually launched a hybrid approach with CRM, with a product designed to work the same, whether used on-demand or on-premise.

In the meantime, Microsoft, Salesforce.com and others have evolved their on demand applications. Salesforce, in particular, is moving ahead aggressively in the market with plans for an on demand platform service, in addition to expanding its business applications lineup.

See also:

Larry Dignan's coverage of SAP's quarterly results.

SAP's Peter Zencke: Inside Business ByDesign

With the appointment of Leo Apotheker to the post of co-CEO, SAP is trying a tag-team, two-in-the-box CEO transition strategy it has used before.

Leo Apotheker

(Credit: SAP)

Apotheker's new role had largely been anticipated, following his appointment as deputy CEO more than 12 months ago. Apotheker will assume the co-CEO position immediately and join current CEO Henning Kagermann at the head of the table. Kagermann plans to retire in May 2009.

The enterprise software giant used a similar game plan when grooming Kagermann as the successor to SAP co-founder Hasso Plattner.

"Henning Kagermann requested that the supervisory board appoint Leo Apotheker as co-CEO in order to prepare him as successor in the best possible way during the remainder of Henning's tenure," Plattner said in a statement Wednesday. "After years of massive investments and the successful launch of trendsetting innovations in the areas of service-oriented architecture, new solutions, and business models for the midmarket...SAP now faces the task of boosting the application of these innovations among our customers and end users."

Henning Kagermann

(Credit: SAP)

For SAP, naming Apotheker to the co-CEO slot firmly locks in the executive transition plans, which previously had been a distraction at the company when it was a two-horse race between sales chief Apotheker and whiz kid technologist Shai Agassi. Agassi resigned last year from SAP.

Kagermann's contract originally was due to expire at the end of 2007, but partway through that year it was extended to May 2009.

SAP also announced three new members to its executive board: Erwin Gunst, president of SAP's Europe, Middle East and Africa region; Bill McDermott, CEO of SAP Americas and Asia Pacific Japan; and Jim Hagemann Snabe, managing director of the SAP Nordic region and general manager for SAP's global industry solutions development.

The three executives will join the executive board July 1.

After joining the board, Gunst will fill the newly created position of chief operating officer; McDermott will eventually take over SAP's sales efforts worldwide, a role formerly held by Apotheker; and Snabe will oversee development of SAP Business Suite and SAP NetWeaver, two major focuses for the company. NetWeaver serves as the back-end middleware that connects SAP data with other applications and its SAP business suite.

With the addition of the three new executive board members, SAP's Peter Zencke, who heads SAP's application platform and research will step down this year, when his term expires. Zencke was responsible for SAP's major mid-market on-demand applications effort Business ByDesign, and had only wished to extend his contract long enough to complete the work. Zencke, who wants to send more time on his family and himself, will continue on as a consultant to the company through next year, however.

SAP's chief financial officer and executive board member, Werner Brandt, has a contract with the company that is due to expire next year. The issue of whether Brandt's contract will be extended will be addressed far in advance of its expiration, said Kagermann during a conference call with reporters Wednesday.

Kagermann and Apotheker together addressed the media in the conference call, noting such highlights as:

• Apotheker, in his new role, will be responsible for industry development; and, in the second half of the year, work with his new team to develop SAP's budget. And as Kagermann begins to hand over an increasing number of his duties to Apotheker next year, one of those tasks include serving as the front man to communicate SAP's strategy to the market, customers and industry.

• Apotheker cites execution on SAP's strategy as his top priority and challenge as the new co-CEO. "We want to delight our stakeholders, our customers," he noted. SAP has a growth strategy that includes business intelligence via its mega-acquisition of Business Objects, a revamp of its product line to run on a service-oriented architecture (SOA) , and its on-demand offering via Business ByDesign.

• SAP plans to slightly reduce its spending on research and development, now that it has a number of its major technology efforts winding up. And, the enterprise applications giant plans to put some of that focus on delivering those technologies to customers, a.k.a. sales.

• Henning, as he enters 2009, will begin to consider how he will spend the next chapter of his life, once he retires next spring. For now, he hasn't made any decisions.

See also: Dennis Howlett's take on ZDNet

Updated 6:42 AM PDT with details from SAP's announcement.

Leo Apotheker

(Credit: SAP)

The supervisory board of software maker SAP on Wednesday approved the appointment of Leo Apotheker, the company's top sales executive, to co-CEO.

Starting now, Apotheker will share the top executive position with current CEO Henning Kagermann, who is set to retire next year.

The move also points to Apotheker taking over as sole chief executive. "In my view, facing (upcoming business and technology) challenges together with the new executive team, Leo Apotheker is an ideal CEO and thus my preferred successor for Henning Kagermann," Hasso Plattner, SAP co-founder, said in a statement.

The supervisory board also appointed three new members to the SAP executive board, effective July 1: corporate officers Erwin Gunst, Bill McDermott, and Jim Hagemann Snabe.

Henning Kagermann

(Credit: SAP)

The move comes as no surprise. Apotheker, a 19-year SAP veteran who runs the company's sales and marketing operations, currently holds the title of deputy CEO. He has been seen as the logical successor to Kagermann since the departure of Shai Agassi one year ago.

Agassi, who had been seen as a front runner to replace Kagermann, left the company last March to pursue alternative energy and green technology ventures.

Correction at 10:07 a.m. PST on February 27: An earlier version of this report cited a source's claim that SAP added a change-of-control policy, aka a golden parachute for executives. An SAP representative said there is no such policy.

Microsoft investors, don't hold your breath that Redmond is about to dump its pursuit of hottie Yahoo and change its flirtatious stance with SAP into something more serious.

Sure, Microsoft and SAP have discussed a potential merger executive to executive for a number of years, but it's never risen beyond that level to be fully vetted by SAP's supervisory board, which would ultimately need to give its blessing for such a deal to get done, said one SAP insider.

"There's been small talk and we have walked around and flirted a bit, but it's never been a serious look," said the source.

And now, with various reports coming out that Microsoft should dump the Yahoo buyout bid, in favor of another deal, such as an SAP merger as one report noted in The New York Times, this source noted that Microsoft lost its chance to acquire SAP at a deep discount several years ago when it was cheap, cheap, cheap.

"Hasso (Plattner, co-founder) and the board have said if Microsoft wanted to buy us, they should have made an offer three or four years ago when we were so cheap," noted the source.

Indeed. SAP's stock currently trades around $28 a share, compared with roughly a third of that level back in 2003.

Endeca Technologies announced Wednesday it landed a $15 million investment from industry titans Intel and SAP, signaling yet another sign that enterprise search is gaining serious traction.

That investment appears a bargain, compared to the price Microsoft is paying for search company Fast Search & Transfer. Earlier this month, the software giant announced it would acquire Fast Search & Transfer in a deal valued at $1.2 billion, according to a report in the New York Times.

For Endeca, this $15 million investment adds to the more than $50 million the company has raised to date. Back in 2001, for example, Endeca raised a $15 million second round of funding from Ampersand Ventures, Bessemer Venture Partners and Venrock Associates.

In this latest funding round, Intel alone is kicking in $10 million, the chip giant said. That leaves SAP with the remaining $5 million tab. And, of course, these corporate titans are looking to get something out of their investment.

Intel, for example, wants to ensure its next generation multicore chips will play a role in the crucial search market.

"Information access platforms play a crucial role in linking vast collections of data," Arvind Sodhani, Intel Capital president, said in a statement. "Endeca will further their capabilities by capitalizing on Intel's next generation multicore platforms in this market segment."

SAP, meanwhile, is hoping the Endeca investment stake will lead to customers gaining greater visibility into their enterprise-wide assets, Jennifer Scholze, an SAP Ventures investment partner, noted in a statement.