SAP AG focuses on region

Leo Apotheker says his company's goal in the Middle East should be to put every person here in touch with its software, one way or another.

That may sound like the typical corporate-level hyperbole, but the simple fact that Apotheker, CEO of German software giant SAP AG, is even here shows how much things have changed for the company in the region.

Just a couple of years ago, SAP had trouble on the Arabian peninsula. Until 2007, SAP software was distributed and supported by SAP Arabia, which was owned by the Saudi-based Enany Group. Tensions been the two resulted in SAP buying back the right to distribute its own software and being forced to ramp up its presence in the region. Two years on, Apotheker now says the company's relations with its Gulf customers have improved tremendously.

"Just this morning I was in a meeting with a Dubai utility company and it was a very good meeting," he said. "I don't think we would have had such a meeting three or four years ago. No disrespect to anyone, but the simple fact there is an interface makes it a lot easier. We can drive our own destiny here, and I think that's what customers in the market expected of us."

Apotheker, who took over the role of CEO in April after sharing the position with co-CEO Henning Kagermann in 2008, is now following the old spice route through the Middle East, visiting customers on his way to India.

The trip itself is significant. Last week Apotheker told journalists that sales in emerging markets have slumped about 6 and 8 per cent, further than analysts predicted. Revenue in general for the quarter, which ended September 30, was 2.51 billion euros (Dh13.86 billion), a decrease of 9 per cent from a year ago. However, Apotheker said the company is still doing well in those markets, even if sales are lower.

"We have been doing very well in what is called emerging markets," he said. "SAP is a very strong, if not the strongest player, in Brazil, China, and Russia."

Apotheker identified the Middle East as a growing market with a lot of potential. He says he sees talent, capital and people who are building very modern businesses.

"At the end of the day in the 21st century when you talk about these things, you're talking about software, and that's exactly what we do. "

Times have changed, however. The days of companies, especially large multinationals, buying software that comes in a box is long gone but the rise of internet-based computing  so called cloud computing  means that some companies now run their software on someone else's computer, which could even be located in another country. But Apotheker says that few companies want a purely internet-based IT system. Instead, SAP plans to offer a hybrid model of computing, which combines in-house IT with the cloud.

"Businesses actually want a hybrid model. There will always be companies that want to run part of their business on-premises and on-premises can be a private cloud and people will really want to run this any way they would like. It shouldn't be the software vendor who decides what is in the cloud or not in the cloud, so we are going to make systemically all of our solutions available in the hybrid fashion."

Despite all the promises of cloud computing, there are just some things companies will prefer to keep in-house, he says.

"If you have some very sophisticated supply chain optimisation capability, you're not going to run this in the cloud," he said. "You're going to run this on premises in the fastest way possible, because that's where the strategic value sits."

Some customers will offer reasons, including security or the constant need for stability.

"If the system goes down, if the network goes down, the cloud becomes rain and you have no service for eight hours ... it's annoying, it's unpleasant, but it doesn't kill you. Now let's talk about the supply of vaccine for swine flu. That thing comes down for eight hours, how many people die? Would you want that in a risky environment? Of course you don't."

He also said that whatever the company produces, it has to have the look and feel of current websites and be as easy to use as iTunes. That association isn't random, Apotheker says iTunes is SAP software.

"It's 100 per cent SAP," he says. "Not bad for a non-cool software company. They're wouldn't be any iTunes without SAP."

SAP is currently working with about 100 charter customers on the hybrid solution, called SAP Business By Design, who are fine-tuning the application and the service, he said. The company will make more announcements about the product early next year.

Innovation

Consumers are also finding new ways to use software, he said. Mobile phones in particular will be a new way for users to "consume software" and not just by sending e-mail or text messages. Instead, mobile phones will be capable of "some real heavy duty analytics and heavy application software."

"You will see SAP in all of these distribution channels and all of these consumption models," he said. "We will make our content available to any form of device or any consumption model that people will like to have."

Getting people to consume is still a problem though. Two weeks ago, Apotheker told journalists on a conference call that the worst of the global economic downturn was over, but he is still far from upbeat.

"We have to recognise that some fundamental issues have not been addressed," he said. "The financial industry is still in a fragile situation. If the government would decide to stop the flow of money that is currently being injected ... this whole thing would collapse again. So we are still on life support. Don't forget that."

Good news

The good news according to Apotheker is that things are not getting any worse.

"Things are stabilising. People are starting to look at the future which is good. So I think one can start to see that if things continue, things will be in a better situation next year than this year."

He also says that software in general has proven itself during the global recession, at least with those who really use IT in a strategic fashion and could adjust to the environment quickly enough to come out of it strongly. But again Apotheker preaches caution.

"I hope that will continue, but I don't want anyone to think ‘that's it. It's party time again'."

Also in the good news column is the company's market share. He says the relative distance between the two companies is as strongly in SAP's favour as it was five or six years ago, "despite the billions and billion of dollars that Oracle has spent on acquisitions."

That said, SAP added another 10,000 net new customers in the first nine months of the 2009.

"That's not a reason for us to rest on our laurels, but it shows that our recipe, which is that you innovate with customers for customers, and focusing on the core strengths, which is business applications, is a good thing."