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H O W S P L G S B E H I N D T H E L E D E R S

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only has it been left out of a flurry of

e-marketplaee deals that drove the

stock market values of a handful of

software companies into the stratos-

phere, but Commerce One has been

winning over SAP's long-time customers,

including Daimler-Chrysler. Discour-

aged SAP salespeople have been defect-

ingwith more than 20% turnover in

some sales offices. And the stock has

plunged 50% since March.

SPEED The crux of the problem has

been speed. In the millisecond Net-speed

era, Plattner's company, both structui'e

and product, is panting to catch up

and not only to Commerce One. A slew

of swift, new Web companies, such as

Ariba Inc. and i2 Technologies Inc., have

been darting between SAP and its cus-

tomers. And archiival Oracle Corp. has

been growing faster in SAP'S core mar-

kets.

If SAP can't change its lumbering

ways,

Oracle could overtake it as the

No. 1 seller of corporate applications,

and several upstarts could grow

into giants. And SAP? It could be

left in the slow-growth markets.

The Commerce One deal helps

staunch the bleeding. But for ^Ai to

make good on its ambition to

become a Net heavyweight, the

company must undergo a corporate

culture transformation. Today, im-

portant decisions, even in Silicon

Valley, must often travel nine time

zones to the east, where they con-

front the German command struc-

ture.

No advertisement, for exam-

ple, can l-un on the mySAP.com Web

site,

colleagues say, until Plattner

vets it for size, color, and placement

on the screen. People have great

ideas,

but somehow dow^n the line

they're always getting stopped,

says Marc E im hn rst, CEO of Im-

press,

a German company that refits

SAP programs for the Web.

Plattner is in the awkward posi-

tion of being both the company's

leading change agent and one of

SAP

O R L E

2 T E C H N O L O G I E S

R E V E N U E S

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M I L L I O NS

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M O S T RE CE NT 1 2M O N T H S G R O W TH R A T E *

M I L L I O NS

$550

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160

N A

L atest qua rter irom year earlier

its barriers to change. He's working

hard to transform [)lodding old

RAP

into

a racehorse. Trouble is, in doing so, he

often insists on control. This slows down

decisions and keeps managers looking

over their shoulders. For SAP to sur-

vive as a power in the age of e-business,

Piattner has to relinquish oodles of jjow-

er. So far, the small steps he has taken

simply slow down the German giant's

decline. Only far bolder steps will push

SAP back to the top.

Still, Plattner's small steps are a start.

Our old projects took 18

months or

two

years.

Interne t speed m eans four

weeks, six w ee ks

W O L F G A N G K E N M A

E O SAFAmeHcas

D A T A C O M P A N Y R E P O R T S B L O O M B E f iG F IN A N C I A L M A R K E T S

Bucking Gennan tradition, he persuaded

the company's board to grant stock op-

tions to more than 10% of its 22.(HK) em-

ployees. He's creating semi-indejiendent

companies that will eventually issue

stockand ideally, tiperate ft-ee of SAP

bureauci-acy. The most imjxtrtant of these

is sAPMarkets, launched in May and

based in Palo Alto,Calif. which will be-

come the on-the-ground partner of C'om-

merce One. Earlit-r this year, he took on

the engineering purists at SAP head-

quartei-s, making room in SAP's offerings

for popular customer-management prod-

ucts from Nortel Networks,

SAP

also has

streamlined the product installation

process. Our old projects took 18

months or two years. Internet speed

means four weeks, sLx weeks, saysWolf-

gang Kenma, CEOofSAPAm ericas.

SAP has no time to dawdle. Web up-

starts are staking claims to explosive

ma rke ts t ha t SAP can ill afford to miss .

The company's core mai-ket for internal

ojierations is expected to inch up at

only a 5%-per-year clip,ft-om$1(1.9

billion in 1999 to $21.4 billion in

2004,

according to tech market i-e-

searcher AMii Research. Meanwhile,

AMR sees th e rest of the corporate

a]iplications softwai-e mai-ket. where

the upstarts are frolicking, tripling

in the .'^ame period, to $57 billion.

GOOD NEWS The .pening battles

are already rocking the German

company's finances. To figbt off the

competition and retain his work-

force. Plattner hiked ad spending

and instituted a costly bonus plan.

This contributed to a 45% fall in

profits in the first quarter, while

revenue growth slowed to 10* '.In

he

U.S., where the Silicon Valley

upstarts have greater credibility,

SAP'S

sales fell 3%. Analysts ap-

|ilaud the Commerce One deal and

predict SAP will recover to 10%

earnings growth this year. With

Lhat partnership, says analyst Mer-

ijn Nederveen of ABN Amro in Am-

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Information Technology

SAP requires more thannew products. It needs a

thorough transformation of its culture-yesterday

sterdam, SA P can call U .S . customers

w ith good new s. That's a change.

Still, Plattner, 58, a crack yachtsman

w th a F errari collection and a $7.5 billion

stake in SAP stock, can't afford to go car-

shopping in Milan or take to the high

seasyet. The future of SA P hinges on

his ability to pull off a broad cultural re-

vamp that refocuses the entire company

tow ard customers. This w on't be easy.

Founded 28 yeai-s ago by tw o IBM veter-

ans,

P lattner and his colleague Dietmar

Hopp,

SAP established a culture in which

engineers ruled supreme. These techies

assembled, in theii' own computer lan-

guage, the company's internal processes.

Yet the massive softw are pro gram s,

called R/3. forced companies to bend their

operations to SAP'S softw area process

that could take tw o to three years.

Trouble w as, w hen e-commerce ar-

rived, companies w anted to move at N et

speed. SAP didn't yet have products and

urged customers to w ait. Customers, es-

pecially in Web-crazed A merica, paid lit-

tle heed. They needed to link salesforces

to the Web and bought programs from

S iebel Systems Inc. They w ere eager

to tie together chains of suppliers, SA P

w as w orking on a program , but i2 Tech-

nologies had one. Now , Siebel and i2

boast market caps of $28.1 billion and

$20.1 billion, respectively, w ithin shouting

range of SAP'S$34 billion.

P lattner has been on to the threat

for tw o yea rs. He put thousands of pro-

grammers on the mammoth job of re-

designing

SAP'S

geeky interfaces. The

idea w as that as the company's softw are

traveled frw m corporate computer labs to

the broader public on the Web, w hite

formulas on black screens no longer suf-

ficed. SAP needed clear presen tation and

colorful graphics on its Web pages. A nd

it got it right. When Nvidia Corp., a

S anta Clara (Calif.) graphic chipmaker,

sized up

SAP'S

applications against Ora-

cle's, SAP w on by a vote of 10 to zero,

says Joseph Sura, the chipmaker's vice-

president for information technology. Its

softw are w as easier to use. SA P defi-

nitely gets the Web now, says Su ra.

Late last year. P lattne r launched a

more ambitious project, mysA P.com. It

w as both an umb rella concept for SA P's

Web strategy and a brand for the new

versions of its softw are that had been

adapted to w ork on the W eb. Cus-

omers, employees, and partners ofSAP'S

orporate custom ers see personal view s

of the information they need to make

purchases or to collaborate. The page

also offers e-commerce links, as w ell as

e-mail, sports, w eather, and new s. With

it, SAP might leverage its stren gth in

the corporate softw are to become a

w orkplace portal. P lattner did the math

and came up w ith 100 million possible

users at companies using SA P softw are.

We can be bigger than AOL he said at

the launch of mysAP.com a year ago.

SHORTF LL That hasn't happened yet.

While SAP ha s sold some 3 million dis-

counted licenses for mySA P.com, few of

its big customers are installing the pro-

gram. Facing this retreat. Plattner pre-

pared to take controversial steps. In

February , he announced S A P Markets.

w hich he financed w ith $500 million. It's

in charge of coordinating the joint de-

velopment project w ith Commerce One.

Will the Commerce One alliance be a

sure w inner? Ominously, an earlier part-

nership betw een

SA P

and Commerce

One sputte red and died tw o years ago.

SAP w as an early investor in the e-mar-

kets company. Yet w hen the tw o com-

panies tried w orking as pa rtne rs in

1997, cultural problems aros e. Nolle

Leca, now an A lcatel executive, w as

w orking for Commerce One at the time.

S he traveled betw een SA P's Palo A lto

laboratories and headquailers in Wall-

orf Germany. They w ere on com-

pletely different page s, she recalls.

The partnership soon died in all but

name, but SAP held on to the invest-

men t. Now , SAP is investing in a second

chance w ith the e-m arkets' darling. The

question is w hether SAP'S thrashings in

th e U. S. have taught the giant how to

operate at Net speedor if it is still

too slow to keep pace w ith the Com-

merce Ones of the w orld.

By Stephen Baker in Walldorf Ger-

many,urith

Spence)

E. yite in NeivYork

What's S apping SA P

PRO L M SOLUTION

Internet decisions were made at

German headquarters. Execs

there viewed the Net, with

its emphasis on speed-to-market

over thoroughness, as a bastion of

hype and buggy wares. Resuit:

Software makers Oracie, i2, and

Commerce One beat SAP to

crucial Web software.

Eariy this year. P lattner set up a

stand-alone Siiicon Valley unit,

SAPMarkets. The goal: To cre-

ate a U.S. company free from

German bureaucracy that will

develop online marketplace

software. To motivate developers,

he holds out shares of a

future IPO.

SAP tells impatient customers to

wait for its new products that con-

nect companies to suppliers and

customers via the Net. Customers

pay little heed, flocking instead

to upstarts such as i2 and

Commerce One, which have

ready-made products.

Top U.S. managers leave, inc lud -

ing SAP Americas CEO Paui Wahl

and Senior Vice-President for

Global Accounts Paul Melchiore.

They head to hot e-commerce and

salesforce software companies,

such as Ariba and Siebel.

Breaking with tradition, SAP

makes room in its offerings for

products by rivals. In March,

SAP forms a partnership with

Clarify, whose customer service

software is more successful than

SAP s. The idea: Give customers

what they want, and integrate it

into SAP s offerings.

Plattner overcomes board resist-

ance and German tradition to

push through a stock-option plan

for employees. This is key to at-

tracting and holding on to staff.

The payoff hinges on P lattner s

successfully revamping SAP for

the W eband the stock s rising.

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Information Technology

S U N

T A K E S A N O T H E R

S H O T A T

S T O R A G E

It's targeting s tartups that want a cheaper product than EMC's

S

un Microsystems Inc. would seem

to

be

on top of the world. The dom-

inant makerofthe big sender com-

puters used by Internet companies,it

grew

by

35% last quarter, leaving

ri-

vals suchasIBM. Hewlett-P acka rd, and

Compaq

in the

dust. There's

one big

nut. though, that

Sun

can't seem

to

crack:themarketforcomputer storage

systems that hold

all

the corporate data.

Web pages, and songs zapped over

the

Internet. Rather than lookto Sun to

keep their data, many customers choose

gear from rivals, especially storage king

EMC Corp.

Sun isn't gi\ing up.OnJune 14, in

what

it

calls

its

most impoitant initia-

tive since

it

introduced Java software

in

1995, Sununveiled a purple. vcR-size

machine called StorEdge T3.

The ad-

vantage

of

this product over what

EMC

offers? Forstarte rs, price.A Sun ma-

chine holding 1 terabyte of datarough-

ly

the

info

in

3,000 encyclopediaswill

set customers back $155,000. EMC'Scab-

inet-size Symmetrix machine, holding

a

terabyte

of

data, costs around $400.000.

Better still. Sun's storage system can

grow with customers' needs. Users can

stack Sun's storage devices together

to

add capacityin affordable pieces rather

than

in

pricey, EMC-style chunks. And

by

using new Sun software, customers will

be abletobackuptheir data overthe

Web

to any

kind

of

storage device

T H E S T O R A G E M A R K E T

I S G R O W I N G F A S T

BILLIONS OF DOLL RS

COMP O EMC

PERCENT

D A T A : i N I E H N A T I O N A L D A T A C O R P

STOREDGE

T3:A VCR -size challenge

to EMC . centralized storage systems

which

is

hard

to

do with

KM

gear. RMr

is formidable, but it's livingin thepast.

says Sun President Edwai-d

J.

Zander.

For Sun,

the

stakes

are

huge. Com-

puters may stillget theheadlines,but

storage

is the

hotte r m arket. S ales

are

expected to increase 12 a year

through

2003,

to $46 billion, whilethe

server business

is

pegged

to

grow only

6% yearly,to$83 billion, over the same

period, according

to

researcher

UK:

While storage

has

long been

an

after-

thoughtincomputer purchases,itcould

become the dominant piece

of

hai'dware

as companies move their most sensitive

datatothe N et. Storag e has been seen

as

the

peripheral

in the

past,

but

that

could soon go the other way, says Mer-

rill Lynch Co. analyst StevenM.

Milunovich.

PAY S YOUGROW Can Sun u n s e a t

EMC?

The

odds

are

longespecially

since the company made similarly brash

announcements

in

1997 and 1998. Some

of those products suffered quality prob-

lemsandfailed tocatch on.NowSun

must prove

it can

match KMc's tra de -

mark round-the-clock hand-holding. And

though Sun won'tsayhow much It'sin-

vesting

in its

storage thrust, analysts

say

it's far

less than

the

$2 billion

EMC

will spendon research and development

in

the

next

two

yem*s.

Sun is

vastly

underestimating what it takes to suc-

ceed, says Don Sw atik, KMc's vice-pres-

ident

for

strategic planning.

Still,if Sundoesn't triump h in the

storage wars,

it

might

win a few bat-

tlesif only

by

luring

its

server

cus-

tomers back intothe fold. Says analyst

Jack Scott

of

market research er Evalua-

tor Group: This will probably stanch

the flow ofsalestorivals. Upstarts,in

particular,

may

like S un's pay-as-you-

grow approach. We're constantly adding

more storage, andEMCis toopricey,

says Randal Jew,

an

engineer

at

Sunny-

vale (Calif.) software maker

Wind

River

Systems Inc. Analyst

Milunovich says

Sun

could add

$500*

million

in sales if it gained

hack even some

of

its

customers. That may

not quite match Sun's

top-of-the-world i>er-

formance

in

sen'ers,

but

it

would

be a

welcome change

of

pace

in its

glaring

weak spot.

By Peter Burrows

in SanMateo,Calif.

B U T

S U N S

F A R B E H I N D

IB M HP SUN

W O R L D W I D E E S T I M f lT E S

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C o p y r i g h t o f B u s i n e s s W e e k i s t h e p r o p e r t y o f B l o o m b e r g , L . P . a n d i t s c o n t e n t m a y n o t b e

c o p i e d o r e m a i l e d t o m u l t i p l e s i t e s o r p o s t e d t o a l i s t s e r v w i t h o u t t h e c o p y r i g h t h o l d e r ' s

e x p r e s s w r i t t e n p e r m i s s i o n . H o w e v e r , u s e r s m a y p r i n t , d o w n l o a d , o r e m a i l a r t i c l e s f o r

i n d i v i d u a l u s e .