SAP Exec Grows Up With Firm
By Ryan Blitstein, San Jose Mercury News, Calif.
Jan. 7–When the name Shai Agassi appears in print, the word “wunderkind” often precedes it. But the 38-year-old Israeli president of SAP’s products and technology group — and heir apparent to chief executive Henning Kagermann — has done a lot of growing up in the six years since selling his start-up to the German software giant.
And as Agassi has matured, so, too, has SAP, a company founded back when he was a toddler.
Chief among the recent changes is its transformation from a dominant European business into a global technology power. Though SAP headquarters remain in Germany, its application software revenues are growing fastest in North and South America, at around 20 percent a quarter year-over-year. Sales in Asia climbed 13 percent during the first nine months of 2006, compared with the same period the year before.
Agassi, who sits on the executive board, is based at SAP Labs in Palo Alto, in the foothills behind Stanford University and biking distance from the venture capital firms on Sand Hill Road. During the past several years, the company has opened research labs in Shanghai and Budapest, adding to a list that already included Israel, Bulgaria and Bangalore.
SAP makes software to manage enterprise resource planning systems, which corporations use to manage the complex path of money and materials from a customer’s purchase of a product in the store to paying the bills at a factory. It’s a large chunk of the $70 billion-plus (depending on who’s included) application software industry, and SAP’s dominance of the market makes it one of the world’s largest business software companies, behind Microsoft and Oracle.
Redwood City-based Oracle, which makes the bulk of its money selling database software, has long been a thorn in SAP’s side, and has acquired more than $20 billion in application software companies during the last several years to expand its footprint in the market.
That Oracle trails far behind SAP in application software seems to matter little to co-founder and Chief Executive Larry Ellison, who boasted on a recent call with financial analysts that his company was growing 10 times faster than SAP, and had the words, “Oracle 80 percent, SAP 8 percent,” posted on the company Web page.
Analysts differ on what the numbers would have been if Ellison didn’t count the revenue from the companies Oracle spent billions to purchase, but Agassi highlights the fact that after buying mid-tier software market players like PeopleSoft and Siebel Systems, Oracle’s market share in applications software has barely budged.
“One plus one plus one got them back to one, pretty much,” Agassi said. “What would’ve happened if they didn’t do the acquisitions? The answer’s pretty clear: They wouldn’t be a player in this market.”
Ellison rarely draws Kagermann, a former physics professor, into his war of words, but Agassi doesn’t let statements go unanswered — much like his mentor, SAP co-founder and supervisory board chairman Hasso Plattner, who once mooned Ellison during a boat race.
One thing Oracle and SAP share is the desire to win clients in vertical markets, like food services or manufacturing. In mid-2005, for example, SAP was outbid in a battle to buy Retek, which makes software applications for the retail industry.
Bidding on Retek “was an admission on their part that you really have to not only acquire unique functionality, but acquire the domain expertise that comes with it. You can’t find it and you can’t hire it quickly enough,” said Jim Schaper, chief executive of Infor, an Alpharetta, Ga., company that has quietly acquired its way into third place in the application software market.
Though SAP does at times buy companies, its growth strategy is more like that of Microsoft: pour money into research and development, evangelize your software until it’s the platform for everyone else’s programs and rely on partners to fill in the gaps. The strategy has led to 26 new products launched in 2006. More than a year after Oracle’s Retek purchase, four of America’s ten largest retail chains, including the top two, Wal-Mart and Home Depot, still run SAP.
This fall, Agassi led a major change in the way SAP rolls out new versions of mySAP, its major software suite. Instead of big changes every few years, it will provide piecemeal updates every few months until 2010. He said SAP is slowing down major changes in order to speed up minor ones, and altering releases to please clients.
“One of my customers came in and said: ‘If I have a core (SAP application) running in my company, you can touch it twice a decade, and it needs to be on a Saturday,’ ” Agassi said. “One of the customers here in Silicon Valley, she said it needs to be an hour on a Saturday. But in the same sentence, she also said, ‘My CEO wants me to innovate every three months.’ “
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