SAP's Game Plan: Follow the Leaders

SAP's Game Plan: Follow the Leaders

By Bob Starzynski
Staff Writer


SAP A.G.
SAP A.G. executives are scrambling to overcome an early and strong advantage by software rivals Oracle Corp. and PeopleSoft Inc. in the U.S. government market.

The world's fourth-largest independent software firm, based in Walldorf, Germany, established SAP America Public Sector Inc. in September but company executives just announced their strategy on Dec. 17.

"We're playing catch-up. ... Some of our competitors have already taken steps in this market...."

-Bob Salvucci
SAP America Public Sector

SAP's plan of attack on the government market has changed with the new subsidiary, which will be based in Washington. Until now, SAP's public sector work was rolled in with commercial work and divided geographically. By dividing the company along industry rather than geographic lines, SAP can better fulfill software functionality requirements necessary in each market, said Bob Salvucci, president of SAP's new wholly owned subsidiary.

"We are playing catch-up now," said Salvucci. "Some of our competitors have already taken steps into this market, and they're certainly having success."

The new subsidiary already has 75 employees. That number will reach 120 in the next quarter and 200 by the end of next year, according to Salvucci.

SAP has dominated the world market for corporate client/server enterprise resource planning programs, which are used to streamline business practices and manage databases. Worldwide sales of SAP's software, which is now used by more than 7,000 companies, increased 38 percent last year to $2.4 billion.

Salvucci estimates that SAP's American software revenue from the public sector will increase 100 percent each of the next two years, from $20 million this year. "This is a large opportunity," he said.

By comparison, Oracle of Redwood Shores, Calif., has been growing its government business at the same pace as the rest of the company over the past several years - at about 25 to 35 percent per year in sales. Oracle does not break out its revenue for its government sector. But one company source said that it is about 10 percent of the company's $6 billion in revenue.

SAP A.G.
Headquarters: Walldorf, Germany
Employees: 11,998
Markets: Frankfurt Stock Exchange and Nasdaq Over-the-Counter
Nine-month revenue this year: $2.2 billion
Nine-month revenue last year: $1.4 billion
Nine-month pretax profit this year:$472 million
Nine-month pretax profit last year: $288 million
Primary competition: Baan Co., Oracle Corp., PeopleSoft Inc.
Oracle officials declined to comment on SAP's efforts in the public sector.

Besides Oracle and Pleasanton, Calif.-based PeopleSoft, SAP could have competition from Baan Co., a competitor with dual headquarters in Putten, Netherlands, and Menlo Park, Calif. Baan officials said last month that its new Americas division office in Loudoun County, Va., may look at new markets, including the government. To date, Baan has targeted only the manufacturing industry.

One analyst, Andrew Roskill of Salomon Smith Barney in New York, does not believe SAP's move is all that monumental.

"Oracle is by far the furthest along in the public sector," he said. "I believe they are the only company in that niche that has its [products on the General Services Administration schedule]. PeopleSoft has also created a strong presence in the public sector, especially in nonprofits and higher education.

"Bottom line, the public sector is a relatively small portion of the total market opportunity," Roskill continued. "I don't see this having a material impact on SAP's success or failure."

Most of the early success in the public market for the company has been on the state and local, and university level. According to Salvucci and John Greaney, director of the public sector for the new business, the sales cycle on the federal level is longer than in other government sectors.

SAP America Public Sector will shift its public sector operation from Vienna, Va., to the newly constructed Ronald Reagan Building in Washington in the first quarter next year. The building, commonly referred to as the Federal Triangle Building, is the second largest government office building after the Pentagon. Of the commercial tenants already signed on in the new government office building, SAP is the largest, with 15,000 square feet of space.

Largest Enterprise Resource Planning Software Companies

Company Employees Revenue from most
recent nine months
Net income from most
recent nine months
Oracle Corp. 29,431 $4.7 billion $549.8 million
SAP A.G. 11,998 $2.2 billion $472 million*
PeopleSoft Inc. 2,490 $555.2 million $69 million
Baan Co. 3,500 to 4,000 $443.2 million $47 million
* Pretax profit (net income figure not available)

Source: Company Releases


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