Two weeks ago, enterprise application vendor SAP met with IT analysts in Las Vegas to brief them about its plans for 2006 and its long-term strategy. If the company delivers on that strategy, it could convince many software vendors to develop solutions for Service-Oriented Architectures (SOAs). More importantly for SAP and its competitors, many of those solutions will run on SAP's SOA platform.
While SAP's briefing covered many topics, its presentations can be boiled down to a handful of conclusions. Here is my take on what those conclusions are.
SAP is making steady progress on transforming its applications into an SOA. Over the last year, the vendor has been working hard to rewrite its applications as a body of Web services. So far, SAP has shipped roughly 300 services that run on NetWeaver, the vendor's middleware suite that makes it possible to create an SOA. One year from now, several thousand services could be available. To help developers assemble these Web services into applications, SAP will organize the services in an Enterprise Repository that should ship with a new version of NetWeaver during the second half of 2006. The repository will also contain hundreds of xApps—composite applications built from NetWeaver-compatible Web services—that developers can modify to suit their requirements. The new NetWeaver version will also include tools that will enable developers to create composite applications from business process models.
Growing numbers of IT vendors are partnering with SAP. According to SAP, the number of IT vendors who have signed up for its Enterprise Services Architecture (ESA) program has doubled since 2004 to over 1,000 companies. These vendors are creating NetWeaver-compatible Web services and ensuring that their products support NetWeaver. To build on the ESA program, SAP announced that it will launch Industry Value Networks (IVNs) for the 28 industries that its applications support. In the IVNs, customers and software vendors will collaborate to create repositories of Web services that support the core business processes of a particular industry. These repositories will enable SAP to offer Business Process Platforms—as the vendor calls them—for each industry. To underline its commitment to IVNs, SAP announced an IVN for banks whose founding members includes ABN AMRO, ABSA, Credit Suisse, and other leading banks.
Most customers remain in "wait and see" mode when it comes to SOAs. While SAP is executing well against its SOA strategy, its customers are staying several steps behind it. The software giant admitted at the briefing that among its 30,000 customers, fewer than 5,000 have deployed NetWeaver. In addition, the vast majority of customers run SAP's older R/3 applications rather than its Web-enabled mySAP ERP solutions. This state of affairs should change over the next several years, as SAP estimates that around 2,000 customers are currently working on NetWeaver deployments. Still, it will be tough sledding for many customers to migrate from the proprietary ABAP language used in R/3 to the object-oriented languages that NetWeaver and mySAP supports. It will be a challenge to convince these customers that the benefits of the migration will outweigh the pain involved.
Project Mendocino is on track. As I discussed in an article earlier this year, Mendocino is a joint effort between SAP and Microsoft that will enable SAP users to access their mySAP applications through Microsoft Office applications. At the Las Vegas briefing, SAP unveiled Version 1 of Mendocino and stated that it is shipping the product to 40 customers and 10 partners for testing. Like many first releases, Version 1 has limited functionality. It only provides Office 2003 interfaces to SAP's budget monitoring, time management, leave management, and organizational management applications. However, Mendocino Version 2 will provide Office interfaces to many more applications. It will also feature integration with Microsoft's upcoming Office 12 release. Like Office 12, Mendocino Version 2 should ship during the second half of next year.
SAP will enter the on-demand software market in 2006. While Web-based solution providers such as Salesforce.com and NetSuite have been growing rapidly, SAP has stuck with its traditional deployment model. That will change sometime next year, when SAP will announce Web-based offerings targeted at small and medium-size businesses. While SAP is saying next to nothing about the offerings, it is indicating that they will feature deep integration with SAP's existing applications. This could distinguish them from competitive products, as most of them lack deep integration with popular Enterprise Resource Planning (ERP) suites.
The Look of a Leader
Taken together, this handful of conclusions adds up to a bigger takeaway. While it will be years before many customers migrate to its SOA, SAP is doing the right things to make that migration as inevitable as possible. It is creating an ecosystem of software developers to help build its next-generation application platform. It is harnessing the expertise of its users to create vertical industry solutions for that platform. In the process, SAP is pressuring competitors such as Oracle and Microsoft to accelerate their own ecosystem building efforts. These competitors realize that the ultimate success of their SOAs will largely be determined by their partnerships with developers. When it comes to such partnerships, SAP is executing on a strategy that could ensure its SOA platform a leadership position.
Lee Kroon is a Senior Industry Analyst for Andrews Consulting Group, a firm that helps mid-sized companies manage business transformation through technology. You can reach him at
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