The peculiar SAP-Microsoft partnership continues to deepen. We’ve written about this in the past, but I think Jon Reed summed up the situation best with the image of “one set of hands shaking and another set in a thumb war“. In the upper end of the market, SAP and the ’softies are best buds, as evidenced by their solid Duet commitment. Last I heard they were well past the 300,000 user mark and it was one of the big stories at Sapphire Atlanta last month.

This week was Sapphire Vienna, and sure enough, another big SAP-Microsoft story dropped: SAP and Microsoft are setting up a joint German lab to marry SAP’s Business Suite with SQL Server 2005. That makes a lot of business sense, and it doesn’t take much imagination to see this as another way of teaming up and sticking it to Oracle. Ellison had a pretty big week too by the way — the Agile acquisition alone is enough to keep SAP on it’s toes.

But then there’s this midmarket business, the elephant in the room neither company seems to want to talk about. Microsoft is serious about Dynamics, and they’re starting to get nods of recognition. But SAP is betting hard on A1S, the upcoming on-demand ERP solution targeting the niche of customers that fall between the already existing SMB solutions BusinessOne and All-in-One. Furthermore, SAP made the public commitment that it will nearly triple its customer base by 2010 — a goal that puts it squarely on a collision course with its friends in Redmond. Indeed, as 2010 and the inevitable SMB surge SAP needs in order to hit the magic 100,000 customer-mark draws near, I predict considerable friction at just about the same time Duet 2.0 rolls out.

But for now, everything is peachy. Kumbaya, and so on.

Matt Danielsson
Editor

You've probably read Axel Angeli's guest editorial SAP under fire: Axel Angeli on why 2007 will be tough for SAP. Not surprisingly, there was an avalanche of reader responses. Some agreed and applauded the honesty, while some jeered and argued Dynamics was nowhere near ready for prime time. Axel answered two questions in depth yesterday; today he concludes his stint on the soap box by going to the heart of the matter:
What exactly did SAP do to fumble the ERP ball, and what can/should they do about it?

Axel: The SAP ERP is still the flagship of SAP, despite all efforts to gain market shares in areas where competitors seem to be strong. While FI/CO seems to be stable and has set the European way of accounting as IT standard all over the world, the SD/MM and PP areas are still areas where the customers ask for significant enhancements. Let us pick SD for instance… Currently, we still find a hybrid of functionality, powerful but extremely difficult to make any enhancements. And it is the latter that is more and more required by companies, especially if SAP wants to conquer the markets of the SMB. The classical areas of concern are variant donfiguration, pricing, special shipping & handling scenarios, intercompany invoices … all topics the experienced SAP consultant can be caught with a cheshire grimace on her/his face. 

Don't let me be misunderstood: the functionality is powerful and covers many, many areas. But if you need to do something special, the SAP approach with user-exits (aka customer enhancements, BADIs) has its severe limitations. 

To cope with the challenges of agility, a more object-oriented approach, one that has been rightly drawn and begun with the BAPI concept, is required. And again, one has to regret that SAP lost the completion of the BAPI concept out of sight. The SD-BAPIs are far from complete: e.g. the "order read" and "order create" modules have different interfaces, isolated pricing modules are still missing, variant configuration is still dug far down in the inside belly of the SD core modules. Modern ERP systems would break down an SD component into small, self-contained objects that inter-operate through message pipes. That would even allow to run a SAP SD fully decentralized, maybe the order creation on one instance, the delivery on a second and invoicing on a third one. Revamping the BAPI concept might already bring a high degree of progress and eventually a convincing argument to upgrade a newer SAP release, one based on ROI instead of simply falling out of maintenance. 

SAP did well in the MM sector when succeeding in rewriting procurement in the form of the SRM component. SRM has all that the purchaser needs and it integrates with ease many external offers, like life vendor catalogue access, auctions or goods tracking via slim or sometimes not so slim Web interfaces. Although SRM might well be broken down in smaller atomic units, it is a step into the right direction of an object oriented componentization. However, the drink may be poisoned here as well: while SAP admits the necessity of integration, they are still reluctant in releasing interface specifications to the public and offering demo hubs against which developers can test their development. 

The peril is ante portas, not mainly and only in the shape of Microsoft Dynamics, whose principle power lies in the marketing strength or through Oracle where we observe - I admit: to my surprise - an increasing number of new "Peoplesoft" installation, mainly in countries where SAP traditionally had a bad standing, like France for instance. There is also the open source community that seems to increasingly enjoy the ERP worlds after they worked the CMS fields to exhaustion.  

Momentarily the importance of open source ERP is low due to the fact that although open source (SAP is also "open source&quo they are mostly not "free software" sporting a pretty amusing variety of "licensing models". I have seen licensing constraints where software is free but consulting must be purchased by the owner of the code and others that keep the software free for developers but require substantial licensing fees for productive use. Both models cannot work, as it is too obvious that the makers want cheap labor from the community but are pretty selfish when it comes to give anything back.

But there are also good examples of open source and free ERP approaches, like Adempiere that - after divorcing from Compiere on arguments about licensing philosophy - became number three in the charts of the most attended projects at SourceForge. Until now the ERP has not yet reached the PHP or Python community that would allow to run distributed ERP on cheap Web hosted platforms, giving the notion of EDI (Electronic Data Exchange) a completely new flavor.

Editor's comment:
This is the last (?) part of Axel's take on the "SAP under fire" issue. As always, we'd love to hear your thoughts on the matter. Reply to this post or send your thoughts to mdanielsson@techtarget.com.

Matt Danielsson
Editor 

We received a tremendous amount of reader feedback on veteran site expert Axel Angeli's recent guest editorial SAP under fire: Axel Angeli on why 2007 will be tough for SAP. Here are some of the reader comments and Axel's responses.

"I agree with Axel's assessment that Microsoft Sharepoint will give SAP KM and EP a run for its money. I, with a group of other 'pioneers', have started an ASUG Special Interest Group to investigate and influence the interoperability of Sharepoint and the SAP Enterprise Portal. Many SAP customers will license the Sharepoint MOSS solution over the next few years because it certainly wins the 'beauty contest' and gives SAP a run for its money on robust search functionality.

Where Sharepoint is falling short is tying document management to business process via workflow and transactions. This is where you use Sharepoint for the user interface and document repository, but you run SAP workflow to handle the business processes, like approving documents based on document type and user hierarchies from HR organizational structures. I do not tout myself an expert in this area as we have just begun our journey down the path of interoperability, but I do see this being a relevant space within the SAP-Microsoft ecosystem.

– Name withheld, SAP Business Analyst, Longmont, Colo."

Axel: I am happy to read this comment. I am convinced that something needed to be done in this areas. SAP has all the necessary features including a basic WEBDAV support, allowing one to map any SAP repository data source as a network drive. One should maybe make clear to the Sharepoint newcomers that Sharepoint stands for two completely different elements: the Sharepoint Services and Sharepoint Portal Server. The Sharepoint Services allow reading and writing back documents to a Sharepoint enabled server, while the Sharepoint Portal is a content management system that makes use of Sharepoint Services but otherwise is just another "Portal" and competes with SAP EP in this respect. We integrated Sharepoint Services successfully to open source CMS like Joomla or DRUPAL, hence I don't see a reason why it should not comply with EP as well.

I would love to eventually read more on the progress of your ASUG SIG project and maybe participate on a blog on this.

"First of all, I think SAP didn't drop the ball. I think SAP is doing very good job. SAP has already released its major version ECC 6.0 in 2006. No major releases are due until 2010. So SAP is up to date in all areas of ERP. SAP is ready to complete enterprise SOA technology. More enterprise SOA implementation projects and SAP upgrade projects will be implemented in 2007. As a result, more XI projects will be implemented in 2007 and demand for XI skills increases. Microsoft cannot compete with SAP in the ERP marketplace. They are still far away from SAP's level. Microsoft enters every niche market. That doesn't mean they can compete with SAP in the ERP market.

– Sobhan Annepu, Sr. Programming Analyst at Coca-Cola Bottling Co., Birmingham, Ala."

Axel: Saying that SAP didn't drop the ball may certainly be a matter of how you interpret the situation. I would say that SAP exactly DID drop the ball by putting a moratorium on release upgrades for four years and hence leaving ERP in the current state. It feels like leaving the dish in the kitchen sink after an opulent dinner. A moratorium will exactly be the kind of advantage that the competition is waiting for to dash into the gap.

When it comes to the mid-sized markets, SAP ERP won't win the beauty contest. ECC is strong in features but weak when it comes to agility. For small and diversified production sites, the Microsoft AX "Hub and Spoke" concept appears to be more convincing. If I am asked to give a proper advice in strategy to SAP product life cycle management, I would opt for efforts to break down the SD/MM/PP complex into small objects that can be decorated by the customer at discretion if production is concerned that might be done on the basis of an "APO light".

The weakness of Microsoft is currently the fact that AX (formerly: Axapta) still falls out of the Office licensing scheme and the frightening low number of developers that are familiar with the software. However, the latest release of AX sports a virtual machine and a script-like programming language that speaks for a serious effort to attack the markets of SAP. It might be a correct perception that Microsoft is ready to enter every niche market, but so does SAP.

I acknowledge that there will be an XI boom in 2007 and I already have predicted a shortage in skilled XI technical people. However, I stand firm to my belief that SAP has not yet reached a practical SOA, although I am certain that they are on track and will take over leadership in less than three years from now.

Editor's comment:
As always, we welcome your input. Reply to this post or send your thoughts to mdanielsson@techtarget.com.

Matt Danielsson
Editor

Axel Angeli is a veteran SAP guru with a reputation for brutal honesty about the ERP market. You probably saw his predictions for SAP trends 2007 the other week. Well, Axel had more insights to share about what's going on in the SAP world, so we gave him the opportunity to write a guest editorial! Also don't miss the follow-up columns SAP under fire: Axel responds and SAP under fire: Axel speaks out on what SAP should do next.

The broad strokes
For SAP AG, the year 2007 will be the most critical one in the recent history. While the company is still working on revamping its product line, the competitors are preparing to attack. While the ABAP engine makes slight progress, the ERP components still wait for many enhancements requested by customers. This negligence will play well into the hands of SAP challengers, mainly Microsoft with its Dynamics AX, the latest version of AXAPTA.

Not surprisingly, SOA will continue to be the driving subject in IT as companies begin to have a clearer vision of SOA benefits and governance and they start XI implementations in masses, driving the market into a proper shortage in XI consultants.

CRM and BW are fairly saturated so the business is ready to concentrate on another trend topic: the Supplier Relationship Management (SRM) field.

Looking beyond SAP, we see a steep incline in interest for Knowledge Management (Content Management Systems, CMS) and collaboration tools for project management, appliances and Open Source Public License solutions.

SOA rising
2007 will be the year of the practical break-through of the Service Oriented Architecture. While 2006 was governed by SOA governance concerns, I expect a great number of real life implementations to take place. SAP marketing did too good work here. The number of companies that have scheduled XI implementations is rapidly growing — a development that might bring SAP into trouble when it comes to support them all. XI is still not mature enough to be an out-of-the-box solution. The product kernel is widely stable but there are still missing precautions to cope with data affluence and adapter misbehavior.

These problems can now be circumvented by using safe implementation practices and sober asynchronous architecture, but the number of experienced XI architectures is extremely sparse and education in best practices of SOA has hardly started. Given that middleware XI projects are likely to be mission critical, this situation will mean heavy sea for SAP and give a chance to competitors to step into the gap. As of today, XI implementations are fine but in heavy-duty solutions an architecture is good advice if XI is complemented with some best of breed tools like IBM MQ as message store, Seeburger or SmartEDI for any EDI solution and relying on Windows framework as an adapter engine for everything beyond ODBC/jDBC.

ERP status quo
In the ERP area, there won't be tremendous changes this year because companies are mainly occopied with SOA issues or with upgrading and consolidating their current installations. Nevertheless, SAP will see its first serious challenges. Microsoft AXAPTA has loaded their arsenal to attack the market shares of SAP in the higher end of the SMB market benefiting widely from the intransparent pricing policy of SAP's SMB approach.  

Content Management gaining importance
Content and knowledge management has been neglected for a long time.

With the growing number of Internet literates, there will be an increasing insight that Google-like search engines, agile document management systems like Wikipedia, blogs and shared data repositories are precious tools for project management as well.

When you look for any kind of information today, you look it up in the Internet via Google, Yahoo, A9 or Wikipedia — and in most cases, you find a satisfying solution. The document management within companies, however, still takes place in the file system. Documents are distributed via email and finding back information is normally a nightmare. But now Internet technology reaches the intranet as well.

Google gave it a start with its enterprise version of the search engine. It comes preinstalled and configured in a hardware blade server that simply needs to be connected to power and a network and it starts spidering the documents within the reach in the intranet. From there on you have Google search functionality on the internal documents. SAP will use its advantage that its software is already ubiquitous in enterprises to present the solution manager and its knowledge management as an alternative. But the appeal of the plug-and-play offer of the Google appliance will be hard to beat. From the pure software side, Microsoft SharePoint will be an honest contender to SAP KM and EP.

Editor's comment:
Do you agree with Axel's assessment? Did SAP drop the ERP ball? Is Microsoft poised to give SAP a hard time? Are we at the beginning of a CMS boom? Will there be happy days for XI consultants this year? Sound off on these issues to win a book bundle:

• SAP xApp Analytics
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One lucky winner takes all, so send your thoughts to mdanielsson@techtarget.com today.
UPDATE: Rob Ericsson from L10 Systems is the lucky winner of the book bundle. The raffle is over, but we're always interested to hear your opinion so feel free to keep sending additional comments.

Matt Danielsson
Editor