Analysis: What is the secret sauce in SAP's success?

The last major upgrade to SAP's core enterprise resource planning (ERP) product was released in 2005, so how is the company achieving record growth? Warwick Ashford reports

SAP reported record third quarter software revenue and notched up the seventh consecutive quarter of double-digit growth in software and software-related services.But if ERP is no longer the big push for the German enterprise software house, what are its customers actually buying?

The answer lies in the business software's company's strategy laid out by co-chief executives Jim Hagemann Snabe and Bill McDermott since taking over the helm at SAP in early 2010 and their emphasis on non-disruptive innovation.

Snabe points out that while there has been no major single upgrade in SAP ERP for some years, the company's switch from painful upgrades to continual enhancement means that ERP and other core products in the SAP Business Suite are still evolving to meet customer needs.

"Since we announced accelerated innovation of Business Suite on a quarterly basis, we have seen double-digit growth in our core products," he says.

While SAP believes its own ability to innovate is key to long-term success, it acknowledges that acquisition can be an important part of an innovation strategy if focused on gaining technology rather than market share or customer databases.

Through its acquisition of analytics technology with BusinessObjects in 2007 and mobile technology with Sybase in 2010, SAP is now in a position to capitalise on the two major challenges facing business of mobilising the enterprise and making sense of the vast amounts of data being generated.

"We are seeing the huge benefit of integrated analytics software with the core process software, which are designed to fit together, which gives companies better analytics on what's going on in the business , and enables them to react quickly to changes, which is very valuable in uncertain times, and driving strong growth in that part of the business," says Snabe.

A year after the acquisition of Sybase, SAP is using the technology to enable innovation take a leading position in moving business applications to mobile devices.

This means that the just-completed quarter in the first in which SAP is able to compare results with the same quarter in a previous year.

"We are seeing organic growth of 32%, which means we are exceeding the business case for acquiring Sybase," says Snabe.

He says SAP is also well on the way to achieving its goal of generating €100m in revenues from its mobile business within the first year.

SAP's growth is also being driven by company's innovation around in-memory computing that centres on SAP's High-Performance Analytic Appliance (HANA) that provides a boost in performance by holding data to be processed in RAM instead of reading it from disks or flash storage.

SAP is again aiming at a target of €100m in sales in the first year for HANA, but is well on the way to exceeding that, having already closed deals worth €60m. "Considering HANA was released only in June 2011, this is pretty significant; probably the fastest growing product in our history," says Snabe.

Customers are interested in adopting this technology, he says, because it dramatically increases their ability to predict the future and analyse in real-time what is going on in the business, and at the same time reduces cost of hardware infrastructure.

Despite the interest in HANA, other technology suppliers have not failed to notice the growing demand for real-time analytics and have begun offering competing products and services. What makes SAP's in-memory computing offering different to its competitors?

Snabe claims SAP was the first to move in this area. Three years ago, he says, SAP set out to challenge the assumption that data needs to be stored on a disk in a complex relational database.

"At the time our main competitors said we were out of our minds, and while today most companies will talk about in-memory computing as the future, few have it right," says Snabe.

SAP's believes that in-memory computing is the future infrastructure of business software and is therefore going for a pure model.

Consequently, says Snabe, HANA has no moving parts, no relational database structures; it is purely in-memory. All competitor attempts to claim they also have in-memory computing, he says is really a cobbling together of existing stuff, including some in-memory stuff, but that increases complexity rather than reducing it.

"HANA takes complexity away; it simplifies the data structure, and that is why the hardware we run on is significantly cheaper than the competition," he says.

Snabe believes SAP is 18 to 24 months ahead of the competition. The next update for the technology, due in November, will enable HANA to run an entire business data warehouse in main memory and do away with the relational database entirely.

Given this perspective, SAP's growth in what remains an economically challenging climate for most businesses, is not that surprising.

SAP is achieving success by enabling its customers to do more and cut costs with through evolution of its core products and innovative application of new technologies.