But now, SAP has a new approach to the best-of-breed versus integration issue. They have improved their line of products across the board, so that helps, but they're not just pushing an "SAP only" environment onto customers. It seems like SAP is now willing to take some responsibility for integration in exchange for solidifying SAP's role as the key platform for e-business and ERP transactions. SAP is now saying, "Look, you can have a heterogeneous application environment, with a web-based SAP infrastructure holding it all together." So instead of forcing companies to pull out important custom and best-of-breed applications - installations that they already have a huge investment in - SAP is now saying, "You can keep what you already have in place, we provide the tools to integrate all of this."

SAP has essentially assumed responsibility for the integration burden of their customers, or at least that is a major thrust of their sales pitch at this time. They are at last claiming accountability for SAP within a heterogeneous environment. And that was the big problem companies were wrestling with: who is accountable for making all these apps get along? And how can I make incremental improvements and investments in key enhancements without having to upgrade the entire ERP system? And SAP now has some pretty coherent answers to those questions. Of course, integrating all of that stuff is easier said that done, and SAP still acknowledges that their products are going to run more smoothly together than a variety of products from different vendors, but at least the sales pitch seems geared to the concerns of cost-conscious companies.

Brian Trout: Absolutely. SAP has done a nice job of knowing how far to stretch themselves into certain areas. I won't say that they have always succeeded, for example, their retail and footwear industry solutions have not lived up to expectations. I think SAP would even acknowledge that if you really pressed them on it. But Jon, here's something to consider that validates what you've stated: when SAP releases R/3 4.7, the R/3 Enterprise Edition, there is going to be a fundamental shift in the architecture of SAP with that release. In the future, if you're on 4.7, what you're going to be able to do is to discriminate upgrades and new products.

You could use this analogy: instead of R/3 being a suite of modules that you purchase, R/3 will be any module you want to purchase, which plugs into your environment like a Lego - you just stick in the piece you want. And you can keep upgrading HR through version 9.0 if they ever build that, and you don't have to do anything else to FI, or CO, or any of the other modules you have running.

So SAP has essentially become best-of-breed sub-products under the same community. That's a big, fundamental shift. One of my personal beliefs, when you talk about where R/3 is going, and where SAP is going, is that 4.7 is going to quickly become a de facto standard for the way you operate an SAP shop in the not-so-distant future. And so if you hear someone asking questions about "Will the 3.1 shop finally upgrade?" Well, they better! Because if they don't, SAP is moving away from, fundamentally, what they initially sold them, not just in terms of the product release number, but in terms of the actual technology that makes up their products. Once R/3 Enterprise is in place, that will also facilitate an ease of introduction for a lot of these new mySAP products.

Reed: My own theory on SAP is that at some point in the last year, SAP experienced a series of creative breakthroughs. It all comes down to the realization that they could make ABAP and Java co-exist within an SAP environment. Up until that point, it was a major question for SAP: "Are we going to rewrite the entire SAP application in Java? And if so, what a huge undertaking! And what are we going to say to our customers who have heavily invested in ABAP customizations that they are asking us to support? If we can't support their current installations, then the fact that we have developed a whole new web-based, Java based architecture won't really matter to them."

But at some point, SAP had a breakthrough, and they figured out that using some very specific kinds of integration protocols, that they could make their ABAP technology and Java technology co-exist in an enhanced SAP environment. Once they figured out how the core R/3 system could interact with XML-based exchanges, Java/web-based architectures, and the latest cutting edge product extensions like wireless functionality, SAP had a major breakthrough. And they didn't have to redo all of the code in the entire R/3 suite, which would have been a Mount Everest-style undertaking that would have been a huge distraction from the e-business product developments they need to be focusing on.

Trout: I agree with you on that. I think the big thing is the enhancement of the ABAP programming language to become an object-oriented, functional environment that is similar to what Java is all about.

Reed: It will be interesting to see how this all plays out. Because right now, when we take a look at the market, we might say, "Things are tough right now," but for those of us who are committed to SAP and to riding this market out, we can see a lot of promise. We're not sitting here like we once were, wondering about our commitment to SAP, wondering if the dotcom economy was going to wipe SAP out or really put SAP back on its heels.

Trout: I think clearly, those days and that kind of thinking has passed by.

Reed: So until we see otherwise, it seems like we're really embracing a new theory, which is: as the market goes, so does SAP. In other words, if the fundamentals of the overall market improve, we should also see a corresponding shift in those whose fortunes are tied to SAP. And I guess we'll continue to subscribe to that theory until the market improves and we see companies spending big money on other software vendors, but not SAP. Is that how you're feeling?

Trout: The thing that we all have to be aware of is that there's not an artificial catalyst at this point. We don't have a Y2K doomsday catalyst out there to force people to spend, and that makes it doubly difficult to be in this position when the economy is recessed.

Reed: And Brian, I know that you don't present yourself as an economist, but we have seen some encouraging signs lately in the overall economy.

Trout: I'm not an economist, but as I understand it, when the leading indicators are up for two or three consecutive quarters, it's supposed to indicate the end of a recession. It's certainly good news that those indicators are up. The leading economic indicators announced for January 2002 were positive, which included raw manufacturing numbers - the indicators were up by plus 1 percent, which is a move in the right direction. When Greenspan said recently that no further interest rate cuts were needed to stimulate the economy, I think maybe he was thinking something similar, that we're going to make a turn here.

Reed: And now we're waiting on some fourth quarter earnings reports.

(Editor's note: this interview took place before the Enron meltdown, which has seemed to put a bit of a damper on the speed of the economic recovery).

Trout: That's big piece of it also.

Reed: So until we see a scenario where the economy improves, companies start spending, and we still don't see any further investments in SAP, then we'll stick with our theory that SAP is pretty much in tune with what their customers are needing, and it's simply more of a basic economic issue right now: the money needs to be there before the SAP consulting market takes off again.

Trout: If anyone's out there thinking, "Well, this consulting demand has decreased because SAP missed the boat on what their customers need," I think that's wrong.

Reed: Well, I think that makes a lot of sense. Brian, I think that's a real in-depth state of the market for us. Thanks for sharing your insights with our readers, I know they'll appreciate your frank and forward-thinking comments.

Trout: No problem. I enjoyed the discussion.

Our readers have had a few thoughts of their own regarding our current feature on the SAP Market. The feedback we're getting from consultants in the field is coming back with two distinct messages: consultants are still confident about the future of SAP, but they're also concerned about where they stand in the current market, and they're honestly wondering how long the "e-business project slowdown" will last. This week, we'd like to share a letter we received from Marci Pinkard, a long time SAP consultant. Her thoughts about the current state of the market and the aggressive approach she's taken in terms of expanding her own skills are food for thought.

Dear Jon,

I enjoyed your talk with Brian Trout, and even laughed out loud - it was so similar to a conversation that I had with my colleague CJ over a year ago. You may remember that two years ago we pulled CJ into a conversation about being an SAP contractor versus being an employee for an SAP end-user company.

In any event, even though SAP had no specific module that dealt with SCM and CRM (and never mind that what SAP has done for years with PP-MM-SD was both SCM and CRM), CJ and I agreed that SAP wouldn't go away unless we do. SAP's most formidable assets are having the largest market share, plowing under a significant percentage of its profits into R&D, and, of course, it's been around awhile and is unlikely to go belly up.

It now makes me laugh to remember what happened to i2 a little over a year ago. In Q1 or Q2 of 2000, it was trading at well over $100.00 per share, and even then SAP was far below that. However, if you follow the market at all, SAP had no wild swings and i2 bottomed out at a few dollars a share. It's still at the low end in trading.

The point is that SAP is seen as pretty stable for a high-tech company, glamour girl or not. And no one wants to risk the big bucks on unproven pretties, all to the advantage of those in SAP (CJ, you, and me, among others).

You and Brian are correct that companies are dragging their feet implementing upgrades including, of course, APO and BW. When they do, they want to pay rates half of what we saw last year before September 11th. Companies are trolling endlessly for someone with 10 years of SAP experience (yeah, sure) who'll work for $50.00 per hour on a month-to-month basis, or take a $60,000.00 salary as a perm employee.

Somehow, I am thinking that this scenario cannot survive. SAP is something that you are born to do, and most employee-types and in-it-for-the-money-types are unable to produce the results. SAP is simply too demanding and challenging for that to work.

In any event, thanks for making me laugh and for confirming my perceptions re: SAP upgrades and APO implementations. Given the dearth of consultants with 4.6c and APO, I am thinking that with my six years in SAP, I can parlay my i2 TradeMatrix Demand Analyzer and Demand Planning, both of which are CRM and SCM components, into work with APO.

Oh, and I've been stuffing my tiny mind with all of SAP's APO training - and I am pleased to say that it makes great sense to me and is pretty well integrated with SD and PP-MM functions in the R/3 client too.

Best regards,

Marci