You don't lose any sleep over Salesforce.com's success or Siebel's on-demand offering? I think it addresses a thin,...
tactical layer of the market at the low end and, because that market has been un-addressed in the past, it's showing current high growth. But there's a cap on that. There's no doubt that it has some applicability to companies that want to fix a very departmental, isolated issue in the short term. I think the best description is you're hungry and you eat a candy bar and it tastes real good, but it doesn't give you any sustainable nutrition. Ultimately, SAP is about strategic engagement with our customers. But some of the hosted vendors have added customization capabilities. It depends what you call customization. [Do] you want to say that you can change a screen on a field and call that customization, or do you want to say customization is the ability to customize a workflow or a business process? That's where you move to a hosted model. In the hosted model, you're outsourcing the technology but you're still in control of the business process. You can customize the application to a level that will suit your business environment. Publicly, SAP has been a lot less bullish on the hosting model than some of its competitors. How come you're right and they're wrong? I think what some people in the market are calling hosting is not really hosting. There's a very important differentiation that needs to be made. There is an on-demand delivery model, there is a hosting model and there is an outsourcing model. The three are very clearly differentiated, but sometimes vendors try to confuse the lines between them. With on-demand, the business process is outsourced. You get a pre-configured, non-customizable application in a one-to-many model, and you fit into that slot. If you believe in any way that your business process needs to be anywhere different than that application, you don't get to move it. So you're putting your eggs in the basket of the hosting model and not the on-demand model. The on-demand model is tactical. I would categorically say that what is being done in the on-demand model is not CRM. It might be sales force automation and it might be contact management, but it's not CRM. CRM is about a customer interaction to some degree of a 360-degree cycle. You interact with your customer in a knowledgable manner across your enterprise. And, with the on-demand model, there is no integration with the other parts of the enterprise. Had they had NetWeaver, do you think that would have changed Adobe's mind? I don't think so. They could have integrated easier, but they still would have had in-house knowledge to run these other systems. They maintain a lean IT infrastructure with not a lot of headcount supporting their systems. As soon as you have multiple systems, you might have them tied together, but you still need to have the knowledge of those different applications and how they work. Is it harder for you to sell CRM because your NetWeaver integration platform promises to tie in with non-SAP CRM systems? Actually, it's an advantage. Look at companies like Audi, Volkswagen, Canada Post, Schwan's Food [and]Waters Corp. When they start buying these SAP applications, they have a heterogeneous environment, and part of the value is to, at least midterm, be able to get a view into all of these applications and tie them together. So, if we're coming in with a CRM application into what is essentially a heterogeneous application landscape, the customer is looking for us to say you've got to accept the fact that we've got an Oracle database over here and a J.D. Edwards over there and a PeopleSoft over here and we want to tie it together. That's where NetWeaver really can provide an advantage. We're recognizing that our customers do have existing investments.
Adobe, for example, had an existing investment in Siebel, in their interaction center [and] in their sales force automation, and they made the decision that, in going forward, they would not just do a go-forward SAP strategy, but they would do a replace -- actually pull those systems out and replace them with SAP systems. They did that because they could not afford to spread their resources [and] focus on trying to integrate this heterogeneous landscape.So why does Gartner recognize Siebel as the clear CRM leader?
Gartner looks at very niche areas. For example, customer service, call center. I think they've got 25 different magic quadrants where they break the market up. In looking at those niche markets, they haven't yet come around to the overall view that CRM is something broader that taps across the entire enterprise value chain. There's a [Gartner] report that goes back to 2002 and, at that time, Gartner assessed that, for 2001, the CRM/ERP integrated suite vendors held 20% of the market and the CRM suite vendors held about a 30% of the market. Gartner's prediction at the time was that, by 2006, CRM/ERP would double their market share to 40%, and the CRM suite vendors would [drop] market share from 30% [in 2001] to 20%. We're seeing that happen in the marketplace. Don't the numbers on your side include the companies who are receiving CRM as part of the overall business suite -- even those who may not be taking advantage of the CRM components?
No. That's not the case. If you have two companies buying the SAP business suite, one may have a CRM revenue element to that business suite and the other may have zero. That is determined by a contractual process when the customer buys the business suite. [He] specifies how many users he will give within the business suite to each of our applications. That's the big difference in the way that we license our software. If you buy the suite, then you have the rights to a certain number of users, and those users have the rights to use all of the applications in the business suite. But when we recognize the revenue, it's done on a contractual form, where the customers designates which applications their users are going to be accessing. That doesn't limit those users, but it does determine the way that we recognize revenue. Where do you feel you stand today in the battle with Siebel?
Obviously, we look to the external market and, ultimately, the financial and business analysts who make that determination. I would refer to a UBS report that was published in February that looked back to 2003. Their assessment was that SAP held 42% of the global CRM market share for 2003 and had surpassed Siebel, which had 39% of the market. The vendor after that was PeopleSoft at about 9%. UBS sees that lead by SAP expanding. On their estimates, they see 2004 closing out with SAP at 47% of the market share and Siebel at 36%. The thing to remember with these numbers is that they're against Siebel's total software revenue. They include their employee relationship management and their UAN. Certainly, on our side we do not include any of our HR systems or NetWeaver.