America's Latest Software Success Story Is German

When Chevron Corp. chose German software maker SAP over a host of better-known U.S. suppliers to revamp its financial reporting system in 1992, the company was virtually unknown outside Europe. A year later, the $700 million company was No.1 in the world in what may be the hottest market in software: applications packages for so-called client-server networks. SAP's chief rival, Oracle Corp., was so stunned by the rearguard attack that executives published an internal manual on how to counter SAP. "They're giving us hell in the U.S., and we're going to do the same to them in Europe," says Raymond J. Lane, president of worldwide operations at Oracle.

It's a battle that will extend around the globe. For example, SAP has recently beaten Oracle to market in Japan. That's only natural since one of SAP's big selling points is that its software, a comprehensive set of programs for accounting, manufacturing, and sales, has been geared toward multinationals from the start. SAP's start was in mainframes, where the company--launched in 1972 by five former IBM software engineers in Walldorf, near Heidelberg--came to dominate the European applications market. Now, SAP is pushing into the client-server networks that replace mainframes. Client-server applications, predicts Forrester Research Inc., will zoom from $750 million in 1993 to $5.9 billion in 1996.

In the process, SAP is on its way to doing what few European software makers have done: conquer the U.S. market. In late 1992, SAP planted its U.S. development center in Foster City, Calif.--one lagoon away from Oracle's headquarters. Now, SAP's U.S. client list reads like a who's who of Silicon Valley, including Apple Computer, Hewlett-Packard, and Motorola. But the real proof is in the numbers: Buoyed by the launch of the R/3 package, SAP's U.S. sales doubled in 1993, to $140 million, and analysts forecast they will double again in 1994. Worldwide sales, in the meantime, are expected to pass the $1 billion mark in 1994.

That dwarfs the $215 million Oracle generated in fiscal 1994 (ended June 30) from its Cooperative Applications line, which competes with R/3. Oracle, a $2 billion database giant, sees client-server applications as a critical extension of its core business, and Lane predicts Oracle's applications revenues could hit $500 million by 1996. And with offices and consultants around the globe, plus lots of cash, Oracle is a formidable rival. "It's going to be a battle between SAP and Oracle," says Clare M. Gillan, an analyst with market researcher IDC.

With the market growing so rapidly, there may be lots of winners. Companies such as Dun & Bradstreet Software and startup PeopleSoft Inc., for example, are also betting on client-server applications. But for now, SAP is on top and, analysts say, it outdoes rivals in overall performance. Another plus: Unlike Oracle's Cooperative Applications, R/3 will work with more than one database program, including ones by Oracle, Informix Software, and, soon, Sybase. Another Oracle negative: Some customers question if it will stick with applications. "I wasn't convinced Oracle is as committed to applications as to database and multimedia," says James E. Zell, project manager for advanced financial information systems at Chevron.

R&D RICHES. With the competition mobilizing, SAP is continuing its traditional tactics--pumping a huge 25% of sales into research and development--and adding new ones. Most important are aggressive marketing and sales techniques used by Klaus Besier, a former computer manager for a German chemical company, who became CEO of SAP America in 1991. One of Besier's moves: ending the $140,000 annual limit on commissions. Some top German executives still flinch when they hear that a salesperson can now earn more than they do--as much as $2 million a year.

Besier clearly likes to shake things up back in Walldorf. When he penciled in $2 million for advertising as part of his $6 million 1993 budget for the U.S. launch of R/3, SAP's board balked. Besier spent it anyway--and turned in sales that were $2 million above the company's forecast. "I prefer to beg for forgiveness than for permission," says Besier. That attitude may come in handy as SAP pursues world markets.

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