SAP’s services dilemma: Ecosystem versus opportunity

One of SAP’s strategic imperatives for the near future is to raise the company’s operating margin. Speaking at SAP’s annual meeting, Co-CEO Henning Kagermann was sanguine that the margin could reach 35%.

This goal explains some of SAP’s actions in the recent past — such as the raising of (high-margin) maintenance fees — but could it also predict something of the future? Take professional services, for example, which furnish high margins indeed for consultants, system integrators, and the like. If SAP is out for higher operating margins, won’t the quest eventually compel SAP to expend more effort on these high-margin activities.

For now, the answer is no. Just last month, Ed Harbach, the CEO of BearingPoint had the following to say during his company’s Q1 2008 earnings call: “I have not seen any of our major partners take on more work themselves and…try to squeeze the integrators out. We have good relationships with them. They have good relationships with many other people.” This was in response to the question, posed by Edward Caso of Wachovia, that “I know you’re very involved in implementing packages for SAP and others. Have any of those software vendors increased the amount of services or integration work that they’re doing themselves at the expense of the service providers?”

Surely one of SAP’s long-term strengths has been the company’s unflagging commitment to its ecosystem. But something has to give. If SAP indeed wants higher margins, it may at some point have to put the squeeze on service providers within its own ecosystem.

This could, in fact, be a boon to the marketplace. There’s little that challenges a services provider (especially a systems integrator) more than an SAP project. If SAP itself rode point on more such projects, there would probably be fewer failures.

Demir Barlas, Site Editor