But the financial crisis in September slashed spending by SMBs, sank SAP’s earnings and sparked hundreds of millions in cost cutting measures across the organization.

So I wondered how SAP would spur sales in this segment again. Selling software to small and medium-sized business remains one of the main legs of SAP’s strategy, Enslin said. He said, in general, the industries SAP is selling well into now include the public sector, financial services, retail and utilities. Plus, Business ByDesign, its on-demand ERP, is still coming — though he couldn’t say when.

Moreover, SAP will be “flexible” in terms of how it sells software to these customers.

“We’ve got a big financing [program] on right now. We would do different commercial models today how we sold to these customers,” he said. “It’s not one commercial model, up-front. It’s whatever suits the customer.”

But Oracle, which has been pretty absent in this segment, may have signaled its entrance by purchasing Virtual Iron, which makes server virtualization management software.

Virtual Iron was nipping at the heels of Citrix, VMware, Xen and Hyper-V, mostly in the SMB market, according to Chris Carter, CTO and CEO of CCI, a Milwaukee-based consulting firm which specializes in SAP virtualization.

What remains to be seen, Carter said, is whether Oracle will take Virtual Iron and make it part of its virtualization software, Oracle VM, to bring to the enterprise market, or whether whether Oracle will take its applications to Virtual Iron, and therefore, the SMB market, Carter said.

In that case, they’d be able to offer SMBs a complete package of hardware [i.e. the Sun acquisition], virtualization software and business software.

SAP’s approach to virtualization – agnostic to what platform its customers use and leaving its execution to partners — has so far served it well, according to analysts. Plus, it has far more to offer in terms of business software — including SAP Business One and SAP Business All-in-One, its flagship ERP software packaged for SMBs.

But does SAP need to do more now that Oracle could be entering one of its major markets?

Typically, when there’s a problem with a virtualized application the application vendor will tell the IT shop it must uninstall the application from its virtual environment and move it to a physical setup to isolate the fault, according to this article on SearchServerVirtualization.com.

To that end, one of the most interesting presentations during SAP Virtualization Week was from Rick Scherer, a virtual infrastructure architect with the City of San Diego — who shed some light on this issue.

Scherer works for the City of San Diego Data Processing Corporation, which handles IT for the city. San Diego is in the midst of a massive SAP project — standardizing each department (all of which run different software) on SAP in a virtual environment.

It’s virtualizing about 55% of its servers with VMware, and it’s hoping to have 70% to 75% of those virtualized by the end of the year.

Scherer focused much of his presentation on the importance of proper design — building the virtual infrastructure the same way you would build a physical infrastructure in order to avoid having to call for support in the first place.

“If you design improperly, you’re designing for failure,” he said.

Scherer told reporter Mark Brunelli in this article on SearchSAP.com that, in his own experience and in talking with industry peers, he has found that most virtualization support issues can be traced back to infrastructure problems.

“One scenario that I’ve heard is that a customer deploys a Tier 1 application like SAP on a virtual machine, and the performance isn’t that great,” he said in the article. “Come to find out that they put all of their data on one set of discs and [as a result they] hit an I/O contention that they normally wouldn’t hit in a physical world. That’s because, in the physical world, you would separate your OS from your database from your backup, and so on.”

He shared a few tips for proper design in his presentation: 

1. Look at SAP requirements
2. Do not overcommitt memory
3. Separate O/S from database from log, keeping O/S disk on slower, SATA drive and database and log on SAS or FB disks
4. Have multiple virtual machines with smaller amounts of CPUs on the systems

The payoff is great. Virtualization saved San Diego around $100,000.  To run its applications on physical servers would have cost $210,000. Running its applications in a virtual environment cost $106,000.

We’ve been writing quite a bit about virtualization lately and you can read all of our coverage in this SAP Virtualization: Special Report.

Dozens of SAP customers and partners will work together to research and develop sustainable software. Customers such as Colgate and partners like VMware, Citrix and Sun (SAP said it’s too early to tell if Oracle’s acquisition will affect Sun’s plans for participation) will lead the charge. Click here for a full list of participants.

SAP will start benchmarking the efficiency of its own software by determining how much energy it will consume. In turn, it’s asking partners to provide the same information on their products.

Plus, SAP offered an open invitation to any partners or customers who want to join the Green IT community. All they have to do is email GreenIT@SAP.com for more information.

“From a customer perspective, it’s a great way to become an early adopter of solutions and then to go and deploy those solutions,” said Peter Graf, who was named SAP’s first chief sustainability officer in March.

And thus SAP kicked off Virtualization Week, being held in Palo Alto, with a theme that it has continued to push over the last couple of months — green IT.

“For me, the natural first step in green IT is virtualization,” Graf said.

But why deploy these initiatives now? Graf elicited a few chuckles from the crowd when he remarked that even the mention of “green IT” had some participants nodding off. So he focused on a crowd pleaser — cost savings.

Graf put up numbers from an SAP customer that reduced its application servers from 218 to 116, and saved $714,000 on maintenance, $162,000 on facilities, $1,468 on staff and $13,520 on servers — reducing its total costs by 36%. 

And he said SAP itself has virtualized half of its servers.

“We’re doing it because it makes fundamental business sense,” Graf said. “This technology works. We are now virtualizing across the board at SAP.”

Industry analyst Joshua Greenbaum wrote an excellent blog last month when SAP made its sustainability efforts public on just why the vendor could really convince the world that this was important.

Using the virtualization conference to talk about sustainability is a smart move — as it links green IT more to cost savings than to some sort of abstract idea. It’ll be interesting to see what SAP does with this initiative at Sapphire.