EMC deal could bring SAP software to smaller firms

by Hiawatha Bray

A possible deal between EMC Corp. of Hopkinton and German software giant SAP AG could make it easier for small- and medium-size companies to obtain advanced business-management services over the Internet. Specialists say the proposed service could open a big new market for EMC, the world's leading maker of high-end data storage gear. But they say the plan is fraught with challenges - especially for SAP.

Doug Merritt, president of SAP Labs North America, told Reuters news service on Wednesday that his company and EMC were discussing a plan to host SAP's software on the Internet. SAP makes complex and expensive software to help companies manage their sales and manufacturing processes. For instance, an SAP manufacturing system can track product orders, make sure the company has the parts needed to make the product, schedule production time at the factory, and arrange delivery.

Many of the world's biggest businesses use SAP software, but it's difficult to install and operate. "The war stories about SAP implementation are legion," said Carl Howe, director of enterprise software research at Yankee Group in Boston. "It's not uncommon for full-bore SAP implementations to cost hundreds of millions of dollars and take significant parts of a decade." But SAP and EMC could simplify the process by offering an online service that would provide the same services for a monthly or annual fee.

The concept is called "Software as a Service," or "cloud computing." A number of major technology companies have embraced it. In 2006, Amazon.com began offering S3, a commercial data storage and backup service that's become popular with Internet start-up companies. Last year IBM launched "Blue Cloud," a worldwide initiative that will let businesses, universities, and governments remotely run massive computing tasks at IBM-owned data centers. And millions of computer users worldwide use Internet-based word processing and spreadsheet programs, like Google Inc.'s Google Docs.

EMC has developed a high-security system, called Fortress, for delivering critical business applications over the Internet. Last month, EMC unveiled its Fortress offering, an online service called MozyEnterprise that automatically backs up a company's vital data, preserving it at a secure remote location. EMC chief executive Joe Tucci said MozyEnterprise is merely the first of a range of cloud computing services in the works at his company.

EMC spokesman Patrick Cooley declined to discuss the Reuters report. "At this stage it is only speculation," he said. SAP officials also declined to give more details.

Ray Paquet, managing vice president at research firm Gartner Inc. in Billerica, said an Internet-based SAP service would use vast amounts of EMC's high-end data storage hardware. But Paquet's colleague, Gartner vice president Robert DeSisto, said that making the service work would be a major challenge for SAP.

Business-management software must be tailored to the exact requirements of each business, because no two companies use the same processes and methods. "Nobody's alike," said DeSisto. "It's all over the place." That's one reason why SAP installations tend to be so expensive. DeSisto said that offering the service over the Internet won't change this, though it might be initially cheaper than buying the software outright.

DeSisto said SAP would focus any online service on small- and medium-size businesses, with simpler business processes. "Their theory is that small companies don't need the uniqueness," and so implementing an SAP system will be cheaper and simpler, DeSisto said.

EMC stock rose 28 cents to $16.09. SAP's American depositary receipts shares fell 56 cents to $48.37.

www.boston.com/business/technology/articles/2008/02/15/emc_deal_could_bring_sap_software_to_smaller_firms/