Kagermannn: Microsoft is still a competitor

SAP's Kagermann says the German company will both cooperate and compete with Microsoft.

SAP intends to compete against Microsoft in the midsize market for business software but collaborate in the development of technology to link their core products in the enterprise and desktop markets respectively. It's a juggling act that SAP Chief Executive Officer Henning Kagermann said the German company will master.

"The two companies are going to compete to deliver a solution that customers have requested," Kagermann said Tuesday in a news conference at the company's European Sapphire user event in Copenhagen. "But we're also going to compete. We will continue to fight with Microsoft in the midmarket. We have no intent to change our competitive strategy in this segment."

The deal is nonexclusive, according to Kagermann, meaning that Microsoft is free to develop a similar product with others.

Asked if merging the two companies wouldn't be the easiest way to integrate their product lines, Kagermann smiled nervously and said the company had already answered that question last year.

As part of its bid for a foothold in the enterprise applications market, Microsoft initiated merger discussions in 2003 with SAP. The talks ended several months later after Microsoft decided the deal and the post-union integration would be too risky. Both SAP and Microsoft said in written statements last year that they have no intention of reviving their merger talks.

Later this year, SAP and Microsoft plan to deliver a jointly developed product, code-named Mendocino, that links SAP's flagship ERP (enterprise resource planning) software and Microsoft's Office products. Both companies, however, plan the new product to interoperate with their newest products, such as mySAP ERP, the successor to R/3, and Office 2003.

"We could port already all the way back to DOS but we have to stop somewhere," said Shai Agassi, president of SAP's product and technology group and a member of the board. "Customers want innovation at some point."

As for the channel, the two companies will sell the new joint product only and not products from each other's portfolios, according to Kagermann. "The deal is totally focused on the jointly designed and supported product," he said.

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