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SAP Co-Founder Plattner Bets the Company With a New Database

"If this doesn't work we're dead. Flat-out dead. It's that simple," the company's chairman says in an interview.

Courtesy of Hasso Plattner Institut

When asked about the stakes on the most important day his company has faced in more than a decade, SAP Chairman Hasso Plattner gets right to the point: “If this doesn’t work, we’re dead. Flat-out dead. It’s that simple.”

The 71-year-old co-founder of Europe’s biggest software company is hunched over a MacBook Pro and an iPhone 6 in a meeting room at the New York Stock Exchange, picking at a bowl of M&Ms as he talks to Re/code. Having just introduced his company’s next-generation suite of business software, which has been rewritten from the ground up, all he can do now is wait for the marketplace and SAP’s salesforce to determine if this bet — the company revamp — is going to work.

Tens of thousands of companies around the world rely on SAP to manage their most critical business functions. These customers often dread change, fearing a disruption in routines. And now the German company is taking a big risk with a substantial overhaul of those very applications. A misstep now could mean disaster.

HANA is the result of Plattner’s work with students at Germany’s Hasso Plattner Institute and at Stanford University, dating back to about 2008. He wanted to build a database that could respond instantly to queries from a human user.

The result: An in-memory database, meaning that all the relevant data is stored in a system’s local memory, rather than relying on the relatively slow process of storing and retrieving data from a hard drive. This allows the software that acts on that data to move much faster.

This, in turn, makes it easier to keep applications up to date with live information about a company’s operations. Typically, data available in business software is days or weeks old, which throws planning and forecasting off. Working with live information allows a company to make quick changes in response to sudden shifts in business conditions: Prices can be changed, products can be redirected, extra supplies can be ordered. Important business decisions can be made on the spot.

But HANA represents another change that speaks to the competitive dynamic that has evolved in the world of enterprise software. For years, many of SAP’s applications have relied on a database supplied by Oracle. Yet SAP and Oracle compete on many fronts: Both have human resources software, finance software, software used to run manufacturing plants and software to manage the sales process. The competition is often bitter.

Tuesday, in front of customers, analysts and the media, Plattner was emphatic: “HANA is ready for primetime.” Some 400 million lines of software code have been rewritten. Nearly all of SAP’s key applications are now running on it. And those applications can be deployed either in the cloud or inside a customer’s own data center.

Yet it’s in the cloud that SAP has struggled. Most of its software is still sold via the old-school on-premise method: Customers buy it once and pay for ongoing service and support. SAP controls about a quarter of the $24 billion market for enterprise resource planning software — programs that companies use to control the planning, manufacturing and delivery of their products.

With cloud software, companies consume the product on a subscription basis, paying a flat monthly rate for each individual user. Younger, nimbler rivals have sprung up to challenge SAP, including, Workday and NetSuite.

SAP has responded in part by spending $20 billion over the last several years buying companies that make software native to the cloud. Acquisitions have included SuccessFactors, Ariba and, last year, Concur. Those deals have given SAP some 50 million individual cloud users, arguably the biggest collection of users in the world.

Yet the transition is messing with SAP’s finances. Moving to subscriptions hurts revenue in the short term even as it provides a steady and predictable revenue stream over the long term. SAP shares fell when the company reduced its expected profit outlook through 2017.

Plattner concedes some of the criticism that SAP’s earlier moves toward the cloud have misfired. “You can say that our in-house development was not contributing enough,” partially creating the need for acquisitions, he said.

Other early jabs by SAP at cloud software products didn’t pan out. Pandesic, a late-’90s joint venture with Intel, failed after three years. “It was too early and too expensive, and Intel didn’t want to finance it,” Plattner said.

Business ByDesign, a product aimed at smaller companies, hasn’t gained significant traction. Plattner called it “either too ambitious or too conservative — probably both.”

One reason for Business ByDesign’s weak reception, he argues, is that “we should have simplified [its] database, and we didn’t.” That led to the development work that ultimately culminated in HANA and Tuesday’s launch.

Calling it a bet-the-company move isn’t far from the mark, Plattner says. “This is the future of SAP. … It’s the future of our business. We were never shy about it. We’ve said HANA is the future. Some of our competitors have criticized or made jokes about us. But HANA completely changes how we build applications.”

What does success look like in his mind? “We have 2,000 systems sold, and I learned today that we have 270 more in production,” he said. “If we only double that in 2015 I will be disappointed. That is a significant number, but I will be disappointed by it.”

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