Don't let his nerdy looks and mild manners fool you. For behind the professorial visage of Henning Kagermann is a CEO of steely resolve. Under Kagermann, a former physicist and professor of mathematics, the German business software maker, SAP, has become uncharacteristically aggressive. It recently unveiled special pricing schemes to lure customers of its competitors, even as the industry was caught up with the brouhaha surrounding Oracle's bid for PeopleSoft, which in turn has acquired J.D. Edwards. Last June Kagermann, an amateur painter and a Deep Purple fan, became the $7.4-billion company's sole CEO and Chairman-a post that he shared until then with SAP's co-founder Hasso Plattner. On his maiden visit to India, the 53-year-old Kagermann spoke to BT's Venkatesha Babu about the ongoing tussle between Oracle and PeopleSoft, and the business software industry's future. Excerpts:

The enterprise software market seems to be in the thick of action. If the Oracle bid for PeopleSoft goes through, how will SAP be affected?

As we speak, the deal is far from done (smiles). There is no threat to SAP, even if the Oracle bid for PeopleSoft goes through. All it means is one less competitor to us. We are double their market-shares put together. This is a good opportunity for us to consolidate on and increase our leadership position in the marketplace even as our competitors get distracted by other issues. Customers are looking at players who understand their business and can deliver results. Our sole focus right now is our customers and to provide value to them. Customers want solutions not software.

Are you looking at riding in as a white knight and making a rival bid for PeopleSoft?

No. We have not discussed this matter publicly.

Uncharacteristically for SAP, it has been aggressive in wooing its competitors' customers with special concessional prices. How is the market response?

"SAP has the ability to deliver better results sans significant additional investment"

We believe that we can take advantage of the current churn in the marketplace. SAP is a safe haven for companies in uncertain times, given our track record. The response from customers has been very good. They are looking at vendors who can offer them reliable and competitive solutions. However, we would like to clarify that this pricing structure is not a permanent thing. This is a situation-specific offering in the marketplace, which we might withdraw after a month or so.

Do you think that companies like SAP and Oracle, which offer a complete suite of solutions, will win over best-of-breed offerings from players such as Siebel or Salesforce.com?

That is the way the market is evolving and that is how we think it will go in the future also. Customers are fed up of buying individual pieces of software from different vendors and then trying to get them to work together. They do not want software for finance from one vendor, hr from another and supply chain management from somebody else. Imagine integrating all of these! If you look at the data from the last couple of quarters, you will see that suite solution vendors have been gaining marketshare every quarter over the best-of-breed offerings.

Fundamentally, there have been two problems with the business software market. One, it has not been able to deliver all that it has promised and second, is the question of integration. Customers prefer integration out of one box. Best-of-breed solutions might have some additional bells and whistles in terms of features, but customers want software that works and delivers results. For instance, a couple of years ago customers looking for hr functionality would closely look at PeopleSoft, for finance at Oracle, and for manufacturing, SAP. It is no more the case. SAP is the market leader in hr solutions also. Our suite, because of the integration advantages, is better than the best-of-breed solution offerings available in the marketplace.

In a tough economic environment how are you convincing customers to invest additionally, given the fact that even their existing investments are yet to pay off?

Yes. Clients do have a problem on this issue. This is where we think SAP can make a difference. We tell our customers that SAP has the expertise to leverage their existing legacy systems to deliver better results, without significant additional investments. As they see results, they can then scale up their infrastructure. When they see payback, they can go in for total upgradation.

Why have you recently entered the middleware market and picked a fight with giants like IBM, BEA and Microsoft?

It is customer demand that drove us to enter this market. When customers implement SAP solutions, they want somebody to effectively deploy them. Several of our large customers are multi-locational and have several product lines, and integrating software is quite a complex task. Who understands our customers' business architecture better than SAP? Yes, two years ago we did not have an answer. Today we have. Most customers have now realised that they cannot rely on a third-party vendor to integrate our solutions into their middleware platforms.

Take the case of the application server market. Existing players wanted our clients to lock into their platform, whereas we are platform neutral and adhere to open standards, and ours is Java compatible. This gives your clients ability to move across platforms without (legacy) issues. And also the thrust is not all that new. Exchange infrastructure. In 1999 we partnered with Commerce One for marketplaces. Business warehousing. We have been into it since the past five to six years. Portals, again, since 1999. Therefore, we were doing all this earlier also. The only new move is that we have packaged all this together as a suite on a single platform to help our clients. Even IBM follows a similar strategy, bundling their offerings around WebSphere. Our understanding of the customers and their requirements is higher.

Microsoft recently made an aggressive play in the small and mid-sized business software market. Does that worry you, since they have a better brand and larger reseller network?

No, not at all. I would dispute with you on whether SAP or Microsoft has a better brand in the business software market. Microsoft might be a world-class company, but they do not have a reputation of being a world-class supplier of business software solutions. Yes, they have a larger reseller network. But SMB (small and medium business) is a segment where we are very focused. We are the market leaders in this segment also. We are actively addressing the SMB market through our partners and value-added resellers. SAP has developed individualised, two-tiered SMB solutions-mySAP All-in-one and SAP Business One. These solutions are scalable, offer good ROI (return on investment) at a reasonable cost and have integration capabilities.

Although you have offerings for the SMB market, why is there a perception that SAP solutions are only for the top end of the market?

That is because when we enter any new market, we initially target the higher end of the market space. Of course, the money is also in the higher end of the market (smiles). But after some time, even the SMB segment realises the value that SAP can offer. This is one segment of the market we are keen on. Yes, we also have special pricing for emerging markets, especially for this space. But price alone cannot be the key differentiator. One has to look at functionality and the value one delivers. We are working closely with our partners and resellers to educate the market about our offerings and remove such a perception.

"India is among the top three countries for SAP in Asia, excluding Japan"

Are you happy with your company's performance in India?

We have been in India since 1996 and enjoy a marketshare of 60 per cent in ERP and 29 per cent in CRM. We are pleased with our performance in India, which is an advanced it market. Seven of the 10 most capitalised companies in the country are our customers. Like Infosys, Wipro, ONGC, Tata Engineering, ITC, L&T and Bajaj. We have close to 400 customers with more than 800 installations. India is among the top three countries for SAP in Asia, excluding Japan. India, China and Korea will be the key drivers in the Asian market.

But are you looking at India as a market or a resource base?

Actually both. Saying that we are looking at India only as a resource base sounds negative. Despite challenging economic times, the IT industry here has maintained its growth momentum due to innovation. India is very critical in our larger picture because of the amount of talent available here; the market is also growing for our offerings.

Unlike in the ERP market, your success in the CRM market has been patchy in India.

We have been in the Indian ERP market since 1996, whereas we have got into the CRM market in the last couple of years. Also, this is a more fragmented segment of the market. But I am confident that our Indian operations will have the same success in the CRM segment as it has had in the ERP segment.

SAP Labs, set up in 1998, is the second largest development centre after your Waldorf unit. Are any business applications say, manufacturing or finance or hr being totally handled from here? What are your expansion plans?

It is a good question. Frankly I do not know the answer. Yes, with more than 650 employees SAP Labs India is our second largest development centre (SAP India, the selling arm, has 100 employees). Already nearly half of our development work on manufacturing vertical is being done out of India. At some point whether an entire vertical will be handled from here...Who knows? We are investing 20 million Euros (Rs 105 crore) to set up a new world-class campus. The headcount will also increase. This should give an indication of what we think of the Indian lab's abilities. We have also upgraded our India support centre to a global support centre, servicing customers worldwide. It will initially focus on providing services for advanced products such as SAPNet Weaver, SAP Web Application Server and our enterprise portal.

Alan Sedghi, MD of SAP India, has been quoted as saying that the company plans to invest $120 million (Rs 552 crore) over the next three years. What are these investments for?

I do not know where these numbers came from. We are committed to the Indian market. But I think he has been misquoted. We do not have a $120-million roadmap. We will do whatever investment is required for the Indian market and for SAP Labs.

The SAP implementation market itself is estimated to be $1.5 billion (Rs 6,900 crore) big. Several Indian companies like Infosys, Wipro and Satyam act as system integrators and have large SAP practices. With SAP itself entering this market, what is the future for them?

We are very clear that we will work through our partners and system integrators, including the names you mentioned. While it is true that SAP is offering integration services, we take only 15 per cent of the market. The rest is implemented by our partners. We do not plan to change this mix. There is ample scope for our partners to add value to our customers.

Are you looking at any niche acquisitions in India?

I have to be careful on this. Let me reiterate what I said earlier. India, along with China and Korea, is a very important market for us. We are aware who the players are and their abilities. Obviously, we are continuously scanning the marketplace. This is something that I do not rule out if the right candidate and right opportunity is available to us.