SAP finds best things come in smaller packages

In a huge, Teutonically modern Metro supermarket outside Düsseldorf, shoppers roam the aisles using a touchscreen Personal Shopping Assistant (PSA) attached to their trolley.

They can ask for information on products, find out where in the store the goods are located, scan in all the things they buy using the PSA and automatically pay on checkout - the PSA transfers the information wirelessly to the cash register.

Goods in the store have a digital price tag displayed on their shelves that can be updated immediately if prices change. When a customer takes an item off the shelf and scans it into her basket, stock information is updated behind the scenes and orders can be automatically triggered.

Welcome to shopping the SAP way. The German software giant wants to be what it calls a "trusted innovator", and that means bringing such potentially controversial technologies as RFID (radio frequency identification) tags - which lie behind the high-end functionality and easy shopping experience at Metro - into mainstream use. SAP is one of the most enthusiastic backers of the tags in the technology industry, where RFID has had some bad press on the consumer side because of privacy concerns over how long a tagged item might continue to tell a retail outlet where it is and what it is doing.

But Dr Henning Kagermann, SAP's frizzy-haired, professorial chief executive, is sanguine. "The discussion around privacy should be gone" before long, he thinks, noting that "it's not an issue, it's a political discussion". The technology itself can be altered to manage privacy concerns and SAP believes consumer-end tags are only a tiny portion of the overall market anyway.

The rather unglamorous and uncontroversial pallet is where RFID is really at, he says - managing stock flow, inventory and shipping, and slashing costs for retailers - or anyone with items to track. That's where the tiny devices, which transmit data via radio signals to devices such as scanners, PCs and handheld computers, come into their own at Metro, where they are seen as the successor to the less versatile barcode.

SAP - one of the few companies that managed to retain a small revenue growth even in the worst downturn years - is also betting that its future lies in co-operation - enabling other makers' software to work with, and be managed by, its own, rather than trying to carve out a personal slice of the corporate market for its huge enterprise software suites, as in the past.

An impressive third of the market for such software, which manages such things as corporate payroll, billing and customer service operations, goes to SAP internationally. The company employs 550 people in Ireland.

But many analysts feel this comfortable position is under threat from new Web services offerings from companies such as Microsoft, and from corporates increasingly reluctant to be tied to single vendors for their software and systems.

Such concerns at SAP board level undoubtedly influenced a generally well-received announcement at its SAPPHIRE user conference in New Orleans this week that SAP would work more closely with Microsoft to integrate SAP's Netweaver suite - which allows disparate networks and data stores to work together more productively - with Microsoft's .NET Web services offerings.

SAP is also splitting up what were once large application suites into smaller components that can be purchased separately. The idea "is nothing new; people were doing it years ago", says Dr Kagermann. "But it didn't work."

SAP thinks it has cracked the problems and hopes that, by selling the smaller units - which come wrapped up with Netweaver, the infrastructure that enables each unit to work together with others or with other manufacturer's products - customers will like what they see and progressively acquire more of the SAP units.

Alternatively, they might want to use Netweaver to get all their other applications to work together with their new SAP component - in which case, SAP will supply the services to integrate the systems at a price from its services division, says Dr Kagermann.

SAP is also pushing hard into the SME sector with slimmed-down versions of its enterprise offerings - a segment previously ignored by such market giants. But, like rivals Oracle and PeopleSoft, SAP knows that, with tighter margins at the enterprise level, the lower-spending but enormous SME market is where there's still money to be made.

Ultimately, SAP sees itself as one of a handful of big players in a gradually consolidating, heavily competitive market, where little players will be knocked out.

"You need a broader picture and strong enough muscles to compete," Dr Kagermann says.

He clearly feels the German company will punch at or above its weight - but its customers will make the final call.