TOP TEN REASONSCUSTOMERSCHOOSE SAP FORBUSINESSTRANSFORMATION

SAP INSIGHT

Table of Contents

CEO Notes 1

#1: Undisputed Market Leadership 4

#2: Primary Focus on Enterprise Applications 6

#3: Relentless Focus on Customer Value 7

#4: Deep Industry Capabilities 10

#5: Commitment to Quality 12

#6: Focus on Customer Satisfaction 13

#7: Superior Technology Architecture 14

#8: Clear Long Term Vision 15

#9: Strong Partner Ecosystem 18

#10:Safe Choice in an Uncertain Landscape 19

Conclusion 21

TOP TEN REASONSCUSTOMERSCHOOSE SAP FORBUSINESSTRANSFORMATION

by Chakib Bouhdary & Alok Goyal

CEO NOTES

SAP is a customer-focused company. That's why SAPhas grown organically, while other enterprisesoftware companies have shrunk or stagnated. Eventhough these competitors believed they understoodtheir customers, in reality, SAP knows its customersbetter than anyone else. SAP has been the globalleader in enterprise applications, designing productsand services to meet the needs of enterprises, for 32years. More important, during each phase of thetechnological evolution that has occurred overthose three decades, SAP has changed its approach,added capabilities, and simply did what it took tomeet customer needs and demands and continue tosucceed.

For example, companies around the world nowrealize they must transform their business in severaldifferent ways:� To compete in a global market;� To meet customer demands and needs more

effectively than the competition;� To innovate more quickly and efficiently than

ever before;� To continually develop products and services

with high quality as a given; and,� To comply with a new spirit of government

regulation.

Most important, CEOs believe such transformationshould be continual - not one time, but over time,thereby requiring a new degree of flexibility andadaptability for all parts of the enterprise.

Because of this shift in customer needs, SAPchanged its approach to technology and developedEnterprise Services Architecture® (ESA), the SAPblueprint for a service-oriented architecture. ESA isas flexible and adaptable as the companies must be.SAP created ESA to allow companies to minimizethe negative aspects of their IT complexity whilemaximizing the capacity of their legacy systems,allowing them to integrate with one another andwith those of suppliers and customers. Moreimportant, ESA will allow companies to developnew composite applications that will provide asource of competitive advantage. In short, becauseof customers - and working with them - SAP haschanged its technological approach time and timeagain, accommodating new demands to make sureSAP customers are best-run businesses - which hasled directly to global market leadership.

THE LOGICAL FALL-OUT

Of course, any market leader will be criticized bythose who aspire to lead and cannot. And SAP hasbeen criticized by those who do not understand thesource of its customer value proposition. To answerthose critics, and to bring together the bestarguments to support the assertion that SAP is acustomer's company, SAP has researched the topten reasons why customers choose SAP for businesstransformation. To summarize, our research foundthat companies choose SAP because of the followingattributes:

1

1 Beaudry, Anne, Pinsonneault, Alain. A decade of IT research has proven “the importance of an individual user's perception of an IT event in managing adaptation efforts …(underscoring) the need for managers to understand how users appraise an IT event and to appreciate the importance of providing users with adequate resources so that theycan adapt to it.” P. 17, “Understanding user responses to information technology: A coping model of user adaptation,” MIS Quarterly, September 2005, Vol. 29, Issue 3.

SAP is a customer-focused company. That's why SAPhas grown organically, while other enterprisesoftware companies have shrunk or stagnated.

2

Customer likelihood to implement SAP solutions inthe future has increased 10% from 2002 to 2005.Moreover, and perhaps more important, customeradvocacy has increased. In North America, customerlikelihood to recommend SAP increased by 12% from2002 to 2005.4

1. Market leadership: Well over 30,000 companiesuse SAP in more than 120 countries. SAP is theundisputed leader in the enterprise applicationsmarket.

2. Focus: Enterprise applications are 100% of SAP'sbusiness. It is all we do. Our major competitorsare much less focused. Oracle's applicationbusiness represents 24% of its revenue and only12.5% of its profits.

3. Customer value: The SAP approach specificallyfocuses on the value that a customerorganization needs from SAP products andservices in all respects - from the strategy thatbegins the process to the end user, whoseunderstanding and appreciation of the specificbenefits of the system are the only way to ensurethe achievement of the strategic goals.1 The proofof SAP's enduring customer value focus can beshown in its continuing attraction of newcustomers and retention of existing ones. Afterall, 30% of SAP's order entries come from newcustomers and a full 70% from existingcustomers. Just as important, new customershave contributed 36% of contracts in 2005,compared to 32% last year.

4. Industry depth: SAP penetration is greater than50% in every one of the industries represented bythe Global 500 companies. The company has

created industry-specific solutions for more than25 industries.

5. Quality: SAP has a long-term commitment toensuring the quality of its business software. SAPwas ISO 9001-certified in 1994.2 In 2002, a study bythe U.S. National Institute for Standards andTechnology estimated the cost of software bugsto U.S. businesses at US $60 billion a year; in 2003,the Standish Group estimated that only 34% ofsoftware projects are on time and within budget.3

Yet SAP, understanding the negative impact ofthese slippages on businesses, has worked tomaintain world-class standards of quality andproductivity. SAP shipped the mySAP™ ERPsolution one month early. By contrast, Oracle 11iwas shipped four years later than originallyanticipated.

6. Customer satisfaction: The numbers tell thestory: customer loyalty continues to increase.Customer likelihood to implement SAP solutionsin the future has increased 10% from 2002 to 2005.Moreover, and perhaps more important,customer advocacy has increased. In NorthAmerica, customer likelihood to recommendSAP increased by 12% from 2002 to 2005.4

7. Superior technology: SAP invests more in R & D than any of its competitors. SAP has morethan 10,000 developers focused on driving

2 ISO 9000 is the most prominent standard in the world for ensuring manufacturing quality.3 Davenport, Thomas, “The Coming Commoditization of Processes,” Harvard Business Review, May, 2001.4 SAP America customer satisfaction survey.

innovation through the SAP product line.

8. Clear vision of innovation: SAP has always hada clear vision for its technology based on astrategy setting defined goals for true innovation.Already, SAP generates more than 50% of itsbusiness with solutions that were new to themarket in the last five years; moreover, SAP willgenerate more than 50% of its business five yearsfrom now with new solutions. It is this type ofdedication to innovation that has made SAP apioneer through technology transitions - andSAP's dedication to its customers that has helpedguide them through those transitions, frommainframe (SAP R/2®) to client server (SAP R/3®)to service-oriented architecture (ESA). In thecurrent evolution to a service-orientedarchitecture, SAP will develop greater levels ofcollaboration with industry-leading companiessuch as Microsoft and Adobe. These partnershipsare essential, because the process is inherentlymore open and because ESA is based on addingmore capabilities to business processes as theyevolve into new processes as a source ofcompetitive advantage.

9. Vast partner network: SAP has developed astrong, loyal, and unparalleled partnerecosystem. These partners range fromtechnology companies to professional servicesorganizations. Partners enhance the value for

SAP customers by providing complementaryproduct capabilities and broader access to SAPconsultants.

10. Stability: One reason why customers chooseSAP solutions is that SAP offers a safe and stableoption amidst an industry turmoil, perhaps bestcharacterized by Oracle's long drawn-outacquisition battle with PeopleSoft and itscontinued focus on M&A-led strategy, as mostrecently illustrated by the proposed merger withSiebel. As Enterprise Applications Consulting(EAS) has found in detailed research of thePeopleSoft merger, “the results of a prolongedhostile resistance to a hostile takeover attempt[can have a far greater negative impact] withrespect to customers of both the acquired andacquiring company.”5 After all, it is thecustomers who risk their business and operatingprofits, as opposed to the small share of profitsthat come from Oracle's applications business.

This SAP Insight provides further evidence andexplanation for each of these attributes. We hopethat the frank discussion will be useful as you makeimportant technology investment decisionsaffecting the future of your company.

3

Already, SAP generates more than 50% of itsbusiness with solutions that were new to the marketin the last five years; moreover, SAP will generatemore than 50% of its business five years from nowwith new solutions.

5 Greenbaum, Joshua, p. 3, “Hostile Takeovers, Hostile Resistance, and Customer Choice: An Impact Analysis of the PeopleSoft Takeover by Oracle Corp,” EnterpriseApplications Consulting, Spring 2005.

21%

22%

16%

19%

23%

13%

SAP#1

SAP#1

SAP#1

SAP#1

SAP#1

SAP#1

FI

HR

SCM

CRM

SRM

PLM

SOLUTIONS

CP / Retail

Discrete

Process

Fin.

Services

Services

SAP#1

SAP#1

SAP#1

SAP#1

SAP#1

INDUSTRIES

16%

27%

19%

20%

20%

19%Public

SAP#1

21%

22%

16%

19%

23%

13%

SAP

SAP

SAP

SAP

SAP

SAP

Fin.

SAP

SAP

SAP

SAP

SAP

16%

27%

19%

20%

20%

19%

SAPFin.

SAP

SAP

16%

27%

19%

20%

20%

19%

SAP

Market share data 2004 based on license revenues /preliminarySources: SAP Analysis 2005, based on preliminary data

Source: SAP analysis, market analysis and financial analyst estimates Currency Conversion based on quarterly Euro-Fixings (Frankfurt am Main) Rest of Market defined as a subset of approximately 30 software vendors

TOTAL REVENUE

+13%

+5%

SAP

Rest of

Market

SOFTWARE REVENUE

-3%

Rest of

Market

+15%

SAP

4

In Every Aspect of Analysis, SAP Leads the Market

1UNDISPUTED MARKET LEADERSHIP

SAP is the undisputed leader in the enterpriseapplications market, providing the scale,experience, and ecosystem required tocontinually create and increase customer value.SAP's leadership within every major functionalarea allows companies to enjoy best-of-breedcapabilities in an integrated suite. Further,continued leadership lowers customerinvestment risk; SAP will continue to invest inits customers' success. Finally, the company iscommitted to technological innovation, thefoundation of SAP's appeal for customers.

Overall market leadership. With more than 30,000customers in more than 120 countries, SAPcontinues to grow faster than the market.6 SAP isnearly three times as large as Oracle/PeopleSoft interms of new license revenue. While SAP was earlierperceived to be a “large-company only” solution, itis now a leader in the midmarket as well.

An expanding role as market leader in everymajor function and geography. Historically, SAPwas only considered the strongest in enterpriseresource planning - the “ERP leader.” Today,however, SAP leads in almost every major functionalmarket. SAP's leadership in supply chainmanagement (SCM) rivals its leadership in ERP.Even in customer relationship management (CRM),SAP has more relative market share than Siebel.7

Also, SAP's market leadership extends to all regions,and not just EMEA.

6 All data based on FY 20057 SAP analysis; based on FY '05

A growing leadership base. Despite M&A activity bySAP's competitors, SAP continues to strengthen itsmarket lead.8 In the last three years, SAP's licenserevenue has grown at 10% annually, while Oracle'snew license revenues have declined by 0.6%annually.9 Oracle's new license revenues in Q1 '05shrank by 9% (compared with Q1 '04), while SAP'snew license revenue grew by 24%.10 Globally, as wellas in the United States with five platforms, SAP'slead over its competitors is steadily growing.

More technological innovation value for customers.SAP's market leadership gives SAP the scale and theecosystem leverage that creates more value for itscustomers. SAP, for example, invests more in R & Dthan any of its competitors. SAP has more than10,000 developers focused on driving innovationthrough the SAP product line. In contrast,Oracle/PeopleSoft has fewer developers perplatform.11 SAP can bring newer technologies andmore industry-specific capabilities to market at afaster pace and at better levels of quality.

5

SAP invests more in R & D than any of its competitors.SAP has more than 10,000 developers focused ondriving innovation through the SAP product line. Incontrast, Oracle/PeopleSoft has fewer developers perplatform.11

Peer Group Shares – Total Software Revenue

Source: SAP Analysis based on Company Data and Financial Analysts Estimates 1) Forecast by Company Data and Financial Analysts (SEBL, MSFT) and SAP internal estimates2) Fiscal year is not calendar year - Comparison based on most recent quarter (e.g. SAP Q1 vs. Oracle Q3)

44%45%

48%

Q2 01-

Q1 02

Q3 01-

Q2 02

Q4 01-

Q3 02

Q1 02-

Q4 02

50%

Q2 02-

Q1 03

51%

Q3 02-

Q2 03

Q4 02-

Q3 03

55%53%

Q1 03-

Q4 03

53%

Q2 03-

Q1 04

Q3 03-

Q2 04

54%

12%

Q1 04-

Q4 04

58%

8%

22%

Q4 03-

Q3 04

52%

55%

Q2 04-

Q1 05

Q3 04-

Q2 05E

57%

MSFT1)2)

SAP1)

SEBL1)

ORCL& PSFT& RETK2)

Rolling 4 quarters

(based on software revenue in US$)

8 SAP analysis; based on company data and financial analyst estimates as of April 14, 2005; comparison based on most recent quarter (e.g. SAP Q1 vs. Oracle Q3)9 Based on application license revenues in U.S. dollars10 SAP analysis.11 Five code bases are Oracle E-Business Suite, PeopleSoft Enterprise, J.D. Edwards EnterpriseOne, J.D. Edwards OneWorldXE, and Retek.

SAP Leads Peers

6

32

~14

100%

13%

Number of Years in Applications Business

Applications Revenue as % of Total

Applications Operating Profit as % of Total

SAP Oracle

100%

24%

2 PRIMARY FOCUS ON ENTERPRISEAPPLICATIONS

Applications are in SAP's DNA. For 32 years SAPhas created a truly global organizationcommitted to developing the best enterpriseapplications that can be used in every regionand every country. These applications helpcustomers become best-run businesses nomatter where they operate by creating strategicvalue without disrupting operations.

Oracle's strategic focus, in contrast, is ondatabases. Oracle has been in the applicationsbusiness for less than 16 years; as a result, less than24% of Oracle's revenue base and 13% of its profitscome from applications. Hence it is not surprisingthat revenues from Oracle's applications continuedto decline, even after Oracle acquired PeopleSoftand J.D. Edwards. Because Oracle continues on astrategy of growth by acquisition (with the recentlyannounced merger with Siebel perhaps providingthe latest example), observers expect SAP to gainshare in enterprise applications driven by its single-minded focus and Oracle to continue struggling todigest multiple acquisitions.

SAP's Laser Focus On Enterprise Applications

2002 2003 2004

$2,738 $2,664$2,926

$702 $605 $615

Oracle’s New License From

Database vs. ApplicationsDatabase

Applications

Oracle Concentrates on Databases

10%Innovation

90%

Today 3 years from

now

Lower Costs of Operation

� Lower maintenance costs� Lower upgrade frequency� Lower integration costs through NetWeaver

Reduced IT complexity

� Economies of scale in support� Economies of scale in infrastructure� Fewer integration points

Operation

20-30% Reduction

in IT Costs

40%

60%

7

3RELENTLESS FOCUS ON CUSTOMER VALUE

SAP continually creates value for customers byfocusing application development and ongoingsupport on producing benefits while reducingcosts. SAP's intense organizationalconcentration on customer value drives higherperformance for its customers, and helps thembecome best-run businesses faster.

SAP's senior leaders understand that theircustomers' executives are continuously challengedto transform their businesses. These executives mustfind ways to respond with agility to their customers'increasing expectations, intensified globalcompetition, rising shareholder expectations, andregulatory demands. IT is a key enabler of all aspectsof this process, but can form a bottleneck in termsof rising costs and complexity. SAP is continuallyfostering real innovation with its product line,investing with partners and go-to-market resourcesto simplify complexity and ensure that its customersachieve their objectives for innovation growth.Moreover, SAP has developed key services to helpcustomers gain the benefits necessary to justify theirsoftware investments.

DRIVING BUSINESS BENEFITS

SAP creates business value for its customers byinvesting in some of the key underlying enablersneeded for any significant business transformation,as follows:

� Customized business cases: SAP invests incustomers' success by helping create robustbusiness cases and business-specific road maps.In 2004 more than 250 corporations workedwith SAP's Value Engineering team in NorthAmerica. In addition, SAP is working withASUG12 and other third-party companies todevelop benchmarks and methodologies thathelp SAP customers learn about world-classbest practices and develop their own solutionsbased on these practices.

� Industry-specific capabilities: SAP providesindustry-specific solutions for more than 25industries. The process of developing thesesolution portfolios revolves around SAP's workwith industry-leading companies. SAP listens tothe problems articulated by their leaders, learnsabout the best practices these leaders havedeveloped in response, and then invests increating industry-specific solutions imbuedwith these best practices. The proof point ofSAP's industry focus is the company's number-one position in discrete and processmanufacturing, consumer products, retail,professional services, financial services, and thepublic sector.13

� A customized approach to user adoptionand change management: Most large

SAP Increases the Focus on Innovation

transformation initiatives fail because oforganizational resistance to change - not to theIT driving the change. In fact, IT researchstudies from 1989 to 2002 showcased theoverwhelming importance of user adoption tosuccess with implementation.14 A key aspect ofSAP's value proposition focuses on enhancingthe user experience. For example, EnterpriseServices Architecture (ESA), the SAP blueprintfor a service-oriented architecture, is based onopen standards. ESA involves the users in theactual development process for compositeapplications, which encourages them toarticulate their preferred type of interface. Inaddition, SAP has rolled out tools to leverageknowledge gained during blueprinting andimplementation for end-user training anddocumentation. Statistics show that SAP canlower the training bill by more than 30-40%15 asa result of these techniques. To help users gaindirect access to the business processes they needfor their jobs through user-friendly portals, SAPhas developed partnerships with companiessuch as Microsoft and Adobe.

� Flexibility and adaptability: SAP's productdevelopment is now centered on ESA, which isenabled by the SAP NetWeaver® platform. ESAprovides organizations with the flexibility toadd capabilities without requiring the upgradeof underlying applications. With ESA, 77% ofSAP customers expect that intervals betweenupgrades will be longer, while 35% of Oraclecustomers expect the upgrade intervals to getshorter. In addition, ESA allows companies toflexibly add third-party capabilities andintegrate them with other applications, thusproviding a level of flexibility that never existedbefore.

� Speed to value: Companies must be able toimplement applications quickly to respondmore effectively to business problems and buildcompetitive advantage. Three-quarters of SAPimplementations take a year or less.16

8

12 America SAP User Group.13 SAP Analysis 2005, based on 2004 license revenues market data.14 For a full run-down of the research in this area, and the conclusions drawn from it, please see Beaudry and Pinsonneault, op cit.15 SAP analysis, based on experience with customers. 16 Internal SAP data.

A key aspect of SAP's value proposition focuses onenhancing the user experience.

9

DRIVING VALUE AT COLGATE-PALMOLIVE Colgate-Palmolive Company is one example of a customer thattransformed its businesses because of SAP's unique valueproposition, realizing business benefits while decreasing IT costs.Colgate-Palmolive is a US$10 billion company, with 36,000employees operating in more than 200 countries. Companymanagement developed the strategic goals of enhancing thecompetitive position of the consumer products business, continuallyimproving margins, enhancing service to the retail trade and internalcustomers, improving responsiveness to promotions, and enabling atransformation to globally standard operations. By focusing on thesupply chain planning process first and then extending thecapabilities across the globe, Colgate-Palmolive has achievedUS$150 million worth of business benefits and US$280 million incost savings.

DECREASING IT COMPLEXITY ANDCOSTS

In addition to driving business benefits, SAP alsohelps CIOs contain rising IT costs. SAP works withcustomers to lower their total IT costs as apercentage of revenue, and reduce the budgetrequired to maintain existing applications to allot alarger share of the IT budget for process innovation.SAP addresses these issues in the following ways:

1. Lowering IT complexity: Niche applicationshave created a spaghetti-like applicationlandscape in many companies, leading to higherintegration costs and lower flexibility. SAPNetWeaver offers the most comprehensive open-standards functionality that helps companiesdevelop road maps to transform their ITnetworks, lower integration costs, and createeconomies of scale in support and infrastructure.Research shows companies can reduce their ITbudgets by ~1% annually just through the

economies of scale and embedded functionalityoffered in SAP NetWeaver.

2. Lowering costs of operations and increasingtheir functionality: SAP offers the mostcomprehensive support services at the lowestcost. SAP offers standard support at 17%compared to 22% for Oracle, thus loweringongoing maintenance costs. In addition, SAPNetWeaver architecture helps reduce upgrades.With SAP NetWeaver new functionality does notrequire expensive upgrades but is developed ascomposite applications, which build on theunderlying applications and increase theirfunctional range. Moreover, the built-inintegration capabilities within the SAP NetWeaverplatform lower the cost of integrating SAP andnon-SAP applications.

CASE STUDY

CP

Re

tail

A&

D

Auto

ME

&C

HT

Ch

em

Mill

Min

ing

O&

G

Ph

arm

a

Ba

nk

Whole

s

Ins

Me

dia

Serv

.P

Te

lco

Util

CP / Retail Discrete ProcessFinancial

ServicesServices

n.b. the Public Sector is not covered by the Global 500

Source: Fortune Magazine, Global 500 2003; SAP Analysis 2005

63%76%100%

100%100%

75%87%

78%

81%47%54%93%86%

90%80%40%

86%100%

SAP customer

Global 500 comp

0

10

20

30

40

50

60

70

80

1

Account coverage increasedfrom 73% to 74% because of 7new clients within Global 500

10

4DEEP INDUSTRY CAPABILITIES

SAP delivers the most comprehensive suite ofindustry-focused functionality, based on itswork with industry-leading companies. Thisfunctionality extends the capabilities of theexisting software solution and helps customersrefine their own processes - according to awealth of industry best practices. Intransferring these best practices, SAP helpscustomers out-perform non-SAP customersacross industry segments.

For more than 30 years, SAP has worked to betterunderstand the specific issues that pose suchchallenges for participants in individual industries.SAP teams work with process owners in leadingcompanies within each industry sector, learn howthey solve their most pressing business problems,and embed this learning into its products. In short,SAP translates its work into best practices that arebuilt into industry-specific solutions, which in turndrives value to all customers.

SAP has unparalleled access to leaders in everyindustry. SAP has between 50% and 100% of theGlobal 500 companies as customers in every singleindustry (see Figure 7). SAP's share of wallet withinthis elite group of customers increased to 24% in2004 from 14% in 2001.

In semiconductors, for example, SAP has a robustsolution to address design registration and channelmanagement issues. Similarly, within thetelecommunications industry, SAP provides a veryspecific solution to budget, deploy, track, maintain,and phase out network assets (network life-cyclemanagement). Such industry-specific solutions existacross every major industry and sub-industry.

A leading semiconductor equipment manufacturerrecently switched to SAP from Oracle to support itsenterprise-wide processes. One executive explainedthat while selecting an earlier version of Oracle, hefound that more than 2,700 customizations wererequired to meet his company's specific needs.While evaluating an upgrade to Oracle 11i, thiscompany found that 1,400 customizations wouldstill be required. When this company evaluated SAPsolutions, it found the need for only fivecustomizations within mySAP Business Suite.

SAP Dominates in All Industries

Industrial Machinery & Components

(Three-year Trend)

� 102% better profitability than non-SAP

customers

� 8 times faster inventory reduction than

non-SAP customers

Engineering, Construction & Operations

(Three-year Trend)

� 19% improved profitability trend compared to

non-SAP customers

� Significantly improved collections than non-

SAP customers

Operating Margin

Days of Inventory on Hand

Operating Margin

Days Sales Outstanding

SAP customer’s performance

Non-SAP companies’performance

2.0%

Increase

88.9%

Decrease

4.4%

Reduction

0.6%

Increase

18.3%

Increase

15.3%

Decrease4.5%

Reduction

0.5%

Increase

1

SAP CUSTOMERS OUTPERFORMCOMPETITORS

Across industries, the most important result fromSAP's focus on industry best practices is that SAPcustomers outperform their competitors. Inindustrial machinery and components,17 forexample, SAP customers have outperformed theirpeers on key metrics such as operating margin anddays inventory in hand. In addition, SAP customershave 102% better profitability than non-SAPcustomers. Moreover, they reduced inventory atrates eight times faster than non-SAP customers.

The same difference in performance is true in manyother industries, as the following examplesillustrate:

� In consumer packaged goods, SAP customerswere 63% more profitable than non-customersin 2003.

� In aerospace and defense, SAP customers greweight times higher revenue than that of non-SAP customers in 2003.

While it would be overreaching to attribute thesuccess of these companies solely to theirimplementation of SAP solutions, their partnershipswith SAP have certainly played a role in their abilityto be more adaptive and innovative compared withpeers.

1117 Analysis for this industry and other industries cited here is based on Stratascope; it includes only public companies in the United States.

SAP Customers Are Top Performers

12

As a result, over many generations of technology, SAPhas consistently delivered superior products thatmanage mission-critical processes for its customers.mySAP ERP, which marked a significant shift to anInternet-based architecture for SAP's flagship SAP R/3product line, was ramped up one month ahead ofschedule, resulting in a highly satisfied customer base.In contrast, it took Oracle four years to release a stableversion of Oracle 11i.

5COMMITMENT TO QUALITY

SAP has a 30-year commitment not only toproduct quality but also to the quality ofimplementation and support. The combinationof this proven commitment and track recordhelps ensure that customers can rely on theirSAP investments.

A key part of its customer value proposition is SAP'scommitment to product and service quality.Specifically, three key aspects of quality arefundamental to the enterprise application life cycle,as follows:1. Quality and timeliness of application releases2. Quality of go-live services3. Quality of ongoing support and maintenance

QUALITY AND TIMELINESS OFAPPLICATION RELEASES

SAP is an engineering company at heart, with aconservative approach to releasing only the highest-quality software to its customers. Nothing canprovide better evidence than the fact that SAP metthe ISO 9001 standard for quality manufacturingmanagement in 1994. Worldwide, the samestandards have been applied to more than 130,000companies.18

As a result, over many generations of technology,SAP has consistently delivered superior productsthat manage mission-critical processes for itscustomers. mySAP ERP, which marked a significant

shift to an Internet-based architecture for SAP'sflagship SAP R/3 product line, was ramped up onemonth ahead of schedule, resulting in a highlysatisfied customer base. In contrast, it took Oraclefour years to release a stable version of Oracle 11i.

QUALITY OF GO-LIVE SERVICES

“Switching on” underlying applicationinfrastructure to support complex, mission-criticalbusiness processes is an arduous, risky task.Companies risk business continuity when they golive with major IT implementations. SAP providesperhaps the most comprehensive services duringthis critical phase. SAP begins to work with itscustomers three months in advance of go-live datesto ensure a smooth transition. A testimony to SAP'scustomer go-live support is the fact that, on average,two companies in North America go live every dayon SAP applications, and more than three times thatnumber globally.

QUALITY OF ONGOING SUPPORTAND MAINTENANCE

SAP offers the most comprehensive support servicesat the lowest price to its customers. Priced at 17% oflicense value, SAP's basic support is much lowerthan Oracle's 22% maintenance fees. Oracle does notoffer many mission-critical services such as business-process support and global hotline as part of its basicsupport; these services are standard for SAP.

18 For more information about the ISO, its standard setting, and the future for quality standards see www.iso.org.

6FOCUS ON CUSTOMER SATISFACTION

13

The greatest testament to the power of SAP'scustomer value proposition is that SAP customershave become its biggest advocates. In fact, the resultsof SAP's organizational focus on monitoringcustomer satisfaction illustrate how well it isworking. SAP's leading industry capabilities andcommitment to world-class implementations withreal organizational change-management techniques,for example, create a higher rate of user adoption.One sign of the growing dissatisfaction with Oraclehas shown up in the number of customers migratingto SAP.19

A steady increase in customer satisfaction providesthe best evidence that SAP meets and exceeds itscustomers' expectations. And as a result, SAPcustomers are becoming its staunchest advocates.The numbers tell the story: customer likelihood toimplement SAP in the future has increased 10% from2002 to 2005. Moreover, and perhaps more important,customer advocacy has increased. In North America,customer likelihood to recommend SAP increased by12% from 2002 to 2005.20 Because SAP has developed asingular organizational focus on customers,customers have become more loyal, more likely toreinvest in SAP solutions, and more open torecommending SAP to other potential customers.

And, according to an Information Week survey,21

two-thirds of PeopleSoft customers and more than50% of Oracle customers are not confident thatOracle can integrate the two product suites. Also, inthe same survey, more than 85% of those surveyedthought the acquisition would have a negativeimpact on their applications strategy.

A significant migration to SAP from Oracle,PeopleSoft, and J. D. Edwards is beginning to takeplace. The reason given is almost always the same:SAP's unique value proposition offers customersmore security - and a greater level of innovation -with far less risk than remaining with thecompetition.

90

95

100

105

110

115

2002 2003 2004 YTD '05

SAP Overall Satisfaction N. America 2002-2005 (2002 = 100)

SAP CustomerSatisfaction On the Rise

19 As of the publication of this point of view, a full companies have migrated.20 SAP America customer satisfaction survey.21 “Customers Not Confident Of Oracle-PeopleSoft Integration,” Rick Whiting, Information Week, December 16, 2004.

MAKING THE SWITCH TO SAPMany companies have switched to SAP from Oracle. After a difficult processattempting to run its business on Oracle software, for example, one consumerproducts company became frustrated with the results. As a result,management made the switch back to SAP and has been a happy customerever since.

At first, Oracle's 11i product attracted the attention of management. Then, thecompany learned the Oracle 11i product was incomplete, with many quirksremaining to be worked out. Moreover, Oracle experts seemed stumped onhow to fix the problems with the new solution. Frustrated by its efforts tostabilize the Oracle platform, the consumer products firm made the transitionto SAP. Management believed it made the right decision when it began to readabout other high-profile companies, who had been Oracle customers, madethe switch to SAP. The company rolled out its SAP implementations worldwidefrom 2002 through 2004.

CASE STUDY

Data

Centric

Process

Centric

OpennessVendor

Lock-in

Inter-

operability

& choice

Transaction

Architecture

Batch

Processing

Real Time

Execution

Business value

� Oracle’s data centric platform requires extensive customization to map to business processes

� Results in higher custom development costs, maintenance costs, migration costs and limited ability to leverage industry best practices

Real-time visibility

Oracle’s batch synchronized architecture:

� Leads to inconsistent data

� Hampers real-time planning and decision making

� Results in higher data cleansing and correction costs, increased compliance risks

Flexibility

� Oracle locks-in customers with limited database, applications server and business intelligence choices

� Results in increased costs to invest in superior functionality or limited flexibility

Process

Architecture

1

7SUPERIOR ARCHITECTURE

SAP's architecture is clearly superior to Oracle's,providing flexibility, choice, and greater value.Because SAP focuses product development onprocess and industry functionality, SAP's productline does not disappoint customers.

In the world of technology, SAP's superiorarchitecture not only provides flexibility but alsochoice for customers, delivering a high level ofvalue.

First, SAP's process-centric architecture delivers realbusiness value because it eliminates or minimizescustom development. SAP embeds best practices formajor processes into the software functionality. Incontrast, customers require custom developmentand extensive reconfiguration when mappingOracle's data-centric architecture to their businessprocess. Such data-centricity generally results inhigher costs for custom development, maintenance,and migration.

Second, SAP's architecture operates in real time,automatically communicating any input with allassociated components in a business process at thetime of input. These components performappropriate actions and validations prior toacceptance, thus assuring data and process integrity.Oracle's batch-synchronized processing does notoffer these advantages. Instead, due to a data-centricapproach, Oracle customers and their usersexperience inconsistent data, which in turnhampers their ability to make decisions or plan inreal time. Oracle's customers incur higher datacleansing and correction costs, as well as highercompliance costs.

Finally, SAP's architecture promotes flexibility,adaptability, openness, and an even greater focus onsuperior business processes through thedevelopment of its service-oriented architecture,Enterprise Services Architecture (ESA). In contrast,Oracle locks in customers with limited choices indatabases, application servers, and businessintelligence. SAP's development of ESA has openedthe door to a new era in IT systems management.

14

The Superiority of SAP Architecture

Many Devices per Person

Multi-layer Architecture

Adaptive Business Processes

Virtualized Hardware

Layers of Security

One Computer for Many

Monolithic Architecture

Static Business Processes

Dedicated Hardware

End to End Security

Mainframe Client Server Services Oriented Architecture

15

8 CLEAR LONG-TERM VISION OFINNOVATION

A Shift in the IT Paradigm

SAP has always had a clear vision for itstechnology based on defined goals. SAP hasbeen a pioneer through technology transitionsand guided customers through the change,from mainframe (SAP R/2) to client server (SAPR/3) to service-oriented architecture (ESA). Inthe current transition to a service-orientedarchitecture, SAP will develop greater levels ofcollaboration and participation with industry-leading companies. That's because the processis inherently more open and because ESA isbased on adding more capabilities to businessprocesses as a source of competitive advantage.In turn, SAP will offer even greater value forcustomers, allowing them to innovate as theyevolve new processes.

Companies make long-term investments inenterprise application software, with five- to ten-year investment horizons not uncommon. Giventhat technology changes rapidly, it is critical forcompanies to choose application partners that havea clear vision, one that can not only meet today'sneeds but adapt to the changing needs of tomorrow.SAP is committed to a strategy of growth throughtechnology innovation; today, SAP generates morethan 50% of its business with solutions that came tomarket in the last five years. Five years from now,

SAP will generate more than 50% of its business withsolutions that are not available today.

The next era of computing will be based on openstandards and a service-oriented architecture. Thiswill engender a seismic shift from today'stechnology architecture, involving completely newparadigms for underlying software and hardwareinfrastructure, in the way software is developed anddeployed, and in usability, adaptability, flexibility,and integration. In developing a taxonomy for thisnew era, The Berkman Center for Internet &Society at Harvard Law School created a model forthe maturity of an open-standards strategy thatshould include the following elements:� Interoperability� Open technologies� Architecture framework� Architecture development model� Communication and compliance� Close linkage with business processes� Linkages among operating units and agencies� Active management� Strategy for software acquisition� Collaborative communities22

SAP developed ESA with each of these elements inmind, testifying to its maturity and sophistication inthe global software arena.

22 P. 38, “Openness Maturity Model,” in Roadmap for Open ICT Ecosystems, published by The Berkman Center for Internet & Society, Harvard Law School, Jeffrey Kaplan,Founder and Director, Open ePolicy Group, August 2005.

1

2003

ESA

Launched

Netweaver

Launched

2004

mySAP ERP

delivered on

Netweaver

1,300 mySAP

ERP customers

signed

1500 +

Netweaver

references

released

2210 partners

onboard

2005

Business

Process

Platform (BPP)

Launched

2006

Solutions

on BPP

2007

ESA

Delivered

500 Enterprise

Services

delivered

150,000

developers on

SDN

100 mySAP

ERP customer

success

stories

published

BPP available

for ISVs

All-In-One

available on

BPP

Complete Suite

and all industry

solutions

delivered on

BPP

As the Harvard study suggests, the new age requiresa fundamental shift in the unbundling of thesoftware stack, wherein the monolithic, singlevendor approaches of the past will give way tomulti-tier architectures that will abide by openindustry standards and be able to “connectdynamically.” Such a world will require significantcollaboration among industry players to drivestandards and create more value to the customer.Companies will play in the layer where they havecore competence.

SAP has developed ESA with an evolutionary,collaborative, pragmatic approach. Oracle hasproposed Fusion, which represents a completechange in its existing product lines to a totally newsolution. At present, however, that change is only avision with little or no progress made towarddelivery. In contrast, SAP is working with itscustomers to guide them through the journey toopen standards with as little disruption as possibleto existing operations, ensuring that SAP's legacy ofhigh-quality software is maintained.

16

SAP is on Trackwith ESA

SAP launched ESA in 2003 and continues to investall its engineering resources to realize a structuredand pragmatic path to a service orientation. In fact,SAP is already more than halfway to realizing itsgoals, and through the years, has delivered everysingle promise. Today, ESA has more than 1,500references, more than 2,200 partners, and more than500 services already delivered. ESA is not just aconcept or a marketing hype; it is a reality that SAPand its customers live and breathe every day.

Oracle announced the Fusion road map in early2005, but did not include a concrete road map,partner collaboration, customer upgrade path, andother details. In addition, its bid to create a newapplication that is different from any of its fiveexisting applications code bases poses time andquality risks for customers.

17

The next era of computing will be based on openstandards and a service-oriented architecture. Thiswill engender a seismic shift from today'stechnology architecture, involving completely newparadigms for underlying software and hardwareinfrastructure, in the way software is developed anddeployed, and in usability, adaptability, flexibility,and integration.

1

9STRONG PARTNER ECOSYSTEM

SAP has developed a strong, loyal, and anunparalleled partner ecosystem. These partnersrange from technology companies toprofessional services organizations. Thepartners enhance the value for SAP customersby providing complementary productcapabilities, and also provide a broader accessto SAP consultants.

As outlined previously, SAP recognizes theimportance of the partner ecosystem both for thepartners' and the customers' mutual success. TheESA vision is supported by leading technologycompanies across many different domains such assecurity, productivity applications, storage,middleware, networking, and performancemanagement. Partners such IBM, Adobe, andMicrosoft endorse SAP's strategy and dedicatesignificant resources to the partnership.

Moreover, Microsoft has begun to developgroundbreaking arrangements with technologypartners that will offer unique and unprecedentedvalue to customers. With Microsoft, for example,SAP will develop Mendocino,23 which will addressthe inefficiencies and inconsistencies inherent in thegap between desktop productivity tools andenterprise applications - and the pressing need toconnect users with enterprise processes in the

context of the environment they know best,Microsoft Office. Mendocino will simplify the wayinformation workers access and use their SAPapplications, revolutionizing their potential, andresolving another user issue.

SAP has also teamed with H-P to deliverbreakthrough business intelligence flexibility andperformance. The development project hasproduced the industry's first low-cost, appliance-like offering designed to provide breakthroughs inboth performance and flexibility for the SAPNetWeaver Business Intelligence component.

In contrast, Oracle continues to adopt a “go italone” approach. In an era where the applicationstack is unbundling, Oracle is attempting tointegrate vertically by being the “all-in-one” stackprovider of application servers, databases, andapplications. Such a strategy may alienate partnerswhile reducing flexibility, choice, and value forcustomers.

Partner resources are only likely to decline forOracle as these companies are forced to support acompletely new platform as well as existingplatforms no longer supported by Oracle itself.

1823 Code name of the project, not an actual product name.

SAP Broadens the Idea of Partner

19

� Platform consolidation is

difficult to achieve

� Cultural clashes are

difficult to transcend

� Technology transitions are

challenging to charter

� Larger scale merger skills

are limited

100%

12.5%Oracle’s Risk Your Risk

Technology

M&A’s have

rarely

succeeded

Are you willing to take a

risk with your choice?

Oracle faces

four key challenges

10 SAFE CHOICE IN AN UNCERTAINLANDSCAPE

SAP continues to provide the safest, most stableoption in the technology industry. SAP'sstrategy of growth through innovation andscope contrasts with Oracle's strategy ofgrowth through merger and acquisition, onethat is inherently risky for customers. After all,technology mergers, like most mergers, rarelymeet expectations. Merger history furtherdemonstrates that Oracle's challenges areimmense since it is taking multiple riskssimultaneously, compounding the odds againstsuccess.

One of the reasons customers choose SAP is becauseSAP offers the only safe and stable option in anindustry rocked by turmoil. The best evidence isdemonstrated by Oracle's long drawn-outacquisition battle with PeopleSoft and its recentacquisition of Siebel Systems. In neither case couldthe merger be called “friendly.” In both cases, thedifficulties Oracle faces in merging cultures andtechnology are legion.

Oracle's mergers are inherently risky both forOracle and its customers. The customers' risk,however, is far greater. At stake is their business andoperating profits - as opposed to the small share ofOracle profits generated by its applications business.

Oracle's bid to “beat” SAP through acquisitions isquestionable, since most technology M&As -particularly enterprise application software - havefailed. History tells us that once-successfulcompanies such as i2 and BaaN have nearly perishedthrough their extravagant acquisitions. In a detailedstudy of the Oracle-PeopleSoft merger, for example,Enterprise Applications Consulting noted:

“… enough of the larger acquisitions involvingpublicly-held companies (in the softwareindustry) have foundered to make guarantees ofM&A success difficult to predict. … The reasonsfor failure … revolve around a consistent set ofproblems. Cultural mismatches are probably themost common problems. … Poor due diligenceand financial miscues are another common setof problems. … Technical integration is also amajor problem.”

“A far greater negative impact can be seen in theresults of a prolonged resistance to a hostiletakeover attempt, such as took place in thePeopleSoft acquisition by Oracle. This isparticularly true with respect to customers ofboth the acquired and the acquiring company.This impact can outlast the cessation of hostilitiesand severely limit the ability of a company like

Oracle's Four Daunting Challenges

Historical Evidence Oracle Challenges

� Single DB, App server versus multiple � Data centric versus pure internet

architecture� PL/SQL & Java versus Peoplecode, C++

and C code bases

Failed platform consolidation: i2 Merger� Founded in 1988, i2 was once the leading

provider of supply chain solutions� Tried integrating ITLS (98), Aspect

Development (00) and Rightworks (01)� Revenue run rate is less than 1/3 of peak

� Conflict ridden versus informal culture� Antagonistic versus caring culture� Deal incentivised versus customer-centric

sales force

� “People problems are a major cause of failed mergers”, based on executive survey across 190 companies*

� 90% of EBS code requires re-write since PL/SQL is incompatible with SOA

� Disruptive transition to new product code compared to SAP’s evolutionary approach

� No reputation for providing simple migrations

Failed transition: Management Science America� In 1981, MSA was the largest independent

software company in the world� Inability to transition from mainframe to client

server era led to MSA being sold for $333 million in 1990

� Oracle has made number of smaller acquisitions in the past – 3Cube, NetForce, SiteWorks, DataLogix etc.

� PeopleSoft acquisition is 100 times larger financially than any prior acquisition

�Areas requiring focus historically� Channel and partner management� Product and service pricing� Go-to-market strategy

Platform

consolidation is

difficult to achieve

Cultural clashes

are difficult to

transcend

Technology

transitions are

challenging to

charter

Larger scale

merger skills are

limited

Oracle faces 4 key challenges

20

Oracle … to meet the needs of its new customerswhile managing a smooth transition to newproducts, new personnel and new support,service, and licensing regimes.”24

SAP's own analysis of Oracle's acquisition trackrecord reveals four very specific challenges.

WHAT IF FUSION SUCCEEDS?

Even if Oracle's Fusion project does succeed,customers will probably not earn the hoped-forbenefits. More important, customers face a long anduncertain road ahead, in terms of product quality,ecosystem support, upgrades, timeliness, industry-specific capabilities, and openness. Given Oracle'strack record of mergers, it is more than likely thateither the timing or the quality or both will slip.

Regardless of the timing, customers are likely torequire at least two to three upgrades in the nextfive to seven years, as Oracle forces its customer toupgrade to the next version of their Oracle orPeopleSoft versions to a new version next year, to befollowed by multiple versions of Fusion until it isstable. Customers are also likely to pay astronomicalamounts for trained consultants and for retraininginternal IT teams on a completely new platform.Despite all this, customers are not likely to get anyindustry-specific capabilities as Oracle has to juggledevelopment resources across five existing codebases in addition to Fusion. Finally, given Oracle'sfocus on vertically-integrated stacks, customers willonly get locked in with Fusion and sacrifice futureflexibility and choice.

24 Greenbaum, op cit., pp. 2-3

Oracle's Challenges with Mergers and Acquisitions

21

SAP is a customer-focused company. That’s whySAP has grown organically, while other enterprisesoftware companies have shrunk or stagnated.

CONCLUSION

In facing the future, companies need to innovate in order to increase revenues. Such an emphasis oninnovation requires that companies partner with IT firms that also encourage, and insist on, innovation intheir own products and services. SAP is a customer’s company, whose organization is designed for, andencouraging of, innovation in all its aspects - from product development to product delivery to productimplementation. SAP will continue to grow organically by innovating internally and externally, taking therisks necessary to create the future that will provide a steady stream of solutions and ideas to help each andevery customer become a “best run business.”

22

© 2006 by SAP AG. All rights reserved. SAP, R/3, mySAP, mySAP.com, xApps, xApp, SAP NetWeaver, and other SAP products and servicesmentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and in several other countries allover the world. All other product and service names mentioned are the trademarks of their respective companies. Data contained in this documentserves informational purposes only. National product specifications may vary.

These materials are subject to change without notice. These materials are provided by SAP AG and its affiliated companies (“SAP Group”) forinformational purposes only, without representation or warranty of any kind, and SAP Group shall not be liable for errors or omissions with respect tothe materials. The only warranties for SAP Group products and services are those that are set forth in the express warranty statements accompanyingsuch products and services, if any. Nothing herein should be construed as constituting an additional warranty.

January 2006

www.sap.com