SAP AG's R/3 enterprise resource planning application controls the informational backbone of many of the world's largest corporate intranets. Now the German company is telling the world it wants to extend its domination to the front office, with applications that will touch thousands of end users.

The company says it will diversify in the next 12 months into a wide range of specific applications - such as Web-based procurement, logistics and call centers - from its stronghold of integrating data among disparate applications and departments. The announcement, made in mid-September, makes sense for a company that just listed on the New York Stock Exchange and wants to keep growing at 35 percent annually.

But developing for thousands of end users will be a turnaround for a company that's grown to $3.3 billion on the back of a complex, transaction-oriented application run by relatively few power users.

"This is a transition for us, a new orientation," says Peter Zencke, an SAP executive board member and leader of the company's procurement and logistics efforts. "But we've determined that the move to the Web, and applications that reach thousands of users, is a business trend, and we want to lead it.

"People may say, 'SAP, they are complex client-server.' But if there's a deficit in our understanding, we'll adapt. We'll do it faster than people think. Six years ago, people could have looked at us and said, 'Oh, SAP, those are just mainframe guys.

Forget them.' But R/3 has been tremendously successful."

There are 12,000 R/3 customers with 70,000 installations and counting.

In fact, the tremendous success of the R/3 application, which integrates supply chains to inventories, to the sales force and to human resources, has caused the company "to lose a little focus on the customer," Zencke says. "We've had our hands full just delivering to meet demand."

To fill those orders, SAP has had hundreds of sales in which it has played no active role, turning everything over to integrators and consultants. That's meant the company captured no feedback from those users to help it adapt its product, which has hurt the company.

Bristol-Myers Squib Co., which liked the SAP application's strength in handling routine transactions, has installed one of the biggest R/3 implementations in the world. But when it came time to implement applications such as procurement, which will touch 25,000 desktops, SAP's approach didn't fit, says Joseph Postiglione, Bristol-Myers' procurement director.

"SAP is fine for mundane transactions, but for procurement to get the return on investment possible, it has to empower the employee. That's not their philosophy," Postiglione says. Bristol-Myers chose Ariba Technologies Inc.'s procurement application.

Zencke says the company will do a better job communicating and getting customer feedback.

SAP's message, however, is getting out to other software suppliers.

While SAP's procurement application, a component of its SAP Advanced Planner and Optimizer, won't see the light of day for nearly a year, and its logistics module isn't due until the first of the year, its new-direction announcement sent a massive ripple through the hundreds of third-party software vendors that attended the company's recent annual meeting in Los Angeles.

Among those most affected are companies such as Manugistics Inc., one of two companies, along with i2 Technologies Inc., that offers Web-based corporate logistics applications that track and manage how a product reaches a store. The two companies' total sales are less than $500 million.

"Over the short term, SAP's announcement is an opportunity; it's going to validate our market and let all the integrators, who rely on SAP for most of their revenue, know this is the way to go. This marketplace is going to explode," says Neil Hooper, Manugistics' senior manager of strategic business. "Long-term, yes, I'm scared. There's not room for three in this market; [analysts] say it's only $3 [billion] to $5 billion potentially. There's going to be one 300-pound gorilla. I think we have the experience and [the] head start for it to be us."

Long-term, says Gartner Group Inc. analyst Roy Satterthwaite, "it's the ERP [enterprise resource planning] vendors who will win, either through development or acquisition."

SAP acquired recently, for an undisclosed sum, computer-telephony integration company AMC Development Inc. to be the focal point of its Web-based call center effort.

"When they're competing on Net time, they may not have time to build the skills to fill out their portfolio, so we'll see acquisitions. But SAP is destined to dominate."

SAP Ag can be reached at www.sap.com

Bristol-Myers can be reached at www.bm.com

i2 Technologies Inc. can be reached at www.i2.com