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Business ByDesign or business as usual for SAP?

20th May 2009
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MyCustomer.com

SAP has been derided by rivals over its software as a service efforts but is it time to re-evaluate the firm as it pushes itself as a serious SaaS contender, with Cloud-based offerings in CRM and with its fledgling Business ByDesign ERP offering?

By Stuart Lauchlan, news and analysis editor

SAP's stance on software as a service (SaaS) has been a thing of puzzlement for some time. Is the company serious about the new delivery model or is the threat that SaaS poses to its established revenue model just too great to do more than utter the occasional platitude? Whatever the case, it's provided an arsenal of negative marketing fodder for the likes of Salesforce.com and NetSuite - SaaS pureplays which enthusiastically deride the German applications giant's efforts in this space.

So can users really take SAP's SaaS thinking seriously? Is it worth hanging on to see what the firm ships out the door or should you just pick up the phone to Salesforce.com and NetSuite now if you're after some on-demand CRM or ERP? SAP chief technology officer Vishal Sikka was adamant this week that SAP would be a serious player in SaaS with Cloud-based offerings in CRM and with its fledgling Business ByDesign ERP offering – just not quite yet.

"We still have a long, long way to go when it comes to The Cloud," he says. "Not only us, but the industry doesn't know how to deliver mission-critical business applications yet in The Cloud. It is one thing to deliver CRM that runs on a transactional database and then call it a platform. It is entirely different to do complex analytics on top of it."

"It is one thing to deliver CRM that runs on a transactional database and then call it a platform. It is entirely different to do complex analytics on top of it."

Vishal Sikka, CTO, SAP.

So what's the timeline that SAP sees as reasonable for its SaaS offerings? When Business ByDesign was first announced a couple of years ago, the intention was that there would be 100,000 users worldwide generating $1bn of revenues by the end of next year. After a radical scaling down of those ambitions, there are currently around 80 early adopters in some six countries and 2010 is now a year for a 'ramping up' of Business ByDesign, rather than a year with a firm commitment to the number of users adopting the new offering.

The concerns internally at SAP remain the same: the SaaS delivery model is the antithesis of how a big ticket on-premise application firm like SAP has made its money. There will be no big upfront costs, no five-year delivery schedule, no coachload of Accenture consultants turning up in the car park on day one of the implementation. That's a cultural and, more importantly, a fiscal mindset shift that SAP has yet to get over.

SAP CEO Leo Apotheker admits that there are still some hurdles to get past before SAP is comfortable with the business model for the new product. As such, he's careful about setting expectations for Business ByDesign, which, in turn, plays into the hands of the spinmeisters at Salesforce.com and the like. "We have a few things to iron out on the business model," he says. "But you will hear more and more about Business ByDesign as we enter the second part of the year. I have a high degree of confidence that we do have a valid business model, but it's too soon to tell how big a role it will play in SAP.

"If this was a normal on-premise product, it would have been out on the market a long time ago," he admits – perhaps not entirely concealing a note of wistful regret in that remark - adding: "Business ByDesign is going to be a service so we want to make sure that we can deliver it globally, in a localised form, 24/7 and 365 days a year. That's easier said than done. There isn't broadband coverage everywhere. There are legal issues. You can't say to customers that you can use this if you're in London or Frankfurt, but not if you're in some other places. We operate on a global basis."

That said, there are around 80 early adopters of Business ByDesign out there and the good news for SAP is that, to date, they seem pretty happy with their choice. Some have evaluated NetSuite and Salesforce.com and chosen to go with the SAP offering, apparently content in the belief that if SAP says that it will deliver in The Cloud then it will happen. This is a threat that the pureplay SaaS vendors regularly reject in their public pronouncements, but there has to be a real danger that many customers will look to SAP as the applications market leader for leadership in the SaaS space as well, even if there are alternatives on offer already.

The pioneers

The Business ByDesign pioneers include UK firm Numerical Algorithms Group, which evaluated a number of competitive offerings before selecting Business ByDeisgn. "We looked at Microsoft, NetSuite and Oracle," says Rob Meyer, NAG CEO. "We have 80 staff and all of them are users. About half of them are software developers and, as such, they are often Linux users. We wanted an integrated suite and we had to have a system that was web-based and could support browsers on Linux.

"We got down to SAP and NetSuite as the final two. In the end, SAP overall was less expensive than NetSuite. We were impressed by the level of support that was on offer from SAP and we had a confidence that they would be able to do this in a certain period of time. Also, the SAP product had been built new, from the bottom up, whereas although NetSuite had some nice features in it, we felt it also had some stuff that had been cobbled onto it."

But with SAP's reputation as a big ticket enterprise sell, there were some initial reservations about a company the size of NAG dealing with such a software behemoth. "My first reaction when it was suggested was 'you have got to be kidding me'," admits Meyer. "I have had some unfortunate memories of a 1990s SAP implementation for a big company where you see $250 million disappear in a cloud of dust."

With that in mind, NAG didn't rush into its Business ByDesign implementation. "We kept SAP on a piece of string for about six months," recalls Meyer. "We built up a team of our own customer service and HR people and so on, and went to visit other people to gauge reactions. They came back to our senior management people and convinced us that it would work."

Implementation is now underway at NAG, although Meyer reserves judgement when asked to comment on the functionality of the offering. But he does identify one area that he wants to see deliver for his firm. "I want to see how much workflow is part of the product," he says. "One of the things that came out of a previous CRM implementation I was involved with was that developing new reports could be a pain. In Microsoft, putting in workflows to manage the process was a big hurdle for us, so we want to have something that, from a sales point of view, works in such a way that marketing can say 'here's a lead' and it can be easily converted."

"We kept SAP on a piece of string for about six months. We built up a team of our own customer service and HR people and so on, and went to visit other people to gauge reactions. They came back to our senior management people and convinced us that it would work."

Rob Meyer, CEO, NAG

But to date, it's looking encouraging for NAG and Meyer appears to have no regrets about the decision to go with SAP's SaaS offering rather than a more established offering like NetSuite. "It's about balancing the devil you know and the devil you don't," he says. "With SAP, we are getting a product that is relatively early in its adoption cycle. We would have found it hard to be the first to take it on, but it's not hard to be the 20th. We are confident that SAP has plans for the product and we have been impressed by the way they solicit requirements for functionality from the customers."

There are certainly no regrets about opting for an on-demand offering, rather than an on-premise one. "The SaaS model of receiving upgrades seamlessly and automatically is a big appeal to us," says Meyer. "We have a small IT staff and, frankly, we have a lot of better things for them to be doing."

The trick now for SAP is to exploit similar sentiments at other small and medium enterprises (SMEs). And that is the target audience for SAP's SaaS thinking. While the likes of Salesforce.com and SuccessFactors are rolling out implementations with tens of thousands of users, SAP remains strongly of the view that enterprise deployments should remain firmly on premise.

But as Apotheker points out, there are a lot of SMEs out there and SAP has a presence among them. "SAP has 86,000 customers," he says. "Do you believe that there are 86,000 very large companies in the world. I wish it was true, but it's not. Some 70% of our customers are mid-sized companies of 500 employees or less. Business ByDesign is more oriented towards the mid-sized customer," he says. "Whoever wants it can use it but the product is earmarked for the mid-market. That's the current level of functionality."

So SaaS for the SME and on-premise for the enterprise - is that the way it is to be? Well, yes and no. SAP will call it choice; its rivals will call it indecision, but even at the SME sweet spot level, SAP wants customers to remember that there's an on-premise option that's actually got more to offer. "I don't believe that every mid-market customer who wants to use SAP will use Business ByDesign," says Apotheker. "If you need deeper functionality then you will go with [on-premise] All In One."

For a more detailed look at SAP's Cloud Computing strategy, visit MyCustomer.com's sister site BusinessCloud9.com

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