Interview: Bob Stutz, SAP senior vp for Worldwide CRM Product and Strategyby
SAP has finally begun to make its software as a service CRM play, although rival vendors have criticised it as being late to the game and uncommitted in its approach. Is it a reactive move sparked by the emergence of the new generation of SaaS pureplays? Is it a strategic move to stall the market? Indeed does SAP regard SaaS as a strategy at all or is it a tactical move to keep customers in the SAP fold that might otherwise gravitate towards Salesforce.com or one of the new breed of vendors?
"This is not a tactical move," insists Bob Stutz, SAP's senior vice president for Worldwide CRM Product and Strategy. "It is a strategic move in that there will always be a need for software as a services. There are always occasions when it is useful. If you've been through a merger or an acquisition for example, SaaS is a great way to get your salesforce up to speed. If you take two different CRM systems and try to work out how to merge them after an acquisition, then it's going to take a lot of time. The easiest way is going to be to have one of them as SaaS and then you can get some sort of picture of what's going on more quickly.
"Of course every company is different. Some companies can run forever on the on demand model because their business model is simple enough. Every customer can use on demand in some shape or form. Internally at SAP we use it for some divisions to get them up and running. Every company has situations where an on demand type of product would be useful. But it's not always the right thing to do. I did recently have to tell a customer that on demand was not right for them. It's about doing what's right for the customer. There will be certain circumstances in which on demand isn't the right approach. If you're running really complex business processes, then you have to ask yourselves if on demand is really the right way to go."
So on what criteria does SAP reckon that customers should base their decision about which approach is most appropriate. And how does the SAP salesforce communicate that message to prospects? "Our salesforce is doing a good job of looking at what the customers requirements really are and offering the right version for the right customer," says Stutz. "The on premises model doens't always fit and the on demand model doesn't always fit. Sometimes you need a combination of the two to run the business successfully. We have customers who are very successful hybrids."
So this is a serious commitment to on demand? And one which implies that the entire SAP portfolio will soon be offered as SaaS? Well, not entirely. In fact, Stutz insists that he is unable to comment or speculate on whether the flagship ERP products from SAP will be offered in this model. "CRM is the first," he says. "We have to evaluate one step at a time. This is a new business model for us and we need to prove that the model works for us. That proof will come through the success of customers. We also want to be able to prove that SaaS can be a profitable model for our business. But the overriding factor here is to be able to give our customers another deployment option.
"We made it clear right from the very start that we are not trying to compete with Salesforce.com. If you look at the distribution of their business, there's only about 13 per cent of it in the enterprise space. We're not interested in the low end of the market, only in the higher end business customers. So we're not trying to compete with Marc Benioff. This is not about the competition. We don't see ourselves in competition with Salesforce.com.
"We went into the on demand space because our customers asked us to. We have a very loyal customer base and they would prefer to do business with us. We didn't have an offering for on demand, we just didn't have it. But we had lots of enterprise customers who came to us and wanted to know what we were going to do in that space. So that's why we got into on demand. We're not in competition with Salesforce.com."
While the CRM market is in a state of flux following the recent rash of acquisitions and mergers, there is clearly a disruptive opportunity to pick off Siebel CRM On Demand customers, particularly those who are also IBM customers. IBM, which hosted Siebel CRM On Demand, has grown noticeably closer to SAP since Oracle acquired Siebel.
But Stutz seems largely indifferent to any potential poaching opportunities, prefering to focus on the SAP installed base as his hunting ground. "If you are an SAP customer and you need to get up and running quickly, then we are interested in you," he explains. "We are really focused on the SAP customer and not on the non-SAP customers. This isn't about competing with Salesforce.com and trying to get at everyone. We are focusing on our customer base."
Where on demand may come in handy is getting non-CRM using SAP CRM customers to get into CRM. That sounds like a bizaare description until you recall that SAP CEO Henning Kagermann himself admitted a couple of years ago that because the CRM modules were shipped as part of the wider SAP portfolio, there was a sizeable chunk of customers who were counted as CRM customers but had never fired the software in anger. Could on demand be the quick and easy deployment to get such recalcitrant customers up and running and into CRM?
"On demand is a tactical move for a lot of customers while they figure out what they want to do long term. They know that they need to do something, but they're not ready to do a full on premises deployment," concedes Stutz. "We have started to see customers who didn't choose to use SAP CRM looking at on demand as an option, in particular mySAP 2006s which is based on the on demand services model."
So with the hybrid model firmly established as company policy and the reiterated insistence that none of this is about competing with Salesforce.com or the other attention seeking on demand vendors, does Stutz – a veteran of the CRM market – see the pureplay SaaS vendors as potential SAPs of the future?
"I can't see a Salesforce.com or a RightNow getting to be the size of an Oracle or an SAP," he smiles. "There would need to be a radical paradigm shift in business thinking. Look what happened with Salesforce.com last December [when it suffered a high profile service outage]. You had companies who were at the end of the financial quarter and they couldn't close out their books. They had no control over the situation whatsoever, no access to what was going on. They couldn't send their own people in to check out what the problem was. At some juncture you have to think seriously about whether you want to put all your eggs into one basket. That will be a serious inhibitor to a pureplay SaaS vendor growing into an SAP or an Oracle.
"There's also the question of the margins. Siebel had been in the SaaS business for about four years. Their latest numbers were 40,000 subscribers and $11 million of total contract value. That's not a very good set of results for any business. In fact, if you were running your own business with those numbers, you'd pull the plug because it's clearly a losing business proposition. If you look at Salesforce.com, their net profit is not exactly the best business either. It's hard if you're a pureplay SaaS vendor – you can only get to a certain point."
Mention of Siebel inevitably turns thoughts towards Stutz' 4 year stint there when he had overall responsibility for 21 vertical product lines as well as base horizontal products and overall responsibility for the analysis, design, coding and testing of new software, enhancements and corrections to existing software. He left Siebel shortly before it was acquired by Oracle after Tom Siebel's successor as CEO Mike Lawrie was canned. It's clear he regards Siebel with mixed feelings and with a sense that there were missed opportunities for the company.
Take Sales.com, for example, Siebel's ill-fated first foray into on demand CRM that was canned shortly after its inception. "If Tom had not killed Sales.com then there would be no Salesforce.com," asserts Stutz. "What Tom was doing with Sales.com was exactly what Benioff has done with Salesforce.com, but the model was just too far ahead of the market at that juncture. You can look back and say that if we hadn't killed Sales.com, then there would not have been a Salesforce.com."
Of course it's possible that if Siebel hadn't killed Sales.com there might still be a Siebel as well! "That's an interesting question," ponders Stutz. "Everything I said about the difficulties of being a pureplay SaaS vendor apply to be being a pureplay CRM vendor. You can only grow to a certain point. At some juncture you have to move into the back office space and Siebel didn't do that. You can't be strictly in the front office and expect to be a multi-billion dollar company. That's where we have an advantage."