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The Host with the Most

SAP boldly goes where a number of other software vendors have already gone.

On the face of it, SAP’s entry into the on-demand market should worry executives at established SaaS vendors (as should the company’s recent $6.8 billion bid for midmarket BI specialist Business Objects). For all the complaints about the cost and complexity of ERP software, the notion of becoming an “SAP shop” still holds great appeal for managers at many growing midsize companies. Hans-Peter Klaey, president of SAP’s small and midsize enterprise division, says Business ByDesign represents a major, yet carefully researched, change for SAP. “While our new business model represents uncharted territory for us, we’ve invested smartly,” says Klaey. “We’re confident we laid the groundwork for success.”

Others aren’t so sure. R. “Ray” Wang, a principal analyst at business technology research firm Forrester Research, claims that Business ByDesign is “nothing special.” Wang is especially critical of the company’s approach to on-demand software, pointing out that Business ByDesign is not a genuine software-as-a-service offering, because it does not have a “multi-tenant/multi-version” architecture. Thus, he cautions, customers may end up paying more in the long run for the SAP suite.

Some observers also note that other software companies (Microsoft among them) have reportedly had difficulty getting powerful ERP systems to work in a hosted, multiuser environment. In many cases, vendors have had to simplify — some would say dumb down — their products. Shepherd, for one, points out that Business ByDesign doesn’t provide the industry-specific, in-depth business support that SAP is famous for. “It will have functionality for all types of companies,” he says, “but nothing specifically targeted toward verticals.”

Then again, SAP appears to be betting that simplicity will sell. Klaey notes that SAP will host the software, provide a scalable technology infrastructure, and supply support and services. “In doing so, we believe we can simplify IT and drive down the total cost of ownership for our customers.” SAP will charge $149 per user per month (based on a minimum of 25 users) for access to the entire suite of on-demand applications.

Christian Hestermann, midmarket ERP research director for technology consultancy Gartner, believes that Business ByDesign’s fuzzy, nonthreatening approach may well appeal to managers who are borderline technophobic. Says Hestermann: “There’s a long-standing joke that the ERP system used at most companies is Microsoft Excel.”

Kagermann addressed this very issue in his speech at the Business ByDesign unveiling. “These companies don’t have very sophisticated IT knowledge,” he noted. “And they don’t want to have to have sophisticated IT knowledge.”

Great Expectations

Of course, some industry-watchers believe SAP’s on-demand ambitions go beyond servicing businesses with limited IT chops. Should SAP succeed in building a substantial customer base among midsize businesses, observers predict the company will begin offering a more powerful on-demand product for large businesses. Earlier this year, Wang and fellow Forrester analyst Paul Hamerman suggested as much, noting that the potential of the hosted product “will eventually lead SAP to move it upmarket once the functionality matures and SAP gets comfortable with unlocking more flexibility to its customers.” AMR’s Shepherd envisions a similar scenario. “Many of the design goals of this product — ease of use, ease of implementation, embedded education and training — are the sorts of capabilities that buyers of all sizes will want in the future.”

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