SAP May Have Business Suite 7, But It's Still MIA With SaaS

Last Updated Feb 11, 2009 5:13 PM EST

SAP last week rolled the drums for its introduction of "Business Suite 7," the first major upgrade of its flagship corporate-operations support software in almost three years. But the company has failed to come up with a convincing plan for surviving a determined push by more modern and flexible rivals that threaten to knock it into oblivion -- much less an aggressive growth strategy in the all-important medium-sized business market.

SAP is under pressure -- not just from well-known rivals like Oracle and Microsoft, but also from relative newcomers like Salesforce.com, Netsuite and Workday, all of whom provide Web-based alternatives to complex and expensive software applications that have to be installed on a customer's premises. Those Big Bits installations just happen to be SAP's bread and butter.

In contrast to SAP's traditional approach, which forces customers to pay millions of dollars in license fees and hundreds of thousands more in annual maintenance contracts for complex applications like enterprise-resource planning suites, the Web-based "software as a service" vendors offer monthly subscriptions for well under $100 per user, no maintenance fees, and the promise of much simpler and more regular upgrades.

SAP has recognized the danger -- but it may be too late. It has dithered with Business byDesign, a SaaS offering aimed at small and mid-sized businesses, which CEO Henning Kagermann introduced with great fanfare in early 2007 as the "game-changing" cornerstone of the company's future survival.

Other than announcing delays and the existence of unnamed satisfied beta customers, however, SAP hasn't had much to say about Business byDesign since. Meanwhile, its rivals are busy sucking the oxygen out of the market with regular introductions of new products and feature sets.

Look at what SAP did say about BS7 (and how can anyone resist that acronym?). Amidst the other boilerplate, the company offered its usual emphasis on "more than 150 functional innovations." Of course, you might be forgiven for thinking that if a product needs 150 improvements, it might have an issue right there.

The biggest innovation of BS7 is that customers can choose specific modules of SAP's wide-ranging software suite, helping reduce both complexity and the total cost of ownership. This doesn't exactly make up for SAP's high-handed way of raising maintenance fees last year, but it does make its products more affordable.

As Larry Dignan reported, SAP initially tried to peddle BS7 as something akin to SaaS, before co-CEO Leo Apotheker backed away from that characterization. But at least SAP recognizes that it should have a SaaS product in the market.

The irony is that it already had CRM OnDemand, a customer relationship management application it trotted out in a half-hearted attempt to compete with Salesforce.com. That has been kicked to the curb in anticipation of the arrival of Business ByDesign.

Strikingly, SAP's leadership is displaying a great deal of complacency, with Apotheker laconically telling the Financial Times that "IT spending correlates well with GDP, so like anyone else we have been affected as well." He doesn't seem to realize that the house -- in this case, his company -- is coming down around his shoulders.

SAP claims that trial customers are very happy with Business ByDesign. If that's the case, the only reason it hasn't made the product broadly available is because it doesn't know whether to sell it directly or through channels, how to position it with regards to BS7, and how to compensate its sales staff if it does sell directly.

As Jeff Kaplan, a consultant who specializes in SaaS told me today, "SaaS is very disruptive to SAP's business model."

Oracle, Microsoft and Netsuite have taken huge chunks of the mid-market, while Salesforce.com has successfully encroached on SAP's traditional stomping grounds in the large enterprise space. If SAP is going to survive this onslaught, it will have to become a lot more agile in its development processes and its go-to-market strategy.

In particular, it will either have to find a compensation strategy that its sales force can buy into, or else spin off Business ByDesign as its own division, with an entirely separate compensation structure.

  • Michael Hickins

    Michael Hickins has written about technology and business for BNET, InformationWeek, InternetNews.com, eWEEK -- where he was executive editor from 2007-2008 -- The Curator, Pseudo.com, Multex Investor, Reuters, and Conde Nast's WWD.com. Hickins is the author of The Actual Adventures of Michael Missing, a collection of short stories published by Alfred A. Knopf in 1991. He also published Blomqvist, a picaresque novel set in 11th century Europe, in 2006. Hickins remains passionately interested in the intersections of business, technology, politics and culture, and endures a life-long obsession with baseball. He is married with two children and lives in Manhattan.

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