SAP’s rocky road to on-demand

Can SAP make the transition to a services business model?

In SAP’s favor is the fact that ByDesign is a more comprehensive solution than what is on the market now, says Paul Hamerman, vice president of the business process and applications group at Forrester. Hamerman points out that most SaaS offerings are point solutions, mainly for CRM or HR. There are a few exceptions such as NetSuite, which offers ERP and e-commerce, in addition to CRM.

SAP ByDesign, on the other hand, offers a full suite of solutions for running an entire business, including compliance management, CRM, executive management support, financials, human capital management, project management, supplier relationship management, and supply chain management.

With a lineup like that, how can SAP lose?

For one, SAP’s business model has thus far been set up around licensing and maintenance. Can the company really get its head around the nuances of monthly billing, let alone offer the kind of sales and customer service models necessary to woo SMBs?

On the revenue side, SaaS has a long ramp up period to profitability, Hamerman notes. He points out that NetSuite is losing “tons of money” and that SuccessFactors is “losing 100 percent of their revenue.”

In other words, SuccessFactors’ net loss equals its revenue.

Still, Hamerman is positive about SAPs long-term success, believing that SAP will keep its current enterprise business and revenue stream flowing and that SaaS will earn SAP incremental revenue rather than cannibalizing its current business.

Gartner analysts are far more negative.

Back in June, a group at Gartner got a good look at what was then known as A1S and there were a lot “ifs” in their final recommendations.

Last week I caught up with Rob Desisto, one of the group of A1S naysayers, to see whether Gartner’s opinions, findings, and recommendations have changed since June. Desisto said no. SAP revealed a few more details, specifically around the database on the back end that Gartner had not been aware of in June. Pricing has since been announced. Otherwise, everything the analysts said in June still holds.

While being optimistic because “the business application market lacks a global leader in this category,” the Gartner group felt that the inability to customize the service models and the paucity of implementation partners offers a “significant” risk to the offering’s success over the long term.

Whereas Forrester’s Hamerman feels that offering a full suite of business solutions is a plus, the Gartner group contends it is a negative.

A negative, I suppose, because many companies want best-of-breed applications rather than a horizontal, one-size-fits-all solution.

In fact, Gartner warns that unless SAP incorporates a customization/extension model based on enterprise services “and an integration method with on-premises software,” users should not consider the product viable.

This has been promised, with no details available, and has not been demonstrated to date.

Forrester’s Hamerman is also quite disappointed with the UI.

If SAP is truly going after the SMB market, then you would think the first item on its new application agenda would be a simplified interface. Unfortunately, Hamerman says, the UI “needs more refinements. It is not a big improvement over the current ERP UI.”

Yikes.

Hamerman had nicer things to say about the configuration layer, however, finding the set of checklists and procedures and tools to rapidly configure an application to a customer’s requirements, “innovative.”

The big unanswered question is, Can SAP keep its two domains, packaged applications for the enterprise and SaaS solutions for the SMB market, separate?

Gartner says that, at present, the “product will not functionally support the majority of SAP’s installed base.”

Well, if SAP believes that strategy will work over the long term, it isn’t reading the market right. And the rock and the hard place for the software giant is this: If SAP is wrong, as I believe it is, and even if it is able to turn the ship around to offer SaaS solutions to the enterprise, this move will dramatically affect its business model in a way that may not be so easy to recover from.

The road ahead for SAP is the same road ahead for Microsoft, Oracle, and all of the traditional client/server vendors. The big shakeout is happening right before our eyes. Over the next couple of years, the software landscape will look entirely different.