Why SAP is heading for the clouds in 2011

Business ByDesign SDK and app store mean SAP is getting serious about cloud computing

SAP will make a major push into cloud computing in 2011, with two upgrades planned for the Business ByDesign on-demand ERP platform next year followed by the introduction of other on-demand technology.

SAP's on-demand and cloud strategy hinges on Business ByDesign, which is the company's first major push into the cloud. First announced at the end of 2007, Business ByDesign's drawn-out development process has meant SAP's original target of 10,000 users by 2010 fell by the wayside.

It wasn't until July this year that Business ByDesign was launched to all customers in China, France, Germany, India, the UK and US. And by the time of SAP's Sapphire Now conference in May next year, the ERP giant aims to have "multiple hundreds" of customers using the tech, according to SAP SVP of SME and on-demand strategic solution management Rainer Zinow.

But despite SAP's ambitions for Business ByDesign in 2011, Ovum senior analyst Angela Eager warned that the technology is still largely "an unknown quantity" for SAP customers.

SAP co-CEO Jim Hagemann Snabe says on-demand is one of the major elements of the company's hybrid strategy
(Photo credit: SAP)

"SAP still has work to do to establish it, notably building an ecosystem to deliver it to the market, because despite the SaaS model, mission-critical systems like ERP still benefit from services," she said.

SAP hopes to create the kind of ecosystem that Eager referred to with the introduction of a software development kit (SDK) for Business ByDesign, which will arrive with Feature Pack 2.6 in January 2011.

The SDK will allow third-party developers to build applications on top of the Business ByDesign's architecture, extending the functionality of the platform beyond its core ERP processes.

"[Business ByDesign] will have enough core business capabilities around the ERP kernel, around specific industries and the SDK so that partners can take it now in whichever direction they want," Zinow told silicon.com.

Eager said the SDK will be a key element in SAP's cloud strategy: "The plans for an SDK are part of SAP's move to establish it as a development platform as well as a ready-to-run application. The platform-as-a-service approach has become a mandatory requirement for cloud applications so SAP is not breaking new ground but it is showing that the product is coming up to spec, albeit with a fairly long way to go."

Once developers are producing applications based on Business ByDesign, SAP intends to launch an application store that will provide a single location where customers can go to buy add-on technology for the on-demand ERP platform.

SAP's Zinow said the app store will be important as it will provide partners who have built applications with the customer reach that SAP brings to the table. He added that the app store is likely to be launched at the CeBIT technology show in March.

And analysts think the app store is an important element in SAP boosting its cloud capability: "Like the SDK, [the app store] is a must-have service for any vendor serious about on-demand. Using it as a base for all on-demand services supports the hybrid on-demand on-premise position SAP needs to maintain," Eager said.

As well as being used for other cloud offerings Eager said the app store has the potential to provide cloud-based extensions to on-premise applications in the future.

In contrast, Bob Tarzey, director of analyst house Quocirca, feels the app store concept is "SAP trying to sound trendy" and doesn't represent anything new. However, he said it is an approach that has...

...clearly worked for other cloud providers.

"Salesforce.com has had its [own business app store] AppExchange for years, before Apple's iPhone was even thought of, and larger ISVs have encouraged smaller communities of ISVs to build supporting applications for decades," he said.

SAP is also planning to release several of its own line-of-business on-demand applications, which are likely to appear on the app store. A sales application and travel management system are both due in the first half of 2011 while similar offerings for HR and talent management are in the pipeline.

Following the SDK and app store, Business ByDesign Feature Pack 3.0 will be launched in the summer of 2011. The update will add core ERP capability and business functionality and may see further integration of SAP's in-memory computing to boost processing performance.

But it will be several years before Business ByDesign can provide the level of functionality that SAP's on-premise ERP systems currently do, according to Zinow.

Ovum's Eager said despite Business ByDesign's relative lack of sophistication at the moment, SAP will be able to develop it effectively: "At the moment Business ByDesign is functionally weaker than other SAP offerings but has a modern architecture designed for performance and business agility and is benefiting from the inclusion of new technologies so may well overtake other offerings," she said.

SAP's Business ByDesign on-demand ERP platform is a linchpin for the rest of the company's cloud strategy
(Screenshot: SAP)

To cater for customers with more complex ERP needs but who want to take advantage of the cloud, SAP is allowing partners - including Fujitsu, IBM and HP - to provide a hosted version of Business Suite, which includes ERP applications for financials, operations and corporate services.

Zinow said SAP is making it possible for customers to access hosted versions of its previously on-premise tech "to enable [partners] to help our customers move their Business Suite systems to a cloud-based infrastructure".

SAP may allow partners to host Business ByDesign in the future but while the company continues to develop the platform, it intends to keep the technology running on its own server infrastructure. "In the long run we will have partners [for Business ByDesign] but for the moment we still say there's so much to learn, we do it on our own," Zinow said.

Taking all these plans into account, Eager said SAP's aims for 2011 shows it has taken time to re-evaluate its on-demand strategy and has decided that Business ByDesign is now just one of the aspects in its cloud strategy.

"[SAP] is thinking about cloud and on-demand from the bottom up, from the infrastructure and business perspectives, where Business ByDesign is the top of the pyramid," she said.

Despite this approach, Quocirca's Bob Tarzey warned that SAP's lateness to the SaaS market - and the price of Business ByDesign - could hold uptake back.

"To succeed [SAP] needs to do [on-demand] well, and to keep costs down and performance up that means it needed to build a proper SaaS platform and not a pseudo one based on single-application hosting," he said.

This lateness to the SaaS market is seen by the chief executive of the UK & Ireland SAP User Group Craig Dale as potentially a good thing: "Rightly or wrongly, SAP has been criticised for being slow to bring its SaaS offering to the market, but hopefully the result is a more robust and compelling offering."

But with SAP investing in other areas such as in-memory computing, mobile technology and making efforts to simplify development of cloud-based applications through the SDK, Eager said the company is on the right track.

"If there were any doubts about SAP's intent or ability to comprehend the segment, they have been dispelled," she said.