SAP heading into software-as-a-service?

In a story today, News.com's Matt Hines reports on whether, or when, SAP will jump into the hosted/on-demand/SaaS applications business a la salesforce.com.

Previously, SAP CEO Henning Kagermann said: "When on-demand came up, we at SAP felt we should be careful...that on-demand is not the next locked-in strategy. With on-demand, the customer hands his destiny to someone else and then he finds out after two or three years he cannot get his destiny back." From SAP's perspective, customers want the flexibility to modify business processes, and an on-demand provider may not allow some changes. Kagermann also said the SAP isn't going to be a hosting company. So be it--SAP could allow others to provide NetWeaver-based or more standard SAP applications as hosted services.

IDC is predicting that spending worldwide on SaaS will go from $4.2 billion in 2004 to $10.7 billion in 2009. Salesforce.com, NetSuite, RightNow, SugarCRM and Siebel in the CRM space are having some success, and dozens of new companies are entering the SaaS space. Our blog Datapoint highlights a recent report from Analyst Views that rounds up data on the potential demand marketplace, including the survey chart below. 

Even if you take the market sizing and surveys with the proper grain of salt, I would expect SAP to do something this year to let the market and competitors know that the elephant has entered the room and intends to do some squishing (or acquiring) of the smaller beings. SAP treats markets similarly to Dell--let others spend the money to open up a new market and then come in and see if it can clean up when it reaches a sufficient size. SAP can afford to be patient.

Hines' news story quotes Salesforce.com executive Phill Robinson offering the usual market validation pitch: "...for someone like SAP to push further in [hosted CRM] is a very powerful thing that can only help us grow our business."  There is some truth to that, but Robinson also said that he's not worried about SAP because of serious challenges the bigger company faces in making the move to SaaS. Wishful thinking. Between Siebel, which has taken a while to get going with its SaaS CRM and a focused, carefully calculated effort by SAP, as well as the smaller players chipping away, salesforce.com will feel the heat. If the economy holds out and IT spending doesn't nosedive, the total market expansion will provide some relief...