SAP rolls out 'hybrid' CRM

SAP rolled out today its CRM on-demand application, focusing on large and mid-sized companies, for managing sales, service and marketing. The company calls it 'hyrbid' CRM, with subscription-based licensing. SAP's approach involves both more sophisticated traditional and the more fleet hosted services, bridging between on demand and on premise.

SAP refers to its on-demand deployment model as "isolated tenancy"--combining the  low-risk of single tenancy with the efficiencies of multi-tenancy architecture, according to its press material. 

Isolated tenancy means that customers don't share databases or memory, as in the multitenancy model espoused by salesforce.com and others. "We don't want to put users at the mercy of the community of users, especially around peak times," said Shai Agassi, SAP executive board member. "The goal was to have a same-day deployment model...and not be disrupted by a community of customers. Isolated tenancy is the third generation--the first generation was pioneered by Corio, your application set, one of a kind and you had to manage. The second generation was multitenancy with everyone using the same system. We are introducing the third generation."

This hybrid approach, SAP says, will allow customers to migrate either way, bridging the gap between on demand and on premise. IBM will provide its DB2 database and hosting service (as it did for Siebel's--now Oracle's--on demand CRM) to run SAP's CRM on demand solution, which is priced starting at $75 per user per month. "Unlike other vendors, we have no lock-in," Agassi said.

Shai Agassi introducing SAP's on demand solution

Bob Stutz, executive vice president of SAP CRM on demand, further explained isolated tenancy. "Isolated tenancy gives the best of both world--a lone master copy of software is pushed to every customer, but they all have separate systems, which allows them to avoid brown outs [associated with multitenant architectures]. Customers can customize systems without affecting other customers. On premises customers can move to on-demand, and vice versa, via a common data model and ESA [Enterprise Service Architecture] service definitions, which is the foundation API for creating an ecosystem around SAP's platform.

The first SAP on demand module is sales, which was released today, Stutz said, and will be followed by quarterly releases that are deployed to customers. The next module will be marketing, followed by services, Stutz added

The on demand CRM is available today in English and German, with other languages to come. Both SAP's on-demand and traditional CRM versions use the NetWeaver platform as a foundation. 

Competitors are weighing in. Zach Nelson of NetSuite sent out the following statement in an email:

"SAP is making a surprising mistake by thinking software as service is a 'CRM'
only phenomenon. Just as in the client-server market, the application that will ultimately win the next-generation application battle will be an integrated suite of applications designed to run the core business processes of a company. And you literally can't build an integrated suite starting with CRM - ask Siebel or salesforce.com that. You must start with ERP (as did NetSuite) as the base and branch out from there. So the important question is 'where is ERP as a service from SAP?' But I'm fine with SAP not addressing the back-office, because they will be leaving the fastest growing segment of the on-demand market - the ERP market - to NetSuite."

Nelson has one point beyond his self-serving statement--what is SAP's strategy for doing more than CRM as a hosted application.  Bill McDermott, president and CEO of SAP Americas, said that SAP would focus only on CRM on demand because "that's what customers want." Agassi chimed in that CRM is suited to an isolated tenancy model in which simplicity of usage and pushing information outside of corporate boundaries are key. Not a very satisfactory answer. Agassi also said SAP may go after submarkets and smaller companies(SAP is currently focused on 100+ minimum users per customer) in the future.

Salesforce.com's CEO Marc Benioff responded to the diss on multitenancy in an email.

Multi-tenant shared systems are the proven way to deliver on-demand.  Ebay, Amazon.com, CNET, Yahoo, Google are all multi-tenant, shared systems.  SAP’s software is single-tenant, and so is their on demand system.  Just like Siebel’s was.  No Different.  

Siebel was reincarnated today as SAP.

Agassi responded to a question about market size potential for its CRM products. "We have added in last quarter alone a million and a half end users. If look at overall SAP customer base, we have a potential of 60 milion users and 25 to 30 percent currently using SAP products. No one is beyond a few hundred thousand user at this point, so it is less than one percent."         

Agassi addressed the IBM tie up: "The SAP/IBM relationship is friendly and strategic and create a lot benefit to customers. We don't need to tell the financial details." 

In reference to the flexibility of the CRM solution, he said the users have the ability to fork the system. "We can take an instance and put it on premises and continue to develop it with  capabilites in NetWeaver offering. That is one of the dimensions of the hybrid model," Agassi said.       

I asked Josh Greenbaum of Enterprise Applications Consulting, an avid SAP and hosted/outsourcing market watcher, for his opinion on SAP's announcement. "The on demand vendors have been poaching SAP's customers for a while. For SAP customers, those sitting on the fence, looking outside, they have a reason to stay with SAP. Over the course of a year, they will deliver more functionality and the tight integration between the on demand product and the rest of the SAP back office. Integration is essential. Salesforce.com will have trouble selling into the SAP core at this point."

After the press conference, I  talked to Peter Graf, executive vice president of SAP's Product and Technology Group about competitors. "The key differentiation from Siebel, is that we are not being acquired by Oracle," Graf said "Our hybrid model differentiates us--the key is how customers can differentiate from competitors with their use of SAP software, beyond standard features like opportunity management and contacts. They can easily move from on demand to on premises to customize to their advantage if they choose too. Everything we do is targeting a segment of 100 customer facing agents and up who want to go about it in a strategic way--as part of an overall IT strategy."   

Peter Graf, SAP EVP, Product and Technology Group

"Salesforce.com is not really the market we are addressing. We are developing a product that fits an overall strategy--the large enterprise and upper mid-market. They want very low risk and high availability. If you have 100 customers on same software--multitenancy--and same database and the system crashes, every customer has a big problem. With isolated tenancy every customer runs their own instance--each copy is different in terms of data, process configuration and state of application--the point is that each customers is literally sitting in their own boat. If someone drills a hole in the boat, everyone goes down in multitenant systems. In isolated tenancy, if one boat sinks all other customers stay afloat."