In search of SAP Business ByDesign

Mike Krigsman has a post that seeks to put ByDesign into a hopeful light. Based on his conversations I'm not surprised he came away with a glowing customer report.
Written by Dennis Howlett, Contributor

Mike Krigsman has a post that seeks to put ByDesign into a hopeful light. Based on his conversations I'm not surprised he came away with a glowing customer report. Customers I've spoken with have been rightfully delighted with what SAP is offering and the roadmap they're presenting. As he alludes:

Given adequate strength of will to bring Business byDesign to market, combined with sufficient investment of time and resources, it’s likely SAP will eventually gain the operating experience and technology required to drive customer acquisition and retention costs down to a reasonable level.

If you'd asked me the same questions a year ago I would likely have come up with similar conclusions. Unlike others, I was mad keen to see BYD come to market. It looked good, had the right approach for adoption, some rough edges but a clear development roadmap that hit a lot of the right buttons. But as time passes I find it increasingly difficult to maintain enthusiasm for ByDesign. The standard line is that SAP is fully committed to the solution but somehow that's starting to ring a little hollow.

Vinnie Mirchandani argues that:

But I also heard Pascal Brosset (see his views on the blog last week), SAP's strategy guru say they view On-demand (SaaS) as a very small part of their landscape. And, let's face it, it will compete with established SME focused siblings at SAP like All-in-One.

And I asked, based on a prospect experience, why they were tightly qualifying who they will sell the product to. The answer was they were losing money on each deal and the CFO had the product on a tight leash.

In our behind the scenes Irregulars discussion, the 'small part' was parsed as 5%. If true then on the basis of SAP's 2008 earnings card, that translates into €578 ($750) million in revenue. At the headline price of $150 per user and the past stated sweet spot of 50 users per deal that represents some 8,333 customers. At the more likely $100 per user per deal we're talking 12,500. That's a large number given that SAP already counts 86,000 customers. It requires an increment of 14% in customer count. Is this possible given SAP still seems mired in technical difficulties?

Quoting myself, Mike says:

Back in 2007, fellow ZDNet blogger, Dennis Howlett, called the original sales forecasts “aspirational:”

During the launch of Business ByDesign, SAP said that it expects to achieve a run rate of adding 10,000 BBD customers a year by 2010. This raised questions about whether SAP will reach its previously stated target of 100,000 customers by 2010.

During my conversations at Sapphire, SAP acknowledged that earlier forecasts were misplaced and stressed they are trying not to repeat that mistake.

So when will even 5% come to the table? If you're SAP's CEO Leo Apotheker and have a choice between supporting a cash cow and hefting a new product to market, which are you more likely to do?

The company has been reasonably transparent about the issues it faces but all answers lead to questions about its ability to understand the saas/on-demand market. Last year, Bob Warfield opened the can of worms by asking:

SAP can’t sell it’s software at competitive SaaS prices and make money.  Now let’s turn the math around the other way.  What are the chances you can run SAP in your own data center as cheaply and efficiently as SAP can run it in their data center?  After all, they wrote the software.  Do you see where I’m going with this?  SAP has essentially proven SaaS is cheaper than On-premises software for the customer.  They’ve done so by taking their own On-premise software and incompletely moving it in the direction of SaaS and then stumbling because they can’t even run it cheaply enough to be competitive.

But it doesn't stop there. Having fired up the channel to believe there was a new solution available, it has effectively told the channel to stay away. It is hard to see how SAP can credibly get the channel excited when it has effectively broken its promise to deliver. There are just too many alternatives out there that are ready to roll.

Then SAP has the problem of building a partner channel it will need to manage very differently from the past. At least there is the promise that SAP will have something beyond a sales channel requirement. In an earlier conversation with SAP's Rainer Zinow, he said: "There will be what we call partner extensibility where the partner will be able to define new 'cubicles' in which they will be free to put in whatever code they want. We will provide access to a services area where they can add objects and logic." How far that is down the road of customization is unclear though Mike said on the back channel that customizations remain a definite no-no. We'll see.

In the same conversation, SAP's Jeff Stiles said: "We have not made pricing decisions on different tenancy models." Read into that what you will but it seems to be signaling a major re-engineering effort to combat the operational cost problem the company has already identified and the possibility of differential pricing.

Then there are the broader go to market challenges. China and India are not really interested in CRM while in the US and EMEA areas, the focus is more on HR and CRM. In the US, SAP believes it needs to have strong curb appeal to high tech while in the UK and Germany it is thinking process based industries such as chemicals. Given those LOBs, how will it juggle the different market and technical needs and still make some sort of a profit?

Unlike Mike, my Irregular colleagues are far more skeptical about BYD's prospects, best summed up Charlie Wood's back channel comment:

I still don't buy the official story: SAP spent thousands of developer man-years on this thing only to discover at the end the operational costs are too high to sell it? That's ridiculous--and if true, troubling.

I've never been truly convinced that Leo Apotheker is that enamored of BYD. Once he takes full control of the company, we'll see whether he has changed his mind. I sincerely hope so. In the meantime, I invite readers to hold their breath while we go in search of BYD.

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