SAP-as-a-Service: Will SMBs Bite?

ZDNet blogging colleague Phil Wainewright has welcomed SAP to the ever more boisterous SaaS party.SAP's venture into SaaS may be its boldest move since MySAP.
Written by Joe McKendrick, Contributing Writer

ZDNet blogging colleague Phil Wainewright has welcomed SAP to the ever more boisterous SaaS party.

SAP's venture into SaaS may be its boldest move since MySAP.com. But are companies ready for such heavy-duty SaaS?

That's because of the launch of SAP-as-a-Service this week. There's been plenty written by now about SAP's latest announcement that it was SaaSing a good deal of its application sets. SAP's "Business ByDesign" will be SOA-based powered by NetWeaver, and made available to a "limited" number of companies, at least until a major rollout in 2008.

This is probably the vendor's boldest move since it front-ended its apps with the MySAP portal in 2000 and launched NetWeaver middleware a couple of years later.

Here at the ZDNet blogging site, Dan Farber, Dennis Howlett, Phil Wainewright, Michael Krigsman and Larry Dignan provide perspectives on SAP-as-a-Service plans.

Despite concerns about SAP cannibalizing its more lucrative on-site implementations, the ZDNet blogging community is generally favorable to the vendor's latest move.

Dan Farber observes that "if SAP is successful with Business ByDesign, which isn’t a certainty, customers will be asking for the same kind of user experience and cost efficiencies in the rest of the product line, across all verticals and industries. SAP will need to worry less cannibalization of its other product lines by Business ByDesign, and more about customers defecting to alternative solutions that do a better job at delivering on demand ERP."

Dennis Howlett says SAP-as-a-Service is a good move, yet somehow understated. "The measured approach SAP is taking launching into the SaaS space is exactly the right position to take and one that investors will appreciate further down the road. Who knows, in time we may look back and say that in making the slow hand play, Kagermann parallels Eric Clapton’s maturing musical path?"

Michael Krigsman said SAP will have to unravel its image as a big, complex solution just for the big guys. The vendor's "biggest challenge is the massive psychological and organizational shift required for SAP to truly make friends, and get cozy, with small companies." Give the SMBs a little love, Michael advises SAP.

A report in Internet News, however, pours cold water on SAP's party. It quotes Peter Goldmacher, equity analyst at Cowen & Co., who worries about cannibalization. He has a "hard time seeing how this product will drive material revenue growth or margin expansion" into the SMB sector. "Over time, we are concerned that this product and distribution model could compete…with SAP's higher-end offerings."

Another factor may be the lack of customization that comes with SAP as a Service -- or with any SaaS offering, for that matter. James Governor put it this way: is SAP as a Service "iPhone for ERP, or AS/400 for the 21st Century?" He cautions that there isn't much room to play with this mode of SAP -- you take what is sent down the wire to you. SAP is a black box, with "...no customization. No platform choice. Just application services." This is Apple's philosophy, of course. Maybe this is what SMBs -- who also were prime customers of IBM AS/400 boxes you put in a corner and turned on -- want anyway, James speculates.

My view is that the SaaS apps that have been making it so far are relatively simple and lightweight. SAP-as-a-Service is a really heavy deal. This drives the SaaS paradigm to a whole new level, and it remains to be seen how many companies are ready to bite off this much at one time. Larger companies (including the high end of the SMB sector) are likely to prefer mainly in-house implementations they can customize and have control over for some time to come.

That being said, heck -- if you're on the smaller side of the SMB space, and you can tap into SAP-grade applications for $150 a pop (plus additional licensing fees as users are added), then why not take advantage of it? This is finally industrial-grade ERP available to the masses -- long ignored by the ERP heavyweights. My main concern as a business user would be that SAP may attempt some type of lock-in and forced upgrades once the business is using the services and are dependent on them. But as time goes on, and if SAP sticks to this strategy and pricing, it may build a following.

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