SAP's Midmarket Design

After months of speculative chatter surrounding SAP's highly anticipated on-demand product, code-named A1S, the company finally lifted the curtain publicly on the midmarket-focused offering on September 19 at a press and analyst conference in New York. "It's not just a new product for us," said Henning Kagermann, the company's chief executive officer. "It's a new era for SAP. It's the most important announcement I've made in my career." Officially named SAP Business ByDesign, the product leverages services-oriented architecture (SOA) and was built on SAP NetWeaver. SAP Business ByDesign features extensive functionality, such as CRM, integration with Microsoft Office applications, executive management support, financials, human capital management, project management, supplier relationship management, and supply chain management. Kagermann, however, steered clear of referring to the product as an ERP offering and emphasized the completeness of the solution. "We have not designed it with these traditional categories in mind like CRM, ERP, et cetera," he said. "From the beginning, the idea was to design it for end-to-end, flexible, adaptable business processes." In fact, SAP was particularly busy this fall; less than one month after unveiling SAP Business ByDesign, the company announced its plans to acquire business intelligence and analytics giant Business Objects. (See "A Shift in SAP's Growth Strategy: Buy Big to Get Bigger." ) SAP Business ByDesign, the result of four years of development, according to Peter Zencke, a member of SAP's executive board, is aimed at new prospects with between 100 and 500 employees, moderately complex business processes, and moderate transaction volumes. The SAP-managed on-demand product will complement the company's other offerings: SAP Business One (the company's on-premise or hosted application for companies with fewer than 100 employees) and SAP Business All-in-One (its on-premise or hosted offering for companies with between 100 and 2,500 employees with strong requirements for microvertical solutions). Pricing in the United States will start at $149 per user, per month, including software, infrastructure, services, and support, with a minimum of 25 users per customer. Meanwhile, group pricing for "efficiency" users -- classified by SAP as those requiring limited access to the software, such as self-service features for time-and-expense functions and purchase confirmations -- is tagged at $54 per month for a set of five users. Prospects can try the product for free for 30 days before buying it. At the time of the announcement, 20 customers were live on the software in the U.S. and Germany, but customers in the U.K., France, and China were still validating the application, according to SAP. The product will be rolled out to other markets -- including Australia, India, Italy, the Netherlands, the Nordic region, South Africa, and Spain -- in 2008. SAP has been notably late in providing on-demand products that are often called software-as-a-service (SaaS). The firm unveiled its first SaaS tool -- the SAP Sales on-demand solution -- in February 2006, announcing SAP Marketing on-demand three months later. But the market's response to these offerings has been less than phenomenal. "There has never been a question whether or not SAP can build an ERP product--they can," says Simon Jacobson, senior research analyst at AMR Research. SAP "is a vendor that has really established themselves in the market, has -- believe it or not -- a very credible midmarket story, [and is] now offering a basically buy-what-you-want type package at a pretty reasonable rate." But he questions the market's acceptance of an ERP product delivered via SaaS. "We have yet to see whether or not buyers will really accept a full [SaaS-based] ERP package," he says. SAP Business ByDesign could add a much-needed credibility boost for SAP in the on-demand market. The new product "is really a major stake in the ground for SAP in the on-demand space, in the midmarket, in the model-based development space, and in the services-oriented architecture space -- all four of those converge with this one product," says Josh Greenbaum, principal at Enterprise Applications Consulting (EAC). That on-demand market is heating up. SAP must now contend with a field of competitors with much longer histories in delivering SaaS functionality, such as on-demand specialists Salesforce.com and NetSuite, a company that has been lauded for its on-demand integrated ERP, CRM, and e-commerce capabilities. SAP's announcement happened to coincide with Dreamforce, Salesforce.com's annual user conference, and came just one day after NetSuite announced that manufacturer Asahi Kasei Spandex America had replaced SAP R/3 with ERP functionality from NetSuite. Greenbaum, however, says that SAP is a substantially larger and better-known company than NetSuite, putting the onus on NetSuite to retain its market position. He also sees challenges ahead for Salesforce.com: "One of Salesforce.com's main problems is it lacks direct out-of-the-box integration with the rest of the back office, and for companies that have to weigh the choices of having a full on-demand suite versus a best-of-breed CRM solution that has to be connected to the back office, the [SAP Business ByDesign] story can be a very compelling one." But much of the success of SAP Business ByDesign rests with its channel strategy, Greenbaum says. "All the great technology in the world won't work in the midmarket unless you have a strong, very motivated channel bringing [it] in front of the customers."

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