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Successful Business ByDesign would hurt us, says SAP CEO

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2nd Dec 2008
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SAP SaaS strategyIn recent meetings with industry analysts, SAP's co-CEO Leo Apotheker admitted that potential damage to its server-based business was one of the reasons for slowing the release of its online Business ByDesign ERP suite, reports our sister site MyCustomer.com.

Apotheker said that development work on version two of Business ByDesign was nearly complete and boasted, "It's the coolest app ever written."

But he acknowledged one of the longstanding claims of the software as a service (SaaS) industry that the online product could erode SAP's traditional revenue model. If SAP were to push forward the release of Business ByDesign, "We would be hurting our margin, and hurting our stock," Apotheker said.

"Just compare the profitability of many on-demand vendors... and you'll see that if you are an enterprise vendor that is running at the margin we are running at, if we release it now, we would be hurting our margin."

The current economic situation is an important factor, he explained. You would have to be "rather naïve" to believe that 2009 will be a high-growth year and like many of its customers, SAP was battening down the hatches to protect its interests and those of its customers, he said.

"We want to come out stronger, and we will. We want to look out for our customer, bring innovation to our customer and make sure we bring our own cost and infrastructure in place so that we weather the storm."

Like other established players such as Sage and Microsoft, SAP is pushing a strategy based on giving customers a choice of on-demand or on-premise business computing.

"What we can do is to combine the two worlds," Apotheker said. "There are certain things you can’t run in the cloud because it can collapse. No consumer company is going to run billing for 50m customers in the cloud. It doesn’t make sense. We’re giving people the opportunity to run the two things together. Try to give everyone a choice."

Helping to shape SAP's online strategy is John Wookey, who rose to senior vice president of applications at Oracle before leaving last year after clashing with Oracle CEO Larry Ellison. Wookey has taken his revenge by joining Oracle's arch-enemy as executive VP of large enterprise on-demand.

According to Madan Sheina of research house Ovum, Wookey faces some big challenges rationalising SAP's SaaS portfolio, which includes CRM On Demand for large enterprises; the mid-market Business ByDesign suite and a number of on-demand offerings SAP gained through its acquisition of Business Objects.

"Business ByDesign is aimed at companies with 100-500 employees, much smaller than the large enterprises that will be Wookey's main focus," said Sheina. "But assuming that it eventually proves popular, what's to say its appeal will be confined to the smaller end of the mid-market?

"SAP probably wouldn't turn down a deal to install it in a 500-person division of a large enterprise; success at that level could well prompt calls for larger, corporate-wide deployments that could cannibalise SAP's high-end business suite. That raises the question of profit margins - an issue for every vendor of traditional applications considering expanding into SaaS. The example set by Salesforce.com isn't encouraging; its net profits are slim indeed compared to what Oracle, SAP and Microsoft are used to," Sheina said.

"Pushing all of SAP into the cloud in one fell swoop isn't an option right now - the software is too big and complex for that. Instead, SAP is likely to target specific processes and services for the Cloud, such as supplier management, talent management and analytics."

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