Was SAP Too Slow on SaaS? Maybe, Maybe Not

Several publications are reporting the results of a small survey of British and Irish SAP users, in which nearly three-quarters of the respondents knocked SAP for being too slow to bring its software-as-a-service offerings to market. But what is too slow?

Yes, the SaaS market has grown tremendously in the three years since SAP announced its intent to offer software via a SaaS model. But a recent Gartner study found SaaS accounts for a relatively tiny  percentage of total IT deployments, representing 3.4 percent of global  enterprise spending in 2009, up slightly from 2.8 percent in 2008. That obviously leaves lots of room for future growth. Some experts, including Saugatuck Technology’s Bill NcNee, don’t expect SaaS adoption to really begin picking up until next year.

While 16 percent of respondents polled by the UK & Ireland SAP User Group said they ended up using another vendor’s technology in another area of their business because SAP did not have an appropriate SaaS product, just 17 percent of them said they were using SaaS or cloud computing to deliver business-critical applications to their organization. Forty-nine percent, however, said they planned to use such services in the next 12 to 18 months. Maybe SAP is "early enough" to the marketplace with its Business ByDesign software, as Jim Noble, managing director of SAP UK & Ireland, said in a ComputerWeekly.com story.

SAP has been developing and testing Business ByDesign for three years, not a horribly long time by traditional software-development standards but an eternity in the world of Web-based applications. SAP in 2008 slowed its efforts to bring the software to market, saying it needed more time to get the product just right, prompting critics to say SAP lacked a fundamental understanding of the differences between SaaS and on-premise software. SAP resisted adopting a multi-tenant architecture, the approach used by most SaaS vendors as a cost-effective way to provision computing resources.

But considering current adoption levels and the growing buzz for SaaS among government agencies and other organizations, maybe SAP is in the right place, at the right time after all with the starter pack and three Business ByDesign packages it released yesterday.

SAP, which like most other technology vendors has always been coy about pricing, released costs and approximate implementation times for the CRM, ERP and Professional Service Provider (PSP) starter packages. In doing so, SAP is obviously trying to appeal to companies’ desire for faster deployments and lower costs (the biggest SaaS benefits cited by respondents in the European sample). But it also risks making its on-premise offerings look like the proverbial lumbering dinosaur in comparison. (Thanks, Marc Benioff!)

That’s a risk SAP obviously feels it has to take. Like other on-premise giants introducing SaaS products (Microsoft comes to mind), SAP is positioning its SaaS offerings as more sophisticated than typical SaaS point solutions and a more natural fit for hybrid strategies in which companies will keep some applications on-premise while moving others to the cloud. As companies’ use of SaaS continues to evolve, their requirements may indeed become more sophisticated. This spring when I spoke to Jeff Stiles, SAP’s global marketing lead for ByDesign, he predicted integrated suites (like those offered by SAP) will be "the next wave in on-demand."

Challenges definitely remain. As Dennis Howlett writes on ZDNet, pricing still seems a bit high for the ERP and PSP packages and SAP has yet to come up with the right sales channel strategy. Stiles addressed the channel question in our conversation, telling me SAP would rely mostly on "a co-selling model with partners," beginning with existing resellers of its products. SAP’s approach is "overly cautious," wrote Howlett.

Howlett believes much is at stake with ByDesign, not just for SAP but for cloud computing. He wrote:

Progress over the coming year will be keenly watched. If SAP fails then it will be a massive backwards step for all who aspire to the notion of cloud computing. If it succeeds, then it is a massive endorsement. There is no in-between.