SAP SaaS Strategy

By Subraya Mallya - June 2009 | Topics - Cloud Computing, SaaS

John Wookey, executive vice president of SAP On-Demand shared his vision for SAP’s SaaS strategy in an interview with  InformationWeek. Given the multiple SaaS/on-demand strategies SAP has presented to date this new one creates some confusion.

In the past SAP has always portrayed Business ByDesign as its on-demand offering albeit making it available only in a small subset of countries. It was a positioned as a complete on-demand suite counterpart for its on-premise SAP Business Suite. It was also targeted primarily at SMB customers.

But going by what John has outlined in his interview it seems like this new strategy is going to be different. To quote from his interview – “Here’s what SAP customers can expect in the coming months: function-specific software applications, available by subscription, that plug into customers’ on-site SAP Business Suite systems, and that SAP will host for customers using a multi-tenant architecture.” He also goes on to say “SAP won’t develop software services that compete directly, as independent SaaS applications, with companies such as Salesforce.com, Concur, and Ariba. Rather, all of SAP’s on-demand apps will be designed as extensions of Business Suite.

This strategy is unique as Wookey says, and more complementary to the Business Suite. It is based on the platform multi-tenant architecture acquired from acquisition of Frictionless.

At the outset, based on these comments, it is easy to assume SAP is missing the plot or that it is just making some noise about SaaS yet again. Vinnie Mirchandani felt it was a “moat” strategy. Although it has been received with skepticism I have an alternate theory on why this might turn out to be a smart strategy.

Successful SaaS vendors in the business applications area, barring CRM as a category, have been primarily building solutions in three areas

  1. the in-between areas where ERP vendors don’t have a solution and homegrown solutions are cannot scale or are tough to maintain.
  2. Advanced solutions like predictive analytics, Talent Management, Performance Management, collaboration solutions that sit on top of ERP/CRM solutions.
  3. Horizontal solutions with scaled down common ERP flows focused on SMB segment.

SAP already has about 25% of ERP, CRM and Supply Chain market – depending on whose numbers you go by. So SAP can do one of two things –

  1. Entrust their product teams to enhance Business ByDesign to effectively compete with  nimble SaaS vendors. We all know who will win that race. It seems like SAP Management also knows that and hence it is not the strategy-of-choice they are pursuing. Add to that the financial dilemma of spending on BBD as Bob Warfield outlines.
  2. Go after the up-sell opportunities in existing accounts and build industry vertical specific, value-added functions to sell into their existing accounts. This will serve two purposes. This will provide a way to slowly ease the existing customers into SaaS and considering that these are add-ons on top the Business Suite, it is conceivable that SAP can compete with nimble startups in this area.

While the SaaS meal is cooking in the SAP kitchen, Wookey would well to use a trick or two he learned from Uncle Larry’s M&A University and tuck-in a few more smaller SaaS vendors to kick start the closed-loop application ecosystem.

While this strategy looks good from the SAP point of view, John and his team should work out – the small matter of partners. SAP has long been known to be partner friendly in nurturing partners in building ancillary applications to augment the Business Suite. This has played a large role in the partner ecosystem. Now with SAP entering their turf, it remains to be seen how the partners will react to this announcement.

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