Search Content


Featured Content


Content Categories



On-premise and on-demand are like oil and water for SAP

This week's announcement that SAP has delayed the rollout of its hosted midmarket “Business ByDesign” offering, and reduced expectations for the product, shed further light on the difficulties that on-premise software companies will have in delivering software as a service.

It's not that SAP leadership doesn’t “get” the opportunity, or isn’t “smart” enough to capture it. I spent three years in the Office of the CEO and know better. But it takes more than smarts to overcome fundamental conflicts between the traditional enterprise software business model and the on-demand business model. Many lessons only come with experience in the market, and SAP's approach to try to build it all at once (as explained by SAP founder Hasso Plattner in his debate with Marc Benioff) is completely off the mark.

For example:

  • SAP locked 1,000 German engineers in an offsite location for five years to develop Business ByDesign. This follows the traditional model for building complex enterprise software. Software-as-a-Service (SaaS), on the other hand, allows, and flourishes with, continual refinement based on customer usage. This affects every aspect of the development lifecycle.
  • SAP built a system that was service oriented by design, but service delivery was an afterthought. SAP has never been in the service delivery business - this is an entirely new core competency, which happens to be at the core of how Salesforce and Google create value.
  • To avoid cannibalization of its core products, SAP has tightly restricted the target market for ByDesign to a narrow set of geographies and industries. Successful SaaS solutions, on the other hand, are adopted by the marketplace in a bottom-up fashion and spread virally, leading to surprising adoption patterns that result in new opportunities, such as Salesforce being used for Service and Support.

 

This week's announcement is bad news for SAP—they’ve spent the last 2 years validating the potential of the SaaS market and now have to admit that it is far more difficult that then they anticipated to capture this opportunity.

 

Maybe SAP should take Benioff up on the challenge that he issued to Hasso at the Churchill Club, and build their next business application on Salesforce.com's Force.com platform. After all, SAP’s core expertise is business processes, not in the technology or infrastructure required to deliver software as a service.

Narinder Singh

Related CRM Professional Services Articles

For Internet Companies, Profits Are Inversely Prop


Internet companies are slowly beginning to realize that more eyeballs don't necessarily translate into more advertising dollars and what really matters is the location of these...

Read more about For Internet Companies, Profits Are Inversely Proportional to International Eyeballs...

Strategic Services in Employee Performance Managem


A lot of organisations have tried to implement Employee Performance Managment by buying new software and have failed. One of the most frequent causes is a lack of alignment between organisation strategy and individual performance goals. This applies...

Read more about Strategic Services in Employee Performance Management...