SAP's Business ByDesign: Finally Real, But a Tough Sell?

SAP's long-discussed on-demand suite goes on sale in July, but the SaaS economics are tricky for the ERP giant.

What hasn't been said about SAP's on-demand ERP suite, Business ByDesign?

For years, industry analysts, bloggers, media members and interested SAP watchers have been discussing and kvetching over the software giant's entry into the tumultuous, uncharted seas of on-demand software.

All along, however, the legendary on-premise ERP vendor had been dipping its toes into the water. We all heard about visions of 10,000 Business ByDesign customers by 2010, and yet SAP held firm with just 100 for years.

Would SAP ever take the plunge?

We were told to wait. SAP's relentless pursuit of technical perfection in getting ByDesign right seemed, from the outside, agonizing and, at times, embarrassing. Just ask former SAP CEO Leo Apotheker.

That wait is now over.

At the Sapphire 2010 show, co-CEO Jim Hagemann Snabe announced that Business ByDesign "is not a fantasy. It's a real product. We wanted to perfect the infrastructure. You only get one chance." SAP announced general availability in July.

SAP execs claim to have figured out the technology hurdles (as in, the multi-tenancy issues for their suite of on-demand apps) as they "go to volume."

But perhaps one thing that SAP might still be wrestling with is the business model that other SaaS vendors, such as NetSuite and Salesforce.com and Workday, understand. The economics of on-demand software are, of course, radically different than what SAP knows today. Just look at the balance sheets of those aforementioned vendors.

During a Monday press conference at Sapphire, Hagemann Snabe dropped this nugget: "We will measure our success [with Business ByDesign] in the number of customers running the software—not in the revenues."

Really? I think the Investor Relations folks might have something to say about that. (As to what Business ByDesign will cost, that's a TBD.)

Late Monday, I did an interview with John Wookey, SAP's EVP of business solutions and technology who's in charge of bringing SAP on-demand products to enterprises. I asked him about Hagemann Snabe's comment.

"Obviously, we look at revenues," Wookey said, tactfully. Obviously. "We recognize the shape of the revenue curve in on-demand is a different shape than on-premise," he added.

I also wondered to Wookey if SAP recognized the fact that it is playing catch-up in the on-demand business apps space—that there have been many hard-earned lessons realized by the early SaaS players, such as working with partners in the channel. (As an example, see how NetSuite is trying to innovate with its sales partners.)

SAP will also have to deal with the legacy perception that SAP's on-premise software is expensive and complex and solely for big companies.

When I asked Wookey if he was worried about customer apathy and lack of marketshare missed during the perfection of the Business ByDesign product, he pointed to something we all have heard before: Business ByDesign is a suite of ERP apps while competitors offer products that lack the breadth and depth of BBD.

As to the potential perception problem, Wookey simply said that SAP "will overcome it with customer success stories."

If SAP is to enjoy any financial success with Business ByDesign, those stories will have to come from more than 100 customers.

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