Over at Rough Type yesterday, Nicholas Carr has a post with the juicy headline 'SAP CEO calls SaaS "the better model"'. It's generated a fair amount of controversy amongst the Irregulars - I'll link to the related posts as they come out. Earlier in the year I reported my thoughts following their first pre-announcement when I asked "Will SAP A1S change the game in the mid-market?" Nicholas's post was triggered by reports of a demo of the current beta version in Hanover at CeBIT. Carr says:
"Although Kagermann appears to have been referring to mid-sized and smaller companies, the fact that he would call SaaS "the better model" - both for customers and for his own company's future profitability - represents a striking change of heart and of strategy. "
The first thing to say is "nice eye catching headline and copy, but SaaS was never mentioned by Mr. Kagermann". If you listen carefully to the recordings of the earlier announcement, or read the available quotes from the various publications since CeBIT you will see that SAP are studiously avoiding using either SaaS or On-Demand in their language. Once they use those terms, they will present the implication that their business model is the same as Salesforce.com or other SaaS vendors. They talk of hosted, one-to-many architecture, subscriptions, selling via the Internet - all of the ingredients of SaaS, but not the acronym itself. Nicholas is trying to make his own particular point on the shift to utility computing, but isn't his language a form of misrepresentation?
However, the situation gets less clear, and the issues and questions pile up as you investigate further.
The FT reports that Mr. Kagermann said investors were nervous as the new product was coupled with a new business model. While big groups buy SAP's software for their offices, small companies will rent A1S and use it online. Installing databases meant the subscription model had big start-up costs.
"People know this is the better model. But the upfront cost means few dare to introduce it," he said. "You only start printing money later."
So here we get the source of Carr's headline. Apparently Kagermann goes on:
"We expect a new breed of consultant to help some businesses get started -- but only to get started," Kagermann said. "Once businesses have used the application, they'll get the hang of it pretty quickly."
Apparently these briefings suggested SAP aims to squeeze the new hosted offering between two of its existing products targeting small and medium-size enterprises (SMEs): All-in-One and Business One (B1). As part of the company's assault on the global SME market, A1S will target businesses with between 100 and 1,000 employees, while All-in-One will focus on companies with between 1,000 and 2,500 employees and Business One between 10 and 100.
Could users of All-in-One, which is a slimmed down version of mySAP ERP, be attracted to the new hosted application to save money?
"Let me make a comparison to the car industry," Kagermann said. "You can buy a basic car that transports you from point A to point B. But if you want to have other special features, you pay for them. That's the difference between All-in-One and A1S."
From Infoworld.com they reported on A1S as follows:
"To drive the price down, the product must be highly standardized," Kagermann said. The need to offer a set of standardized functions, he said, also means "less choice" of options to customize the product, he added. "
"By narrowly limiting product customization and thus complexity, SAP and its partners will be able to deploy the offering much faster", Kagermann said. "Fewer consultants will be necessary, resulting in lower costs. "
According to the spokesman, Kagermann promised to give the market more details about the product over the next few months and said the company is still on track to bring A1S to market in the fourth quarter of 2007 or the first quarter of 2008. Apparently there are 150 beta customers already using it.
But the rollout of the new hosted service will not steal customers from B1, SAP's lower cost traditional offering that is also highly preconfigured, Kagermann said. On the contrary, "we expect more than 50,000 of our targeted customer base of 100,000 by 2010 to be Business One customers," he said.
If you piece these ideas together, none of the questions I asked in my earlier piece have been addressed. If anything I've got more questions:
- If SAP are segmenting the SME market by size with B1, A1S and then All-in-One, and if the product in the middle band has significantly lower cost of ownership, reduced consulting and quicker implementation, why would customers buy the other two products? The car comparison works comparing SME requirements against a larger enterprise, but doesn't work within the SME space as they've defined it.
- How will the A1S business model fit within the normal SAP culture and alongside the 3 other traditional products?
- SAP have 39,000 customers to date. How are they going to get to 100,000 customers by 2010? Even more importantly, how are over 50,000 of those customers going to be B1 customers? I just don't see how they are going to get there from here.
Other Irregulars views (added as they post):
Vinnie wonders who this is a better model for.
Dan Farber picks up on Kagermann's car comparison and SAP's quest to add 60,000 customers by 2010.
Phil Wainewright wonders Has SAP converted to SaaS? But he recognizes Kagermann and SAP are traditional software at heart, and questions how A1S will thrive in there.