Yesterday, in New York at the Nokia theatre and broadcasting across the web, SAP formally announced their new, mid-market solution, which up to this point has gone by the code name of A1S. Bill Wohl hoped that he would be the last SAP executive to use the term, and Henning Kagerman, the CEO, then introduced SAP Business ByDesign, an on demand solution which they finally described as Software as a Service - in previous presentations they had studiously avoided using that term. This product has been 4 years in the making, with a team of 1000 people involved. To indicate how significant they believe this is, Henning went on to say:
"I've been in the company for 25 years now and it's the most important announcement I've made in my career to date"
Some of my Enterprise Irregular colleagues were there, and I'm looking forward to their analysis, and insights from the face to face meeting the had with Henning Kagerman. I've just listened to the recording of the event, and so here is my own first impression, which I've already published over at blognation.
SAP's plans are very ambitious. They say they are creating a new, volume business for SAP and describe Business ByDesign as a next generation, on-demand product, which they are combining with launching a completely new business model with an entirely new customer experience throughout the product life cycle. That includes the ability to try before you buy, so that you can prototype a solution, which would then become your live system once you've signed the Ts and Cs and bought the product.
They are positioning BBD as a complete solution, with no compromises, but say it is not designed with traditional categories like finance or ERP in mind, but is more service oriented and event driven. The solution provides end to end processes that are role based, rather than modular, with a user interface that can be tailored to a person's responsibilities. They explained that the solution has project management functionality integrated to the financials and HR, whereas the typical mid-sized company might today use as separate PC or web based package alongside their standard commercial software. They believe they will set a new standard for business software for mid-sized companies, and say they intend to change the on demand marketplace.
Ian Kimbell demoed the product, and it certainly looked very flexible and function rich. However, the screen design looked very traditional. I didn't see any AJAX style drop downs in the interface, and the help sub-system opened in a separate environment. It looked to me like they have missed a big opportunity to simplify the user interface, and to really take on board the web 2.0 style and characteristics of many of the current web based applications that are so well designed.
They explained that they have 40 pilot customers, and introduced the 20 who are actually live at the show, like Stemma or Compass Pharma. They all gave the system a glowing report in terms of how it has been received by their users. Peter Zencke, SAP Executive Board member, explained how the system is configured by a question and answer process, and that the solution is hosted in Waldorf, delivered through the browser, uses internet compression technology, and that they are steadily working on improving performance. He said that BBD is not for companies that have a high demand for vertically specific applications, but that they are trying to do 3 things:
- Simplify IT
- Significantly reduce cost of ownership - previously they have talked in terms of 1/10 of the cost of their traditional solutions, and this was repeated by Léo Apotheker, the deputy CEO, later in the presentation
- And to exploit technology to address future business threats.
He went on to explain that BBD brings their SOA architecture and Software as a Service together for the first time. The underlying technology uses NetWeaver, with MaxDBâ„¢ as the database (and not Oracle). In the question and answer session they explained that it is a multi-tenant architecture, but that customers have separate databases.
Earlier, Henning had explained the positioning of the product compared to their current range as follows:
- SAP Busines Suite (ERP 6.0) is for companies with more than 2,500 employees - a $30bn market where they have more than 10,000 customers in 50 countries
- SAP Business All-In-One for companies up to 2.500 employees who need more complex, vertical market based solutions - a $10bn market
- SAP Business ByDesign for businesses with 100-500 employees - a $10bn market where they believe their analysis suggests there are 1.2m companies which they aren't addressing with their other products
- SAP Business One for companies from 10 to 100 employees - a $10bn market who need more tailor made solutions, where they have 15,000 customers in 40 countries
I have said before that I find this positioning problematic. If the flexibility and ease of use is as good as they describe, and the cost of ownership is really as good as they say, surely some of their existing customers using the other products will compromise on less vertical functionality in return for a more cost effective solution. As well as winning new customers with BBD, what will they do for their existing customers paying standard maintenance prices? Vinnie Mirchandani asks the same question.
Léo talked through the pricing. The full solution starts with a minimum of 25 users at $149 per user per month, with additional lower cost options for types of users using limited functionality like consultants only entering timesheets. He also explained that they are piloting their channel approach with 20 companies now, and that they will be building up their partner ecosystem rapidly during 2008.
An area where I was little confused was over the forecast numbers they quoted. Previously they have said on more than one occasion that they plan to have 100,000 customers by 2010. They have said that the jump from their current 39,000 customers will come by adding mid-market customers mostly with the new product. At this event they talked about ramping up to winning 10,000 new customers with BBD by 2010. Without the history of what they have said before, the story and raw numbers are very impressive. SAP is the market leader in business applications, and the new product strengthens their position, and presents a big challenge to SaaS players like Salesforce.com and NetSuite. The issue is that the story has completely changed from their previously stated intent of 100,000 customers. I'm sure this is an issue that they will be hit with by a number of analysts and commentators in the coming days.
If you want to see the whole morning's presentation including the Q&A session, it is available here. You can find an FAQ about the product here.
On balance I think yesterday's announcement sounds very promising, and was a very significant day for the Software as a Service market as a whole. From this initial impression, with only a short demonstration, the user interface doesn't look particularly exciting. However, I'm sure the product will be a success, but I wonder how the new business model will co-exist with the traditional model inside the SAP organisation. How much of an effect will it have on their existing customer revenues?
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