SaaS: SAP Moves Slowly in Targeting SMBs with OnDemand

SAP is beginning to make noise that they’re getting more serious about SaaS.  SAP is desperately trying to come up with a strategy to grow from a base consisting mostly of large companies to one that can also attract small and medium sized companies.

The new strategy needs to kick in soon.  Sales are stalling — sales targets were missed in two quarters in 2006.  As a result, the stock price has fallen 15 percent since January.  There have also been rumors that SAP founders Hasso Plattner, Klaus Tschira and Dietmar Hopp are in talks to sell their 30 percent share of the company to private equity.  Some think that SAP may also be a target for acquisition.

To get back into gear, Henning Kagermann, chief executive of SAP, is counting on a move into SaaS, but it doesn’t help that they’ve delayed release of their on-Demand offering until the end of 2007.  The original release schedule had been for the first quarter of 2007.  The new on-Demand SAP product helps with managing client relations and factory inventories.  It was demonstrated last week at the ceBit Trade Show in Hannover, Germany and is currently being beta tested by 150 select customers. Following the tradition of SAP product names like R/3, SAP is internally calling the new on-Demand product A1S — Business One and All-in-One.

By offering the solution on-Demand, SAP hopes to be able to attract cost-sensitive companies with their “try, run and adopt” model.  But going after small businesses with an onDemand solution is a clear break from SAP’s traditional business strategy and it has some investors concerned that they may trip up with execution.

As part of the plan, SAP is spending $529 million until 2008 to grow their line of on-demand small business software.  From this investment, SAP hopes to grow their base of small and medium customers from 39,000 to 100,000.

NetSuite has to date been the only company able to get all components of a complete on-Demand ERP system up and running.  While Salesforce.com has been hugely successful with CRM, they’ve struck out with their attempts to go after the ERP market.  Salesforce.com first announced attempts to enter ERP in 2002 with the ‘Salesforce.com Billing Edition’, but they have not yet been successful.

In a related announcement, on March 8th SAP reorganized their reporting structure for accounting.  On-Demand seems to be showing up under the catefory of Subscriptions and Other Software Related Services.  That area grew 46 percent, but it still makes up a very small fraction of SAP’s total business.

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