SAP Dips Toe in On-Demand CRM Ocean

By John Pallatto  |  Posted 2006-02-02

SAP Dips Toe in On-Demand CRM Ocean

SAP,one of the last major holdouts from the on-demand applications market, on Feb. 2 finally announced an online customer relationship management service called the SAP CRM on-demand solution.

SAP described its on-demand CRM application as a hybrid system that it will provide on an "isolated tenancy" model, which it said combines the high availability and lower security risks of single-tenancy, on-premises applications with the rapid deployment and user efficiencies of a multi-tenant on-demand model.

SAP officials said this model would enable current and new customers to set up a combination of on-premises and on-demand CRM application services depending on their business needs.

This would give customers greater flexibility in their application architecture than if they worked with pure-play on-demand CRM applications, according to company officials.

The company also announced that it would work with IBMs Applications On-Demand Platform to provide hosting services based on the IBM DB2 database and on IBM eServer hardware. IBM will also provide consulting deployment services for SAP CRM.

The first product in its on-demand CRM lineup will be SAP Sales on demand, which is available immediately and will allow users to manage customers, contacts and sales pipelines.

The company plans to introduce additional CRM applications, including marketing and customer service modules, later in 2006.

Click here to read more about the competitive challenges SAP faces in launching its on-demand CRM service.

SAP is offering the service at a monthly rate that starts at $75 and doesnt require customers to sign long-term contracts.

SAP officials said its business model will also enable customers to transition to an on-premises CRM application if it decides that needs "more robust CRM capabilities."

With the Feb. 2 announcement it is really too early to tell how serious SAP is about offering comprehensive on-demand CRM service, said Denis Pombriant, founder of CRM market research firm Beagle Research Group, in Stoughton, Mass.

After the announcement, Pombriant said he was left wondering how soon the company is going to expand the product. "They need to broaden their offering to make it competitive with what Oracle-Siebel has and what and NetSuite has," he said.

SAP needs to indicate how it is going to provide integration with back-office technology and how it will provide a technological path forward for partners and corporate IT departments, or how it will enhance the basic offering over time, he said. "They alluded to that, but we needed much more information," Pombriant said.

Six years ago on-demand SAP CRM "would have looked really cool. But there are barriers to entry now and this is not quite up to those barriers," he said.

"Technologically it sounds like a throwback to simple facilities management," he said. The announcement suggests that SAP plans to hand out a blade server configured with SAP CRM to every customer it signs on. "I dont think thats a highly scalable model" for on-demand CRM, he said.

Next Page: Too little, too late?

Too Little, Too Late

Pombriant said he isnt yet convinced of SAPs commitment to on-demand computing. Instead, he said, he suspects the company is getting into the market "only because their customers are demanding it, and in some regards they really dont want to do it."

Its also possible that SAP is concerned that if on-demand CRM takes off it will cannibalize its on-premises business, he said, adding, "but the question is going to be whether its SAP or SAPs competition" that does the cannibalizing.

While SAPs on-demand competitors welcomed SAP to the fold, they also suggested that the company faced an uphill battle to become a major player since it was so late in making the transition.

Click here to read about SAPs ambitious plans to quadruple earnings and to "industrialize" its software development efforts.

SAP is "just five years too late" in attempting to make the transition to on-demand application services, said Greg Gianforte, CEO of RightNow Technologies, a hosted CRM service provider based in Bozeman, Mont.

"They ignored this tectonic shift to the on-demand model for too long," Gianforte said. He contended that no on-premises software vendor has succeeded in launching an on-demand application business. Like Pombriant, he said he is convinced that the on-demand business will end up cannibalizing its core on-premises revenue stream.

On-demand revenue cant grow fast enough to replace declining on-premises revenue, and this will weaken SAP to the point where it becomes an inviting new target for Oracle, he said.

Read more here about SAPs on-demand and BPA (business process automation) strategy.

SAP hasnt had enough time to develop a real on-demand product, and as a result, the online product would likely prove to be little more than the SAP on-premises edition with a jury-rigged Web browser interface, Gianforte said. "That doesnt make it an on-demand application. They are just pouring perfume on the pig," he said.

Zach Nelson, CEO of NetSuite, a vendor of on-demand ERP (enterprise resource planning) applications, said SAP is making a mistake by only offering an on-demand CRM service.

"Just as in the client-server market, the application that will ultimately win the next-generation application battle will be an integrated suite of applications designed to run the core business processes of a company," Nelson said in a statement.

It would be smarter for SAP to start with on-demand ERP and back-office applications and then branch out into CRM, he said.

"Im fine with SAP not addressing the back office, because they will be leaving the fastest growing segment of the on-demand market—the ERP market—to NetSuite," Nelsons statement said.

Check out eWEEK.coms for the latest news, reviews and analysis about customer relationship management solutions.

Rocket Fuel