Earlier this month SAP launched its long-awaited CRM on demand offering to both fanfare and speculation that the offering is too little, too late. Bill McDermott, CEO of SAP America Inc., the Americas arm of SAP AG, and Bob Stutz, senior vice president of the Product and Technology Group at SAP, sat down with Senior Writer Renee Boucher Ferguson to discuss CRM on demand.
It should be noted that Stutz, who will lead strategic application development at SAP, was formerly head of application development at CRM software developer Siebel Systems, a company that was acquired by SAP rival Oracle Corp. on Jan. 31.
There have been some numbers thrown around that only about 19 percent of SAPs CRM users actually use the software. What percentage of CRM customers do you have now? And any sense of how many customers actually use the application?
McDermott: Well, sure. First, I wouldnt view a company that has $6.5 million in profit as the authority on anything. So lets not give them too much credit. The other thing is that statistic is obviously flawed. CRM is the fastest growing business we have. In the Americas its growing nearly 50 percent year-over-year, 20 percent worldwide. Why would somebody invest in an application if they werent going to use it?
You mentioned that youre compensating sales “accordingly.” How will that work out if youve got someone with a $75 per month sale for on demand, versus a $7,500 a month sale for on premises. Whats the comp plan difference there?
McDermott: First of all, this is a net new incremental sale for the sales department, because if they can sell the CRM business process, they will. Theyre not looking at this as a comp issue; theyre looking at this as an opportunity to make more money.
What Ive basically said is that we will be comp agnostic, in that the reps dont need to be concerned whether its process or on demand because we want them to do whats right for the customer, so thats what weve done.
How have you innovated with SAP on demand?
Stutz: The UI is totally different than anything SAP has done to date. Its a very simplistic, but at the same time its capable of doing complex things. That will be the standard for our on demand and also for our on premises products as well. From a development standpoint, what weve done is weve gone to very small pieces of it, very controlled processes. And we control our development cycle very closely, so we can release on a quarterly basis.
What are some of the integration scenarios youve mentioned?
Stutz: Its really sort of the basic ones that you need for simple sales force automation, so business partner—which is really the key thing—and opportunities. Thats really the two key ones. Because with simple SFA, thats all youre really talking about.
Can you drill down on what an integration scenario looks like?
Stutz: You have to pull your list of business partners, so if youre an existing ERP customer, you will have all your customer data in your system. So you want to load that in your on-demand system, so you have a list of all your customers.
You set up your sales force, and make sure all the assignments are done properly, and thats really the start of it. And then your opportunities. If you store your opportunities in an on premise system—and we do have some customers that have on premise CRM today—well bring up the hybrid and have the on premise system, and move [the data] to on demand, and thats covered as well.
IBM is working on an on-demand platform where third-party application providers can put a component up there—ERP or CRM—and users can aggregate those components. Do you have any intent to be part of that aggregation community?
Stutz. I really couldnt answer that right now. I think we need to look at the whole scope of what IBM offers, and figure out where we can best benefit and marry capabilities.
McDermott: The one thing I would say, in building on Bobs comment, is that we too have a point of view on the platform, so NetWeaver is our platform. It is a services-enabled platform, and we have our own Enterprise Services Architecture vision. We believe our platform is a standard for business software. I would not miss the fact that we are the platform standard.
Thats a really good point. Theres a couple of questions that come off of that. As SAP goes through its ESA exercise, are all those application components going to be available as on-demand services?
Stutz: The CRM ones will be. I cant comment on the ERP ones.
: Friend or Foe?”>
Ive seen Oracle and IBM really cozying up a lot lately. What are your thoughts there in terms of IBMs pretty significant development efforts with Siebel?
McDermott: What you say is true. And I think its a marriage of convenience in the sense that IBM has a lot riding on its consulting business. So why not help Oracle sell PeopleSoft or JDE or Siebel, or even for that matter Oracle. The issue right now is because our win rate is so high, and because Oracle is performing so poorly and losing so much market-share if they aggregate too many resources there, theyre not going to be generating revenue.
So more and more, its flipping the switch back towards SAP, because thats who is winning in the market. IBM is a smart company. If they can make money with Oracle, theyll make money with Oracle. But theyll make money with us. When you win the software deal, all other things follow. You can see by Oracles decline in market-share, theyre not winning. So more and more, IBMs going to move in favor of SAP. The other thing is Oracles core business is in trouble.
What does it mean to you when you have IBM pretty firmly in your camp, and also a burgeoning co-development relationship with Microsoft?
McDermott: It basically says to the customer that were open. Were partner-friendly. We understand that our partners have database businesses. We support IBMs DB2; we support Microsofts SQL Server. Reluctantly, we support Oracle. I also think this partnership with Microsoft is special. A, because its an outstanding company—theyre well managed and have tremendous resources—and also because this product called Mendocino will grow our businesses substantially.
I was surprised by the potential for what can come out of Mendocino. Where else do you see this co-development relationship going?
McDermott: I see the relationship getting stronger by the minute. Mendocino has a very strong roadmap for both companies—were both committed to a long-term relationship on that roadmap. We also know that the interoperability of Microsoft Office and SAP applications is what customers want.
If we both line up, its Microsoft and SAP versus the other guy over in Redwood Shores. And we all know what is the story there. And IBM, you look at the on-demand strategy, you look at the DB2 component of the relationship and consulting services, they can do very, very well on the SAP eco system and they know that.
Lets touch on the partner network building out around NetWeaver. Are those partner applications going to be available through SAP on demand?
McDermott: Were focusing on CRM on demand right now. Were very happy to have partners jumping on our platform, innovating, but right now were containing the on-demand model to CRM.
Fair enough. I ask because Im wondering whether you plan to take a [Salesforce.com] AppExchange approach to providing on-demand software?
Stutz: If you really think about, companies who want to run their business, do you really want to trust it to a third-party hosted application running outside your firewall? The reality is its great for the small and midsized business market, but when you get outside the SMB market you really have to think twice.
This is your business. Can you afford to lose control of your business, and not have your own IT people respond when your systems go down and actually having no control whatsoever? I think its a tough sell. I dont think anything outside of a small business is willing to take that risk.
What is the difference between what youre doing with the isolated tenancy model for on demand, and the single tenancy model? Youre basically providing a single instance of an application to each customer, right? A: Stutz: But its the same version. And its all being done at the same time. So its really the best of both worlds. Its really a combination of the best of multitenancy, which allows companies to quickly push new functionality out to customers and at the same time you have an isolated environment, so if there is something like a brown out, youre not affected by that. In normal multitenancy you are.
In a true single tenancy environment, customers can do whatever they want. Theres no rules—run whatever version you want. Youre pretty much on your own. And thats sort of the old hosted model. But for us, in listening to customers, they want functionality quickly. And we want to be able to do that, but still keep things that are really important like security, performance, reliability, so [customers] know their systems are separated. Thats the benefit of isolated tenancy. You still get the push model, but with everything else.
As far as service level agreements, is that a non-issue with isolated tenancy?
Stutz: Its not even an issue at all.
The Difficulty of 99
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What do you think about the whole argument of providing 99.999 percent uptime?
Stutz: I think its possible, but its real difficult. You can come close. But lets face it, its machines. Machines need maintenance; databases need maintenance. Youve just got to minimize it and make sure you dont have unscheduled outages, which is what Salesforce has experienced. Thats the danger of multitenancy. When you have a database bug in a multitenancy, serialized fashion, that bug manifests itself like dominoes.
Just think how long it takes to refresh if youve got 350,000 users and you go down, and you dont know where you go down, and youve got to recover those transactions. To reload that data in a multitenancy is tough. Which is why they cant get back up fast. To restore those databases is a task.
What are your thoughts on Oracles plans with Siebel, particularly with all that Nexus code in the mix?
McDermott: Bob is the man that built it all.
Stutz: I was involved in building all [Siebels] products. I was responsible for every one of them. Nexus just complicates it even more. Youve got Siebel, which has what I would consider a set of fairly mature products for CRM, and PeopleSoft which has what I would consider a set of immature CRM products, and Oracle that thought they had a CRM product, but never really did. It was a set of bastardized products that they acquired over the years.
Now you have this problem. You have these three products that you have to take and put together. And if you look at Oracles history, theyve never been good at taking things and putting them together. I think what theyre going to find here, is they have to make some hard decisions because Fusion is based on their code base. And if they want Siebel to play in that theyre going to have to move Siebels code base over. And I can tell you thats not going to be an easy feat. Its a different architecture, a different structure.
Really to be quite honest, theyre looking at 18 months from being able to do anything. And at some juncture youve got to stop selling all three products. It gets expensive to support all those different products. Just take a large Siebel implementation—55,000 users—now youve got to move them to a whole new code base. Thats reimplementing. That can cost as much as $45 million to do a reimplementation of a large CRM. Its very expensive.
Are you offering any specific programs for “Off Oracle” on demand?
McDermott: Not in the on-demand area. We dont think we need to. They never really had any traction anyway.
Stutz: Four-and-a-half years, 40,000 subscribers, $11 million total contract value is not a good record. So we dont even focus on that.
McDermott: From a customer perspective, our pipeline compared to Oracles is a ground swell.
Any plans for bringing your open-source database back in-house? Ive heard rumors.
McDermott: No. Were not in the database business.