When I was a kid in Detroit we had a favorite game called pickle. It was simple to play and only required 3 of us. Two us setup like a 2nd and 3rd basemen and one guy was a runner between the bases. The runner simply tried to get from one side to the other, steal the base, as the basemen did their best to tag him out. We played this game incessantly for several years and I have played again with nieces and nephews, though I was surprised that I had to explain the rules. Now, looking over several recent announcements from the German software company SAP I have the feeling that they find themselves in a position that a pickle runner often did: Between bases with no clear way to safe landing. What caused this odd situation for one of technology's strongest companies? They jumped into the SaaS, software as a service, market last year with a new offering focused on the SME called Business by Design. They have moved back the date for the launch several times, offering different excuses. First, they said they were waiting for the Middleware to mature to help them run the system more effeciently because they were clearly not going to make money with what they had. Now they have said that the new software needs more functionality in order to make it useful to its intended SME market. Then today they made the announcement that they are off-loading the infrastructure to 'partners'. From the Information Week article:
SAP also plans, in some ways, to get back to its roots in licensed software applications and distance itself from the hosted computing business, handing more of its hosting relationships over to business partners such as Accenture, AT&T, and British Telecom, McDermott said. It also will continue to move slowly with its software as a service offering -- the Business ByDesign ERP subscription software service -- which McDermott characterized as still in the pilot stage with a small number of customers. It doesn't plan to run the data centers long-term for that SaaS product, either -- it wants its partners to do that job.
This last announcement seems very strange to me. Most SaaS vendors have their software running at data centers operated by third parties. Why not? The whole idea of SaaS is to achieve economies of scale and pass along the savings to customers. But normally a SaaS vendor does this in a thoughtful, calculated way in order to mitigate risk and manage the software over time. NetSuite for example hosts all of their customers at two US data centers. SAP, conversely, announced that they are simply throwing the code 'over the wall' as it were to any 'partner' who wants to catch it. They are not simply outsourcing the infrastructure management, they are giving it over to various partners who can then manage the software on their own or someone else's infrastructure. Why the apparent recklessness? My guess is that SAP is hearing a lot of grumbling in the partner channel about how BbD is hurting other offering, so by throwing the entire business unit, from sales to operations and support, over to business partners they mitigate the risks BbD creates for R3 and give the problems to the partners to fight over. So where is the SAP runner? On the one hand 2nd base is just 20 paces away, so they could just jettison their SaaS offering and go back to what they love; the on-premise huge ticket software with 22% annual maintenance fees and lots of very expensive professional services. On the other hand, 3rd base is also just 20 paces away but this will require that they dig in hard for the SaaS market and they'll probably lose a little skin on the slide. After all, selling both SaaS and on-premise is an awfully difficult task for one company as the case for SaaS severely undercuts the case for on-premise, and while SaaS offers long term revenue the stock price will take a beating as shareholders see quarter by quarter gains much smaller than those to which they are accustomed. I am not sure what's happening inside SAP, but from where I sit I would not be holding my breath waiting for Business By Design. It may yet come, but it will not be an SAP software, imho. Recent announcements signal a down quarter, some unexpected departures and then the hand cleansing, or off-loading of Business by Design. In this economic climate you can't blame prospects for asking about the cost advantages of SaaS. I'm sure SAP is tired of hearing their queries. | 
