Is SaaS becoming too popular? For one company, on the verge of a new product offering, it appears that the answer is Yes. It was announced the other day that SAP's Business By Design product will be delayed for several more months. The reason given is technical in nature, as this article notes. However, it seems odd to me that a company the size of SAP, with its enormous cash reserves and obvious technical acumen and talent cannot deliver a new software product after several years of effort. It also seems strange that they are reducing their investment in the product. If you are having technical problems, wouldn't you want to continue making the technical development investment? So what is really happening? First, for those of you who may not have heard of BusinessByDesign (BBD), this is SAP's first attempt at a pure SaaS offering. A full ERP Suite delivered over the Internet as a service. Much like NetSuite in its intent, though with less of an e-commerce offering. Also, it's worth noting that BBD really validates the SaaS marketplace and makes it clear that while NetSuite is an up and comer in the ERP/CRM market, it has started to cause some indigestion in the executive dining room of its larger competitors. OK, our take on the BBD delay, or BBDD, starts with the observation that for a company like SAP with a lot of products already in the market, a SaaS offering is not a top line revenue addition. A SaaS offering will probably mean almost as many lost customers of the other products as new customers of BBD. A SaaS product is major disruptor. For example, SAP sells Business One, a product that they purchased many years ago to sell into the Small and Medium Entreprise market, through the partner channel. Business One is often sold in the ASP model were the client purchases an on-premise license but then has the infrastructure hosted and managed at a data center. I can imagine that many of these customers would be interested in BBD, but I bet the channel partners would be a little sore about losing the hosting bucks to the mothership, not to mention the additional software and hardware that Business One users are forced to buy from the channel - CRM for example. On the other hand, there are a lot of customers of SAP's main product R3 already running ERP on their own premises. I have to think that these customers are also interested in BBD. Running an on premise system sounds like a great idea when you consider just the cost of software and hardware. It's the soft costs of human talent that make on-premise software so expensive. The Total Cost of Ownership, or TCO, of on-premise software has not been lost on the managers of SMEs who, after all, can take a quick glance at the P&L every month to see $ in the IT Salaries line. When you consider the current SAP customer base, whether R3 or Business One, you can quickly see that there must be some real concern at SAP over losing customers from one product to another. Interestingly, in the US, SAP now runs campaigns on TV and in print - The Wall Street Journal - dedicated to the proposition that smaller business can be successful with the high end R3 software. This looks like concern may have drifted into outright conflict. At any rate, it must be noted that when a customer switches, as many will, from SAP product X to BBD, it will be a zero sum game: One winner and one loser. Channel partners are not going to like this at all. You can really take two views of where this leaves SAP. On the one hand SAP is in a bind. They have a new SaaS product but can't release it because too many customers would switch, creating too much conflict in the channel. At the same time, BBD also forces an on-premise software vendor to talk openly about the total cost of ownership of business management software when you buy the software, the hardware, the people, etc. and maintain it all yourself. There is a huge channel edifice in place that rakes in cash from these on-premise requirements, and BBD threatens to blow it up. On the other hand, you could say that SAP was pretty smart about this. They have a product on the brink of release, which I am sure has probably put the brakes on other potential competitors coming out with an offering, but by not releasing it they manage to keep their channel mollified. Either way, the main takeaways from the BBD experience are that SaaS, in a full suite, not just Best of Breed, or "focused applications" as they are now called, is ready for prime time and NetSuite, still the only player in the game, will benefit. And, second, we are on the verge of understanding the Total Cost of Ownership in a way that NetSuite users and partners have understood lo these many years, but which the larger market of on-premise software has always denied. When the biggest on-premise business application vendor validates the TCO of SaaS to the market, watch out. It's a stampede. |
