SAP Boots Business ByDesign SaaS Apps to 2010?

May 11, 2009 Timothy Prickett Morgan

Well, it looks like the glorious plan for SAP to take on the midrange market with a line of newly created online applications to be sold SaaS style is running into some speed bumps, if not some road blocks.

SAP launched its Business ByDesign SaaS applications back in September 2007, and the company has been pushing the product out into the future in baby steps, saying repeatedly that it needed more work and that it wants to get the product right. In a report last week in PC World, of all places, Bill McDermott, president of SAP’s global field operations says that “there is not going to be a lot to report out” about the Business ByDesign apps at the Sapphire 09 show, SAP’s annual event which is being hosted in Orlando, Florida, from May 11 through 14. McDermott added that the “noise level will increase” for Business ByDesign later in 2009 or perhaps in 2010.

That sure is a backing off from the bold plans that SAP had for Business ByDesign back when it launched. The company was saying it would have 10,000 customers and be generating $1 billion in sales from the product as it exited 2010. But a year ago, when SAP’s profits took a whack as the economy started to slow, the company said it would take a year and a half to ramp up the product, and did not give any guidance on its plans for reaching those 10,000 customers or that $1 billion in sales.

Given the harsh economic conditions out there and the desire by companies to save money while at the same time getting good software to run their businesses, the wonder is that SAP is not accelerating the ramp for its Business ByDesign suite. It could be that the functionality is limited and early customers are crabbing or it is more difficult to allow customizations of the product than SAP anticipated. SAP might not be ready to make investments in the data centers behind the product (or it might be awaiting future X64 processors due later this year, which will offer great bang for the buck). Or, more likely, SAP is not ready or able to take the margin hit that a shift to SaaS undoubtedly means compared to trying to peddle software suites. If Business ByDesign is too good, it can kill the pipeline for midrange software sales, which are not booked monthly, but into perpetuity as a lump sum payment plus an ongoing maintenance stream. I think SAP is really just waiting for the economy to get better so it can make up the skinnier profits from the SaaS application through higher volume sales that, for one reason or another, it does not believe it can chase right now.

The good news for the midrange is that SAP is leaving a pretty big opening for lots of competition and deal making ahead of the big Business ByDesign ramp later in 2009 and early in 2010.

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