"… in February we will announce what SAP will do in the on-demand segment; CRM on demand," Kagermann said during a presentation to financial analysts Wednesday at the company headquarters in Waldorf, Germany. "We will deliver in 2006 more than we originally planned."
SAP executives had at first brushed off the idea of a hosted model for small and midsized businesses (SMBs). But the success of Salesforce.com and NetSuite Inc. was a major impetus for SAP to reconsider its strategy.
How Salesforce.com and others will be affected by SAP's entry into the hosted market will depend on the viability of the SAP product, said Sheryl Kingstone, CRM program manager at the Yankee Group. The price point and usability of the product needs to be examined as well as how SAP plans to manage customer service and support, she said.
"We've been expecting them to do this for years," she said. "Salesforce.com has a reputation of low total cost of ownership and ease of use, but what SAP has going for itself is its existing customer base."
Kingstone said software vendors like SAP and Oracle could aim a hosted product at their respective customer bases.
"Customers may like the idea of deploying something quickly in a hosted environment as part of a hybrid approach," she said.
A hybrid approach gives customers the ability to combine premised-based applications with software-as-a-service applications, Kingstone said.
"If you have the same [interface] and a consistent data model you can provide a seemless experience," she said.
SAP executive board member Shai Agassi told reporters during an industry analyst summit in December that the company planned to move forward with a product launch in 2006. Agassi, who is president of SAP's product and technology group, said the model would be quite different from that of Salesforce.com and other hosted CRM vendors.
"We believe the issue is about simple products with a simple way to ramp up into the product, with the need for it to still be integrated into backbone systems and the ability to actually take it anywhere you want to go to," he said.
SAP's Peter Graf, executive vice president of SAP solution marketing, also weighed in on the topic of hosted CRM recently. Speaking to attendees at Morgan Stanley Software, Services Internet & Networking Conference in November, he said SAP has been working out an appropriate business model for the product.
SAP is trying to address a recent study it conducted that found that customer defection is higher with on-demand models since companies don't need buy a license to use the software. Instead of looking for the cheapest price, customers are beginning to seek more functionality and integration with other applications.
"On demand needs to be viewed as part of a larger strategy in terms of your applications," he said.