On the heels of its announcement of All-in-One updates, SAP said this week that it would introduce a solution aimed squarely at new midmarket customers.
SAP CEO Henning Kagermann
The new midmarket product, dubbed "A1S," will largely target these potential new buyers, a market SAP thinks could reach $15 billion. It will be offered via a traditional or on-demand model, which customers can ideally install quickly and cheaply.
"The strategy of a product architected from the ground up that is sold predominantly through telesales and the Internet, possesses multiple licensing options and is targeted at being easier for the customer to own and maintain is definitely sound," said David Yockelson, vice president of research operations for the New York-based 451 Group.
The company does face challenges in delivering a compelling offering, however.
"The proof will be in the pudding," said Yockelson. "Can SAP deliver a product that is not only 'just right' functionally but easy and enjoyable to use? SAP is putting a tremendous amount of effort and attention to the latter."
Kagermann touted the offering, built from the ground up using SAP's SOA capabilities, as "enterprise SOA by design" in the announcement.
Yockelson agrees that the SOA aspect is key to more cost-effective application management and upgrading.
"By building A1S on an SOA and developing modules as services, the ability to add and integrate these as discussed above becomes much easier than in traditional software business models," Yockelson said. "Further, it will give SAP partners an additional opportunity to develop capabilities that are pluggable as well -- consider a model like [San Francisco-based] Salesforce.com's Application Exchange or other burgeoning ecosystems."
The on-demand model for delivery is a crucial aspect to the product according to analysts.
"Given the success of Salesforce.com and [San Mateo, Calif.-based] NetSuite, not to mention much smaller entities that have attracted large numbers of users via the SaaS [Software as a Service] model, it's clear that SaaS must be an option for delivery and usage for this market," said Yockelson.
Michael Doane, chief intelligence officer of Peachtree City, Ga.-based Performance Monitor LLC, likens the product's potential for midmarket customers to Salesforce.com.
"The delivery model offers the flexibility and agility of Salesforce.com, but addresses more needs of the business," said Doane. If SAP is successful, Doane thinks it could prompt some Salesforce.com customers to switch to SAP CRM in the future.
One particular challenge facing midmarket companies that the product could alleviate is consulting expenses, according to Doane.
"A big impediment in the midmarket is consulting costs [for development, installation, customization], which can often be two times as much as the software investment," Doane said. "This delivery model minimizes the consulting costs at startup."
SAP has recently focused television and other advertisements on the midmarket, hoping to change its image.
Doane thinks that the combination of SAP's advertising and the new offering should help SAP overcome the psychological barriers with midmarket customers that the company is too big to serve them well.
"It's been a bumpy road for SAP in the small to midmarket despite recent successes in terms of clients, and the competition will portray SAP as the lumbering giant focused squarely on the enterprise," Yockelson said.