A lack of SAP skills worldwide, economic pressures, and a focus on the midmarket have resulted in recent years in a surge in providers of SAP managed hosting.
"There is certainly an interest from the vendor community in offering SAP managed hosting," said John Madden, research director at Ovum, a London-based research firm. "Just in the past six months to a year, you've had a lot of vendors like Accenture, IBM and HP not only ramp up SAP skills for packaged implementations but talk about what they can do for hosted SAP. There's a real shortage of SAP skills out there. That just goes along with the global IT shortage, and vendors are presenting managed hosting as an option."
That's good news for customers. Now, in addition to being able to choose between managing SAP in-house and turning to a hosting provider, there are plenty of options when it comes to selecting that provider.
"Customers have a lot more choice than they ever had before, so they can be more discriminating with who they work with," Madden said. "IT dollars are scarcer than ever, so they have more choice about how they spend them -- what partner understands my business, my industry, my region, the products I sell."
"It's been a long time since Oracle and SAP have been active in the area," Martorelli said.
Other vendors are eager to fill that gap, according to Madden, who covers services for Ovum. The recent spike in customer interest in managed hosting is partly a result of vendors' marketing their abilities and investments in SAP skills, but there are other drivers. Given the current climate, companies are more concerned with finding cost efficiencies, Madden said, and turning to someone else for SAP expertise is an attractive option.
Martorelli agrees that there is no shortage of SAP hosting providers in the market, despite quite a bit of market consolidation. He pointed to IBM, which acquired Corio; Affiliated Computer Systems, which acquired Blue Star Solutions; AT&T, which bought USinternetworking; Capgemini, which purchased Kanbay; and Freudenberg as some of the leaders in the space.
Meanwhile, after years of hedging, SAP itself has embraced Software as a Service (SaaS). Business ByDesign, SAP's latest hosted offering, is aimed at midmarket companies, a sweet spot for managed hosting. In recent years, the market has gone back and forth about whether big companies would adopt the hosted model in greater numbers, according to Martorelli. But right now, managed SAP hosting is primarily attractive to midmarket companies -- which he described broadly as companies with anywhere from $200 million to $2 billion in revenue.
"Certainly, SAP has put a lot of investment and priority in [SaaS]," Madden said. "They would clearly tell you that no one knows SAP processes better than they do. Especially for midmarket clients, they see an opportunity to expand their reach. The thinking now is that even though you have SAP and plenty of others in this space, there's a lot of market for everybody."
Managed SAP hosting can be attractive for midmarket companies for a variety of reasons, starting with the relative ease of installation and maintenance, Martorelli explained.
By its nature, managed SAP hosting doesn't fit one vertical better than others, he said, although high-tech companies, thanks to their general comfort with new technologies, do seem more amenable to the hosted option.
There is also developing demand around integration requirements, Martorelli said. With many companies using a hosted model for customer relationship management (CRM) and supplier relationship management (SRM), for example, there is a question of where the integration will come from.
"It's sort of at the crossroads now because CRM needs ERP," he explained. "The rubber is really hitting the road now, and it's become a major issue."
For example, the explosive growth of Salesforce.com has forced many to integrate their hosted CRM with their ERP system. Add in the platform wars between Oracle's Fusion and SAP NetWeaver, and integration is becoming a bigger business, according to Martorelli.
"There is an emerging ecosystem that is starting to cater to these integration requirements," he said. "Systems integrators are starting to focus on this requirement, and there are a number of different players that may yet be heard from in that regard."
No matter the deployment model, SAP is expanding its customer base and its application.
"It's a win for SAP either way, whether it's delivered through third party or not," Madden said. "It dovetails in the sense that one of the underlying components of NetWeaver and SOA in general is that you break up this functionality and deliver it as a service wherever and whenever you need it, which is a central tenet of managed hosting."