SAP delays on-demand ERP

SAP is scaling back development of Business ByDesign, its ERP application for the midmarket, postponing its targets 12 to 18 months.

One week before its annual user conference and seven months after unveiling its on-demand ERP suite for the midmarket, SAP today acknowledged that it is scaling back on the product.

In an early morning conference call, Henning Kagermann, SAP's CEO, said the company is cutting back on development of Business ByDesign because of customer feedback. An SAP developer told a German newspaper last week that the software was suffering from performance problems and bugs.

"We decided this is the right time to adjust the pace," Kagermann said. "We have a brand-new product, we have live customers and the market likes the concept. We have learned we need more time to take additional steps toward optimizing the end-to-end process of delivering, selling and running the solution."

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As a result, SAP will not reach its goal of 1,000 customer engagements this year, he added. Late last year, SAP counted 40 pilot and 20 live customers. Three months later, at an analyst event in Boston, an executive said only, "There are more."

"It's much more important that we make the solution perfect, to reach the lowest total cost of ownership and make Business ByDesign ready this year," Kagermann said. "We expect the rollout to take 12 to 18 months longer."

Cambridge, Mass.-based Forrester Research attributes the slowdown in part to SAP's new chief operating officer, who is taking a closer look at expense line items, according to Ray Wang, principal analyst. Indeed, SAP has reduced investment in the product by about 100 million euros or $155 million this year.

SAP's on-demand competitors were obviously not so optimistic about the future of Business ByDesign.

"This delay indicates there is something seriously wrong at SAP, given this is the third missed date," Zach Nelson, CEO of NetSuite wrote in an email. "I think the delay has to do with the fact that they have built the product around multiple data silos rather than using the NetSuite approach of a single data model to support the application. When they do finally come to market (maybe IF they come to market), and Business ByDesign has multiple data stores, the product will be dead on arrival."

SAP's commitment to the on-demand or Software as a Service (SaaS) market has been erratic. It initially dismissed the delivery model pioneered by companies like NetSuite Inc. and Salesforce.com, only to build an on-demand CRM application two years ago. With that development, SAP acknowledged the difficulty customers had deploying its existing CRM application and encroachment by Salesforce.com, which was selling small CRM deployments into its own customer base.

A1S, later renamed Business ByDesign, then became SAP's commitment to a full on-demand ERP suite. Targeted at midsized companies with between 100 and 500 employees, its pricing starts at $149 per user per month. However, analysts said Business ByDesign needed work to compete with established companies and that midmarket firms were reluctant to adopt it. That work will now take a little longer to complete, based on today's news.

In addition to its commitment to SaaS, Business ByDesign represents SAP's commitment to the midmarket. In 2007, SAP set the lofty goal of 10,000 midmarket customers and 100,000 total customers by by 2010. Growing from its current base of 35,000 will require that a sizable number of small and midsized businesses join the fold.

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