For all the hype around "the cloud" and software as a service (SaaS), the market for good old-fashioned SAP managed hosting remains alive and well.
"In general, we have seen a steady trend toward people hosting more and more activities," said Jim Shepherd, senior vice president of research with Boston-based AMR Research. "Over the last 12 months, with the economy down and with staffs being reduced or hiring freezes, they're more inclined to host SAP."
Not only does the market remain strong -- it's evolving.
"Over the last few years, one of the trends we've seen is people thinking about hosting in a different way," Shepherd said. "It used to be one of these monumental decisions where you got rid of your entire data center and signed a giant contract. Now people think about hosting in a much more incremental way. They host certain activities."
It's left businesses with a myriad of confusing choices and combinations over where and how to run an SAP application. After some fits and starts, SAP has launched a SaaS-based suite of applications with Business ByDesign. But Business ByDesign is being offered to only a small group of special customers, meaning that SaaS SAP isn't really an option for most organizations.
Also, the emergence of cloud-based services like Amazon and Microsoft Azure offer businesses the opportunity to save on hardware by using cloud providers for their infrastructure. Some consulting firms have emerged to help organizations move SAP to the cloud.
However, a cloud-based SAP system is not a realistic option for most businesses -- at least not yet.
"SAP, being a production workload, is going to be one of the last to move [to the cloud]," said Bill Martorelli, principal analyst with Cambridge, Mass.-based Forrester Research. "It's really an emerging consensus. A develop and test environment? Is it cloud ready?"
If customers aren't ready to move their SAP production systems to the cloud themselves, what the cloud infrastructure providers may do is exert some pricing pressure on existing hosting providers.
"Even the fact that Amazon is out there and Google is out there is influencing the market, even if they're not getting into the SAP market," Martorelli said.
But while some companies may be leery of running test and development instances in the cloud themselves, they are comfortable with a hosting provider running it, Shepherd said. Some businesses will let a hosted provider run their test and development instances but keep production in house, or they'll host for a certain set of locations.
"It has become more of a tactical activity than it used to be," Shepherd said.
In fact, in the last 12 months, the recession has led companies to look increasingly at this type of hosting, he said -- hosting particular instances or activities.
"Almost anything is on the table," he added. "There used to be a distinguishing line between more critical data vs. less sensitive data or activities that had to occur in real time vs. batch processes or back office vs. front office. We really don't see that much anymore."
For companies evaluating SAP hosting for the first time, it's easier to begin with IT-specific functions. Things like Basis consulting or the management of development and test instances can more easily be outsourced because it's an IT decision. No one outside the department takes much of an interest, Shepherd said, but hosting things like HR or financial systems generally requires line of business and senior management.
What isn't getting hosted?
About the only thing organizations aren't hosting is real-time manufacturing activities -- taking information from automated production equipment and feeding it into SAP, for example -- where they can't afford any downtime. Everything else is on the table, Shepherd said.
And while leveraging hosted infrastructure from Amazon or others may be bleeding edge, still a cloud hangs over SAP hosting.
"One of the things that's really changing is the trend toward a dynamic virtualized infrastructure approach," Martorelli said. "We're seeing this proposed in areas we would not expect to see that proposed -- SAP running on a blade server with other clients. Hosters are offering this kind of capability to address customer demand."
As long as the application is running, the location and architecture, whether it's SaaS, hosted or cloud-based, may not really matter to most, anyway.
"When you talk to vendors and consultants, they draw this giant distinction between cloud computing and public and private clouds and SaaS; but users don't," Shepherd said. "Most don't know where the stuff resides anyway. They long ago passed the point where there were data centers in the building where they work."
Many of the SAP managed hosting providers aren't even running their own data centers; they're using someone else's, Shepherd said. It's still a crowded market, although in North America there's one place SAP customers can no longer turn to for managed SAP hosting -- SAP. The company got out of the business earlier this year.
"It's pretty clear that there's been a tendency from SAP to wax and wane in their interest in hosting themselves," Martorelli said. "Contrast that to Oracle, [which has] been pretty steadfast about it. I'm not really disappointed, nor do I think it's a bad thing for clients. There are plenty of qualified people ready to step into the breach."
In the longer term, fewer companies are going to elect to run SAP in house, in their data centers, themselves. Some of the early concerns over integration no longer have much merit.
"There's this perception that it's harder to do integration if an application is hosted than if it's not -- but the reality is that where the application physically resides is not really relevant anymore," Shepherd said. "So whether it's in my data center in a remote location or someone else's data center in some remote location, I still have to connect over the Internet. I'm still using the same kinds of technology. I may write the integration myself or have someone else write them. It doesn't change anything."
What is clear is that once an SAP system is sent outside to be managed, it's unlikely to come back in-house again.
"We are definitely moving down a path where for the majority of companies it's going to be difficult to create a valid value proposition of why I ought to own this hardware and manage it myself," Shepherd said. "In most cases, third parties can do it better, can do it less expensively and can create much better backup and recovery. So I really do think that over the next five to 10 years, we're going to see a very high percentage of companies that move away from having their own data centers."