Software as a Service (SaaS) has been around longer than the cool new "cloud." It shares some aspects of cloud computing, but its focus tends to be clearer: SaaS is simply the delivery of software applications over the Internet from a server that's hosted by the SaaS provider somewhere far away.
Although many single-purpose, highly focused SaaS applications are available, there's only a handful of truly ERP-focused SaaS solutions. SAP's Business ByDesign is a key competitor in the overall landscape of SaaS ERP apps.
Fitting into SAP -- and small and medium-sized enterprises
SAP Business ByDesign, geared towards the small and medium-sized enterprise, is based on the ABAP programming language and the SAP NetWeaver platform. According to Christian Hestermann, Gartner Inc.’s research director of ERP, this means SAP Business ByDesign should be able to scale and serve large organizations. "But how it's brought to market, it's positioned for the very low end of the SAP customer base. Think of 10 or 15 users," he noted.
"It could potentially become a competitive product against something like SAP Business All-in-One, but it is currently playing more in the space of SAP Business One," Hestermann said. Both Business All-in-One (for upper midsize businesses needing customization) and Business One (for small businesses) are on-premises solutions that can also be hosted by SAP business partners.
"And that's interesting because Business One has a pretty active partner landscape already, and it's selling. There are more than 30,000 customers on Business One, which represents a big uptake for SAP in just a couple of years," Hestermann said. "What you see out in the market is Business One and Business ByDesign often playing in the same kind of league."
Still, many small enterprises are attracted to the SaaS ERP model, which presumably lets them focus more on running their business using a subscription model rather than managing and buying an IT operations center.
"ByDesign is appropriate for companies new to ERP looking for a soup-to-nuts apps suite on which to run their businesses, including the necessary financial rigor," explained China Martens, an ERP analyst for Forrester Research Inc. "It’s also suitable for companies looking to move to SaaS from an aging on-premise ERP suite."
Availability and two-tier ERP option
As of mid-2011, SAP Business ByDesign was available in nine countries: the United States, Canada, Germany, Austria, Switzerland, France, the U.K. and India. By 2012, it's expected to be available in a few more countries, including China. On the surface, this hardly seems like a significant restriction. After all, most small enterprises tend to be located in a single country. However, SAP has realized that Business ByDesign isn't just for SMEs -- it can also be attractive to much larger SAP customers.
"SAP has also more recently positioned ByDesign as an option for the subsidiaries of enterprises, so a two-tier approach, with ByDesign for the subsidiary or a smaller, recently acquired business or startup hooking into SAP Business Suite at the company’s headquarters," Martens explained.
Company types suited for SAP Business ByDesign
With the potential to launch in as little as three weeks, SAP Business ByDesign can aid small businesses that have picked up new big clients or reached a sales tipping point that started an avalanche.
Furthermore, SAP Business ByDesign offers starter packages for areas such as CRM, professional services firms and ERP to help a business start small and hone in on a single pain point. Each contains a mix of components that cover areas such as financial management for processing transactions and reporting, human resources management, project management, customer management, procurement and CRM for marketing and sales.
"Where the product is today, the strongest capabilities are those they deliver to professional services organizations," noted Alan Fang, chief operating officer of ERP Logic, an SAP partner that sells and customizes SAP systems, including SAP Business ByDesign.
"So if you are a financial services organization, with contractors with time and materials, sales and purchases orders, project accounting, and you need P&Ls [profit and loss statements], ByDesign is extremely capable -- and the next couple of versions will round out a full version for that industry," he added.
In addition, Fang said, companies that manufacture particularly complicated products might not want to consider SAP Business ByDesign just yet. "If you're in the professional services industry, 90-95% of the time you'll be a good fit. A wholesale distributor? 80% will fit. And manufacturers, 50%," he added.
Vertical industries and a platform for growth
It is uncertain how and when SAP will deliver specific vertical industry solutions for SAP Business ByDesign. Right now, SAP Business ByDesign is a broad but not deep offering, noted Hestermann. "We at Gartner think a vertical industry approach to go to market is important, especially for small and mid-market customers. For market success, we're convinced that is one of the biggest gaps in the solution today," he explained.
Although ByDesign is still new, it's maturing fast, Fang said. "SAP is committed to pushing out two new releases each year, so upgrades will contain both more robust functionality as well as architectural changes," he said.
More important, SAP Business ByDesign is more than just a product; it's also a platform that SAP is using to deliver other SaaS products to work with its core SAP ERP products, Fang said. "We see it being able to leap ahead in many ways in overall functionality and platform capabilities," he added.
Right now, it is possible to create some limited customizations, integration and add-ons with SAP Business ByDesign. That said, potential customers should realize that their customization options are limited -- at least in the near term.
Ready for prime time?
“Getting to where SAP is today with ByDesign has been a struggle, but it’s now starting to look like a strong product. SAP has had to learn many lessons in public, including the importance of offering customers a multi-tenant SaaS product as well as the general mechanics of getting a SaaS product to market and of putting all the necessary support in place," Forrester's Martens explained.
"SAP has also toned down initial highly overambitious expectations of user adoption -- customer numbers now sit at a reasonably respectable 500-plus companies, with the goal of doubling that by the end of this year, which sounds doable," she added, noting that upcoming enhancements around mobile and vertical solutions should help round out SAP Business ByDesign.
"The customers who are successful and are signing on, they are inclined to use the SAP best practices that are built into ByDesign from SAP's years and years in the space," Fang said.