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SAP exec: On-demand model needs tweaking

As, Siebel and others offer their software through an on-demand model, SAP plans to take a broader approach.

SAP plans to announce a broad strategy to address midmarket companies that are using on-demand software from and other vendors to run customer-facing applications.

Many of the customers told us that is a little like a candy bar. It gives them an immediate sugar rush, but it won't solve the problem.
Peter Graf,
executive vice president of SAP solution marketingSAP

Few details have emerged about SAP's plans, but answering questions during a session at the recently held Morgan Stanley Software, Services Internet & Networking Conference SAP's Peter Graf, executive vice president of SAP solution marketing, told investors an announcement is imminent.

"On-demand needs to be viewed as part of a larger strategy in terms of your applications," he said. "As companies are evolving in the way they are thinking about CRM and customer relationships in general, their needs are changing."

The success of has led Siebel Systems Inc. and others to launch their own on-demand models. San Mateo, Calif.'s NetSuite Inc. is also successful with on-demand sales force automation products.

SAP could be waiting for the market to play itself out before it makes its move. Seeing an opportunity to grab a larger share of the midmarket, SAP has been surveying small and midsized businesses using on-demand products.

"Many of the customers told us that is a little like a candy bar. It gives them an immediate sugar rush, but it won't solve the problem," Graf said.

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SAP is finding that customer defection is higher with on-demand models since companies don't need buy a license to use the software. Instead of looking for the cheapest price, customers are beginning to seek more functionality and integration with other applications.

SAP has been offering software hosting services as part of its Managed Services division. Companies still purchase a typical software license, but for an additional cost, individual SAP software components or the entire mySAP Business Suite can be hosted at an SAP data center.

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The on-demand model is slightly different from the hosted model, and it is unclear whether SAP would partner with a third-party vendor or create its own structure.

According to a study released by AMR Research Inc., the on-demand model is gaining traction in the market. The survey of 200 services and manufacturing companies found that nearly half were using an on-demand service. About 40% are using on-demand for customer-facing applications, AMR said.

Through an on-demand model, a company can use the software by paying a monthly subscription fee, rather than making the large investment associated with a software license. The on-demand model has so far been successful with CRM vendors, but whether it can support a more broad approach is yet to be seen, said Jim Shepherd, vice president of research at Boston-based AMR.

"It's not at all clear what will happen with that usage model with regard to ERP [enterprise resource planning]," Shepherd said. "But it would allow SAP to sell to customers that they wouldn't otherwise get."

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