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Is SAP eyeing ERP SaaS?

SAP isn't just relying on a big advertising campaign to bring in midmarket customers; it's simplifying All-in-One deployments and, according to one analyst, may offer ERP via SaaS.

LAS VEGAS -- Shai Agassi, president of SAP's product and technology group, took to the stage this week at the company's annual analyst summit, promising to reduce implementation costs for midmarket companies.

"The biggest risk in [the enterprise software] industry is that the operating cost of our systems installed at customer sites rapidly becomes the same budget as the CIO has," Agassi said. "When [the systems] get to the point where operations equals CIO budget, there is no more budget for innovation."

Calling it the "technology tax," Agassi noted that operational costs can be especially burdensome on small and midsized businesses (SMBs) due to their lower IT budgets. SAP has targeted SMBs recently with a massive advertising campaign including both online and television advertising. SMBs will be key if the company is going to meet its stated goal of increasing its customer base from 35,000 to 100,000 by 2010.

Trying to make software that is easier to install, run and train users on is not news in and of itself. What would be noteworthy, according to analysts at the event, would be if SAP were to offer an ERP product through Software as a Service (SaaS).

While Agassi himself did not mention SaaS in relation to All-in-One, SAP's version of its mySAP Business Suite for the midmarket, at least one analyst made the connection.

David Bradshaw, CRM practice leader for London-based Ovum, specifically mentioned the "try before you buy" feature of All-in-One. "'Try before you buy' is one of the key benefits of SaaS -- but it doesn't have to be just in the boardroom," Bradshaw said.

Additionally, the overriding goals of quick deployment, flexibility to add functionality and relatively low operating costs seemed to fit with the SaaS model.

"All [the points Agassi made in his keynote] cried out for All-in-One as the obvious product to take to Software as a Service," said Bradshaw.

In a research note published yesterday and headlined "SAP previews SaaS ERP," Bradshaw wrote that a new All-in-One will be initially offered only as a hosted service.

SAP CEO Henning Kagermann did say in his keynote that SAP would have a new midmarket portfolio for 2007 with two products -- one "by design" and one based on an "evolutionary" approach.

The "by design" product will be available via a hosted model and will be targeted at the lower end of the midmarket. SAP stopped short of saying it would be offered as a service or would only be available as a hosted service. More details will be announced in the first quarter of 2007.

"Our customers would like to have choices; our midmarket product portfolio will involve a number of delivery options. One of these will be -- as our board mentioned at the analyst summit -- a hosted model," Astrid Polchen, manager of corporate media relations for SAP, said in an email.

While SAP has offered hosting for years, it has only in the last year gotten into the SaaS business with CRM, releasing SAP Sales On-Demand last February and following with modules for marketing and service. Hosted and SaaS applications are both housed in a vendor's data center and distributed via a network like the Internet, but SaaS is offered with subscription pricing and, in the case of rival vendors like San Francisco's and San Mateo, Calif.-based NetSuite Inc., it is multi-tenant, meaning multiple customers share a database. SAP dubs its on-demand CRM application "isolated tenancy," providing a separate database for each customer.

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If SAP does offer an on-demand ERP application specifically for the midmarket, it will suggest a slight shift in strategy. With the release of Sales On-Demand, SAP was still be targeting large enterprises, with the on-demand application for use by smaller divisions that need to get ramped up quicker and as a "hybrid" option, allowing customers to utilize both on-premise and on-demand tools. The move would also bring SAP into more direct competition with NetSuite, which offers both CRM and ERP via SaaS and is reportedly preparing to go public, and Workday, an on-demand start-up offering ERP applications and founded by former PeopleSoft Inc. chief Dave Duffield.

Whatever the delivery model, Kagermann said the product will aim to cover all midmarket industries across the globe. The ultimate goal for All-in-One is to allow a $100 to $200 million business to set up a system in one week that cuts operation costs in half, and provides an easy-to-use, event-centric user experience, Agassi said. He conceded that SAP has not reached that point but he does think All-in-One has made significant strides.

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