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SAP Is The Latest Convert To Software-Plus-Services Vision

It envisions selling "component" services to its big ERP customers beginning next year.

Software as a service made its name with bold claims that it would force on-premises software into extinction. But with SAP becoming the latest vendor to create a hybrid model, the real dinosaur is the idea that companies must choose one approach or the other.

By eary next year, SAP will offer what co-CEO Henning Kagermann calls "services by design," an extension of the Business ByDesign service SAP began offering last fall only to small businesses--to tepid response. Services by design, aimed at SAP's core customer base of large companies, will consist of online software components that integrate with a company's on-site SAP software.

SAP calls them components since they're not likely standalone applications. The first offering, for example, will be an online tool for companies to select and manage suppliers, integrating with their on-site supply chain or ERP software. It's the same model Microsoft is pushing as software plus services, though, like SAP, most of Microsoft's product offerings are still in the planning stages.

Those components, to be hosted and managed by SAP, will run on the NetWeaver-based service-oriented architecture developed for Business ByDesign. SAP hasn't determined whether to sell the components as a subscription or license, or both.

Beyond supplier relationship management, SAP is looking at components for ERP, talent management, and analytics. Business intelligence vendor Business Objects, which SAP just acquired, already offers reporting tools and other apps on demand.

The small-customer Business ByDesign hasn't been a big seller for SAP, and the company's slashing by half what it had planned to invest in the online-only ERP offering--a product Kagermann had called the "most important" of his career. SAP always has portrayed a pure SaaS approach as appealing to only a small sliver of its potential customer base, those with 100 to 500 employees.

Kagermann serves up services with software

Kagermann serves up services with software

The services by design approach, if it works, could let SAP protect its profitable licensed software business, get more services revenue from those customers, and address concerns large companies have with putting some of their most sensitive business data in the cloud. For mission-critical applications like accounting, "I don't think large companies will go on demand," Kagermann says.

He describes the integration of on-site and off-site software on the vendor's "loosely coupled, asynchronous" SOA platform. "The Business ByDesign architecture and investment must not be focused on midmarket only," Kagermann now says.

Robert Strickland, CIO of T-Mobile, which uses SAP and Business Objects applications and NetWeaver middleware, sees promise in the model. "If you can have a universal SOA layer that allows you to connect everyone to that common bus and defines how you expose those services, that may ultimately give us the best flexibility," Strickland says. "It would let us order things à la carte and connect them seamlessly." Such cloud computing efforts are becoming more practical as broadband speed and connectivity options improve, he says.

SAP must reassure big customers that they can retain control of their data in the hosted environment, and that they can set rules for what users can do and access, says Technology Business Research analyst Stuart Williams. If it can, SAP might just move this software-and-services model from concept to practical tool.

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