Standing before thousands of attendees at the SAP Sapphire conference Tuesday, CEO Leo Apotheker said he was there to "kill a rumor" about the death of the company's software-as-a-service ERP suite, called Business ByDesign. He invited attendees to stop by for a demo of the product at SAP's booth.

But while the suite may not be dead, what Apotheker didn't tell his audience is that Business ByDesign will have to undergo major reconstructive surgery before it can go to market with a product profitable enough to please its shareholders. And that could take another year, or maybe more.

InformationWeek's discussions with various high-level executives at Sapphire reveal that SAP requires a lower total cost of ownership, or TCO, before it can expand the SaaS ERP suite beyond its current test base of 80 customers.

One approach, apparently under serious consideration, is to use an in-memory database, so that all transactions occur within memory -- similar to how SAP's Business Warehouse Accelerator product works. An in-memory approach would require just one-one hundredth of the storage space SAP would need to host the data in a customer's Business ByDesign suite, said Hasso Plattner, SAP co-founder and chairman of its supervisory board, in an InformationWeek interview.

In-memory processing is a new approach in the application-hosting world: SaaS ERP vendor Workday uses it, but Salesforce.com does not. SAP once believed that in-memory technology could not support the number of transactions that take place in an ERP suite, Plattner said, but further work has shown that belief to be untrue.

SAP hopes to figure out the right formula for Business ByDesign by next year, but it has its work cut out. CTO Vishal Sikka even suggested that SAP would retain primarily the interface aspects of the product and could replace approximately 70% of the internal workings of the system to get it to the TCO that SAP needs. Plattner predicted a market-ready product within two years.

Yet CEO Apotheker clearly doesn't want customers to lose interest in the suite, as evidenced by his mention of it in the keynote.

Apotheker and former CEO Henning Kagermann stood upon a stage in a downtown Manhattan theater on a sunny September day in 2007 and declared Business ByDesign as the company's first big foray into the world of SaaS, citing a market potential of $15 billion.

Before hundreds of people, Kagermann even called it "the most important announcement I've made in my career." Executives said they planned to sign up 1,000 customers for the product in 2008.