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2/2/2006
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SAP Offers On-Demand CRM

SAP takes a different approach from its on-demand competitors by running applications on servers dedicated to individual customers.

Like the wily old veteran who comes off the bench late in the game hoping to match experience against athleticism, SAP at long last is joining the on-demand customer-relationship-management fray.

The world's biggest business applications vendor today is launching a long-awaited service that offers a new spin on the software-as-a-service model championed by the likes of Salesforce.com. Rather than running all of its customers on the same hardware--an approach known as multi-tenancy--SAP has built an on-demand architecture that puts each customer's application running on its own dedicated hardware. That setup will not only protect customers from widespread system failures, but also allow SAP to push mass updates of the underlying software simultaneously to all of its on-demand customers.

SAP's on-demand play begins with the immediate availability of a sales force automation service, SAP Sales on-demand, which will be followed by releases of SAP Marketing on-demand in the spring and SAP Service on-demand in the summer. Subscriptions to SAP's new offering run $75 a month per user. Once they're ready, both the marketing and service modules will be pushed out as updates to all subscribers, with all three modules priced together at $125 a month per user. For customers who later migrate from SAP's on-demand service to its on-premises MySAP CRM application, any subscription fees they've paid will be credited toward the cost of its MySAP licenses.

The German software giant's entry into the on-demand market has been anticipated for months as competitors have moved to capture their share of the growing demand for software-as-a-service. During the interim, Oracle bet heavily on a hybrid on-premises/on-demand approach to CRM with its acquisition of Siebel Systems, which closed Tuesday. Meanwhile, Microsoft first outlined plans to recreate much of its software as Web-based services, and then introduced a beefed up version of its CRM software, which is available either as a desktop application or as a hosted service via Microsoft's vast partner network. Salesforce.com also has continued its torrid growth, both in revenue and product breadth, although its momentum has been slowed somewhat by recent service outages, the latest of which shut down its service for parts of Monday.

No wonder it's getting more crowded at the top. AMR Research says that on-demand CRM revenue industry wide grew 48% in 2005, nearing the $600 million mark, or about 12% of the total CRM market of $4.8 billion. Some 40% of companies are now using some form of on-demand CRM, AMR calculates.

SAP is hoping its "isolated tenancy" strategy will separate it from the pack. It has basically added another layer to the typical on-demand architecture. A master copy of the service will run on a core hardware platform, and dedicated servers will run each customers' instance of the application. SAP will then push software updates out from the master application, but customers will have the ability to shut off those updates if they want to remain on an older version. That strategic design looks especially advantageous given Saleforce's latest outage, which provided a reminder of the inherent risks of the multi-tenant model. "If there's a failure in your application or your hardware or your database, all your customers go down," says Peter Graf, SAP's executive VP of product marketing.

But AMR analyst Rob Bois says that swooping in late with something it believes is more bulletproof than Salesforce.com doesn't guarantee SAP success. "The game here is getting critical mass," says Bois. And Salesforce "still has the largest deployed user base" of any on-demand CRM vendor. Not to mention that selling an on-demand service is no easy task for a company that's built to sell perpetual software licenses, adds Credit Suisse Securities analyst Jason Maynard. "The on-demand business model is diametrically opposed to the traditional software play," says Maynard. "SAP's business is not ready to make this 180-degree change."

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