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SAP Buys Cloud Computing Startup Coghead

Coghead's service continues through April, but SAP will shut customer obligations and relationships down after that.

Bad news for cloud computing: Coghead -- a venture-backed, online application development platform -- is closing, leaving customers with a problem to solve.

Potential silver lining: SAP bought Coghead's intellectual property and hired its engineering team in an acquisition that closed last week. SAP will not continue selling the service, opting to use Coghead only as an internal tool for now (Coghead currently runs on Amazon Web Services), but the move marks the latest chapter in software company's on-and-off interest in the cloud.

"SAP is one of the premier tech companies in the world and we're really happy this transaction took place," Coghead CEO Paul McNamara, a former Red Hat and IBM executive, said in an interview with InformationWeek. "However, the Coghead business model is not in keeping with the kinds of things that SAP wants to do."

Coghead let customers develop and host database applications online via a drag-and-drop interface. The service continues through April, but SAP "will not assume any customer obligations or relationships," according to an SAP spokeswoman. On its site, Coghead recommends customers stop development and download their data, as SAP has also stopped tech support.

While customers can download data, apps built on Coghead aren't as mobile. "Customers can take the XML out that describes their application, but the reality is that only runs on Coghead, so customers will need to rewrite their app with something different," McNamara said.

Coghead competitors like Caspio, TrackVia, and Intuit QuickBase are already clamoring for Coghead's customers, which include the University of Southern California Marshall School of Business, insurance company Colonial Group International, and Taiwan-based freight forwarding company Morrison Express.

Both Caspio and Intuit are offering companies support to rebuild applications on their platforms, though McNamara isn't promising anything himself. "We think Coghead is the easiest way to build apps," he said. "I expect those other tools are harder to implement than Coghead."

Coghead's backing included $13.7 million since 2006 from El Dorado Ventures, American Capital Strategies, Western Technology Investment, and SAP Ventures. It had been in talks with several companies about an acquisition since at least January.

SAP last year cut back on development of its own software-as-a-service CRM application, but lately has touted cloud-based modules that companies add to SAP ERP, as software plus services.

Though McNamara said business was continuing to grow rapidly, the recession ultimately did Coghead in, and Coghead began looking for buyers a few months ago. "Faced with the most difficult economy in memory and a challenging fundraising climate, we determined that the SAP deal was the best way forward for the company," McNamara wrote in a letter to customers that went out late Thursday.

There was a bit of confusion about Coghead's closure. On Wednesday, Coghead sent out an e-mail to customers and posted a note on its Web site that it would be closing, and reports spread quickly about Coghead's demise. However, Coghead and SAP did not announce the acquisition until Thursday afternoon. "I wish we would've put out both statements at once," McNamara admitted.

The shift to delivering IT through a utility model is poised to change the business computing landscape as we know it. InformationWeek has published an independent analysis of this topic. Download the report here (registration required).

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