SAP Enters On-Demand CRM Market

Industry heavyweight gets behind new service model for CRM.

At the beginning of February, because of customer demand and no doubt competitive pressures, SAP announced that it has entered the on-demand market for customer relationship management (CRM). Through a strategic partnership with IBM, SAP will offer the mySAP CRM software suite as a service that will be hosted at IBM. IBM also will provide all operational support and ancillary support services and perform customization as required. This appears to be a powerful offering from two industry giants, and it already has two large customers. Ventana Research sees this as an intriguing step by SAP, but a large step towards mainstream use of on-demand business software.

On-demand business software edged closer to becoming a mainstream proposition when enterprise software giant SAP, in partnership with IBM, entered the software-as-service market with a new offering based on its mySAP CRM suite. The service is targeted at larger companies with 100 or more users, and initially it will be limited to sales force automation. However, SAP says this will be expanded during 2006 to encompass all aspects of CRM. The service will be hosted at IBM but both will sell it.

Two aspects of this announcement are worth noting. First, this is not the usual on-demand approach. Through consultation with its customers, SAP recognized that one failing of the traditional model for hosted software is that a user organization cannot customize it to fit its particular business and process management requirements - normally, one product pretty much has to fit all users. SAP's model solves this by allowing each customer to have its own instance of the software and, up to a limit, being able to tailor that version to its own requirements (termed "isolated tenancy"). No one at the SAP press conference would say exactly what that limit is, but any company needing to go beyond the pre-set boundaries will be encouraged to revert to an on-premise deployment. It appeared, though it was not clearly stated, that only IBM would be empowered to carry out any customization.

The second key point was that SAP and IBM have clearly been working on the arrangement for some time, and therefore were able to announce their first two customers, DuPont and American Standard. Both companies have longstanding relationships with SAP, both appear to have similar business issues relating to supplying sales data to their sales forces, and both were looking for a rapid solution to resolve these issues. They gave no details about their projects, but both implied that they were pleased to be on board.

This is the beginning of a journey that will end with SAP's entire CRM solution being made available on demand. mySAP CRM is different from other applications in this market. While many CRM products are stand-alone applications, mySAP CRM is a suite of programs that address marketing, sales and support, tied together by SAP's NetWeaver. In SAP's view, CRM is not accomplished by one application but rather requires an integrated suite that can also reach out to the wider world - a view that Ventana Research supports.

Getting users to accept an on-demand service is key to the business model, and access to SAP functionality through the familiar Windows desktop will help drive acceptance. From the demonstration, SAP appears to have made good initial steps in this area.

Market Impact
Tom Kuhn warned that paradigm shifts begin with periods of uncertainty and experimentation. If that's the case, the traditional supply model for enterprise software may indeed be dying. SAP is entering an on-demand CRM market that is already quite crowded, with companies such as RightNow, Sage and already having lined up considerable numbers of customers. At the same time, we wait to see what Oracle will do with the Siebel on-demand service once it has finally decided how to position the Siebel products. The pressure for change in CRM applications will continue to lead to new efforts by suppliers to gain validation for on-demand approaches.

At Ventana Research, we believe managing customer relationships must be the top priority for companies. CRM plays an important part in this, but it is not the be-all and end-all. It must be part of an integrated program of process, people and technology changes, and undertaking these changes can be expensive and risky. We believe that this new service from SAP offers companies another important option as they start on that journey, and one that should be given serious consideration. More generally, with the paradigm seeming to be in mid-shift, we urge companies to be cautious when reviewing any new software purchase. Do not be seduced by the immediate cost and risk benefits of software-as-a-service models; also consider four other critical aspects: functionality, responsiveness, availability and security.

Related Research Note:

From Monolithic to Business Process Applications
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