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SAP Takes One More Step in its On-Demand Strategy

Will the new functionality and user interface for SAP CRM on-demand be enough?

Like many other vendors, SAP likes to take advantage of its major user conferences to herald the unveiling of ground-breaking solutions. At Sapphire '06, the company made two major announcements in the customer relationship management (CRM) space: the release of SAP Marketing on-demand and the future availability of an upgrade called SAP CRM 2006s. Ventana Research believes the first will be welcomed by companies thinking of adopting an on-demand supply model for their CRM needs; the latter disguises what we think is an admission that SAP has recognized that in order to remain competitive, it had to simplify its entire user interface.

In February SAP announced it was diversifying beyond its traditional practice of licensing software and was entering the hotly contested market of providing solutions through a hosted, on-demand supply model, commonly called software-as-a-service (SaaS). In partnership with IBM, this would enable midsize or large companies, or large business units within major enterprises, to gain the benefits of SAP CRM but at less risk and a more competitive price. An added benefit was that because of the way SAP and IBM were going to operate the service - with a separate incidence for each customer - as companies outgrew the on-demand model, they could transition easily back to the on-premises model. However, amid all the hype, many potential users probably missed two major caveats included in the announcements: that the first release contained only limited functionality, and the transition from on-demand to on-premise wouldn't be as simple as it sounded.

SAP's first on-demand release was solely for Sales; it said support for Marketing and Services would come in releases planned over the next year. And in reality the first release didn't include all sales functionality. At Sapphire, it announced that Sales on-demand now will support better pipeline management through enhanced functionality to capture and track new and existing opportunities, lead generation, sales execution and analysis. SAP also announced delivery of the promised first release of SAP Marketing on-demand. This version will support campaign management, including customer segmentation, lead management and role maintenance in support of the realignment of marketing and sales organizations to meet internal and external drivers. But as with the first release of Sales on-demand, it is not clear how much of the product's full functionality this first release will contain. The part of the original announcement hardest to understand was why it would take so long to supply all the functionality. The answer turns out to be that SAP has been designing a new user interface (UI). SAP obviously has come to the conclusion that the original UI isn't as easy to use as customers wanted it to be, so all the on-demand solutions were to have a simplified UI based on Web services technology and Microsoft Office. Doing this in effect required the whole front end to be redeveloped, hence the delays. It also put a kink in the transition back to on-premises software, since the presumption was that the on-premises solution would retain the existing UI. Now it appears that in SAP CRM 2006s, which it says will be available sometime in the summer, the on-premises and on-demand solutions will be harmonized, and both will use the new, simplified UI. Both will be based on Web services, which should make them much easier to integrate with other applications. SAP also is promising support for industry-specific processes in vertical markets, such as order and contract management for telecommunications and leasing and account origination for financial services.

Market Impact
With on-demand CRM, SAP is now in a highly competitive market, where vendors such as RightNow Technologies, and StudioCRM already have products that are affordable and easy to use. Rather than all the "bells and whistles," many users of these solutions want something that meets their core business requirements, is easy to use, reliable and always available, offers exceptional performance and, above all, is cost-effective. While SAP's standard CRM offering might meet most of these demands, it carries a high total cost of ownership and requires considerable training to use. With the newly announced hybrid solution, SAP moves toward addressing these user expectations. The new UI should make the on-demand solution more attractive, and it also might make the on-premises version more attractive to a broader range of potential customers. In practice, however, we don't anticipate many companies transitioning back to on-premises software from on-demand services.

Ventana Research always takes notice when a key vendor makes significant changes to its product strategy and approach to the market. Providing an on-demand version of CRM is a major step for SAP, which in the past relied entirely on selling licenses for on-premises installations to generate revenue. The company wisely recognized that it needed to simplify its UI to compete in this less technically sophisticated market. On-demand solutions won't meet the needs of all companies, but for those that want to take this route, the new SAP announcements afford additional options that should be monitored as that company moves into new approaches for utilization of its applications. But as with all new software purchases, we advise potential customers to take into account all the options and all the factors influencing their decision before settling on a solution.

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