SAP Readies On-Demand CRM

A new market battle is brewing in the enterprise applications space. The soon-to-be combatants: SAP and, both of which aim to convince businesses of all sizes to use their on-demand CRM software.

Rochelle Garner, Contributor

May 26, 2005

4 Min Read

A new market battle is brewing in the enterprise applications space. The soon-to-be combatants: SAP and, both of which aim to convince businesses of all sizes to use their on-demand CRM software.

In the next four to five weeks, SAP plans to introduce a subscription-based CRM application that will be delivered over the Internet, according to sources close to the company. SAP originally was expected to unveil the application at its Sapphire '05 customer conference in Boston earlier this month.

"The question about on-demand CRM came up at the analysts call for our quarter one, and we referred them to Boston and said we would say something around on-demand then, and not before," SAP CEO Henning Kagermann told CRN in an interview before the conference. "There will be some announcement in this direction," he said.

SAP declined to comment on the upcoming CRM product, its pricing or the reasons for postponing the announcement. At this time, it's too early to tell if SAP will be able to grab the dominant share in yet another application market, as it has with nearly every other software realm it has entered. Yet the answer could have a lasting impact on the channel, given that remains firmly committed to a direct-sales model--even as SAP continues to ramp up its indirect efforts.

Many industry observers say SAP is becoming increasingly concerned as gains traction among large enterprises. Last week, for example, the San Francisco-based CRM vendor revealed that Merrill Lynch has signed on for 5,000 seats of its hosted software. Other big customers include ADP, Kaiser Permanente and Nextel.

All signs indicate that SAP views its first on-demand application as a product for all sizes of companies, which means the hosted software would need to address a variety of issues. SAP has two major advantages over Salesforce in enterprise space. First, SAP can tout the tight interaction of front- and back-end business processes. Second, many SAP customers are Salesforce customers, said Rebecca Wettemann, vice president of research for market analysis firm Nucleus Research.

"It would make sense for SAP to have a competitive platform to Salesforce," Wettemann said. "The question is how SAP executes, because there's a lot more to on-demand than just workflow. There are also things like analytics and built-in sales coaching. If you are that late to the party, you have to be wearing a really cute dress." That attire should be fetching when SAP steps onto the on-demand dance floor, according to some of SAP's midmarket partners, who said they would welcome a software-as-service version of CRM.

"The infrastructure is complicated for mySAP CRM, with a separate CRM server, development box and production environment. That can be a problem for smaller companies," said Philippe De Smedt, vice president of Ki Solutions, Irvine, Calif. "In the past, many would buy Salesforce and keep CRM separate from SAP, knowing the sacrifices of not connecting to the back office. SAP already has CRM sales methodologies, and it already created processes that bridge between CRM and ERP. I would expect those to be available on demand as well."

Said Niesman, president and CEO of iTelligence, said an on-demand SAP CRM offering would help the Cincinnati-based solution provider in the midmarket. "In my experience, customers start off interested in ERP and then, as phase two, look for either customer relationship management or supply chain management," Niesman said. "I think on-demand is an attractive alternative with real business value for our midmarket customers."

For its part, Salesforce questions whether SAP can transition its business model to software-as-a-service for CRM. "They have a licensing model where they expect companies to pay up front. You can't take that revenue stream and collapse it overnight into recurring revenue," said Phill Robinson, Salesforce's senior vice president of marketing. "I don't see SAP being any more successful making that adjustment than Siebel has been."

Last week, Salesforce said Accenture will become a reseller partner, working with Salesforce's direct-sales organization. "That Accenture announcement is something we'll be watching carefully," Wettemann said. "It could bring a lot of value-added coaching and contextual stuff. Or it could mean adding cost to the deployment, taking away the cost advantage of CRM on demand."

Separately, Salesforce quietly announced that Pat Sueltz, president of marketing for technology and systems, has left the company. Bruce Culburt, who was brought in to build a partner network, left "some time ago," according to Robinson. Bobby Napiltonia, formerly of BEA Systems, has been brought it as senior vice president of worldwide channels and alliances. In its most recent quarterly filing, Salesforce said it intends to beef up its direct-sales organization.

And the company may need to, if Wettemann's findings continue to bear out. "We've found that a lot of customers that adopted Salesforce early on are looking to leave it," she said. "There are a number of alternatives to it now."

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