SAP Unveils SaaS Strategy

John Wookey, SAP's new head of on-demand software applications for large companies, provided the first details of SAP's strategy for that market in an InformationWeek interview on Tuesday.

Here's what SAP customers can expect in the coming months: function-specific software applications, available by subscription, that plug into customers' on-site SAP Business Suite systems, and that SAP will host for customers using a multitenant architecture.

Wookey said he'll have groups of developers creating these software services using the agile development method, resulting in rapid feedback from early users.

That will increase both the speed and number of on-demand apps SAP can bring to the market compared with what it could do if it were using more traditional development methods, he said.

SAP likely will introduce these products in groupings -- or "waves," as Wookey called them -- with the first group partly in the marketplace today.

Acquisitions also play heavily in SAP's software-as-a-service strategy, including its purchases of Frictionless Commerce, Clear Standards last month, and just last week SkyData Systems, a developer of CRM applications for mobile phones. All of these companies are involved in on-demand software services, or are run by executives with that experience.

However, SAP won't develop software services that compete directly, as independent SaaS applications, with companies such as Salesforce.com, Concur, and Ariba, Wookey said. Rather, all of SAP's on-demand apps will be designed as extensions of Business Suite.

They'll be built on a multitenant architecture that was developed by Frictionless, a provider of supplier relationship management software services that SAP acquired in 2006.

"We do understand the on-demand marketplace, we're very committed to it, and we have a pretty unique strategy to how we're attacking it," Wookey said.

Last November, SAP hired Wookey to head up a new initiative to develop SaaS for large companies. It was an intriguing development, since Wookey formerly headed up application development at archrival Oracle and was a longtime member of Larry Ellison's inner circle, before leaving Oracle for undisclosed reasons in late 2007.

The hire also indicated that SAP was getting serious about developing a strategy for software-as-a-service for large companies, which former CEO Henning Kagermann first discussed in an interview with InformationWeek one year ago. Until Tuesday, Wookey had not been available for media interviews. Three of the four products in the first wave of on-demand apps are already on the market: SAP CRM, e-sourcing, and carbon emissions management. However, SAP CRM currently isn't multitenant -- SAP plans to upgrade those customers to a multitenant architecture, but customers won't notice any changes, Wookey said.

The carbon emissions offering, already multitenant, comes from the Clear Standards acquisition, and the multitenant e-sourcing service comes from Frictionless.

The last offering in this first wave, for expense management, is due out later this year. There also will be mobile versions of on-demand applications, based on technology SAP is getting from its SkyData acquisition.

Multitenancy -- in which groups of customers share the same instance of a software application, even though their data is kept separate -- helps software companies keep costs down for the hardware, software, and energy they use to host customers' applications. In turn, that allows them to offer competitive subscription prices. Wookey describes Frictionless' technology, which will be the foundation of SAP's on-demand platform, as "Java-based with a true multitenant architecture."

After joining SAP, Wookey said he spent a few months understanding what SAP had done to date with on-demand services. In January, he brought his proposal for an on-demand strategy to SAP's executive board. That was followed by a business case, an execution plan, and the creation of a team to execute that plan.

Wookey's management team includes Mark Ellis, former VP of development at Frictionless who heads up on-demand platform development at SAP; Frictionless' Wayne Haubner, an expert in SaaS system usage and monitoring, to head managed services; and Shailesh Rao, formerly of Salesforce and Siebel, to head up on-demand solution management.

Wookey's team also includes Peter Lim, who was co-founder and CTO at SkyData and former VP of engineering at Siebel, and Kevin Nix, co-founder and CEO of SkyData and formerly VP of CRM at Siebel. Wookey said he has a dedicated development team for on-demand apps, but said it was against SAP policy to disclose how many people are on that team.

SAP has not publicly announced the SkyData acquisition. In a statement provided to InformationWeek on Tuesday, SAP said "SkyData's application will provide mobile and third-party integration capabilities for SAP's large enterprise on-demand services, and we will provide more detail about our plans for the SkyData application in the near future. The purchase closed on May 25." One thing is for certain: SAP's SaaS strategy is more like the "software-plus-services" strategy described by Microsoft, in which on-premises and on-demand software coexist in customer environments. This strategy, of course, helps traditional software vendors continue to sell on-premises software, from which they collect hefty maintenance fees. But Wookey made the case that it's much more than that.

Customers prefer their users to have a common experience across systems, Wookey said, which is easier to do with a core system (e.g. SAP Business Suite) from which on-demand services developed by the same company can be an offshoot.

Second, customers require a single system from which standard business processes can be established and followed, with consistent workflows and approvals.

And third, Wookey said, a central on-premises software system helps customers avoid many data sharing and integration issues that arise when dealing with a best-of-breed mix of SaaS and/or on-site software applications. "Since we own the business suite, we can make the integration easier," he said.

Wookey said, for example, that CRM, expense management, or talent management on-demand apps from SAP are better for customers than from a third-party vendor, since "sales cycles are affected by product definition and product rules [in ERP] and expense management is affected by policies for travel, while talent management is affect by policies in the HR system."

Wookey said his development team operates like a startup company, using agile development methods and Scrum teams, an approach that fits well with the on-demand model. "It lets us iterate software much more quickly," he said.

With traditional development of on-premises software, developers might work on a beta product for months and then spend the next year or two tweaking those products based on customer feedback. The combo of agile development with an on-demand product that can be monitored by SAP offers "real-time feedback on the system," he said. SAP will be able to monitor how early customers are using various on-demand apps in development, for example, and identify problematic features much more quickly.

Across the company, SAP's on-demand apps management team looks like this: Wookey's title is executive VP of large enterprise on-demand, reporting to Jim Hagemann Snabe, who heads up software development at SAP and sits on SAP's executive board; Peter Lorenz, who heads up development for SME On-Demand, including the Business ByDesign suite; and Marge Breya, general manager of BusinessObjects, who also oversees BusinessObjects On-Demand.

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