On-demand CRM a moving target at SAP

SAP plans to move into the on-demand CRM market next year, but getting the product right has proved tricky.

SAP has been participating in test projects and working with customers for some time to craft its strategy for the ERP software, which will likely be offered with hosted and on-premises options, said Shai Agassi, SAP’s products and technology group head, at SAP’s annual gathering of industry analysts, in Las Vegas last week. However, the company plans to take its time perfecting its offering, and it intends to launch quietly when the software is ready for release.

“We won’t do the kind of announcement Siebel has done,” Agassi said, referring to Siebel’s dramatic cannonball into the hosted CRM market in late 2003. Siebel’s then-CEO, Tom Siebel, predicted Siebel would dominate the on-demand market within a year. Instead, the company continues to trail early pioneer Salesforce.com, which has 350,000 subscribers. Siebel has 44,000.

With Salesforce.com’s success demonstrating customer demand for enterprise software sold as a hosted, managed service, top-tier ERP vendors such as Oracle and SAP have been under pressure to come up with similar offerings, which are particularly attractive to small companies looking to minimize their IT challenges.

Oracle will become the owner of Siebel’s CRM OnDemand service once its Siebel acquisition closes, and Microsoft said last week it has begun offering a monthly subscription licensing option for partners that would like to offer its Microsoft Dynamics CRM software as a hosted, managed service.

SAP was rumored to be planning an on-demand software announcement at its Sapphire user show earlier this year, but nothing happened. Executives later confirmed that SAP was developing a new hosted product for a 2005 release. Agassi said next year is a more likely launch target.

SAP already has a product aimed at midsize businesses – Business One, which it acquired in 2002. With licenses starting at $3,750 per user, Business One is priced beyond the smallest businesses. SAP sees a market for an even simpler sales, service and marketing offering, for customers with little or no IT support seeking a product that’s intuitive and easily managed.

Hosting will be an option for SAP’s new CRM offering but it isn’t the magic bullet for reducing complexity, in SAP’s view. While Salesforce.com has thrived in targeting the salesforce automation market, enabling the entire range of ERP functionality is riskier – some companies, even smaller ones, will never be willing to trust their core operational processes to an outsourced provider, Agassi said. If a CRM provider has a catastrophe, companies can survive a few days without access to their sales systems. Losing access to accounting and order processing systems would be crippling, he said.

The hosted applications market includes several companies offering ERP suites, such as NetSuite, which has a customer base of around 8,000 organizations. NetSuite has short, scheduled windows of downtime for system maintenance but has not had major outages, according to CEO Zach Nelson.