SAP's recently unveiled Business ByDesign enterprise application offering for mid-market companies is likely to validate the on-demand model for selling and using enterprise software. But BBD's ultimate success will rest on several so far unanswered questions, most notably those relating to the composition and contribution of the partner network that will help SAP take the new product to market, experts say.
"The [BBD] go-to-market strategy is fairly vague at this point," says Henry Morris, senior vice president for software and services research at IDC. "SAP has provided sketchy details on how the channel pieces will work and who will be in the channel. SAP has said this is a distinct channel, but so far they've only referred to partners who are part of its existing network."
The effectiveness of the channel partners pushing BBD will be critically important if SAP is to reach its goal of 10,000 BBD customers by 2010. Because of its relatively low price -- BBD will carry a subscription price of $149 per user per month -- SAP has said it will sell the on-demand service primarily through channel partners. At press time, however, SAP had signed up only about 20 BBD channel partners, some of which also sell its other products targeting small and mid-market companies, Business One and All-in-One.
SAP will not only need to find new BBD distribution partners, but also come up with news ways for them to sell and extend the product, analysts say. Unlike higher-priced on-premise software products, BBD may not financially support traditional on-premise consulting and deployment services delivered by SAP partners, says Simon Jacobson, a senior market analyst at AMR Research.
"SAP and its partners will have to come up with new ways to sell and support Business ByDesign, such as telesales and even telephone-based support," Jacobson says. "So far, neither SAP nor its partners have much experience with that."
And SAP will need to find a way for BBD channel partners to enhance the on-demand BBD offering with features targeting specific vertical industries, experts say. Although SAP officials have described the initial version of BBD as horizontal, without much vertical functionality, analysts say vertical features will be needed if the product is to succeed.
SAP's challenge, analysts say, will be to convince customers that vertical features developed by partners will be supported on a national or even global basis. Microsoft, which is also targeting mid-market companies and relying on partners for vertical industry functionality, has attempted to resolve this problem by agreeing to support some partner-provided functionality for its Dynamics line of business applications itself. SAP may end up doing the same thing for partner-provided BBD extensions, AMR's Jacobson says.
In addition to finding new channel partners to support BBD, SAP will need to find new customers and avoid cannibalizing its on-premise products for small and medium-sized companies, Business One and All-in-One. In a variety of interviews and public statements, SAP officials have been adamant that BBD will be targeted at companies with 100 to 500 employees. They have insisted that the market segment that would be interested in an on-demand product is distinct from both the markets of smaller companies using its Business One product and larger companies using All-in-One.
SAP officials, however, have not said what, if anything, they can do to restrict Business One and All-in-One customers from migrating to BBD.
"If you're an existing customer, what can they do to prevent you from migrating to BBD?" asks Ray Wang, an analyst at Forrester Research. "Many of the SAP mid-market customers we have talked to are interested in the product."
Many current SAP mid-market customers, as well as non-SAP customers, will be attracted to BBD by its user interface, which is more intuitive than the UIs of both Business One and All-in-One, Wang says.
On the negative side, Wang says, BBD lacks advanced usability features, such as mash-ups and role-based user interfaces. Also, because BBD is not implemented using a true multi-tenancy, shared database model, SAP may, in the long run, have trouble matching the price of other software-as-a-service (SaaS) offerings, he adds.
Still, observers say, though questions linger regarding BBD, SAP's decision to offer an on-demand product can do nothing but hasten mainstream acceptance of software-as-a-service.
"In general, we're just thrilled that SAP is spending the time to educate people about what SaaS is," says Mark Symonds, chief executive of Plexus Systems, which offers the Plexus Online SaaS product. "I think it is going to legitimize the brand acceptance of SaaS in many industries. SAP will get the word out."
Symonds insists, however, that Plexus isn't feeling any competitive angst due to SAP's entrance in the market. "I don't feel threatened -- yet," Symonds says. "SAP doesn't have a track record yet. And I think the announcement is primarily aimed at NetSuite and the never-ending battle with Oracle."
This article originally appeared in the November 2007 issue of Managing Automation.