NEW YORK — Saying that a "new era" has begun, SAP AG today formally introduced what it called a "first edition" of an on-demand software product for mid-market companies that is priced at $149 per user.
The enterprise applications market leader, which has been working on the product for four years but talking publicly about it only since December 2006 under the code name A1S, calls the new product SAP Business ByDesign. SAP has committed to spending up to €400 million to launch the product in what it says is a new market segment for it: organizations with 100 to 500 employees.
SAP Business ByDesign covers eight major functional areas — financial, customer relationship, human resources, supply chain, supplier relationship, project, compliance management, and executive management support — that are based on SAP's enterprise service-oriented architecture and NetWeaver technology. The monthly $149 per user cost includes software, infrastructure, services, and support, with a minimum of 25 licensed users per customer. For those requiring only limited access to the software — what SAP termed "efficiency" users — the product is priced at $54 per month for five users.
SAP is pilot testing the product with companies in the United States and Germany, and said it is "validating" it with companies in the United Kingdom, France, and China. Expansion to other countries will occur in 2008 and 2009.
At a press conference today in New York City, SAP officials spoke broadly about the new product's impact on the company and the market, which already is home to on-demand enterprise application offerings from such vendors as salesforce.com, Plexus Systems, and Glovia, to name a few.
"This is a new era for SAP," said Henning Kagermann, chairman and chief executive of the Walldorf, Germany-based company. "This is the most important announcement I've made in my career to date."
The importance of the introduction of SAP Business ByDesign can be understood in the context of Kagermann's growth plan for the company. SAP has set a goal of doubling its addressable market and having 100,000 customers by 2010, up from 38,000 today. Kagermann estimated that the market segment to be addressed by Business ByDesign is $15 billion in size. SAP's goal for Business ByDesign is to have 10,000 new customers by 2010.
The 100- to 500-employee market sector, according to SAP's rationale, is very different from other small or mid-market areas in which it currently offers software, such as its Business One product, targeted at companies with fewer than 100 employees, and its Business All-in-One product, for enterprises with 100 to 2,500 employees.
This new segment, SAP says, has moderately complex business processes and transaction volumes, multiple locations and business units, and often a mix of manual and incompatible legacy systems. Many of them are also growing rapidly. The on-demand software delivery model, offering a lower cost of ownership and requiring less intervention from what are often thin IT staffs, is particularly suited to this segment, SAP claims.
Moreover, key business trends, such as globalization, the "digital revolution," and flexible corporate organizational models require companies in the mid-market to have modern system capabilities in order to compete.
"A fundamental shift in business requires a fundamental shift in architecture," Kagermann said. With the introduction of Business ByDesign, he said, SAP has set "a new standard of business software for mid-size companies. We complete our portfolio of solutions for the mid-market." Business ByDesign, he noted, "is not a solution for large or mid-market companies requiring deep solutions."
The new product, he said, is based on four principles: completeness, ease of use, adaptability, and a significantly lower total cost of ownership compared with traditional on-premises software products.
In an interview, executive board member Peter Zencke, who has been responsible for the technical development of the product, described Business ByDesign as having multi-tenancy capabilities via a database technique he called "isolation per tenant." This technique, he said, provides a level of security equal to that of an on-premises product.
Zencke also said that the first edition of the product introduced today would be improved over time with "enhancement packages." The first such package, due by the end of this year, will add 20% to 30% more functionality to the product, he said. He noted, however, that the eight functional areas would not be expanded.
Asked about industry-specific versions of Business ByDesign, Zencke said SAP would not go down that road. "We should not replicate the verticalization strategy for SAP Business Suite, the company's product for large companies." He said, however, that Business ByDesign contains "full manufacturing" functionality, including some PLM capabilities, as well as capabilities for certain industries.
SAP plans to take Business ByDesign to market through a combination of direct and indirect sales channels, with the eventual goal of having a majority of its hoped-for volume business coming through partners. SAP deputy CEO Leo Apotheker said SAP has signed up 20 partners so far for the new product. A video shown during the press conference revealed that some of these partners also currently sell either Business One or All-in-One.
So far, SAP reported, 40 companies are pilot testing the new product, with 20 of them now live with it. Some of these live customers include STEMME AG, a utility and sports aircraft manufacturer; MANTZ airmotions GmbH & Co. KG, a manufacturer of air fresheners; and Compass Pharma Services LLC, which provides outsourced packaging, manufacturing, and distribution services to pharmaceutical companies.
During the press conference, several of the pilot customers spoke about their businesses and the reasons they chose Business ByDesign.
Reiner Stemme, CEO of STEMME AG, said his company's growth and need for integration led to the decision to go with what he called the "genius idea" of Business ByDesign. He also said, in a humorous aside, that Stemme now has a budding business relationship with an unidentified executive in SAP.
"I'm in a panic to manage the growth," Stemme said. "Ninety percent of my time is spent troubleshooting. I look forward to integrating Business ByDesign. And one of the main people in SAP ordered an aircraft!"