NEW YORK, PALO, ALTO, CA -- ERP giant SAP AG, as expected, today launched its first hosted, on-demand application service, a version of its mySAP CRM offering that, company officials and observers said, is clearly aimed at existing medium- and large-size SAP customers rather than the smaller companies most often targeted by competitors Salesforce.com and NetSuite Inc.
"SAP is clearly just addressing its existing customers with this offering," said Rob Bois, a research director at AMR Research Inc. (Boston). "Salesforce, Oracle, and others must be breathing a sigh of relief."
Yet while Shai Agassi and other SAP executives readily admitted that the new application service is aimed mainly at the high end of the mid market, they did not portray that strategy as necessarily permanent. "No one has said that we will only stay in that area," said Agassi, president of SAP's Product and Technology Group, in remarks during the question and answer session following the announcement.
The new SAP CRM on-demand product, which will be deployed in cooperation with partner IBM, initially includes limited functionality and integration capability. The initial version addresses only a subset of sales force automation functionality, including managing customer contacts and sales pipelines. SAP officials said the company plans quarterly upgrades to the offering, enhancing the sales force automation capabilities and, in the next release, which will come in the second quarter of this year, adding a marketing offering that will include lead, campaign, and pipeline performance management.
That will be followed in the third quarter by a third offering focused on service management, SAP said.
SAP set the initial subscription fee for the CRM on-demand offering at $75 per user per month. That entry-level price would entitle customers to access one of the three planned CRM on-demand modules (SFA, marketing, or service), SAP said. Customers can subscribe to all three offerings -- once they're available -- for $125 per user per month.
Salesforce.com offers its suite of on-demand CRM offerings for an entry price of $65 per user per month.
SAP said it will target customers planning to deploy the CRM on-demand offering to 100 users or more. And, according to SAP communications Vice President Bill Wohl, the company will primarily target existing SAP customers.
"The typical Salesforce.com customer who buys five seats is not the kind of customer who has a long-term CRM vision with any sophistication," Wohl said. "We're not going to have a competitive value proposition with customers at that level. Where we tend to see sophistication in organizations tends to happen in mid-market-and-above companies."
Many initial customers for SAP CRM on-demand, Wohl said, will be manufacturers and others that are just beginning to deploy a CRM software but who may not yet have defined a long-term CRM strategy that would justify a more costly on-premise deployment.
The initial implementation of SAP CRM on-demand will include limited out-of-the-box integration with existing SAP on-premise applications such as mySAP CRM. Changes in customer contact information recorded in SAP CRM on-demand can be reflected in a mySAP ERP on-premises implementation, for example.
The mechanism for enabling the initial integration, however, will be existing, proprietary SAP application programming interfaces, the company said.
It is this ability to integrate SAP's new CRM product with its enterprise applications that attracted chemical maker DuPont to the on-demand product. According to Michael Michlovich, DuPont's marketing & sales IT director, "integration is the key" to its selection.
DuPont is also a Salesforce.com customer, and Michlovich said he has been impressed by the functionality in both companies' offerings, but noted that when his company needed to expose information in its legacy systems and SAP back-office systems, SAP's on-demand product stood out for its ability to interface with the rest of the enterprise.
Echoing the theme of the announcement -- that SAP developed the CRM on-demand package in response to customers' requests -- Michlovich added, "We asked them for a lot of the things that are in the next two modules."
Those modules, for marketing coordination and service management, along with other future updates of SAP's CRM on-demand product, will make use of SAP's more flexible Enterprise Service Architecture (ESA) to enable integration with mySAP ERP and other SAP applications, officials said. SAP CRM on-demand will share ESA process definitions with mySAP CRM, officials said.
Customers will also have the option of migrating from an on-demand service to an on-premise mySAP CRM implementation as part of the offering, SAP officials said.
Speaking at a press conference, SAP Americas President Bill McDermott said SAP has no current plans for ERP or other non-CRM on-demand offerings. "Our plan focuses on CRM on-demand versus other product categories," McDermott said. "Because that's what customers want."
AMR's Bois called SAP's initial on-demand foray important in that, "They've put a stake in the ground and defined what their on-demand strategy is going to be."
The initial SAP CRM on-demand offering is somewhat disappointing, however, Bois added. "They've been hinting at this for nine months," Bois said. "Given that amount of time, you might have expected a broader offering. This is not even full-blown SFA. It's really just contact management."
Consistent with its plan to target mid- and large-size customers, SAP said its on-demand offering will be implemented under a modified single tenancy model, meaning that each SAP CRM on-demand customers' applications and data will reside on dedicated hardware and a dedicated database. SAP will be able to update applications running on those dedicated services simultaneously, Wohl said.
In contrast, on-demand CRM vendors like Salesforce.com (San Francisco) have opted for a so-called multi-tenancy model in which the CRM implementations of many customers share hardware and a database. While the multi-tenancy model is usually less expensive to deploy, it can bring availability and security risks, SAP's Wohl noted. As recently as December 20, Salesforce.com customers reportedly experienced an outage that lasted five hours.
SAP's modified single-tenancy implementation may also explain its decision to target mid- and large-size customers for SAP CRM on-demand, Bois said.
With its multi-tenancy model, Salesforce.com has grown the number of individual subscribers to its hosted CRM offering from about 25,000 in 2001 to over 351,000 today.
When asked to predict the adoption rates of the on-demand product, SAP's Agassi sketched the possibilities, but declined to detail the company's expectations. "The market potential is in the tens of millions," he said, while stressing, "We need to reserve those prognostications till the end of the year."
IBM will provide the physical hosting of SAP CRM on-demand as well as implementation consulting services. The offering will be deployed on IBM's DB2 database management system as well as its eServer hardware, said Marc Lautenbach, general manager of IBM Americas.
IBM has also been the exclusive hosting partner for the on-demand CRM offering from Siebel Systems Inc. (San Mateo, CA), which was recently acquired by Oracle Corp. of Redwood Shores, CA. AMR's Bois speculated that, given Oracle's own database management product line, the company may end the hosting relationship with IBM that it inherits from Siebel.
CRM on-demand competitors of SAP, meanwhile, characterized SAP CRM on-demand as a defensive move designed to protect the company's customer base from poaching.
"This announcement is turning out to be fortress SAP," said Sean Rollings, senior director of product marketing at NetSuite (San Mateo, CA) . "It's clear that this offering is for existing SAP customers and the Fortune 1000, and that demonstrates SAP's intention to protect its customer base from somebody coming in and taking away their CRM installations."