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Home > CIO Midmarket Briefings > SaaS and SOA for the midmarket CIO > Strategy: Know the SaaS, SOA facts > SAP ERP on-demand challenge lofty, but not impossible |
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| Briefings: SaaS and SOA for the midmarket CIO: |
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Strategy: Know the SaaS, SOA facts
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Meeting that goal by 2010 -- a challenge made by SAP Chairman and CEO Henning Kagermann last fall -- is going to take a lot of work and rebranding on the German ERP heavyweight's part. It could also be just as much work on the part of its competitors to convince midmarket CIOs that Software as a Service (SaaS) is an ERP option worth considering. Turns out midmarket CIOs and IT purchasers are hesitant to jump on the SaaS wagon. Their fears are varied, one analyst said, but not necessarily justified.
Even as the concept gains some ground, an ERP purchase in the midmarket today is still much more likely to be an on-premise product. By September 2007, SAP had claimed 40 pilot and 20 live Business ByDesign customers. A few months later, there were "more," but a specific number wasn't attached. Now there are more than 150, SAP vice president and general manager Martin Mrugal said. ByDesign is aimed at companies with 100 to 500 employees. Two months into 2008, Business ByDesign has been introduced in the U.S., Germany, the United Kingdom, France and China, with 20 more countries expected. But 10,000 customers, at least in the traditional sense, is a lofty goal, said Jeff Kaplan, managing director of ThinkStrategies Inc. in Wellesley, Mass.
"It depends on how SAP defines customers," Kaplan said. "If customers equals companies, then it is unlikely they will achieve this goal. If it means the total number of employees within the companies using its Business ByDesign solution, then it is attainable." "The customers I'm talking to are happy that SAP recognizes their growing interest in SaaS alternatives, but they aren't convinced that SAP is fully committed to delivering a competitive SaaS solution and aren't confident that it will do so within their promised timetable," he said. R. "Ray" Wang, a principal analyst at Forrester Research Inc. in Cambridge, Mass., said the 10,000 goal is "definitely achievable, but it's a different kind of sales force that's required." SaaS ERP dismissed A recent SearchCIO-Midmarket.com survey found that although 22% of CIOs plan to purchase an ERP system this year, only 9% of those plan on a SaaS product and 15% plan on a hosted product. A full 52% plan to use a traditional on-premise product and the rest selected "I don't know." A similar survey conducted by Wang last year turned up nearly identical numbers. Only about 17% of IT purchasing decision-makers at small and medium-sized businesses were using or planning to use SaaS products. Another 60% said they were "not at all interested." Wang said the downright dismissal of SaaS as an ERP option is because of concerns over integration, security, cost, performance and lack of customization to a business' needs. "The midmarket is at this point waiting for the enterprise to prove that it works," he said. Mrugal conceded that losing a high level of customization is the major tradeoff when going with SaaS ERP. But he also said that many of his potential customers are surprised by how much customization is possible with Business ByDesign -- enough that they don't "have to take it vanilla as is." What is striking about consumer fears, Wang said, is that SaaS ERP products are generally more likely to provide cost savings and the security is adequate. The hesitations, he said, are unfounded. Mrugal said he's finding that many potential Business ByDesign customers are initially closed to the idea of an on-demand ERP. But some who are persuaded to hear the pitch are turning to the program, primarily because of cost savings, Mrugal said. Business ByDesign costs $149 per user per month. So the biggest battle for SAP and other companies is just convincing customers that SaaS ERP is worth considering. That means companies will need to conduct a lot of market education during the uphill fight to fulfill the buzz of SaaS as the future of ERP. Both Wang and Kaplan said SAP will also need to convince midmarket CIOs that Business ByDesign leaves room to grow. "At what point does the solution not necessarily perform well?" Wang asked. "That question has not been answered." Kaplan called the ability of Business ByDesign to grow with customers, instead of forcing an eventual move to an on-premise product, one of the most important points for SAP to prove should it want to meet the 10,000 goal. Bill Davis, CIO at Grafton School Inc., a Winchester, Va., nonprofit health care and special education firm serving developmentally disabled youth, is one midmarket IT leader trying hosted ERP.
But he said he decided not to go with a major vendor like SAP, primarily because the 600-employee Grafton requires a very customized product. "The market for behavioral health care is very small and it really is significantly different from a pure medical model, so I don't think the big players really got into it too much," Davis said. The big names that have tried don't offer an on-demand or SaaS ERP that meets the customization needs of Grafton, he said. Instead, his 20-person IT team is implementing CareLogic, a product from Nashville, Tenn.-based Qualifacts Sytems Inc. It is the first ERP project implemented at Grafton. Even with the low-interest numbers in the midmarket, it is unlikely Business ByDesign and the similar offerings under work by SAP will disappear or crumble under the weight of hype. Kaplan said he expects adoption in the midmarket will be slow until more "success stories" come forward, soothing the concerns of CIOs. The first customers likely to take to Business ByDesign are the ones already using other SAP products like Business All-In-One or Business One, Wang said. He added that he sees the overall industry tide of SaaS ERP picking up speed, but he doesn't see a huge market conversion anytime soon. "I don't think the flip is going to occur for some time," he said. "I think it's going to take five or seven years for that to happen." Let us know what you think about the story; email: Zach Church, News Writer
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