SAP Watch

Jun 12 2009   1:33PM GMT

What does SAP’s new SaaS strategy spell for the NetSuites of the world?

CourtneyBjorlin Courtney Bjorlin Profile: CourtneyBjorlin

On the day SAP announced its on-demand strategy, NetSuite’s CEO Zach Nelson, the ever-present thorn in SAP’s side, graciously took me on a walk down memory lane.

Larry Ellison, he recalled, once told him that what really helped Oracle take off was IBM announcing it was working on a relational database.

At the time, Oracle had the best database technology, and IBM acknowledging that relational databases were a big deal simply elevated Oracle’s profile, Nelson said.

And, as his story goes, Ellison said, “Someday, SAP or Microsoft will do the same thing. They’ll start talking about the importance of what you do, but won’t be able to deliver on it yet.”

SAP’s announcement of its on-demand strategy is “another IBM moment for us,” Nelson said. “The opportunity in front of us is huge. With SAP’s announcement today, everyone realizes [SaaS] is the future of software.”

And, he said, customers aren’t going to wait around for SAP to get it right.

So is SAP too late to the game? It’s no secret that SAP has struggled to get an on-demand strategy off-the-ground. Business ByDesign still isn’t fully to market yet.

But there’s one important difference with its new strategy for enterprises — it doesn’t seem to want to re-invent the wheel anymore. While SAP sells CRM on-demand, and promises Business ByDesign is still coming, there’s no indication, at least now, that’ll it’ll develop on-demand, back-office applications for large companies. Customers, it envisions, instead will use its on-demand applications to augment line of business functionality in their on-premise systems.

Maybe developing back-office, on-demand apps is a game SAP no longer sees as winnable, or perhaps, profitable.

It’s something that seems to be guiding the on-demand strategies of the mega vendors now.

SAP’s push to extend line of business functionality in an on-demand manner is very similar to Microsoft’s “Software plus Services” strategy, a hybrid of on-premise and on-demand software.

Oracle seems to be following suit. In May, the Wall Street Journal reported that Oracle was working on seven new on-demand offerings — applications that would help businesses run sales campaigns, keep track of employees and job applicants and manage marketing.

It’s an approach that is validated by the deal Siemens signed with SuccessFactors this week — which, at 420,000 seats, is one of the biggest SaaS deals to date. Siemens didn’t rip out its SAP HCM deployment. It’s simply augmenting it with talent and performance management software.

SuccessFactor’s Paul Albright told me that its strategy is to act as a partner with the big vendors, rather than rip and replace deep-rooted back office software. They’re eight years old and this year are on pace to bring in $140 million in revenue, so it seems to be working.

“We see ourselves as complementing the investment companies have made in an SAP or Oracle,” he said, adding that they have more than 1,000 SAP and Oracle customers running their software

I think SAP will still pick up customers once Business ByDesign, its SaaS ERP, goes to market, which analysts expect sometime next year.

And I don’t think Oracle making things more interesting by buying NetSuite (Ellison owns a majority stake in the company) is far-fetched at all. Nelson wouldn’t bite Wednesday when I asked whether there was truth to those rumors.

But are the mega vendors signaling that their major on-demand strategies will leave the back-office, on-demand deployments to the NetSuites of the world?

2  Comments on this Post

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  • MikeCanniff
    I think this is a typical response by smaller vendors in the marketplace - to create niche product or delivery models to augment the large investment in ERP software most companies have made. In order to be successful, Successfactors, Salesforce, and NetSuite will need to have very good integration solutions with SAP and Oracle on premise software. I think this will be the next large scale integration challenge - on cloud to on premise integration.
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  • CourtneyBjorlin
    Good point, Mike. We just did a survey on our site of readers and of those using SaaS, integration was one of their biggest challenges.
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