SAP described the planned product, which is slated for release in March, as an enterprise service-oriented architecture by design platform because it has been developed around SOA concepts using SAP’s SOA technology. It will be a high-volume product, offered for sale via the internet or telesales channels, built for low cost of ownership, including the ability to ne managed remotely. More significantly, it will be offered as a subscription-based on-demand product in the first instance. SAP has been lukewarm about on-demand, and even this product is aimed at a new market segment as opposed to its existing customer base.
We are combining the power of the new platform that SAP has developed over the last three years with a new approach in the way software is delivered and consumed to reach a broad segment of midsize companies with requirements not addressed by either traditional or on-demand solutions available today, said CEO Henning Kagermann.
The company will sacrifice profit margin in 2007 in order to accelerate development of the product, related infrastructure, and go-to-market strategy. It is putting 400m-500m euros into the project over the next eight quarters but is anticipating rich rewards. According to Kagermann, the mid-market as a whole is worth $30m in revenue, the same as the large enterprise market, but he said half of it is not being addressed by existing vendors and products. He split the mid-market into two camps, one of which SAP can serve today through its All-in-One and Business One products. The other is the high-volume, quick-return, quick-implementation, low-risk camp. This segment we call the non-buyers because they don’t consider buying [from existing vendors] today, he said.
SAP’s intention is to swoop in with a simple but complete business application suite covering all critical business functions and a choice of deployment models, of which on-demand is likely to be key, before existing players can take market share. However, Kagermann also indicated that he thought the real competitive threat would come from start-ups.
Despite attracting more attention, the needs of small businesses and the lower end of the mid-market are still underserved. NetSuite offers an integrated ERP/CRM/e-commerce on-demand suite, and Sage is just starting to bring integrated suites to market. Microsoft has failed to set the mid-market alight with its compendium of applications.
Time to market is key. We could do it in years or accelerate the investment, said Kagermann. He denied that the acceleration is a reaction to increased competition in the mid-market, and he said SAP is delivering something the market has not seen before, combining leading-edge technology with a volume business model.
SAP expects the new product to contribute significantly to its target of raising its customer base to 100,000 by 2010, and believes it could deliver 10,000 new customers per year. Pricing has not been decided but Kagermann said it would be competitive.
