Clearly the bulk of the development work has been devoted to building the isolated tenancy model that allows for a master copy of the application but individual databases for each customer, because the service debuted with basic lead, contact and pipeline management capabilities plus sales analytics.
The bigger question is: given SAP’s broad expertise and focus on enterprise processes to unite front and back office, why did it opt just for CRM?
Bill McDermott, president and CEO of SAP America answered this from a marketing standpoint when he said the company focussed on CRM because its research showed that was what customers wanted. But Shai Agassi, president of the product and technology group, provided insight into some of the technical challenges, which centered on the maturity and complexity of business processes.
He maintained that sales processes are young processes and young processes tend to be simple when compared with something like those in accounts, that by virtue of their maturity have longer cycles.
When a process is young, it also tends to be common across organizations, he said, which fits the SAP on demand model of a master application with configuration and extension capabilities.
When we looked at other areas of software we couldn’t see any other processes that fitted that billing, he said.
Understandably Zach Nelson, CEO of NetSuite, took issue with the CRM-only argument.
SAP is making a surprising mistake by thinking software-as-service is a CRM-only phenomenon, he said. Just as in the client-server market, the application that will ultimately win the next-generation application battle will be an integrated suite of applications designed to run the core business processes of a company. You literally can’t build an integrated suite starting with CRM – ask Siebel or Salesforce.com that. You must start with ERP, as did NetSuite, as the base and branch out from there.
Agassi also noted that large organizations tend not to be risk takers and are unwilling to push core business data outside the boundaries of the organization. These types of arguments are at the heart of the on-demand versus on-premises debate and there is no right answer but where SAP is concerned the decision to restrict on-demand to CRM may also have something to do with protecting its core business and revenue model.
This was one of the issues Salesforce.com CEO Marc Benioff highlighted in a memo to staff concerning the SAP announcement. Mustering the will to turn your back on the business model that has enriched you, your employees, and your shareholders has time and again proved far more difficult than solving technological hurdles.
SAP, like Oracle and Microsoft, now risks cannibalizing its existing customer base. Can they actually afford to convert their billions of dollars in maintenance revenue into subscriptions? This classic innovator’s dilemma engenders painful internal rifts and wastes valuable time while customers’ needs languish, he said.
Another interesting aspect of the on-demand product is the IBM factor. As long-term partners it is not surprising that IBM will host and manage the service on behalf of SAP nor that it will also sell and offer consultancy services around it. However, the IBM relationship means that although the service was developed by SAP it has been built on the IBM DB/2 platform, even though a large proportion of existing SAP implementations are based on an Oracle database platform.
A further issue is that IBM also hosts the DB/2-based Siebel on demand service which as of last week came under Oracle ownership. Despite Oracle maintaining that it sees no reason to change the set-up the IBM component does not sit comfortably with its strategic ambitions. In addition, the long term practicalities of IBM offering and promoting on-demand services from competing vendors is questionable. The IBM/SAP/Oracle on demand triangle will play a significant part in shaping the on-demand market.
