SAP extends outsourcing push with eOnline deal

Business software giant SAP's outsourcing strategy heated up today as the company announced an exclusive deal with start-up hosting company eOnline.

SAP said Cupertino, California-based eOnline, which officially launched today, will manage and host SAP's complete suite of enterprise resource planning (ERP) software for customers. Together, the companies are targeting small and mid-sized businesses that want to use SAP's business management software but lack the big budget to buy or manage the applications.

Today's announcement marks SAP's third partnership announcement in the heavily touted applications service provider (ASP) space, which is expected to grow to $2 billion by 2003, according to market research firm International Data Corporation.

In May, SAP announced an outsourcing deal with telecommunications company Qwest in which both companies said they would promote SAP's flagship R/3 business software to smaller companies in that industry. As reported, Qwest said it will manage and support SAP software running on Hewlett-Packard computers through its data centers.

SAP inked a similar deal in February with computer services giant EDS. EDS said it will also manage SAP's core R/3 business applications to help lure new midtier customers.

The applications outsourcing market is still in its infancy, but analysts have high hopes for rapid growth.

Simpler applications, such as email, are expected to be among the first that companies host, said Brendan Hannigan, an industry analyst at Forrester Research.

"The value proposition [of the ASP model] is clear and compelling, but the overall solution and how it's being delivered isn't fully baked yet," said Hannigan.

IDC analyst Meredith Whalen said a growing number of companies are signing on with ASPs. Whalen said she expects a total of $150 million will be spent within this nascent market by the end of this year.

"We're seeing ASPs starting to sign on more customers and get them up and running, which is something we expected to happen," she said. "We're starting to really see this happen in the second half of this year."

Whalen said larger software vendors are driving that increase as they race to win over customers in new markets.

"[Partnering with] the ASP becomes a way that the ERP vendors are able to reach the mid-market," she said.

Through the SAP deal, eOnline will host and manage SAP's financial, human resources, and accounting applications, as well as SAP's new releases, which include customer relationship management and supply chain management applications, said Tom Melchiore, director of application outsourcing for SAP America.

eOnline's chief executive Adrian Ionel said pricing will range from $130 to $220 per month, per user, depending on the total number of users at a company. The prices include all technical integration, network costs, service and support, he said.

Ionel said eOnline has partnered with six systems integrators and runs two large data centers in North America, where eOnline will remotely manage and support SAP applications.

eOnline is now hosting SAP applications for its first two customers: Rezsolutions, a hotel reservation company, and Interactiveapparel.com, an e-commerce start-up. Founded in April, eOnline is made up of technology executives and technology consultants from SAP and German electronics firm Siemens.