August 15, 2005 3:00 PM PDT
SAP promises twist on hosted CRM
The software giant says its on-demand CRM will surpass "overhyped" technologies available from its rivals by offering capabilities that extend beyond contact management and order entry and by addressing a deeper level of business processes.
But industry watchers wonder how the company will reconcile the ease of use that hosted tools promise with the complex capabilities that customers demand in its own on-premise software.
SAP's road to hosted CRM has been long and winding. When SAP's chief warned in April that on-demand applications could do more harm than good for some customers, many saw it as a sign that the company wouldn't enter the market--a market that should grow to $4.8 billion in the United States alone by 2009, according to researcher IDC.
However, in late July, CEO Henning Kagermann defied those conclusions, announcing that SAP would indeed deliver a hosted CRM offering sometime this fall.
Executives at the company say the apparent shift to on-demand, or Web-based business software systems delivered online and priced via subscription, doesn't represent a change of heart. Kagermann's earlier comments, they say, were merely reflective of SAP's desire to handle so-called software as a service differently than its competitors.
"It seems like we've made an about-face, because we've said that the existing on-demand model isn't right for customers," said Darc Dencker-Rasmussen, global vice president of CRM. "But that doesn't mean that we won't come up with a new hosted model that will more effectively serve the marketplace."
The software maker has been taking its time to make sure its on-demand applications will address the shortcomings it sees in existing products, namely a general lack of sophistication and the inability to communicate effectively with other systems, Dencker-Rasmussen said.
"People implement and get going on those tools and can manage their accounts and contacts, but when they start talking about business processes and want to sell a product, they can't do that," Dencker-Rasmussen said. "Our customers have told us they'd like us to help them find a better solution to this; they want the deployment and payment options offered by hosted, but the products on the market today don't address the underlying business process, and ours will do that."
For instance, Dencker-Rasmussen said that rather than merely recording order information, SAP's on-demand CRM will link in real time to a company's inventory systems, a level of functionality that has become somewhat standard in the company's on-premise applications.
Though SAP isn't offering any specific details of what its product will look like or how it will be delivered or priced, Dencker-Rasmussen said the applications will offer substantially more depth than its rivals', primarily through its similarities to SAP's on-premise CRM systems. Another unique aspect of the tools will be that they are designed to help move companies from the on-demand model onto traditional applications, he said.
In most cases, hosted applications have been seen as a replacement or alternative for on-premise software. Vendors such as Siebel Systems and Oracle offer a mix of hosted and on-premise alternatives under what they classify as a "hybrid" model, but SAP appears confident that some customers using its hosted tools might be likely to move back to on-premise someday.
SAP hasn't yet said whether the launch of the hosted applications will coincide with the delivery of its latest on-premise CRM system, also due in the fall, or, if so, whether the company will market the products in tandem.
The software maker is hoping to give customers the option to consume its CRM software in any manner they wish, but it will not offer a stripped-down version of its applications just to sell more licenses, according to Dencker-Rasmussen.
"We will deliver (hosted applications) to the customer with all of the options but without compromising performance," he said. "Customers will be able to start on hosted and migrate to on-premise in a disruption-free, evolutionary way. Those are the business models that we're investigating, and that's how we will address the needs in this market that so far have been underserved."Challenges ahead
However, at least one industry watcher observed that SAP's plan sounds very similar to the strategies currently employed by Siebel Systems and Oracle, which also promise a choice in delivery models without the need to sacrifice features. The difference-maker for SAP, said Sheryl Kingstone, analyst with The Yankee Group, will be how closely it can align its hosted and on-premise offerings.
"It's not easy to do (on-demand) differently, you already see companies like Siebel offering something similar in terms of the relationship to its on-premise software--having the hybrid model that lets people choose," said Kingstone. "What SAP will need to do to truly differentiate is offer something that has the immediate benefits of hosted, in terms of pricing and rapid deployment, that also links back to its strength in the larger IT stack."
The challenge, Kingstone said, is that unlike SAP's existing products, its hosted applications largely appeal, and are typically sold, to business managers outside of companies' IT operations. So SAP will somehow have to balance the straightforward installation offered by products such as Salesforce.com with the complex capabilities offered by its own on-premise software, she said.
Another major sticking point will be how simple SAP can make the user interface for its hosted CRM service, Kingstone said, as the sort of workers typically using the systems demand a less-complex working environment than what is offered in the company's traditional software. Though SAP may say it has waited on hosted CRM in order to build something better, the reality is that the company is tired of losing potential users to its rivals, said the analyst.
"(SAP) doesn't have to be in this market, but what they're looking at are the numbers of companies with existing SAP technology that have bought Salesforce.com, and they don't want to give away any more of that incremental revenue opportunity," said Kingstone.
Reached via e-mail, Salesforce.com Chief Executive Marc Benioff agreed that SAP is jumping into the on-demand business in order to stem a tide of dollars it's losing to rivals in the enterprise space. He said SAP customers including DuPont, Analog Devices and Autodesk that have turned to Salesforce.com as their CRM provider have done so "because SAP has let them down by not innovating."
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