Will SAP sample hosted recipe?

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The company currently claims over 265,000 subscribers at more than 15,500 companies in total.

A recent survey of 200 companies in various industries found that some 40 percent of the businesses are already using hosted CRM applications. Additionally, AMR's findings challenged assumptions that small and medium-size businesses, the SMBs, represent the vast majority of hosted-application customers. According to the report, 28 percent of companies with more than 5,000 employees use the tools, while 39 percent of companies with between 1,000 and 5,000 employees have purchased hosted CRM licenses.

Earlier this year, Salesforce also announced a deal to provide its software to 5,000 employees at financial services giant Merrill Lynch, defying perceptions--and SAP's claims--that the hosted specialist's offerings appeal only to smaller companies.

Yet, a recent report published by investment bankers JMP Securities claims that Salesforce has struggled with at least one of its larger accounts, a 10,000-subscriber deal with Cisco Systems. JMP reported that Cisco scaled back its plans to adopt Salesforce's tools based on integration and employee-adoption problems.

"It's very consistent of them to stay quiet, move slowly and devise an intelligent plan."

--Mary Wardley, analyst, IDC

In June, another of SAP's closest competitors, Siebel Systems--a rival the company has battled since long before Salesforce and hosted applications came to market--introduced the eighth version of its own hosted offering to be released in the last 18 months.

As Siebel has fought back against analyst and investor criticisms of its short-term prospects, company executives have repeatedly pointed to on-demand CRM as the company's best bet for recruiting new business.

SAP's ace in the hole
So why would an SAP-hosted product matter? Salesforce has attributed much of its success with customers to people's disenchantment with the complexity and high cost of applications made by companies such as SAP, Siebel and Oracle.

The flip side is that Salesforce critics claim the company's tools can't offer the same breadth and power of applications such as SAP's, potentially giving the larger company a chance to compete for the hosted market with some version of its more sophisticated software.

For Don Devost, director of finance and operations for worldwide sales at chipmaker Analog Devices, the answer for now is to use both Salesforce and SAP software. Analog is using the hosted company's applications to help manage its direct sales force, while its e-commerce operations use SAP's CRM tools.

The company also uses SAP's flagship enterprise resource planning, or ERP, software to manage a number of so-called back-end operations, such as financial and manufacturing systems.

Devost said that despite the fact that he is happy with the way Salesforce.com's hosted tools have integrated with SAP's systems, he would have to take a hard look at any new product from SAP.

"For us to consider (an SAP replacement for Salesforce), the question would become, what type of integration are we trying to do?" said Devost. "If we were trying to look at order lead times on SAP and see where inventory is in Salesforce, the real-time and in-depth integration that would require might make us consider a change."

But Devost said there would be other questions to consider before making any switch. "With SAP it seems like even the smallest (systems) change turns into a six-month project, and in the areas we're using Salesforce, for fast-moving sales efforts, that wouldn't cut it," Devost said. "Salesforce was designed from ground-up as hosted, throughout its architecture, and that shows in its functionality. SAP would have to deliver something like that for us to move, and they haven't approached us with any product like that thus far."

Other industry watchers said SAP is taking the same measured approach it's applied to other markets over the years as its business has grown.

"SAP won't ignore the potential of a hosted offering, but I believe they're looking very carefully at how large of a foray they need to make into that space," said Mary Wardley, analyst with market researcher IDC. "It's very consistent of them to stay quiet, move slowly and devise an intelligent plan."

Executives at Salesforce said any larger move by SAP into the hosted market will only serve to validate what their company has been doing all along.

"We've all heard the rumors, but for someone like SAP to push further into (hosted CRM) is a very powerful thing that can only help us grow our business," said Phill Robinson, senior vice president of global marketing at Salesforce. "But if you look at the challenges (that SAP faces) we don't think we have anything to worry about."

Hosted Solution or not?

Hosted solution is widely accepted in US, it has a number of advantages. However, in Asia, users are afraid that their company's data, especially the sales data be put in other people's hand. Why US users do not worry about it? Will they worry that someone else will sold their data secretly?