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September 19, 2007 | Comments: (0)
SAP SaaS solution is not just about technology
When a company like SAP unveils a new software service it is usually big news. This was the case today when SAP announced SAP Business ByDesign, a full suite of business solutions delivered and based on the SaaS [Software as a Service] model.
Technology aside, I was wondering how SAP, a traditional client/server company, will handle what amounts to an entirely different business model, i.e., a different method of generating revenues.
Under the old model, a customer paid all the money up front. Under the new model it is pay over time. In the old model revenues were created around licensing fees and maintenance.
Billed monthly, SaaS creates a different sales and billing process and a different way of delivering customer service.
From a financial reporting standpoint, SaaS affects cash flow and sales compensation. Even the financial statement must be changed to include a line item for subscriptions.
"In the old model, you got your money and ran," Greg Gianforte told me.
I spoke with Gianforte over the phone so I couldn't tell if he was smiling when he said that, but he probably was since he is the CEO of RightNow, a SaaS provider to the enterprise for customer service.
Gianforte says with packaged applications there was never the sense that you were delivering a service. After all, that's what SIs [System Integrators] were for.
An annuity business is a different animal, Gianforte claims, and the kind of meat eating, blood thirsty account managers that sometimes exist in the traditional client server world won't be as successful when they try to manage an annuity business.
Because service was typically handled by someone else--th SI--the packaged application vendor never felt responsible for the customer's success. Under the new model, if the vendor doesn't deliver success, they will probably be gone in a few months or less.
Gianforte cites by way of warning that as soon as Siebel introduced what he calls a "viable on demand solution" their license revenue dropped off a cliff.
While Paul Hamerman, a senior analyst with Forrester, doesn't believe that a SaaS offering from SAP will cannibalize SAP's enterprise business, Gianforte strongly disagrees saying, "why are large customers not interested in faster deployment and lower cost of ownership?"
Why indeed.
Posted by Ephraim Schwartz on September 19, 2007 02:34 PM
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Indeed, which company would not look at rapid implementation time and a quick return on investment - SAP could have hit the sweet spot.
Posted by: Cornel Schoeman at September 20, 2007 12:25 AMHi Ephraim -- As the prior Siebel VP responsible for Siebel's CRM OnDemand division, I fully agree that SAP will be facing significant challenges when trying to embrace the SaaS model. You can get more details in my blog post on this topic at http://www.lucidera.com/blog/index.php/2007/09/16/jumping-on-the-on-demand-bandwagon/, but the quick summary is that they'll face challenges in the following four areas:
1) (Fear of) cannibaliztion
2) Addiction to license fees
3) Channel friction
4) A Product feature set vs a Service mindset
Changing business models requires changing a company's DNA. A rough road lies ahead.
The geatest challenge for SAP may be moving from a software company mentality to that of a service provider. SAP has gotten very used to the idea of receiving a big check and shipping a standard version of its software, then letting consultants deal with making it work for the customer. SAP's huge partners, largely the SIs like Deloitte and Accenture have gotten very comfortable with this idea also.
Now the economics change dramatically. The lack of big upfront fees, at least initially, will hurt the bottom line and may make shareholders unhappy. And as industry veteran Mark Symonds (http://plexusonline.blogspot.com) notes, “even if the software is simple to install, a big part of an implementation is helping the customer change. This can't be overlooked in the SMB market. Who is going to work with the 250-person company? SAP? Accenture? EDS?” Not having to pay large consultant fees is a big advantage for companies adopting SaaS models, but they need to make certain that the monthly fees include necessary support.
Another issue with the SAP offering is that more and more customers are buying software that fits their business rather than 'generic' software that requires many costly modifications. Business by Design is meant to appeal to virtually any type of company. However, manufacturers, distributors, retailers, service firms and others have very, very different needs.
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