SAP Steps into On-Demand, Gets a Salesforce Slap

• By John K. Waters
• February 2, 2006

Ah, Groundhog Day; that hopeful pause in the dreary march of winter when otherwise sensible people turn to a prognosticating woodchuck for a sign of spring. If the fat furry forecaster emerges from his hole and fails to see his shadow, tradition holds, winter will soon be over; if he sees his shadow—as the renowned rodent Punxsutawney Phil did today—he dives back into his den, slams the door, and leaves us with six more weeks in mittens and galoshes.

I suspect that Phil isn’t the only one seeing shadows today. SAP, the European CRM powerhouse, is casting a long one on the market for on-demand services, which it has finally entered in a big way. The company's new CRM On-Demand solution, which SAP execs unveiled this morning at a bi-coastal press conference/webcast, is targeted to large and mid-sized firms as a per-user, monthly subscription service hosted by partner IBM.

SAP is rolling out the offering in ''modules.'' The sales module is available now at $75 per month per user. A marketing module is expected next quarter, with a service module coming in Q3.

The company follows some heavy hitters into the on-demand space, including Oracle (with the Siebel acquisition), Microsoft, and, of course, salesforce.com, the company that has practically defined this market segment. And because SAP's product currently addresses only existing or prospective customers looking for basic management functionality, AMR Research analyst Robert Bois observes in a note to clients, it ''doesn’t threaten the established [software as a service] CRM vendors at this point.''

And yet the SAP announcement lit a fire under at least one competitor. In a leaked internal email memo dated Feb. 2, salesforce.com CEO Marc Benioff writes to his employees, ''I have often wondered, 'If SAP's CRM software is any good, then why doesn't SAP use it to manage their own customer relationships?' I have interviewed hundreds of salespeople and executives from SAP from around the world, and each has told me the only CRM system at SAP is an executive system based on Microsoft Excel. I'm not surprised since I have never met a salesperson anywhere in the world who uses SAP CRM... Even SAP's largest customers such as DuPont, DeutschePost, AirProducts, Autodesk, EFI, DeutscheBank, Analog Devices, and so many others use Salesforce for CRM.''

Shai Agassi, president of SAP's product and technology group, lead the Palo Alto end of this morning’s launch. After the presentation, I pounced on Agassi with a copy of the memo. Before his PR watch dogs could whisk him away, he poo-pooed Benioff's comments, and pointed out that the first name that customer list was DuPont, one of two SAP customers taking center stage at the launch event. (The other was American Standard.)

Touché... sort of. I understand that DuPont is keeping its salesforce.com seats while adding SAP's on-demand offering. It's true that SAP has come late to this market, but with a customer base of about 30,000, how can the German software giant not be a force to be reckoned with?

''[T]that's exactly the problem,'' Benioff writes. ''Observers tend to overestimate the creativity and innovation that entrenched technology companies can bring to a particular problem and underestimate the effect of business model conflicts that lurk behind the scenes… 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?''

Although we share a similar physique and grooming habits, I lack Punxsutawney Phil's meteorological prescience. But I think it’s safe to say, the on-demand space is warming up, fast.

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