Hey SAP, Offer SaaS as Supplement, not Substitute, for Existing Software

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Earlier this month, I gave SAP a bit of a spanking in my blog as I wrote about its struggles to add a software-as-a-service offering to its software lineup.


To recap: SaaS is a fundamental shift for enterprise software vendors like SAP that have for years been trying to build complete software stacks, both through acquisitions and internal development. Thus far, SAP's Business ByDesign effort has disappointed, with the vendor announcing it expects to sign fewer than 1,000 customers in 2008.


Providing a counterpoint to this view, ZDNet's Dennis Howlett writes that SAP customers like 500-employee WIMA, a German engineering company, are "quietly confident" in SAP's ability to deliver a SaaS solution. Yet I felt that Howlett's piece confirmed some of my earlier thoughts.


While I understand that Business ByDesign is still a work in progress, is it a good thing that WIMA's implementation will remain in pilot phase for more than a year -- and won't be fully up-and-running for another four months or so after that? SaaS is supposed to be simple, folks.


The piece highlights the fact that no third-party consultants were needed. This observation appears more appropriate when comparing Business ByDesign to SAP's own on-premise ERP systems rather than other SaaS products, which purport to be more intuitive than traditional software.


A WIMA official tells Howlett that although Business ByDesign "looks expensive" when compared to on-premise software, the company expects to save money over the long haul by reducing maintenance and upgrade costs.


WIMA also seems unsatisfied with SAP's partnership with ADP to offer payroll services. Yet most folks agree that partner ecosystems will become increasingly commonplace in the SaaS market.


Perhaps it's not surprising that SAP plans to "reincarnate" Business ByDesign as a group of services geared toward larger companies, as IT Business Edge blogger Loraine Lawson wrote last week. In essence, SAP will offer online tools or services designed to extend the capabilities of its on-premise software.


Loraine says it's a "smart move" for SAP because its clients have demonstrated time and again their willingness to pay for add-ons. She writes:

If the approach works, it will allow SAP to have its cake -- the lucrative onsite licensed software business - and the SaaS cupcake, too.

As I wrote in March, some large companies are turning to SaaS to supplement on-premise deployments by offering capabilities that the on-premise software doesn't adequately address. It makes more sense for vendors like SAP to focus on offering SaaS as a supplement -- not a substitute -- for their existing products. Their customers will no doubt appreciate getting the more frequent product refreshes and added flexibility that seem possible with this approach.