May 20, 2010, 10:07 AM — SAP indicated this week that they are getting serious about Software as a Service (SaaS), and announced an upgrade to their Business ByDesign ERP package offering. They are marketing the software at their version of "mid-tier," companies with one-hundred to five-hundred users (and even more employees), which means revenues in the range, probably, of $100M up. The article SAP co-CEO: Business ByDesign 'is not a fantasy' covers the details well.
I am not an "SAP guy," admittedly. I have much more familiarity with the Oracle line of products - not bias, necessarily, just familiarity. So it was very interesting looking at what SAP has been up to. I have to say, ByDesign looks interesting.
SAP is the Big Beast in the software application space. It is understood that if you implement SAP, you run according to their rules. SAP has been around for a while, and the software is designed to run in your data center on Big Iron - mainframes and other big computers. SAP is not for the faint of heart. So, to have SAP available without having to put in place a huge data center with a team of system administrators and analysts is intriguing.
In my opinion, SaaS is the direction applications are going. Most companies have no need to buy and maintain their own data center. It is almost like buying and maintaining their own power plant or water works. Yes, there are lots of caveats to running SaaS applications versus in-house applications, but as things mature, more and more of your computing will be rented.
Most people are already using some sort of SaaS application. GMail, Hotmail, Yahoo mail, and other web-based email providers are Software as a Service. You are not maintaining your own email server. Many, if not a majority, of the blogs that are out there are hosted by companies such as Blogger, Wordpress, Posterous, etc. Sure, you could get a server and install Wordpress or Typepad, but it is a lot easier just to log on to a hosted blog provider and let them deal with the infrastructure details. Google has Google Apps, which are pretty robust "desktop" applications. So it is only natural that companies will follow individuals and start to use SaaS.
I find it telling that SAP had issues rolling out ByDesign - and in fact, it is running for only one hundred "charter" (read "beta") customers. I imagine that the charter customers had some interesting times! SAP had a hard time making the application scale up, at least scale up cost-effectively. Up until this release, ByDesign was one customer, one instance of SAP. With this release, SAP is adding "multi-tenancy," which means that they can run multiple customers on a single instance of SAP. This sounds simple, but is incredibly hard. You have to make sure that each customer's data and software configurations are available only to the customer and no one else, and that there is no risk of mixing customers' data together. SAP was not initially written to do that, so they had to modify ByDesign to allow this to happen. SaaS applications like Salesforce.com are designed from the get-go for multi-tenancy, since they knew they were going there when they started.
Customers should never know if they are on shared infrastructure. Moving from a dedicated instance to a shared instance should be glitch-free from a customer perspective, but it is huge for SAP. They can vastly reduce their infrastructure costs. This is the whole point of SaaS, by the way: leverage infrastructure and software costs across a number of customers, thus reducing costs to each customer while increasing profitability overall. SAP can charge somewhat less for ByDesign than an on-premise version of SAP would cost, and yet make more money from the deal. The customer wins, because they avoid the infrastructure investment.
It is disappointing that SAP has targeted ByDesign for larger mid-sized companies, but it is SAP, after all. That said, if I were running a company of the target size, and I planned on implementing SAP, I would definitely do a "bake off" between the ByDesign product and SAP's Business All-in-One, their on-premise mid-sized offering, looking at the following criteria:
1. Functionality of each version. Availability of modules. Which version better supports our business?
2. Full cost of each solution over a ten year period. All costs - software, data center overhead, servers, storage, networking, support, staff, and consulting. Look at projected company growth. I'd have the finance people look at capitalization versus operating expenses.
3. Risk factors, such as regulatory compliance, potential data cross-contamination, and security. A risk of SaaS is that your data is on someone else's servers. This is not as bad as it sounds, but it is a risk. Also look at the risks of on-premise software and hardware. A bad leak in the data center or an earthquake could put the company out of business, whereas with SaaS, I could run the business (or at least access the business software) from Starbucks. SAP's data center is going to be better than yours.
4. Finally, as a sanity check, reassess how likely SAP is to stay the course with ByDesign. It could be great, but if they decide to pull the plug, what happens, and how? This is actually a good exercise to do no matter what vendor you are looking at. What if they get bought or go bankrupt? Ideally, a remedy would be in or added to the contract.
This upgrade shows me that SAP is serious about SaaS, that they had some serious obstacles to overcome, and that they are taking the time necessary to get it right. For those reasons, I would say that if you are considering SAP as your ERP application, or are doing an ERP software selection between Oracle and SAP, you really need to look at ByDesign as a potential. SaaS is a reality, and when old-guard SAP is embracing it, you have to take it seriously.