Software as a Service (SaaS)

Performance problems have forced SAP to delay plans for the volume release of its on-demand suite.

By John Pallatto

Performance and efficiency problems with the early beta version of Business ByDesign has prompted SAP to slow down the pace of the market rollout of its on-demand product suite, according to software industry analysts.

Business ByDesign is currently in an early beta test phase and SAP officials have said it won’t be able to meet its original goal of selling the product to 10,000 customers generating $1 billion in revenue by 2010. The company estimates that it will now take at least another 12-18 months to achieve those milestones.

Business ByDesign is a suite of ERP (enterprise resource planning) applications for midmarket companies.

The reason they are slowing the sales ramp up is because of performance problems. “They can’t get the software to run in a cost-effective manner. It uses too many resources," said Joshua Greenbaum, principal analyst Enterprise Applications Consulting.

This in turn is slowing down the effort to build a partner network that can profitably support an on-demand suite such as Business ByDesign, Greenbaum said. Partners will be essential for the suite’s long-term success, he said.

SAP itself has tried to soft-pedal the reasons for the slower sales ramp up. “Overall the response from customers about performance is excellent,” said Jeff Stiles, SAP senior vice president of small and medium enterprise solutions. The company is going to take more time to work on the product because “we feel we need to meet those expectations and in fact exceed them,” Stiles said.

SAP isn’t slowing the development of the product, but “moderating the pace of our go-to-market efforts,” Stiles said. “We want to make sure we have every element" of its Business ByDesign marketing effort prepared to scale to volume, he said. SAP has gotten good feedback from early support customers “and we want to make sure they are happy companies,” he said.

The product has been released to early support customers in the United States, China, the United Kingdom, Germany and France, Stiles noted. The product will be introduced in India in the second half of 2008 and in additional companies in 2009, he said.

Greenbaum said SAP is wise to take its time with the product introduction because it’s a relatively late entrant to the on-demand software market. SAP can’t afford to come out with a product that has any serious glitches.

“SAP would really get clobbered if it came out with Business ByDesign and then had some performance and/or reliability problems. So I think they are being a little cautious,” Greenbaum said. He estimated that SAP only has about 50 beta test customers around the globe. Thus there is no risk that customers are going to be discouraged by the performance of an early support product.

On the other hand, there is little risk that the delay will dampen customers’ interest in Business ByDesign, he said. “There is so much untapped demand in the midmarket for software of this caliber that if they can put the product together and put the channel together,” the product should be a success for SAP, Greenbaum said.

But AMR Research analyst Simon Jacobson said he doesn’t believe that SAP’s decision to slow the rollout is a reflection of fundamental concerns about product quality.

“If anything, I think we’re seeing what happens when the market places semi-absurd expectations on SAP for a product that was formally announced last September and slowly rolled out to a select set of geographies earlier this year,” Jacobson said.

He noted that while SAP’s position of "we won’t ship it until it’s perfect" shows a commitment to quality development, there is a risk that SAP will “forget to let the market drive demand.” SAP, he noted, had done a good job of building interest in Business ByDesign in 2007 before the formal product launch by giving the industry “sneak peeks and project codenames along the way.” 

Performance Slows SAP Business ByDesign Rollout

ORLANDO — SAP said yesterday it is gaining momentum with its new support structure, just one day after Rimini Street, a third-party support provider for JD Edwards, Oracle and Siebel products, announced plans to begin offering an SAP alternative.

By Barney Beal

SAP has signed nearly 200 customers to Enterprise Support since it was launched in February, the company announced yesterday at its Sapphire conference. Enterprise Support effectively eliminates SAP’s low-cost Basic Support option, which charged 17% of license fees, and its Premium Support at 22%. SAP replaced both plans with the new structure, a flat 22% of license fees with some added services. The new support structure applies only to new customers, SAP said.

Enterprise Support includes 24/7 access to SAP’s support advisory center and the use of SAP Solution Manager for application management run on SAP’s operations methodology.

Meanwhile, on Monday, Rimini Street said it will begin offering a third-party support option for SAP products — owing in part to users’ reported bad experiences with an Oracle support plan that’s similar to the new SAP model.

“Customers from SAP are saying, ‘We saw the model on the Oracle side, and we have the same problem,’ ” said Seth Ravin, president and CEO of Rimini Street. “At the end of the day, it really came out to be the same.”

Ravin helped start TomorrowNow, a company that provided third-party support to PeopleSoft and JD Edwards software. TomorrowNow was subsequently acquired by SAP as part of a program to lure customers away from Oracle, its chief competitor, which had recently acquired PeopleSoft and JD Edwards.

But SAP’s entry into the third-party support market has proven costly. It now faces a legal battle with Oracle, which is suing TomorrowNow for illegally accessing proprietary information. SAP has said it plans to sell off TomorrowNow, but has not announced a buyer.

That buyer will not be Rimini Street. Ravin said he has no interest in TomorrowNow, and in fact, many of those customers are already moving to Rimini Street.

“Most TomorrowNow customers are very happy,” he said. “They’re coming to us because we offer added services for the same price. They’re just looking for stability. Not knowing who your support provider is long-term is untenable. The SAP message is not leading to any sort of confidence.”

Rimini Street’s SAP offering will include: a named, primary support person assigned to each client; support through 2020 and beyond for existing SAP releases; 24/7 support coverage with a 30-minute or less guaranteed response by a senior manager; application fixes for serious issues and tax and regulatory updates as needed; support for client customization; flexible contract costs; and more than 50% support savings over SAP.

That’s a compelling argument, according to Ray Wang, principal analyst with Cambridge, Mass.-based Forrester Research, and the TomorrowNow lawsuit does not appear to be stalling interest in third-party support.

“Customers are still moving over; the cost differential is practically half,” Wang said. “If you’re spending $2 million on maintenance, and someone says [he] can save you $1 million, that’s worth listening to.”

Rimini Street, which sells mainly to CFOs and CIOs, said it has already seen TomorrowNow customers defecting and expects to have picked off all TomorrowNow customers within the next 18 months, Ravin said.

With SAP eliminating its lower-cost support option for net new customers, Ravin expects to see a migration of SAP users to Rimini Street as well.

“They’ve said [Enterprise Support] is only for new customers, but everyone can read the writing on the wall,” Ravin said. “It puts SAP in the most expensive maintenance pool.”

Also, SAP is generally more expensive than Oracle, according to Ravin, so existing SAP customers spending 17% on maintenance (with the “basic” plan) may have higher support costs than those on Oracle, which charges 22%.

“Fusion and NetWeaver are all about the next generation of software,” Ravin said. “There’s really nothing to move to. If you’re going to run the application for 10 years anyway and there are no new features coming, why not sit in the bleachers and watch the SOA battle play out?”

Ravin predicts no problems with staffing the new Rimini Street program, despite what’s widely regarded as a global shortage of skilled SAP professionals. The service is expected to launch next January or February.

SAP support dilemma highlighted at Sapphire

SAP AG and Research in Motion Ltd. (RIM) today revealed a partnership to run SAP’s CRM application natively on the BlackBerry and eventually to bring the full SAP suite to the device.

By Barney Beal

SAP and RIM executives detailed the arrangement at an event in New York Friday morning, just days before SAP’s annual North American user conference is set to begin.

“In 2004, RIM and SAP announced a strategic partnership around SAP CRM where a sales professional could access CRM by using the BlackBerry device as a browser,” said Bill McDermott, president and CEO, SAP Americas and Asia Pacific/Japan. “Today’s a different day, a very different solution. Today we’re talking about CRM natively integrated into the BlackBerry device itself.”

For example, with the new partnership, mobile sales professionals can have leads and opportunities pushed to their BlackBerrys directly from SAP CRM. Similarly, when a mobile user clicks on a contact, the BlackBerry can access up-to-date service or sales orders.

“This is only the beginning,” McDermott said. “What SAP and RIM are committed to doing is integrating the entire business suite from SAP onto the BlackBerry device. If you’re in human capital or a finance professional and you too are mobile, you will be able to access your application on your device.”

In a brief demonstration, SAP executives showed how a sales representative could turn on his BlackBerry, check his calendar for a meeting, access account information, and then call the customer to check in beforehand. He could then log that call into the CRM system with one click.

“If you see it from a user’s perspective, this is what they’re looking for — there’s nothing quite like this,” said Mike de la Cruz, senior vice president for SAP CRM solutions. “This lets us achieve the vision of CRM we never were quite able to achieve.”

The CRM application is now in production and should be available in a couple of months, executives said. Pricing and go-to-market details have not yet been fully formulated.

SAP and RIM developers have been working together for several months on the partnership, according to Bob Stutz, executive vice president for product unit and technology industries and CRM at SAP. The project was based in part on SAP’s recent initiative to make its applications easier to use in general and specifically to make CRM more user friendly, an effort that culminated in the release of SAP CRM 2007 late last year.

“We went to RIM and said, ‘We have a proposition; we know applications, but we don’t really understand the connectivity piece,’ ” Stutz said. “We want to build a native CRM application on a BlackBerry, and we don’t want to do it. We want RIM to do it.”

The two organizations will continue to collaborate on development, but there is no timeline for integrating SAP’s other business applications. It will be more like months than years, according to Stutz.

“As fast as we can build them,” he said. “We’ll start with CRM, put it out there and gain some experience, figure out some things we need to do differently, work with users, find the pain points, and move on to the next applications.”

SAP CRM will be the first enterprise application that will run natively, but there is no exclusivity to the deal from either SAP or RIM.

RIM and SAP also plan to extend their collaboration to include secure click-to-call, event-based alerts, and pushing outbound conference calls, according to Jim Balsillie, president and co-CEO of RIM. Also, RIM’s multimedia capabilities will allow users to store up to four hours of video material, such as training, corporate communications or product information.

Financial terms of the deal were not disclosed.

SAP and RIM team to bring native CRM to BlackBerry

SAP is delaying the launch of its Business ByDesign on-demand software offering for small and medium-sized businesses, saying it needs to further automate some processes before the launch. That, coupled with a decline in earnings, sent the company’s shares lower.

By Maria Sheahan

SAP (NYSE: SAP)  disappointed investors Wednesday when it delayed the rollout of its new Business ByDesign software product and reported weaker-than-expected first-quarter results.

At 11:31 a.m., shares of SAP were down 1.45 euros (US$2.26) or 4.38 percent at 31.60 euros ($49.21), while the DAX index was at 6,884.42 points, down 0.88 points or 0.01 percent.

“We expect some disappointment in the market today because license revenues were 10 percent below expectations and software and software-related service revenues were 3 percent below the consensus,” said Merck Finck analyst Theo Kitz.

Profit Slips

Net profit fell 22 percent to 242 million euros ($377 million) as the company spent more in the run-up to the planned launch of Business ByDesign and was hit by acquisition-related costs. The figure missed the consensus forecast of 298 million euros ($464 million).

Total revenue also missed consensus, rising to 2.460 billion euros ($3.83 billion), less than the 2.520 billion euros ($3.92 billion) expected.

First-quarter software and software-related service revenue climbed 14.6 percent, while software revenue rose 10.7 percent, missing estimates calling for an increase of nearly 23 percent.

“We see the risk that full-year growth targets could be missed,” said UniCredit analyst Knut Woller.

“Second-quarter comparables are a high barrier to cross, when both SAP and Business Objects reported clear double-digit license growth rates of around 20 percent year-on-year,” Woller commented.

SAP earlier said it still expects full-year software and software related service revenue — excluding a 180 million euros ($280.3 million) non-recurring revenue writedown from the acquisition of Business Objects — to increase in a range of 24 percent to 27 percent at constant currencies.

Launch Delayed

Further disappointing the market, SAP said it is reshuffling market launch plans for its Business ByDesign software products and as a result now expects to reach its target of $1 billion in revenue from Business ByDesign between 12 months and 18 months later than the original 2010 target.

“The slower than expected developments at Business ByDesign are not good news, but were to a certain extent to be expected, and good news is that Business ByDesign will (after 2008) no longer drag down earnings,” said MM Warburg analyst Michael Bahlmann.

On the upside, SAP raised its guidance for full-year operating margin to a range of 28.5 percent to 29.0 percent, compared with a previous target of 27.5 percent to 28.0 percent, as it cuts investments in Business ByDesign by about 100 million euros ($155.8 million) this year.

The target excludes a non-recurring deferred support revenue write-down from the acquisition of Business Objects and acquisition related charges.

The company previously said it planned to spend between 175 million euros ($272 million) and 225 million euros ($350.7 million) on the product this year.

Bottom Line Savings

UniCredit’s Woller pointed out that the lower level of investments will help the company’s bottom line this year.

SAP’s chief executive Henning Kagermann sought to calm jittery investors by saying the company is “totally committed” to Business ByDesign, adding the delay has nothing to do with the market environment.

He said the company will need the additional time to automate certain processes, ensuring that the product will be profitable when it hits the market.

CRM News: Vendors: SAP Delays Business ByDesign Launch After Tough Quarter

Posted by Ben Worthen

Software giant SAP is getting sued for failing to deliver an “out-of-the-box integrated end-to-end solution that increases…effectiveness.” Amazingly, the meaning of these buzzwords may cost SAP over $100 million.

The meaning of end-to-end could be decided in the legal space

This blog’s hatred of tech jargon is no secret: We think that more people would be interested in technology if insiders didn’t describe the stuff in a made up language. Despite our protests, the tech industry refuses to abandon these terms. Maybe the threat of legal action will scare it straight.

The jargon is central to Waste Management’s claim that SAP used deceptive practices to sell its software. Waste Management needed to upgrade the software it uses to manage its waste removal and recycling business, and turned to SAP because the software maker said it had a “mature” and “proven” product for the job, according to a complaint filed with a district court in Texas. (The court hasn’t made the complaint available online.) In demonstrations, SAP officials led Waste Management to believe that it was looking at the finished product, Waste Management alleges, when in reality it was mock-up of the software “intended to deceive.”

The software project, which began in 2005 and still isn’t complete, has been a total disaster for Waste Management. So the company is suing SAP for $100 million plus punitive damages. An SAP spokeswoman tells us the company doesn’t comment on pending litigation.

We’ve learned to be skeptical of lawsuits like this. That’s because a successful tech project requires more than new software: It also forces businesses to change the processes they follow to get work done and for individual workers to accept the new way of doing things. Any one of these three factors can cause a project to fail.

The only reason we aren’t writing this case off is the allegations of fraud. Waste Management claims it has internal SAP documents that prove the software maker knew it was misleading its customer. A Waste Management spokeswoman declined to make these documents available to the Business Technology Blog. When pressed for more detail about the charges, she told us that the suit speaks for itself.

For what it’s worth, we’re excited to see a judge decide the case. If only to have a legal definition of what “integrated end-to-end out-of-the-box solution” means.

Business Technology : SAP Sued Over Tech Jargon