SaaS vendors welcome SAP to hosted midmarket party

IDG News Service - SAP AG's revelation that it plans to launch a hosted suite of midmarket applications has drawn a collective whoop of delight from rival on-demand applications vendors Salesforce.com Inc. and NetSuite Inc., who see the move as further validation for the software-as-a-service (SaaS) business model.

Henning Kagermann, SAP's CEO, announced earlier this week that his company will release a set of on-demand enterprise resource planning (ERP) and customer relationship management (CRM) applications for midmarket users keen to get their software up and running quickly.

Specifics about the move weren't forthcoming, notably a product name or the likely availability date and pricing for the new suite. However, SAP does hope that by 2010 the new offering will attract 10,000 new customers annually.

Like the other major established on-premise enterprise applications players Microsoft Corp. and Oracle Corp., SAP has been dabbling in the on-demand software market in recent years but has yet to get really aggressive about competing in that space. SAP already offers hosted CRM applications and has previously committed to entering the hosted ERP space.

"We think it's fantastic," said Bruce Francis, vice president of corporate strategy at Salesforce.com, talking Friday about SAP's announcement. "It feels like we should send Henning Kagermann a fruit basket. He's just blown wide open accounts that were welded shut."

Previously, when Salesforce.com would approach some companies, they'd be told the user wasn't interested, according to Francis. "The customer would say, 'We're an SAP shop and SAP doesn't do on-demand,'" he said. Now that SAP has formally committed to a full on-demand offering, Salesforce.com is more likely to be included in any future software evaluations made by those users, Francis added.

In a Thursday e-mail to NetSuite staff, CEO Zach Nelson also welcomed SAP's news, describing it as the vendor's "IBM moment."

Nelson recalled a comment his former boss Oracle Corp. CEO Larry Ellison made in relation to a previous competitive situation. Nelson wrote, "Larry Ellison once told me that the best thing that happened to Oracle in the early days was IBM’s preannouncement of a relational database years before it was available. It gave credibility to the then-new idea of relational databases and created demand that IBM could not fulfill."

As well as validating the hosted approach, both Francis and Nelson also said that whatever SAP, Microsoft and Oracle come up with will trail what their companies already offer since those vendors lack the eight years of experience both firms have already gained in SaaS. "They're offering on-demand as a loss-leader product," Francis said, with the three vendors tending to position their hosted applications as more of an on-ramp to their main applications business, their on-premise software families.

As part of its midyear "Titan" CRM release, Microsoft will debut Dynamics Live CRM, an on-demand version of the software that the vendor will host itself initially only in North America. Oracle, meanwhile, sees SaaS as applicable to all its applications, but expects to put more focus on its on-demand operations at some unspecified point in the future.