Will SAP sample hosted recipe?

Rumors are that enterprise software giant SAP will launch a fully hosted version of its CRM software. The big question is, when?

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What's SAP's next move?

The business software maker has been particularly guarded about its plans for a new, on-demand version of its customer relationship management, or CRM, software.

So far, despite several strong hints and a wealth of industry speculation, SAP hasn't committed to a plan. Regardless, Salesforce.com--which pioneered hosted CRM--and other competitors are keeping a close eye on SAP and its intentions.


What's new:
Rumors are that SAP will offer a fully hosted version of its customer relationship management software--a prospect that has competitors watching closely, if not anxiously.

Bottom line:
SAP is circumspect about its plans for hosted CRM, which only heightens speculation about the company's timing and approach. Rivals such as Salesforce.com say they're not worried, but analysts point out SAP is far too big a force in CRM to be discounted.

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If SAP does jump into the on-demand CRM market, it will instantly change the balance of power in the industry. Salesforce has grown rapidly in recent years--it reported just more than $176 million in revenue for fiscal 2005--and it has become nearly synonymous with on-demand business applications.

But it has done so in the absence of a rival product from SAP, the overwhelming giant of the business software market with more than $1.7 billion in sales.

Few observers expect SAP to sit by idly as others continue to win on-demand CRM deals.

"SAP has put a bull's-eye on Siebel, Salesforce.com and other CRM leaders as it wants to make sure it has every deployment model that customers want to buy or rent," said AMR Research analyst Bruce Richardson.

SAP's official comment is that it continues to evaluate market opportunities but has no plans to introduce new hosted CRM applications anytime soon. At the company's Sapphire customer conference in Boston in May, Bill McDermott, the chief executive of SAP America, attempted to downplay the need for SAP to launch a new product.

"Hosted is really only relevant in the small-business space, and Salesforce isn't delivering the same sort of integrated products we already offer," McDermott said. "The question for Salesforce is, when these newer CRM users they have attracted need more capabilities, will they move to SAP?"

Though SAP already offers its customers the option of having their CRM applications hosted and managed off-site, the company has yet to introduce a ground-up rewrite of its enterprise software applications specifically for hosted use.

"We have added over 100,000 new subscribers in the last year. I am sure SAP asks, why are those not our users?"
--Marc Benioff, CEO, Salesforce

Market watchers have said it is likely inevitable that SAP will move more aggressively into the hosted arena. The company has also repeatedly pledged to increase its focus on winning deals in the small and medium-size, or SMB, business space, the very market where Salesforce has won a majority of its deals.

Marc Benioff, chief executive of Salesforce, said it's inevitable that SAP will want to compete more closely against his company as Salesforce adds users and lures some of its rivals' customers.

"We have added over 100,000 new subscribers in the last year. I am sure SAP asks, why are those not our users?" Benioff said. "The reality is that we have not met that many happy SAP (sales-force automation) or CRM users. We believe that is because we have superior technology."

Turn up the volume
SAP has itself fueled speculation over its plans by demonstrating what it called a "slim" online sales-force automation application at a customer conference in Europe in April. The product closely resembled the online applications marketed by Salesforce.

On-demand applications, or software hosted away from an organization's physical premises by a vendor who maintains the data and programs, can offer a number of advantages over traditional enterprise software, proponents say. Those benefits include faster installation, lower overall costs and increased ease of use.

In addition, hosted-applications companies such as Salesforce offer their customers the ability to pay for a subscription to their "software as services" for a monthly fee not unlike rent, rather than pay upfront for software licenses that usually stretch for several years.

The approach has proved to be popular with many customers. In mid-May, Salesforce reported revenue of $64.2 million for its first quarter, an 84 percent gain over the same period last year.

Perhaps even more impressive, the company said it added over 40,000 new subscribers during the quarter, which represents more than an 80 percent increase compared with the same period in 2004.


Correction: This article incorrectly stated the revenue growth for Salesforce.com's first quarter, compared with the same period last year. The correct figure is 84 percent.
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