SAP's ByDesign could be a winner, making SAP the loser?

SAP has a new SaaS suite, which may end up being its biggest competitor.

SAP has finally launched its software-as-a-service offering, dubbed "ByDesign". I'm not sure if this is intended to imply "intelligent design" and the idea that divinity is somehow behind SAP's Big New (old) Idea, but as some point out, the big loser in ByDesign may be SAP itself. Time will tell if SAP can have it both ways: traditional, complex and mightily expensive ERP versus its new SaaS, easier to use and moderately expensive (but comparatively cheap) ERP.

I think this is the right thing for SAP to do as far as its customers are concerned. But it may not bode well for SAP, as Nick Carr highlights:

But in the end the company most threatened by ByDesign may be SAP itself....The big risk is that ByDesign will begin to cannibalize SAP's traditional and very lucrative software business--without providing similar revenues or profits.

That risk hangs like a cloud over today's ByDesign launch. SAP is bending over backward to position the new service as appealing to a narrowly defined segment-- companies with between 100 and 500 employees and fairly standardized processes. At the same time, though, it is promoting the dramatic cost savings and flexibility gains provided by the SaaS model....

The obvious question that larger companies will be asking, either today or tomorrow, is this: Hey, why can't we get those low costs and low risks, too? And that's the question SAP doesn't yet have an answer for.

Importantly, it's not even a slam dunk that prospective customers will find ByDesign within their price range, as a reader of CIO points out. SAP may well end up cannibalizing the high end of its business without a commensurate increase in the low end of the business. Damned if you do, damned if you don't...

You've got to feel for SAP. The company has done so well for so long, and has largely been impervious to the onslaught open source has made on virtually every other market. Salesforce, NetSuite and others, however, have forced it to disrupt itself. To its credit, it is doing so sooner rather than later.

But will it be enough? Time will tell. ByDesign opens more questions than it resolves.

Bonus link: Larry Dignan of ZDNet has a good analysis of the launch and its implications for SAP's customers.