Software giant SAP is partnering with outsourcing heavyweight
Electronic Data Systems to target smaller clients' business
Through today's joint deal, services and consulting firm EDS and German software maker SAP are hoping to lure new midtier customers
with an offer to manage SAP's core R/3 applications that connect financials, sales
and distribution, manufacturing, and logistics operations across a company.
Missing from the initial applications outsourcing offering are supply chain,
resources, and business warehousing applications. The companies will offer
those applications at a later date.
The services are available now through SAP's midmarket retail channel
partners and are targeted to companies with revenue of $250 million or
less, and fewer than 200 users.
Tom Gormley, analyst at Cambridge, Massachusetts-based Forrester Research, said SAP is one of
the last big ERP players to announce an outsourcing strategy, though the
company has taken the time to pick a good partner.
"The [SAP/EDS] offering is kind of a halfway point to where we think the
market is going," Gormley said. "They're not reinventing the world. It's a
somewhat careful approach to a very new environment."
On the down side for customers, integration costs are excluded from the
flat monthly pricing, Gormley said. Unlike EDS/SAP, upstart applications
services provider USinternetworking folds integration costs into its
monthly price tag, he said. Usinternetworking, which recently filed to go
public, has partnered with PeopleSoft, Cisco Systems and Sun Microsystems
SAP and EDS are among a growing
number of vendors teaming up to provide to smaller firms an affordable
expensive ERP installations. Most of the major enterprise resource planning
vendors, including PeopleSoft and
Oracle, have their own applications
outsourcing services or partner with others for the jobs.
These larger vendors are all trying to snag business from smaller vendors,
such as Symex, Intentia, and JDA International. Those vendors specialize
in selling business applications to midtier customers. This year, about $6
billion of the overall $13.5 billion expected in ERP license revenue is
expected to go to smaller ERP players, according to AMR Research.
Yet applications outsourcing might not be the big
money saver it's touted to be, said one industry analyst.
"I don't see any of them having a very landmark offering yet," said Dave
Caruso, an analyst at AMR Research, particularly when a company can buy an
ERP system with more advanced tools for 100 users from a midlevel vendor for
between $350,000 to $400,000.
Pricing for the new EDS/SAP services range from $425 to $660 per month, per
user, and includes server management, leased line or frame relay
connectivity, software upgrades, and help desk support, the companies said.
The 36-month contract comes with guarantees on uptime, support requests, and
response times when problems occur.
At $540 a seat, it will cost a company with 100 users $540,000 to outsource
applications and server management to EDS/SAP.
"Clearly what's missing [through the SAP/EDS outsourcing package] is
planning and scheduling, a business information warehouse, and the front
office applications," Caruso said.
Caruso said applications outsourcing could be worth the high price tag if it
eliminates the cost of server management and operations staff.
Both EDS and SAP have integrated their help desks to support customers. EDS
will use its 80 data centers around the world to host the applications.
Users signing up for the service will access R/3 applications over a secure
connection from the EDS data center.
"We've tried to make this whole process easy," said Tom Melchiore, SAP's
director of outsourcing, noting customers get access to R/3
applications within a week of ordering the service instead of taking the
time to choose a vendor, pick a database, and integrate a system themselves,
which can take years.
However, unlike traditional outsourcing agreements, the SAP/EDS offering
excludes the cost of desktop management and support, and local area network
management, meaning customers will have to either provide that support or
find a separate oursourcer.
"If users have issues with their PCs they have to handle it themselves,"
said AMR Research analyst Steve Tyrone. "These agreements are really kind
of new. It's a different beast. The old agreements used to be: 'We'll take
care of soup to nuts--services, desktop, and networks.'"