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SAP gets SaaSy at last
But will its on-demand offering be in demand?

By Reuters

Published: Wednesday 19 September 2007

Enterprise software behemoth SAP is set to unveil its software as a service (SaaS) line of business management programs.

SAP is joining the web-based software market, known as on-demand software or SaaS, which has been pioneered by much smaller competitors including NetSuite and Salesforce.com.

After spending about two years developing the new software for medium-sized companies, under code-name A1S, SAP will give the public its first glimpse of the product at an event in New York, and provide pricing and marketing plans.

Ovum researcher David Mitchell wrote in a recent note: "A1S takes SAP much closer to a more purist model of software as a service than it has previously attempted, and is likely to become a very significant part of the SAP portfolio in the years ahead."

He said Microsoft, Oracle and SAP had previously taken a wider approach to on-demand software, mixing programs that sit on PCs with programs residing on web servers.

SAP, which helps companies manage accounting, inventory control, shipping, sales and marketing, earns the bulk of revenue from licences on software installed on its customers' premises.

SAP is now taking a page out of the playbooks of Salesforce and NetSuite, a company majority-owned by Oracle chief executive Larry Ellison that filed in July to go public.

It will also be competing with software from Workday, a privately held company started in March 2005 by PeopleSoft founder Dave Duffield, which offers web-based accounting and human resources software. Oracle acquired PeopleSoft in January 2005 for $10bn.

Fewer than 100 companies have tried the new SAP product as part of the early testing process. SAP has said it would spend about $500m on A1S through the end of next year.

Forrester Research analyst Paul Hamerman said: "There's a pretty good chance they can execute well here."

People familiar with the matter said the software would be rolled out gradually in the France, Germany, the UK and the US. It should be widely available in those countries in the first quarter of 2008 and SAP hopes to have "thousands" of customers by early 2009, they said.

Hamerman said: "This isn't for everyone but I think there is a market for it."