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SAP SaaS delay - no surprise
News analysis: But it could open the doors for others...

By Tim Ferguson

Published: Thursday 01 May 2008

SAP's decision to delay the rollout for its Business ByDesign on-demand software should comes as no surprise but could prove a boon for software as a service vendors according to analysts.

When SAP's first real foray into software as a service was announced last September, the company aimed to have 10,000 customers on the enterprise resource planning tech by 2010, generating $1bn in revenue.

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But yesterday the company extended this target by 12 to 18 months and added it will reduce investment in the tech by around €100m during 2008 with no further "accelerated" investment planned for 2009.

Tim Payne, research director at Gartner, said: "To be honest we're not surprised."

He said there are a few "wrinkles" to iron out with Business ByDesign, such as developing new functionality and creating a multi-tenant infrastructure.

He added the company has little experience of the medium-sized business market and has opted to use only a limited number of partners in developing the tech.

He said: "I think their lack of experience with on-demand and, to a certain extent, their lack of experience in that particular market [means] there's quite a steep learning curve for SAP. They're being very choosy about the users that they're allowing to have access to the systems."

He added the delay could present an opportunity to other vendors. "Probably the biggest threat is going to be from Microsoft in terms of bringing their products on demand and moving into that area," he said.

Vuk Trifkovic, senior analyst at Datamonitor, said: "[SAP] seems to be claiming that [it's] taking more time to get things exactly right."

He agreed that building a multi-tenancy system is a significant challenge. He said: "I think there's a lot of confusion in the industry in general about how best to go about this."

Trifkovic added: "I don't think that it's very surprising or unjustified that they do have a little bit of a delay. They are trying to do an awful lot. They claim to have put a huge amount of functionality in Business ByDesign."

He also suggested companies specialising in on demand applications - such as Netsuite - could use the SAP delay to further establish themselves in the medium-business market.

But Trifkovic said SAP should not be discounted. "I wouldn't bet against SAP ultimately getting there, it's just a question of expectation and when this gets done. It's a big deal to do something like this," he said.