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SaaS Week

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More on SAP's SaaS Gamble

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There's still some debate in the blogosphere about SAP's grand A1S-turned-Business ByDesign SaaS gamble. On one hand, the mere fact that SAP is seriously looking beyond the safety of the old, familiar cash cows in the upper end of the market using a SaaS model to chase smaller fish is ample evidence that the model isn't a passing fad.

As mentioned yesterday, the general feeling is that SAP BBD is a solid, well-rounded product that just might give Larry Ellison, Benioff and other players in this space a bit of headache. ZDNet's Phil Wainewright said SAP gets it. Zoli Erdos predicts world domination.

On the other hand, SAP's track record for the small and midsize market is considerably more lackluster than their S&P 500 customers.

Indeed, a few years ago SAP made a big deal about its commitment to reach a lofty 100,000 customers by 2010. Naturally, that means the bulk has to be made up of SMBs. It's nearing the end of 2007, and they're what, 60,000 customers shy of that goal?

Furthermore, let's not forget that SAP dipped its toe in the SaaS water last year with its decidedly ho-hum CRM On-Demand product. While technically not bad, I have yet to see even SAP people do backflips over how that turned out.

They're not entirely letting go of their old ways either. Note that they put a minimum cap if 25 users for BBD. Why? Could it be to prevent cannibalizing Business One?

That cannibalization issue should be taken seriously. Let's not forget that SaaS is a very disruptive model, completely different from what they usually work with. On a side note, the resulting churn, increased marketing costs and customer retention challenges that comes with the territory could have a major impact on SAP's bottom line to boot. A big SAP failure could become a heavy chill for the SaaS sector as a whole.

But let's not paint doom and gloom. Again, the product itself seems reasonably strong, weak UI and all, and the $400 million SAP plans to spend singing SaaS praises should make the next few years a very interesting time for SaaS vendors and customers alike.

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The road will not be without hurdles, but SAP has pulled it off in the past. Everyone is eager to see the uptake of the product.

The mid-market is highly suspicious of these large vendors. In fact, it is the market issues created by these large legacy vendors--bloated products with too many features and poor user interfaces, high costs, etc-- that have paved the way for the success of the on-demand market. While SalesForce (salesforce.com) and Plexus Online (plex.com) and others have become successful by targeting specific business segments, SAP appears to be entering the market with another product that is bloated because it attempts to be a one answer for everybody solution. We'll see if their gigantic marketing clout will bring in new customers or simply erode their current legacy system base.

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