As the clock ticks down to the September release of SAP’s new mid-market suite, chief executive Henning Kagermann has revealed a few more morsels of information.
So far the company has spent 50m euros ($69m), of the 300m euros ($414m) to 400m euros ($552m) it has allotted over two years, on the A1S business and Kagermann reiterated that most of the spend will be in year two.
This spending pattern indicates that the technical side of the operation is the most advanced – SAP had already done much of the back-end development work when it created the on-demand isolated tenancy architecture used for its CRM on-demand release – and that the bulk of the investment will still be going on sales, marketing and support operations.
We have never done a launch like this in our history. It is not a product launch it is a new business and that means an entirely new product, on entirely new technology for an entirely new market and an entirely new customer base, said Kagermann. A1S is aimed at SMBs who have not bought from SAP before and might be looking to upgrade from something like Sage or Intuit.
The company is developing a direct sales channel based around telephone and internet sales and as part of that process is looking at everything from how to best provide downloadable software, to customer support and to how to structure the telephone operation. On the software side it is exploring how to handle software configuration so that it can be rapidly and easily achieved. It will also open up service factories which will provide 24 hour remote support, with Kagermann acknowledging that you cannot innovate without pain.
One of the challenges SAP will have to get to grips with is user expectations. Its target market includes organizations who will have only ever experienced off-the-shelf, single function software. The move to a multi-function, integrated suite which is inherently more complicated no matter how much is pre-configured will come as a shock to some users.
That is something SAP along with other SMB players like Sage and NetSuite are all grappling with. If expectations are not managed, the first to falter is likely to suffer the most in this high volume market. The phased introduction of A1S, where it plans to ramp up volume during 2008, appears to be as much to do with managing user expectations as testing the feasibility of the technology and ensuring its internal processes are up to scratch.
The company appears to have been joggling with deployment options. Originally it looked like A1S would initially be available on demand with an on premise option offered at a later date. Now the plan is to start with an on demand offering, continue with that until SAP is happy that everything is working as it should, then launch the on premise solution based on a variation of the on demand business model.
According to Kagermann SAP will offer A1S on an appliance which would be physically located on the customers’ premises but connected to the A1S service via the Internet. At first it will be hosted exclusively. Once it is all working we will offer it as an appliance on site, said Kagermann, it is close to the on demand business model.
The appliance approach is designed to appeal to potential customers who are nervous about data security. It will also address some technical issues such as maintaining performance when bridging LANs and WANS he said.
SAP has not talked about the financial side but as it is extending the on demand business model, presumably users will take out a per user subscription in the same way they would if they were taking advantage of the standard on demand model. There are also questions about the technology side but it would make sense for the appliance to be connected to the SAP data centre in order to receive updates, while keeping the data on site.
Our View
SAP appears to have had a change of heart on the use of appliances with regard to A1S. In an interview in March this year Kagermann said they were not necessary as A1S was heavily pre-configured, indicating that the limited configuration options available in A1S made the appliance approach redundant.
In the BI space where SAP first offered an appliance he said they were valuable because they meant BI could be added without disturbing the environment, removing the risk where the installed base was concerned. As A1S is aimed at virgin sites, at least as far as SAP applications are concerned, appliances were not deemed necessary.
The change in approach can be attributed to a combination of appliances being a relatively new technology for SAP, and the immaturity of the on demand business model. It also indicates that SAP really is learning as it goes and in doing so is bringing new thinking to the on demand space. The on demand specialists may dismiss SAP’s efforts and scorn its isolated tenancy architecture but there could be value and volume in the appliance approach.
