SAP Struggling To Get Business ByDesign Off the Ground According to the Wall Street Journal

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Christopher Lawton of the Wall Street Journal wrote the following column today for the Wall Street Journal Online, detailing the difficulties SAP is having selling Business ByDesign.  It’s an excellent glimpse into what it takes to make SaaS-based enterprise applications successful. It’s also a good reality check regarding the hard work involved to make market forecasts a reality.

From Wall Street Journal Online Today, September 27, 2010:

SAP  AG three years ago launched a version of its business software package that could be accessed by customers over the Internet for a flat monthly fee—one of several industry efforts to reach smaller companies with Web-based services.

The German software giant promised at the September 2007 launch to have 10,000 customers by 2010 for its Business ByDesign offering. But issues with performance, cost and user interface have held the company back. Today analysts put the number of such SAP customers at closer to 100.

“It was not as successful as expected,” says Rainer Zinow, SAP’s senior vice president for Business ByDesign. “You can do everything you want under lab conditions, but when you are in the real world, sometimes things look a bit different.”

Business software as a Web-based service has been heavily promoted by vendors, but some companies in Europe and the U.K. say they haven’t adopted the services because they have been slow and hard to use.

Others say they’ve investigated options from companies such as Salesforce.com Inc., but haven’t found a service that integrates all the business processes they need into one system.

SAP and its rivals say the industry has gone through a transition in terms of the products on the market and educating customers. Vendors say buying software as a Web service eliminates the need for customers to manage security, upgrades and maintenance for costly computer systems.

In July, SAP launched its latest version of Business ByDesign. The software, which is hosted in SAP’s data centers and offered to customers for €133 ($179) per user per month, can run everything from financial systems to project management applications.

SAP promised at a September 2007 launch to have 10,000 customers by 2010 for its Business ByDesign offering. Today analysts put the number of such customers at closer to 100. A

One customer, Kerstin Schilling, chief executive of Bestsidestory GmbH, an online marketing provider based in Leipzig, Germany, hesitated a year before committing to Web-based software from SAP, in part because the firm evoked fears of long project installations and high costs. She first came across SAP’s service in November at a conference, but she says she wasn’t convinced that the service would work properly across the company with each upgrade. “It was a tough decision to believe in SAP,” Ms. Schilling says.

Earlier this year, she tested the latest version of the system. Many of the applications were improved, she says, such as the ability to test new project implementations before taking them live to the entire company. This month, Bestsidestory purchased access to the system for 10 of its 15 employees.

In addition to SAP, NetSuite Inc., a provider of Web-based software, in July added project management, billing and other applications to its suite of services in the U.K. and Europe. The NetSuite OpenAir service runs $49 per user per month. Microsoft Corp. says it will introduce in the fall a new version of its Business Productivity Suite, which offers small-and medium-size businesses email, website, file sharing and other software services at $10 a head per month.

Klaus Holse Andersen, Microsoft vice president for Western Europe, says a year ago, Microsoft had to go around knocking on the doors of small businesses to sell its Web-based product. Today, he says more small businesses are becoming aware of such services and are reaching out to Microsoft.

According to market researcher IDC, the software-as-a-service industry is slated to increase sales to $40.5 billion by 2014, up from just $13.1 billion last year. IDC predicts that in 2010 the shift to subscription software will result in nearly $7 billion less world-wide traditional software license revenue.

The Europe, Middle East and Africa accounts for just a small piece of the software-as-a-service market, 13% last year, according to IDC, versus 74% in the Americas. By 2014, the region will increase its share of such sales to 35%.

For SAP, Europe’s largest software concern, such trends are a wake-up call. SAP’s Mr. Zinow says the market for selling software to large enterprises is saturated. While SAP reported a 17% increase in software sales in its quarter ended June 30, it saw software sales fall 9% in Europe, Middle East and Africa, due in part to “cash conscious” customers.

Modwenna Rees-Mogg, chief executive of AngelNews, a U.K.-based news service for investors, has been mulling over Web-based software for two years, but hadn’t seen anything that managed all the business processes she needed.

Ms. Rees-Mogg, who has five full-time employees, says cost was a big factor in recently choosing SAP’s offering. She says that as a small business with only five employees, paying a monthly subscription for software services that are properly upgraded is much more cost-effective than paying for and maintaining a new system.

“I think it’s going to save us employing at least one person if not more than one. That makes a big difference to us,” she says.

Write to Christopher Lawton at christopher.lawton@wsj.com

Source: http://online.wsj.com/article/SB10001424052748703499604575512452496458586.html

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