SAP reshapes strategy for online software

A top executive at SAP is set to outline a new strategy today for delivering software over the internet, as the German software giant struggles to respond to a market that poses a significant long-term threat to its business.
The early pace in the market for on-demand software, also known as "software-as-a-service", has been set by newcomers such as, which normally charge a monthly subscription fee for customers to access their software over the internet.

Speaking at a conference in Amsterdam today, John Wookey, who is driving SAP's on-demand software push, will outline a new approach that ties the company's online services far more tightly to its traditional software.

"Until John got there, there was no strategy," said Bruce Richardson, an analyst at AMR Research in Boston.

"It's absolutely essential for SAP - if they don't make a viable play in the on-demand world, they will be completely overwhelmed by it," said Josh Greenbaum, an analyst at Enterprise Applications Consulting.

SAP's first home-grown attempts to respond to the on-demand software revolution have failed to gain much traction. An online service for salespeople to manage customer relationships, rivalling, has gained only "a couple of dozen customers" in its first three years, said Mr Wookey, though he said SAP was pressing ahead with a redesigned service.

Meanwhile, Business By Design, a full suite of online applications aimed at medium-sized companies, which represents one of SAP's biggest investments in recent years, has faced teething problems that have forced a protracted delay in its launch, and executives admit that their initial plans were over-ambitious.

Acquisitions, including of software maker Business Objects, have since taken SAP's number of on-demand customers above 1,000 and provided the foundation for it to lay out a broader strategy in the area, Mr Wookey said in an interview.

The German company's new approach will be to integrate its online services far more closely with its traditional business software, in a hybrid model that tries to take advantage of the big installed base of SAP's business applications.

Customers will be able to mix online services and traditional software without running into the sort of problems that currently bedevil the software-as-a-service business, such as balkanising a company's data by holding it in different systems, said Mr Wookey.

"It's a problem that only we at SAP can solve," he added.

The simplicity of this hybrid approach is likely to have a big appeal to corporate technology departments, said Mr Richardson.

Mr Wookey also outlined a vision that would eventually see SAP open up its technology to allow other developers to build on-demand services that would tie into its software.

This more open approach represented "a bit of a cultural shift at SAP", he added.

"It's a big shift for any company to open up in that way," said Mr Greenbaum. "They get it, they want to do it, it's taking a little time to turn the tanker."

BY Richard Waters in San Francisco
Source:The Financial Times

Copyright The Financial Times Limited 2009.



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