SAP to offer hosted suite of midmarket apps

SAP is developing a hosted suite of business applications for the midmarket, hoping to attract an untapped segment of customers with the promise of faster implementation and lower ownership costs.

Details are few at the moment, but Chief Executive Officer Henning Kagermann said Wednesday that SAP will offer a complete set of hosted and on-demand applications for midmarket customers who want to get applications up and running quickly with very little customization.

"We have to change the business model for this segment of the market," he said during a press conference Wednesday to announce SAP's financial results. "The main cost driver here is not the software but the services."

The applications will cover "the entire business of a company," Kagermann said, suggesting they will encompass both CRM (customer relationship management) and ERP (enterprise resource planning) applications. They will be able to be managed remotely, including day to day operations and upgrades, he said.

Customers will be able to set up and test the software on their own before deciding to make a purchase, using a "try, run and adapt" model, he said. "We assume customers will set up their own test system and play around with their own data," he said. "We want to eliminate risk altogether."

The software will be offered on a monthly subscription basis, although bigger companies may also be able to host it on their own premises, said Leo Apotheker, an SAP board member and its president for customer solutions and operations.

"There is no such thing on the market now and SAP is going to write a bit of software history," Kagermann said. By 2010 the company hopes to attract 10,000 new customers to the service each year, he said.

For now, however, many questions were left unanswered, including a delivery date and even a name for the product. SAP plans to hold a press conference later this quarter to provide more details.

SAP has been slow to enter the hosted applications market, which has been led by Salesforce.com Inc. and others. SAP announced its first on-demand product only last year, a set of CRM applications. The company will apparently now try to leapfrog Salesforce.com by offering a more complete business suite.

The products have been developed from scratch and will not simply be a hosted version of SAP All-In-One, the company's ERP suite for midmarket customers, said SAP spokeswoman Astrid Pölchen. "We'll continue with all that we already offer today and grow our established business, but this is a totally new product," she said.

Henning portrayed the move as a significant one for SAP that will require the company to adopt a new business model. SAP will use telesales and the Internet to sell the software and will initially host the applications itself, although partners will be involved later, he said.

SAP also announced Wednesday that it will spend an additional €300 million (US$389 million) to €400 million over the next two years to support its midmarket efforts. Much of that will go on the continued testing, development and roll-out of the new products, Pölchen said.

The software is being tested internally today, Pölchen said. Apotheker said it will not contribute to SAP's revenue in 2007, suggesting that it will not be widely available before 2008.

Henning positioned the software as a dramatic departure from what is available today. The software can be monitored and managed remotely in a similar way as modern cars that tell the garage when they need a tune-up or an oil change, he said.

Some midmarket customers like to customize the software they use, and for them there are products like SAP All-In-One. Other customers want software they can get up and running more quickly with little customization, he said, and the new product will be targeted at them.