SAP Enters the Hosted CRM Market

Frequent readers of this newsletter are aware that we typically cover four or five of the key announcements of the month. However, occasionally there is an event or announcement that is significant enough to warrant more detailed attention. That’s certainly the case with SAP’s recent announcement that it is entering the hosted CRM applications market with what the company (somewhat unimaginatively) is calling the SAP CRM On-Demand Solution.

Rather than going after the SMB market that’s the focus of most on-demand CRM, SAP is targeting “large and midsize organizations to manage sales, service and marketing in an easy-to-use solution delivered directly via the Internet,” as the company puts it. In order to do this, SAP has created what it’s calling a “hybrid approach” that will allow its customers to more easily integrate the on-demand applications with in-house enterprise applications (presumably those from SAP).

SAP has wisely decided not to get into the business of maintaining big server farms and handling end user service requests. Rather than becoming their own hosting service, SAP has tapped IBM to provide safe, secure, reliable and widely-available hosting services. The SAP solution will be powered by IBM’s Applications On Demand Platform, which automates application hosting and management to provide a scalable platform for running business applications. This agreement builds on the existing strategic alliance between IBM and SAP – with one of the largest SAP practices in the industry – to provide IBM consulting services that SAP can use to help customers.

The strengthened relationship between SAP and IBM strikes directly at SAP’s arch rival, Oracle. Siebel’s own on-demand product – recently acquired by Oracle when it acquired Siebel – was also hosted by IBM with IBM’s DB2 database as the back end. Since Oracle is highly unlikely to promote a product that’s layered on DB2, there’s going to be a period of unrest as Oracle ports the Siebel application to its own database. That gives SAP some time to get traction in the market.

There are several reasons why this announcement is significant. First, SAP is a big software vendor and a major supplier of CRM capabilities, so any new CRM product from SAP is naturally of interest to the CRM community. More importantly, the fact that SAP is entering the hosted applications market indicates how seriously mainstream software vendors are taking the overall on-demand movement. SAP’s entire business model is predicated on the value of integration throughout the enterprise, something that’s only possible inside companies that own their own hardware and software. The foray by SAP into the on-demand arena is conceptually similar to China holding free elections; it’s a 180-degree change in direction.

Seriously though, SAP is a superlative software vendor, with a deserved reputation for high-quality software. There’s no question that SAP has the technical chops to make this product a big winner. The thousands of companies that are already heavily invested in SAP should (and will) be looking very closely at this offering because, long term, it could mean a change in direction for this top software vendor.