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Friday, April 15, 2005

SAP Shuns The On Demand Model!!

I recently wrote about SaaS where I concluded that it will take more time to see what percentage of customers will find the software as service offerings attractive, change their buying habits and move to annuity contracts.The application architecture, schema, the business model including dealing with channel partners and switching costs for existing customers are major impediments. Overwhelming organizational changes would have to be managed in the transition to on demand model- It is highly unlikely that existing software vendors could manage the transition smoothly. It is also too early to make a conclusive call on whether the software vendors are going be more comfortable with annuity revenue stream not to speak about the hit professional service firms may be forced to take – In all, not a very easy path lay to embrace Software-as-a-Service model.
News.com reports that SAP won't join the on-demand crowd. Excerpts with edits and comments:
SAP has no plans to enter the hosting market. SAP faces increased competition these days following Oracle's acquisition of PeopleSoft and an increasingly heated battleground for dominance in the North American market."When on-demand came up,we at SAP felt we should be careful.that on-demand is not the next locked-in strategy," said Henning Kagermann, SAP's chief executive. "With on-demand, the customer hands his destiny to someone else and then he finds out after two or three years he cannot get his destiny back." SAP noted that on-demand customers may find they're restricted in their ability to change and innovate their business practices, should the on-demand applications service provider prohibit such changes. SAP wants to give customers the ability to own the structure that will hold the applications and the opportunity to pick which applications they will have hosted by an on-demand service and which ones will remain under their control. SAP is not interested to be seen as a hosting company. SAP’s acquisition strategy is declared as one where there is no overlap. SAP thinks for fixing a hole, it's easier to develop fixes to it, rather than buy something and integrate the other 95 percent." SAP does not look for strategic acquisitions, but rather considers doing deals where it would speed its time to market or accelerate entry into a new market and that SAP would also consider an acquisition if the buy made sense to fill out its product portfolio.SAP is indeed taking an interesting postition, am sure a well studied one at that.

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