SAP On Demand Announcement — Take 1

Posted: February 3, 2006 in CRM

It was no surprise that IBM and SAP joined ranks to promote SAP’s on demand CRM product a day after the Oracle-Siebel deal concluded. It’s very clear that the consulting, database and applications powerhouses have a common interest in opposing the California based Axis-of-CRM represented by Oracle-Siebel, Salesforce.com, NetSuite and many others. So clearly the battle lines are being drawn in the sand and it will be interesting to see how the California crew responds.

At its announcement, which I watched on the Web, SAP representatives said two things that should resonate with everyone in the CRM and on demand industries. First, each speaker talked about listening to the customer or if that speaker was an SAP customer, being listened to. There’s everything to like about that. It helps to ensure that good products are built and that service is appropriate.

Second, the company talked about CRM as a business process done with customers rather than as a thing that we do to customers. You have to like that too. Companies generally understand that we are in an era where revenue increases will be the result of better engagement with customers rather than grabbing market share. Treating CRM as a true business process will help any company to do better. 

But there were also things that made me just want to roll my eyes. Some of it sounded like the state of the union address — there were a lot of warmed over ideas that sounded like motherhood and apple pie, but nevertheless made me wonder is that it?

For example, they trotted out ROI and TCO again. Those two financial metrics are vital to the success of almost any business endeavor, but they are by-products of success which is driven by the right product, at the right price, and right time.

More to the point, ROI and TCO were real hot button issues a few years ago when a small CRM system could cost millions of dollars including a consulting engagement that might have cost three or four times the software license. After six years of on demand and constant market pressure to drive down costs, the CRM industry already had a good grip on costs.

At a monthly entry price of $75 per user seat SAP is not even the low cost leader so it is not clear what’s left for SAP to provide in that area.

The ROI and TCO pronouncements were emblematic of other market needs the company said it observed including fast implementation and ease of user adoption. Again there’s no argument that these things are important, it’s just that they aren’t the same hot button issues they were six years ago.

Back then, sales representatives had little experience with SFA and the products were not as well thought out as they are now. At that point user adoption was a major issue and companies routinely had to choose between their CRM systems and their mutinous sales teams. Most chose the latter and complained to their CRM vendors with reason. We’ve been beating that horse to death ever since despite the significant advances in user interfaces, training, and continued development. Again its hard to see what a new offering offers that is different.

"Ontology recapitulates phylogeny," coined by the 19th century German philosopher Ernst Haeckel, comes to mind. The loose translation is that the development of the individual retraces the evolution of the type. If that’s true, SAP is on track. It has introduced SFA and promises marketing and service modules to be delivered in upcoming waves, more or less recapitulating the evolution of the CRM suite. From that perspective it makes some sense that the company would be shooting at the CRM demons of yesteryear. But the reality is that the market and users have moved on and yesterday’s issues are just that.

SAP also introduced what it alluded to as a third generation delivery model which it said would be more stable and prevent outages. Unfortunately,if the on demand model is all about syndicating access to really expensive hardware and software, the infrastructure that SAP introduced was more about corralling a lot of gear in a safe location which is very reminiscent of facilities management with some newtwists.

But perhaps the biggest question mark this announcement leaves is how it changes the company’s business model. One of the hallmarks of disruptive innovation theory is that when the incumbent vendors realize their franchise is at stake they try to bring the innovation in-house; maybe they call it a hybrid solution. The results are almost universally disastrous — the last company that tried to have it both ways is now a part of Oracle. Still that’s what SAP is trying for. The alternative to the big disaster, by the way, is a smaller one, the innovation fails. Well see.

No matter what you think or say, you can’t discount SAP and their entry into the on demand market. No doubt they’ll win some business and no doubt other vendors will win more, for now. More competition will mean more bakeoffs and the more bakeoffs there are the more each company will learn about its competition and about demand.

Perhaps the biggest things SAP has going for it right now is its customer orientation and the belief that CRM is all about process. With those ideas and a lot of development money, we should expect very interesting times in on demand CRM.

So, what did you think?

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