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SAP shifts down on marketing of ERP product

SAP CEO Henning Kagermann set the Business ByDesign bar high. Too high. Humbled, the company is now taking a more modest approach.

ORLANDO -- Business ByDesign was supposed to be a big deal. SAP AG debuted it last fall and positioned it alongside Business One and Business All-In-One. It was the on-demand alternative to those marquee midmarket ERP systems. Customers would sign up, sign on, customize a bit and get to work.

And those customers were supposed to come in numbers -- 10,000 by the beginning of 2010, SAP CEO Henning Kagermann all but promised.

It isn't happening. Today Business ByDesign has about 150 customers worldwide. SAP leaders won't say how many of those are in the U.S. and are cagey about what it will take for the German company to start to see profit.

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What they will say is that 10,000 by 2010 was aiming too high and that settling for a slowdown is a must if ByDesign is to ever move forward.

Cost, technology and the challenges of building a new type of product all played a role in the decision to throttle down.

During an earning announcement last week, Kagermann said SAP has decided to "adjust the pace" of the ByDesign rollout. At Sapphire, SAP's annual user conference held here this week, project leaders said they're now focusing on six countries, primarily the U.S. and Germany. The rest of the world will have to wait.

"We have changed to more of a normal launch from an aggressive launch," Martin Mrugal, a SAP vice president and general manager, said during an interview Tuesday.

Forrester Inc. principal analyst R "Ray" Wang said, "They're taking a step back. I think they're starting to understand some of the business limitations that they have." Wang said Forrester believes there are some "technology issues" -- including a tougher-than-expected move to NetWeaver 7.1 -- and that SAP still needs to figure how to best squeeze profit out of the Business ByDesign sales model.

Business ByDesign, introduced last September, is an on-demand ERP system intended for companies with 100 to 500 employees, though current users stretch from companies with a handful of employees to a company with 2,000 employees. SAP is marketing ByDesign as an ERP system that takes the hassles of infrastructure, backup and security away from small IT departments with limited resources.

Mrugal, who directs ByDesign in the U.S., said the worldwide distribution of the product should resume sometime next year.

The company line right now is that something worth doing is worth doing right. Mrugal said early customer feedback has driven SAP to tweak the program's user interface and adjust what features are available.

Then there's the question of cost, to both SAP and the user. Mrugal said the program's flat cost of $149 per month, per user in the U.S. won't change.

And in a roundtable discussion about SAP's midmarket strategy, Hans-Peter Klaey, president of SAP's global small and midsize enterprise division, declared that "for a customer, it's wonderful. He has one price per user."

But on the SAP side, the cost and profit equation looks more fluid.

"If we don't hit internal goals to ramp up volume, it doesn't make sense to go [worldwide]," Klaey said. SAP executives have reserved a line for ByDesign in their quarterly earnings report, but that spot sat blank yesterday, as the product has not officially launched.

Mrugal said he is comfortable with ByDesign's earning potential for SAP at its price point and said it will only improve as it gains customers.

Getting customers to join is another matter. The 150 "customer engagements" Mrugal quotes is right where Business ByDesign was three months ago. And industry trepidation against hosted products is only magnified when CIOs consider purchasing something so integral as an ERP product.

The customers who are using it say they are thrilled.

"We don't want to build a heavy IT organization," said Sina Moatamed, CTO at BendPak Inc. in Santa Paula, Calif. "We're not going to create that standing IT organization in-house. Our focus is to deliver the business for our customers."

Knowing the manufacturer of auto repair tools would need an ERP system, Moatamed said he turned to Business ByDesign because otherwise he would have to ""look for a place where we could house it and have it serviced and it would be up to us."

Kevin Flanagan of Compass Pharma Services LLC said he has no worries about the progress of the program.

"We're on the schedule that we locked in February, March of last year," said Flanagan, CEO at the small Clifton, N.J.-based pharmaceutical.

I think they're starting to understand some of the business limitations that they have.
R "Ray" Wang
principal analystForrester Research Inc.
Last week's news of a slowdown found one colleague asking Flanagan, "What does this mean to us?" Flanagan's reply was, "I think, 'Nothing.'"

And there are signs of forward movement, even if they don't come in the form of new customers. The new feature pack 1.2, for example, improves how ByDesign functions with Microsoft Excel and adds internal RSS feeds to the program.

Wang credited SAP with being "pretty public" with news of ByDesign's jam-up. As the company tries to move the program forward, Wang said believes it needs to focus on providing useful combinations of features and tweaking the sales model to ensure profit.

What the company won't be doing, SAP senior vice president of global marketing Jeff Stiles said, is making any more 10,000 announcements. Asked how many ByDesign customers he hopes to see by year's end, Stiles declined to walk that road again.

"We're not announcing any specific expectations," he said.

Let us know what you think about the story; email: Zach Church, News Writer

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