SAP Unveils Web Software, New Business Model

NEW YORK (Reuters) - SAP AG unveiled a long-awaited line of Web-delivered software on Wednesday that will radically change the company's business model and may shake up the Internet software arena.

Called Business ByDesign, the software is initially a one-size-fits-all, subscription-based package aimed at mid-sized companies and is a crucial plank in SAP's strategy to more than double its customer base to 100,000 by 2010.

"It's not just a new product for us," Chief Executive Henning Kagermann told journalists and analysts at a company event in New York. "It's a new era for SAP."

SAP, the market leader in complex suites of software for large enterprises, is the first major software maker to enter the market for so-called software as a service delivered over the Internet.

It said it will have invested up to 400 million euros ($559 million) in marketing and ramping up Business ByDesign by the end of next year. One-fifth of the company's 12,300 developers are working on the project.

Business ByDesign, which integrates management of areas including financials, human resources, supply chain and customer relationship management will cost $149 per month per user and $54 per month per five users for a pared-down version.

The offering is both more complex and more expensive than competing products from the likes of Internet software pioneer Inc , which has 35,000 customers and whose prices start from $60 per user per month.

Salesforce and privately held NetSuite, which deliver their software over the Web, have seen their business grow faster than SAP and its big rivals Oracle Corp and Microsoft Corp , which usually install their software on customer computers. NetSuite has 5,300 customers.

"I hope they will make it. That would be good for the industry," said Dan Sholler, a software analyst with Gartner. "But they are promising to do something that has never been done ... I am very uncomfortable with the goals they have set."

SAP shares closed down 1.2 percent to $57.90 in New York Stock Exchange trading.


SAP, which currently has 20 selected live customers using Business ByDesign, aims to win hundreds of customers by the end of the first quarter and thousands by the end of 2008.

Kagermann told Reuters that 2008 would be the year SAP would prove the technical viability and the business case for Business ByDesign, which it hopes will eventually become more profitable than the rest of its business is currently.

From 2010, SAP aims to win 10,000 new customers annually and $1 billion per year in new revenues from the new software.

It is rolling out Business ByDesign slowly, first with selected customers in the United States and Germany, followed by Britain, France and China. It will have limited distribution until late 2008.

Analysts attending the SAP event said they were impressed by the product demonstration and unworried by the slow speed of the roll-out


"The breadth of solution is definitely going to be quite compelling," said Adam Shepherd of Dresdner Kleinwort. "In terms of pricing it seems competitive."

James Dawson of Morgan Stanley said: "They've been fine-tuning the product all year. It's a reasonable time plan."

But Salesforce's European president, Lindsey Armstrong, said she was unworried about potential competition.

"It feels to me like a very classically built SAP product. How many people need a 360-degree view of the company?" she said, when asked about the greater scope of the SAP software, compared with Salesforce's. "I'd say one -- the CEO."

She added that SAP's timetable to market made the threat remote. "I can pretty much walk to Italy from (SAP's headquarters in) Walldorf in the time they'll take to roll it out there."

SAP has, however, designed Business ByDesign as a wholly distinct product, making the decision some three years ago to set up a separate development branch rather than simply put SAP's existing software packages on line, Kagermann told Reuters.

"We decided to make no compromises," he said


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