SAP CEO: SaaS Won't Work As A Core Platform

[nandagopal]

Bill McDermott, SAP's CEO and president of global field operations, has a prediction on when software-as-a-service will become a popular platform on which large business will run their core business operations.
"Never," McDermott said, in an InformationWeek interview on Tuesday.

Companies require a software foundation on which to build business processes, McDermott explained, and by its very nature, SaaS doesn't offer the bandwidth or the capability to deal with complex operations, he added.
As the world's largest provider of business applications, it's important for customers to understand SAP's stance on SaaS, given the software industry's considerable amount of attention and funding for the platform within the past few years. But it's been difficult to follow exactly where SAP is going with SaaS.

In some ways it has enthusiastically supported it -- such as its glitzy launch more than a year ago of the now-idled Business ByDesign software product for small-to-midsize businesses -- but more recently, co-CEO and board member Leo Apotheker said it's difficult to make money on SaaS.

In Tuesday's interview, McDermott indicated that SAP still believes in some forms of SaaS, but not as a core business foundation for its typical customer. It just wouldn't work, he said.

McDermott notes that it's taken SAP 36 years to build a "core" on which modern, global companies can run their businesses, which is tailored to specific industries and offers a huge partner ecosystem. "These foundations are very important to companies," McDermott said. "They like having control of data. They don't want to leave destiny in someone else's hands."

McDermott said SAP's strong position in the software industry comes from customers' ability to have applications that run on the same platform, avoiding tough integration issues and improving visibility into operations. A company that tries to do that with SaaS will be left with trying to integrate hosted software from a variety of vendors using middleware from yet another vendor. They're discovering "maybe software as a service wasn't so cheap after all," McDermott said.

Plenty of SaaS vendors would disagree, of course. Workday, which is developing a full SaaS ERP suite, is building its company on the very idea of SaaS as a foundation, and ERP SaaS vendor NetSuite consistently reports double-digit revenue increases. Salesforce.com, meanwhile, is trying to build a large SaaS ecosystem and development platform. Businesses that have chosen a best-of-breed software platform wouldn't agree with McDermott, either.

Despite McDermott's critical view of enterprise SaaS, SAP still has high hopes for Business ByDesign. It's going to appeal to companies that are retiring aging legacy systems and "can't afford traditional ERP," McDermott said. (It's likely SAP also sees it as a stepping-stone to its traditional onsite ERP). Additionally, Business ByDesign may appeal to some global companies as a good ERP platform for use by some satellite divisions.

More than a year after its release, however, only a handful of SAP customers are using the product, with SAP executives citing both profitability problems and functionality issues.

However, more information on Business ByDesign's broader rollout should come at the Americas SAP Users Group (ASUG) conference in May. "We have every intent of saying more about Business ByDesign at Sapphire," McDermott said. "We have high aspirations for Business ByDesign. We'd rather have it a little late and right, than early and wrong."

SAP also is developing a software-plus-services strategy, in which large business could purchase SaaS modules that "snap on" to existing applications. Newly hired executive, John Wookey, who was previously head of Fusion application development at Oracle, is heading that effort