This week’s big IT industry news is SAP’s launch of “Business by Design“, SAP’s Software-as-a-Service enterprise business system. Given my earlier comments on SaaS strategies for packaged software vendors, this is very significant and marks the first direct entry by a major player into the SaaS market. Even Oracle’s Larry Ellison entered via a separate start-up, NetSuite.

I’m not in a position to give any view on the technical merits of of SAP’s SaaS offering, but initial reaction from the professional SaaS watchers has been positive.

SAP has targeted mid-size organisations (100-500 end-users) with this very comprehensive application. Current per-user fee structures deter penetration into mid-size organisations. At US$195 per user per month, SAP will collect ~US$234k each year from a 100 seat organisation. That’s a lot of money for a business that size, and there’s probably a critical threshold not far above, after which additional user fees need to drop rapidly to be competitive with in-house solutions. How the pricing shapes up versus NetSuite will be interesting. The current high per-user fees could be a deliberate ploy to ration take-up and avoid cannibalisation of in-house licenses, in which case neither SAP nor Netsuite have anything to gain from starting a price war. That will probably come from ambitious start-ups.

My only criticism is about the name. “Business by Design” is an advertising tagline, not a brand name - it’s a clumsy effort from SAP’s marketing people. That quibble aside, I’ll be interested to see how this SaaS service goes for SAP, whether or not it moves up into the corporate market, and of course what opportunities it offers to Fronde. We do a lot of work building, integrating and implementing unique market-facing applications for the corporate enterprise - the things that make them different and connect them to the world. That usually involves integration with the core business systems, and increasingly, implementing and integrating SaaS applications, as well as working with SaaS vendors on their platform development and operations.