An article published on February 4, 2009 in Wall Street
Journal reported that SAP AG plans to imitate the Web-based software makers
that have been chipping away at its business.
The German software company introduced a new version of its flagship
business package that lets customers pay for and use just the pieces they
really need. Companies could, for example, get new payroll software without
changing the inventory database. The new software, called Business Suite 7,
also eliminates the need to do onerous upgrades. It is a strategy that takes a
page from the book of makers of "on demand" software, such as Salesforce.com Inc., which have flourished in recent years as businesses have sought simple,
low-cost software that doesn't require teams of technicians.
Usually, SAP's big corporate customers buy a software suite that can do all
their back-office functions including payroll, inventory and billing. Every few
years customers must do a systemwide upgrade to get new features and tools, a
costly process that takes several months.
The new product is important to SAP. Spending on information technology is
expected to drop 3% this year to $1.66 trillion, according to Forrester
Research Inc. That would mark a reversal after seven years of growth.
SAP and its main rivals, Oracle
Corp. and Microsoft
Corp., have already seen revenues slump as businesses put the brakes on
spending. All three are laying off workers, with 3,000 departures at SAP.
"The Business Suite is a key test for SAP to show that it can reduce
the total cost of owning and running its systems," said R. "Ray"
Wang, an analyst at Forrester Research. The advent of Web-based software
"is putting tremendous pressure on conventional software companies like
SAP to become more nimble, more innovative and cheaper."
Salesforce.com, which sells business software over the Internet, saw its
revenue rise 48% to $787.2 million in the nine months ended Oct. 31. Its
products can be activated immediately, paid for on a monthly subscription and
don't require any hardware or periodic upgrades.
"These are tough times for any company that's selling big-ticket
software," said Bruce Francis, vice president of corporate strategy for
Salesforce.com. "It's obvious that the industry is moving toward
[Web-based tools] and the current environment just shines a spotlight on
this."
Instead of signing big contracts with upfront payments for a suite, SAP will
likely sign smaller deals but in higher volume. "This changes our sales
approach," Mr. Snabe said. "We have to continuously prove ourselves
to our customers now."
Source: Abboud, Leila , “SAP Takes a Page From Rivals for Software
Update” Wall Street Journal, February
4, 2009.