Wednesday, 28 January 2009

SAP caught in the SaaS margin trap

(By Anthony Miller). SAP CEO Leo Apotheker’s comments about the snail-like pace of the roll-out of its mid-market SaaS offering, Business ByDesign (BBD, see SAP freezes salaries and cuts 3,000 jobs), speaks volumes about the structural financial challenges facing legacy software vendors as they ‘ascend into the Cloud’. Here’s the problem. SAP’s operating margins are now around 25%; they are aiming for over 30%. BBD is losing money, even ignoring the gazillion euros SAP has so far spent on R&D. Apotheker noted that typical SaaS vendor margins are around 10%. Actually, the most notable, and arguably the most successful player, Salesforce.com, is more like 6%. He says he wants to control BBD roll out so as not to dilute group margins. How? This is not a trick question – I just can’t see how! The more successful BBD becomes (and we should all live that long), the worse it gets for SAP. Answers on postcards only please to an address not a million miles away from Waldorf (and please copy me!).

1 comment:

swabygw said...

I couldn't resist commenting because I was a member of the SAP BBD team in the US. The problem with this rollout is not the economy, it's the myopic management at SAP. I was, literally, told in Waldorf not to question the intuition of the program. I've seen it. I've implemented it. It sucks (I can talk because I've done Peoplesoft and SAP implementations for years now). SAP has sold itself to the SaaS devil and made the entire product SaaS. This was a mistake. SaaS is appropriate in SOME scenarios, but not all. Also, they host it on servers in Germany and lost all their customers in the US because they got tired of waiting for a response after clicking on a link. Plus, the implementation cost is still over $100k. SAP is all smoke-n-mirrors.