KEY POINTS:
When global software giant SAP launched a new product called Business ByDesign two weeks ago the company's chief executive, Henning Kagermann, went as far as calling it "the most important announcement I have made in my career".
The reason Kagermann attached so much significance to this particular launch is that ByDesign is indeed an important software play for SAP. Don't expect to see it appear in the local market for some time yet, however.
ByDesign's significance is that it represents SAP's attack on two vitally important and fiercely competitive markets that will drive future growth for it and its competitors.
The first market is the "mid-size" business segment, which in a global context for SAP means companies with between 100 and 500 staff.
In the New Zealand context we would tend to think of that sized businesses as more like "big" but regardless of the terminology, SAP believes there are about 4000 potential ByDesign customers in Australasia, with a large number of them based in New Zealand.
The glamour for multinational software companies has traditionally come from chasing big deals with major companies but they are increasingly focused on also tapping into the sales potential of the smaller business market. (SAP doesn't stop at 100-staff organisations, either. The company says it is growing New Zealand sales of its small-to-medium business offering, Business One.)
The second key focus for ByDesign is the growing market for "software as a service" or "on-demand" business software.
The on-demand model involves accessing and using software over the internet through a web browser rather than the traditional method of loading it onto, and running it through, your desktop or laptop.
For businesses the benefits of on-demand software include price, simplicity and convenience. A software solution is typically "hired" for a monthly fee. The internet delivery method, in theory at least, does away with installation, upgrade and maintenance and data storage hassles, which are all taken care of by the software vendor. The web-based software also means users have the convenience of being able to access it from any internet-enabled computer.
There are potential downsides to the model, however. Its reliance on an internet connection can be a concern for some businesses that don't have confidence on the quality of their internet connection. Having vital company data stored off-site by a third party also remains a concern for some.
Those concerns aside, there is no doubt the on-demand model is becoming a significant force within the software industry, at the expense of the "shrink wrapped" product - the traditional boxed set of software discs businesses are used to buying.
One high-profile local tilt at the on-demand market comes from entrepreneur Rod Drury's newly listed financial software company Xero, which has been busy demonstrating its product to accountants.
Drury says he takes SAP's latest global move into on-demand as vindication that Xero is on the right track with its delivery model. He's also not unhappy to hear SAP's ByDesign will not be available in the New Zealand market until around the first quarter of 2009.
While the two products are too different to be in direct competition with each other, Drury says with his company's product already on sale and a big marketing push planned for around March next year to coincide with start of the new financial year, he is confident Xero has a significant jump on competitors launching into the on-demand space.
Back in the global vendor sandpit where SAP is playing, its ByDesign launch aims to trump its two main big-name rivals, Oracle and Microsoft, in the market for fully-featured on-demand software suites for mid-sized business.
Companies like Salesforce.com have done well converting businesses to the benefits of on-demand as a platform for running customer relationship management software.
It is likely to be a harder sell to convince businesses they can get all their software needs delivered this way.
The added complexities of developing a full-featured product (capable of meeting a business's financial, e-commerce, customer relationship, project management and other software requirements) is illustrated by the lag before ByDesign arrives in the local market.
This is because SAP needs time to tailor aspects of the software, such as tax rules, to meet local requirements.
SAP is charging businesses US$149 ($195) per user for the service and technology analyst firm Ovum says the success of ByDesign will depend on how quickly the on-demand market grows and how quickly mid-sized and even larger businesses embrace the new software delivery model.
