SAP's Apotheker Tries To Explain Problems

SAP AG (SAP) co-CEO Leo Apotheker says that Business ByDesign, the application giant’s high-profile software-as-a-service product, was delayed because of its total cost of ownership for the company.

That’s a fancy way of saying SAP hasn’t figured out how to make money at its $149 per user per month price point. SAP confirmed that it was delaying Business ByDesign when it reported its first quarter earnings (see transcript). “We’ve announced a price point and now we’re working backwards,” says Apotheker.

“What we did discover in the last five or six months is that while we made progress on our TCO model we’re not where we wanted to be (a 10 times TCO reduction),” said Apotheker, in a meeting with a group of Enterprise Irregulars Monday at SAP’s Sapphire conference in Orlando.

Apotheker played down the delay, adding that “it’s not like we put this thing in the freezer.” Apotheker didn’t go into too much detail about what was derailing TCO, but did mention that “there’s a lot of engineering involved.” Apotheker says SAP is working through upgrades, hot patching and hosting costs, but isn’t cutting expenses quickly enough to hit its rollout targets.

Now SAP can achieve its TCO using “labor arbitrage,” says Apotheker, referring to lower-cost programmers presumably offshore. But Apotheker says SAP “is trying to solve this by technology so we have an optimized TCO model. The next release of NetWeaver should significantly help.”

He adds that he was reasonably optimistic that Business ByDesign’s TCO will fall enough to make it a profitable business. “We have a business to run. We have to find a balance between pushing things forward and making our numbers,” says Apotheker. “We’re in a position to say let’s do this right. It doesn’t matter whether it takes six more months. You can never fix the wrong impression on day one.”

When asked whether Apotheker was worried that he gave competitors another six months of an advantage, the co-CEO said that “no one will be able to offer an end-to-end comprehensive business suite.”

However, Apotheker did note that customers will be able to add select features of Business ByDesign before getting the full suite. Apotheker adds that “cloud computing is a real option in the future. We want to make sure we’re agnostic to all kinds of environment.”

Enterprise Irregular jury: Apotheker provided our gang lots of quotes, but didn’t deliver the goods. Business ByDesign economics overshadow what could be larger problems.

Comments

[JD Peterson]

SAP and ORCL are in muture industry, the ERP software; also known as “package software”.

No growth, they are buying companies just to milk the cow for maintainance revenue and that can only diminish over time.

The growth in software area is in SaaS area such as the “on-demand” model like CRM, i2/IBM freight matrix or the solution delivery model like the rest of i2 SCM results delivery.

SAP and ORCL are two big ships, it’ll take them 3 years to turn their business model to SaaS if not longer.

Customers are buying the results, they don’t want to buy software or technology any more…. the web 2.0 and the software 2.0 are here.