Software
The worlds biggest business software companys new product, that allows customers to subscribe and pay on a monthly basis, will begin being sold by July, about three years late. At about 40,000 euros ($55,800) a year for a 25-user outfit, compared with large SAP contracts that go into millions of euros, it may be a drag on margins, said Peter Goldmacher, an analyst at Cowen and Co. LLC in San Francisco.
“Theres no way they are going to get the margins they are historically used to in this lower-end market with a cheaper product,” said Goldmacher, who has an “underperform” rating on the stock. “The product is probably fine, but they are going to have a problem selling to a market that they havent sold to before.”
SAP, whose software is used for payrolls, customer relations management and Apple Inc.s iTunes download system, is looking for new sales streams after this week reporting a drop in revenue and profit for 2009. The move marks its second effort this month to provide lower-end options to clients faced with a slump in the global economy. On Jan. 14, SAP did an about-face, caving in to customer pressure by unveiling cheaper software- support options.
Delayed
ByDesign was initially unveiled in September 2007. In April 2008, SAP decided to “modify” the release and said it would take 12 to 18 months longer to reach its target of $1 billion in sales and 10,000 customers, after having expected to meet that goal by 2010. At a press conference this week, Apotheker didnt say how much revenue the software may generate.
“I dont think we should count on a lot of sales from ByDesign this year,” he said. “We want to go to market first and then talk about the target, rather than the other way around. Im absolutely certain that SAPs Business ByDesign will change the market. It is the richest, most complete solution that will be available on the market and if I were a competitor, I would be worried.”
The new service puts SAP in the fray with companies that have similar offers for businesses. The competition in this market isnt Oracle Corp, its the likes of NetSuite, Salesforce.com and SuccessFactors, said Thomas Otter, a director at Gartner Research, in Frankfurt.
Apotheker said SAP had taken into account costs related to ByDesign when setting its operating profit margin guidance. SAP, based in Walldorf, Germany, said its targeting an operating margin of between 30 percent and 31 percent at constant currencies in 2010 from 27.4 percent in 2009.
Ambitious
“SAP is ambitious to think that they can roll out a volume software-as-a-service product and still maintain and grow margin at the same time,” Otter said.
The company reported this week that its fourth-quarter net income slid 12 percent to 727 million euros from 830 million euros a year earlier. Revenue fell 9 percent to 3.2 billion euros.
Apotheker said the new product will be a “volume- business” by 2011.
SAPs ambitions for the product may be misplaced, said Andy Miedler, analyst at Edward Jones in St.Louis Missouri.
“The question is how fast the uptake is out there,” he said. “SAP is facing some pretty good entrenched competitors and is coming a bit from behind.”
Latest Technology
Hans-Peter Klaey, head of SAPs small and medium enterprise business, defended the companys claim the product would change the industry.
The new product has an “end-to-end” capability, containing customer relationship management software, human resource software, finance software, and it can add on additional solutions as the market changes, he said
“We can do that because it is based on the latest technology,” Klaey said in an interview. “If you look at whats already out there, they arent really based on the newest technology, so we have a big advantage in this regard because we took the time and made it right.”