has jumped squarely into the hot market for hosted business software, taking dead aim at fast-growing
and its smaller rival,
The smaller companies have prospered, as the giants of the software world first denied the significance of on-demand software and then fumbled their initial, defensive attempts.
now in possession of
, which had been the leader of the $3.5 billion market for customer relationship management software, and SAP entering the game months later than many had expected, Salesforce and RightNow are suddenly playing in a much tougher league.
"This market has gotten a lot more interesting," says Sharon Mertz, an analyst with market research and consulting firm Gartner. "SAP has some huge advantages."
Two of the bigger ones are SAP's enormous base of roughly 30,000 customers and a set of very deep pockets. "We will be very competitive," vows SAP Senior Vice President Peter Graf.
Indeed, initial list pricing on SAP's offering will be $75 per user, per month, which is about the average of what Salesforce charges -- after discounts.
Unlike conventional software, which customers license for years and run on their own servers, on-demand software is "hosted," that is, run on the vendor's server and generally leased on a monthly basis.
CRM software is used in the so-called front office to manage various processes, including sales-force automation, call centers and the management of customer data.
SAP, says Graf, will now offer cheap, on-demand software that can easily be upgraded to an enterprise-class CRM deployment for use in the most demanding environments. Another SAP advantage: SAP's on-demand and conventional CRM packages share a common code base, while Siebel's (now Oracle's) products, do not.
Salesforce, under the leadership of Marc Benioff, a marketing-savvy former Oracle executive, zeroed in on widespread dissatisfaction with conventional CRM.
Customers claimed it was too expensive, took too long to install, and all too often failed to work. The company's logo, a red circle and line through the word "software" says it well.
Pomp and Circumstance
Salesforce had initial success landing users at smaller companies, but more recently has marched up-market, landing marquee clients such as
. Sales, meanwhile, have grown from $96 million in fiscal 2004, to $176 million in 2005, and analysts expect that figure to jump 76% to $310 million in fiscal 2006, which ended Tuesday.
Salesforce has been winning customers that would have gone to SAP, says Cheryl Kingstone, a software analyst at Yankee Group.
RightNow, which is often, but not very accurately portrayed as a Salesforce clone, is fairly small, but sells on-demand software to larger businesses than its flashier rival and has a more complex business model.
Indeed, the fact that RightNow is somewhat more of an enterprise play than Salesforce, may make it more vulnerable to SAP's entry into the on-demand market.
SAP is hardly a beginner at the CRM game. Depending on which research house is quoted, either Siebel (without Oracle) is No.1 and SAP is No. 2, or the other way around.
In either case, SAP's presence in the conventional CRM market is huge.
And that's a double-edged sword, says T. Rowe Price analyst Ken Allen. "If they try to move on-demand customers to upgrade to the hosted products, they could be sending out a confusing message, and it will be challenging for them as they are pulled between two different business models."
SAP's Graf says his company will concentrate on its own customer base -- the many that do not currently use CRM software. "The addressable market for us is very substantial," he says.
As its on-demand customer base grows, or finds broader uses for CRM, SAP will then sell them higher-margin enterprise CRM. "We want to become the provider that supports the customer's entire CRM strategy," Graf says.
At the very least, SAP's strategy will put pressure on Salesforce to offer a more conventional CRM product, something it has been loath to do, or risk losing higher-end customers, says Forrester analyst Liz Herbert.
For his part, Benioff says he welcomes SAP into the market. "Europe's most influential technology company is helping us make on-demand the global standard," the Salesforce CEO said in a memo to employees.
But he was quick to pull out the knife, adding: "I have never met a salesperson anywhere in the world who uses SAP CRM. Indeed,
research firm Gartner said at a recent conference that only 19% of SAP CRM customers actually use it. If fewer than a fifth of our customers used our service, we'd consider that a failure," said Benioff. "At SAP, they call it a business plan."
Allen, whose company has a position in Salesforce, figures that both Salesforce and RightNow are probably strong enough to withstand the challenge. SAP's entry into their market could even be helpful to them, the T. Rowe Price analyst adds.
"This gives the market even more validation. There could well be enough
on-demand business to go around."
Maybe so. But now that the first string is in the game, none of the smaller players can afford to fumble.