SAP's Down-Market Gamble

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Business By Design will target customers that haven't bought SAP products before, namely those with 100 to 500 employees and international operations. By 2010, SAP hopes to claim 100,000 customers overall, vs. about 42,000 today.

A few things could go wrong along the way. Business By Design's price—$149 a month per user—could compel SAP's traditional customers to demand added discounts. The company could also err on positioning. Business By Design will aim for companies that have outgrown Intuit's (INTU) QuickBooks or Microsoft's (MSFT) Great Plains accounting software—plus offer them supply-chain management, customer relationship management, and human resource features.

Missing a Market?

That's fine, says AMR's Richardson, but SAP could miss out on the opportunity to reach large companies that run SAP in their corporate headquarters, but still have decades-old mini-computer software that's ripe for replacement in overseas plants. "For the first time, they have an attractive product at the right price point that could cause customers to move, but they don't want to go after that," Richardson says.

If mishandled, SAP's approach could present opportunities for competitors, including Oracle, which reports second-quarter earnings on Sept. 20. Smaller rivals are also sniffing the same ground. Salesforce.com (CRM) on Sept. 17 introduced programming tools called Force.com that would let independent software developers use its technology to create new software products—and if successful, would help Salesforce expand beyond customer management software (BusinessWeek, 9/14/07). David Duffield, chief executive of online software company Workday and the former CEO of PeopleSoft, has said he'll position Workday's human resources and financial software as an alternative to SAP's new mid-market products.

And NetSuite, majority-owned by Oracle CEO Larry Ellison, said on Sept. 18 that a U.S. subsidiary of Japanese manufacturer Asahi Kasei had replaced SAP with NetSuite's online accounting software. NetSuite CEO Zach Nelson says SAP will have to overcome a perception that its new products may be difficult to use. "I don't know what their slogan will be. Maybe 'the world's most complex software for small business'," he says.

The rap on SAP is that can't conquer its complexity. By taking it slow with its important new product, SAP hopes to prove its critics wrong.

Ricadela is a writer for BusinessWeek.com in Silicon Valley.