SAP vs

Steve Hamm

SAP is expected to soon announce its entry into the software-as-service fray with a CRM offering. Click to the next page to see what Marc Benioff, CEO of, had to say to his employees in advance of SAP's announcement. (somebody sent me the internal memo)

From: Marc Benioff
Sent: Wednesday, February 01, 2006 4:43 PM
To: All
Subject: SAP on the defense?

Fellow employees,

First Siebel, then Oracle, then Microsoft. After months of warming up, SAP is finally expected to announce an on-demand CRM product this week. Europe's most influential technology company is helping us make on-demand the global standard.

Is SAP on the defensive? Are they worried that with few customers actually using their CRM software, and making significant inroads in their customer base, their entire business model may be at risk?

For starters, they had better hope that their on-demand offering will win more fans than their on-premise solution has.

While SAP claims leadership in CRM, experience suggests a different story. I have often wondered, “If SAP’s CRM software is any good, then why doesn’t SAP use it to manage their own customer relationships?” I have interviewed hundreds of salespeople and executives from SAP from around the world, and each has told me the only CRM system at SAP is an executive system based on Microsoft Excel. I’m not surprised since I have never met a salesperson anywhere in the world who uses SAP CRM. Indeed, Gartner noted at a recent conference that only 19 percent of SAP CRM customers actually use it. If fewer than a fifth of our customers used our service, we’d consider that a failure. At SAP, they call it a business plan. Even SAP’s largest customers such as Dupont, DeutschePost, AirProducts, Autodesk, EFI, DeutscheBank, Analog Devices, and so many others use Salesforce for CRM.

People who haven't followed our company closely often ask, "Aren't you worried? A company with the resources of SAP can bring so much to this battle."

But that's exactly the problem. Observers tend to overestimate the creativity and innovation that entrenched technology companies can bring to a particular problem and underestimate the effect of business model conflicts that lurk behind the scenes.

Let's state it simply: SAP is an innovation-free company. When reporters describe the great innovators of this industry, it's easy to identify the significant contributions of many of the leaders. For Oracle, it's the database; for Apple, the Mac, iPod, and iTunes; for Microsoft, the PC operating system; for Intel, the microprocessor. But for SAP? I struggle to think of a single innovation that SAP has contributed. Their code is as bulky and inefficient as it is expensive and unloved by its users.

And that is just part of the problem. Mustering the will to turn your back on the business model that has enriched you, your employees, and your shareholders has time and again proved far more difficult than solving technological hurdles. SAP, like Oracle and Microsoft, now risks cannibalizing its existing customer base. Can they actually afford to convert their billions of dollars in maintenance revenue into subscriptions? This classic innovator's dilemma engenders painful internal rifts and wastes valuable time while customers' needs languish.

Siebel tried to sell an admittedly inferior on-demand product as an on-ramp to its on-premise system. It appears that on-ramps make road pizza out of your business model. That strategy sent an entire company slouching towards Redwood Shores this week. Will SAP make the same mistake?

Of course, in the end, I agree with Henning Kagerman that SAP's customers should explore the benefits of on-demand. In fact, I invite all of them to sign up for a free 30-day trial. When rivals who have long dismissed our model finally embrace on-demand, minds and markets are opened to us. Let's respond the way and make each one of these customers a success.



Before it's here, it's on the Bloomberg Terminal.