SAP Scales Back Business ByDesign Development Efforts

SAP will limit the scope of its Business ByDesign cloud application suite going forward, focusing its development efforts on a new cloud application platform based on the vendor's HANA in-memory database.

While development of new Business ByDesign capabilities for specific industries will be halted, an SAP executive said there are no plans to discontinue the product.

"Within the existing scope of Business ByDesign we will add new functionalities. And we have a relatively long list," said Rainer Zinow, senior vice president of SAP's cloud business unit, in an interview. "What we will not do is build out new industry-specific capabilities."

[Related: SAP Head Of Global Channels Leaves Company ]

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The change in strategy doesn't come as a surprise to Michael Pearson, president of Contax, a Toronto-based solution provider and SAP partner. "I think Business ByDesign has struggled to gain a foothold in the market," he said.

While Contax is authorized to sell Business ByDesign, it's never done so, focusing instead on selling SAP's Business All-in-One application suite for midsize companies for either on-premise deployments or on a hosted basis.

SAP apparently has been slow to inform partners about the change. One SAP partner, who asked not to be identified, said he only has some unofficial information about the change from contacts inside SAP and has not received any official word from the company.

Zinow said the decision came as the company was in its "quiet period" prior to the company's Oct. 21 third-quarter earnings announcement. And he admitted that some partners "haven't been happy with the timing."

Business ByDesign, SAP's first cloud application suite, has had an up-and-down history since its initial launch in September 2007. Targeted at midsize businesses, sales of the cloud applications were slow to take off and the product was relaunched in 2010 with a multitenant architecture.

At SAP's Sapphire conference last year, Lars Dalgaard, who was then overseeing the company's cloud software efforts, said SAP had done a poor job of positioning and marketing Business ByDesign.

Last year SAP acquired cloud software vendors SuccessFactors and Ariba and began introducing individual cloud applications, such as Sales On Demand and CRM On Demand. And the company's Business One suite for small businesses is now available as both cloud and partner-hosted applications.

Earlier this week, SAP reported "triple-digit, year-over-year growth" in revenue from cloud software subscriptions and support in its third quarter ended Sept. 30. The company said revenue from cloud services now has an annual run-rate exceeding 1 billion Euros.

Zinow acknowledged that line-of-business applications like the Sales On Demand and CRM On Demand have taken off faster than cloud application suites. "But SAP believes that, in the long run, the suite approach will always win," he said.

NEXT: Reorganization Of SAP Research And Development Operation Leads To Business ByDesign Decision

The change in direction is also driven by a move in May to centralize SAP's research and development operations under Vishal Sikka, a member of SAP's executive board, and head of technology and innovation.

Sikka proposed development of the HANA-based cloud application platform that will pull together core database server, application server and messaging middleware technology in one platform. The system also will include basic application functions such as currency conversions that Zinow said could be used by SAP's own developers and independent software vendors.

But Zinow said SAP doesn't have the research and development resources for that project and full-scale development of Business ByDesign, leading to the decision to scale back development of the latter.

About 1,000 businesses, ranging from 10 employees to 9,900 users, currently subscribe to the Business ByDesign service, Zinow said. Another 100 or so large corporations are using the cloud application set for use within their subsidiaries.

Business ByDesign is most popular among professional services companies, which Zinow said account for roughly 40 percent of its customer base. SAP will focus its Business ByDesign development efforts on that area going forward, he said.

Pearson at Contax praised Business ByDesign's capabilities and design, and he said his company would continue to offer it as an option. "We just haven't seen any [customers] that are a good fit for Business ByDesign," he said, adding that it doesn't have the features and configuration options of the more established Business All-in-One. Contax also sells SAP's cloud-based CRM and human capital management applications that are complementary to Business All-in-One, whereas those applications overlap with Business ByDesign's functionality.

Zinow said the first phase of the HANA-based platform, an application configuration engine, should be ready in about six months. He declined to provide a timetable for additional components of the platform.

The channel accounts for about 80 percent of Business ByDesign sales worldwide, Zinow said, with that number higher in Europe and, perhaps, closer to 70 percent in North America. There are about 200 solution providers working with Business ByDesign, he said.

About 120 of the 200 solution providers who work with the product develop add-on applications for the application suite, about 680 at last count. Zinow, for example, said he had just spoken with a partner who built a planned maintenance application for the wind power generation industry on top of Business ByDesign.

This, week NetSuite, one of SAP's archrivals, announced a deal to acquire TribeHR, a developer of cloud-based human capital management applications. The company said it would use the acquisition to create an integrated ERP and HCM application suite for small and midsize businesses -- the same market SAP has targeted with Business ByDesign.

NetSuite has already begun offering a "SAP Business ByDesign Sunset Migration Program," under which users of the SAP product can get a free one-year subscription to NetSuite's cloud applications and free data migration services.