SAP: hosted CRM but not on-demand

It looks like SAP is going ahead with its on-demand CRM service, although it appears to be having some trouble describing it. In a Computerworld interview, SAP spokesman Iris Eidling said that the new service would combine elements of the "hosted" and "on-demand" model. I found this puzzling, since I don't think many observers make a difference between those two terms. There are different types of on-demand models, but they are all "hosted," in my opinion.

SAP is not particularly helpful in its clarification.

Eidling could not explain how the hosted and on-demand models would be combined, saying only that features of both would be a part of the new model. "What I can say today is that we will not call the new service 'on demand,'" she said.

SAP defines a hosted service as one in which customers outsource their hardware but purchase a license from the software vendor. An on-demand service, on the other hand, is one in which users outsource both the hardware and the software and which allows them to pay for applications on a usage basis.

"The problem with a pure on-demand model is that customers, who are sharing both their hardware and software with hundreds of other companies, can't easily customize and integrate applications into their systems," Eidling said. "By comparison, a hosted service allows them to make individual configurations."

Ah, so in SAP's view, the difference between "hosted" and "on-demand" is a matter of how the customer pays for the service. The fact that SAP expresses no interest in the on-demand model, which it defines as allowing users to pay on a usage basis, reinforces my opinion that it is very difficult for traditional software vendors to adopt this model. Customers may like the pay-as-you-go model, but it represents too great a change for traditional software vendors, such as SAP. By deferring revenue over the entire period of the customer relationship, it would entail a huge financial hit for such vendors--something that few, if any of them, could tolerate.

These comments strengthen my view that real innovations in software on-demand will continue to come from new entrants to the market, such as Salesforce.com.

Related posts
Software on demand: attacking the cost structure of business systems
SAP set to launch CRM on-demand
SAP denies plan for CRM on demand
Salesforce.com struggling at Cisco