SAPâ€™s Meek Embrace of Online Software Gets Even Meeker

Posted by Ben Worthen

We wish we it was possible to go back in time and place bets on things like this: that SAP, a company that symbolizes the way business software has traditionally been sold, would back off on a newer style of software delivery when times get tough. That seems to be what’s happening.

SAP and online software are an odd couple

The German technology giant released its fiscal first quarter 2008 earnings today. The report wasnÂ’t good: Revenue rose 14% to 2.46 billion Euros from the year-ago quarter, but income dropped 22% to 242 million Euros. SAP was hurt by slow software sales in the U.S., costs related to its acquisition of Business Objects, and a weak dollar. (SAP books many of its sales in dollars, but reports revenue in Euros.)

One casualty: Business ByDesign, SAPÂ’s much heralded effort to break into the online software business. Where SAP is the iconic traditional software company–selling products that companies painstakingly customize and install on their own servers to organize many elements of their businesses–the company is among the biggest targets for rivals that sell competing offerings as Web-based services.

SAPÂ’s online software foray seemed half-hearted from the beginning. Rather than treating it as a long-term replacement for large chunks of its business, it positioned Business ByDesign as a niche product for small companies. There are also some technical nuances that show SAP isnÂ’t embracing the online software model to the same extent Web-only companies like Salesforce.com or NetSuite have.

Sure enough, today SAP said it is cutting its investment in Business ByDesign by about half. In January, it said it planned to spend between 175 and 200 million Euros on Business ByDesign in 2008; today it cut that figure to 100 million Euros. It also pushed back its timeframe for reaching 10,000 customers 12 to 18 months from its initial estimate of 2010, and said it will have Â“significantly lessÂ” than 1,000 customers in 2008.

The whole episode is a reminder that it isnÂ’t often easy for traditional software makers–or any company for that matter–to embrace new models made possible by the Internet.