SAP Circling SaaS Market

By Ed Frauenheim

Jun. 24, 2010

HR software giant SAP hasn’t been a big player in the growing software-as-a-service market. But that could change in the years ahead.

SAP has long concentrated on the traditional method of software delivery: selling “perpetual” licenses for applications that are installed “on premises”—that is, on customers’ computers.

But the Germany-based business software company is taking a close look at HR software delivered as a service, which refers to companies accessing applications over the Internet and typically paying for them on a subscription basis for a limited time. SAP hopes to leapfrog the current vendors of SaaS HR products for large organizations, says David Ludlow, SAP’s vice president of solution management for human capital management.

“My hope is we can do something sooner than three years” from now, Ludlow says. “We are aggressively looking at the market right now.”

Along with rival Oracle, SAP is one of the two largest vendors of HR-related applications, which include core HR systems for tracking essential employee information and “talent management” tools for critical tasks such as managing employee performance, recruiting and employee development.

Like SAP, Oracle has not been on the leading edge of the SaaS field in HR applications. It too has traditionally focused on perpetual-license, on-premises deals.

SaaS has emerged as a popular alternative to those arrangements, partly because of lower upfront costs and fewer technology headaches. Companies also have grown tired of annual maintenance fees associated with the traditional software contracts, which can amount to 20 percent or so of the original license fee.

Both Oracle and SAP have put toes in the HR SaaS waters. Oracle, for example, offers to host HR software for customers in an Oracle data center. SAP sells a SaaS version of software for small and midsize organizations called SAP Business ByDesign. Also, a SaaS version of SAP’s HR software is available through a number of outsourcing partners including NorthgateArinso.

But observers question how fully SAP and Oracle can embrace SaaS. One problem for the traditional powerhouses is that they have grown accustomed to hefty upfront license fees.

Paul Hamerman, an analyst with Forrester Research, is among the skeptics. “These two vendors will have great difficulty competing in SaaS HR [applications] for the next few years against best-of-breed, pure-play SaaS vendors, unless they make acquisitions,” Hamerman says.

Oracle declined to comment for this story.

Ludlow, though, said SAP has been building expertise with SaaS in areas other than HR. He says SAP aims to do a better job than current products in the market of tapping trends in technology and the workplace. In particular, SAP is imagining how the shift to mobile devices, social networking and an ever-more interactive Internet can be harnessed in HR software products.

Much HR software—including many SaaS products—has been built primarily to automate paper-based processes for HR departments rather than encourage new collaborative possibilities among employees, Ludlow says. “What is this stuff going to look like in three to five years?” he asks. Companies can stay tuned for SAP’s response.

Workforce Management, June 2010, p. 30Subscribe Now!

Ed Frauenheim is a former Associate Editorial Director at Human Capital Media and currently works as Senior Director of Content at Great Place to Work. He is a co-author of A Great Place to Work For All.

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