by Duncan Jones

I was at SAP’s launch event for its new product for the SMB market, now called Business ByDesign™ (BBD), and was particularly interested in its licensing model and price point. BBD may be a good solution for an enterprise’s smaller business units, but vendor managers should be wary of its SaaS model. The price of $149 per user per month works out as $5,364 for the minimum three year commitment, which is no cheaper than a perpetual license for a rival product with annual maintenance. Worse, the renter is still committed to paying $1800 pa (double or triple what maintenance would cost) as long as it uses the software, even assuming SAP hasn’t increased the price by then.

Businesses can’t switch complete application suites as easily as they can a niche product such as CRM, so BBD customers won’t benefit from the flexibility that is usually a valuable feature of SaaS. Companies considering BBD must look at the TCO over six to 10 years, not merely the first three. The hosted delivery model is certainly beneficial to smaller business units that don’t want to employ IT operations staff, but enterprises could get hosting services without agreeing to an open-ended term license.

Asked if BBD would be available via a perpetual license, SAP executives said that while there were no plans currently, they would never say never, and they would respond to customer demand. Buyers in enterprises considering BBD should create that demand. The initial commitment is reasonable so that SAP covers its selling costs, but from that point on the support & hosting costs will be minimal. BBD could be a very interesting option for small subsidiaries if buyers can get a reasonable deal from SAP – for example, a commitment that service charges will plummet to basic maintenance levels after the initial three year commitment period.