Apotheker’s 10X Operating Cost Reduction for SaaS Isn’t Enough
Posted by Bob Warfield on May 5, 2008
As I reported earlier, SAP is saying the delays in their SaaS offering are due to problems with operating costs. Despite charging a very high price of $149 per seat month, Larry Dignan reports they still can’t make money on the offering. According to Apotheker, they still haven’t achieved the 10x cost reduction they had targeted.
Here’s an unpleasant newsflash: even 10x is not enough to be competitive in the SaaS world. As I’ve reported here before, the average SaaS player delivers its service more like 16x more cheaply than On-premises software. If SAP is struggling to get to 10x, it may be quite a while before they’re fully competitive with the SaaS pure plays.
Cost to deliver is a huge competitive advantage for any organization. Just ask Dell or Wallmart.
My colleagues at the Enteprrise Irregulars interviewed Henning Kagerman and came away with this:
There’s a very close link between the TCO of Business ByDesign and NetWeaver. The TCO is not so much hardware; There are too many processing steps in our hosting. We can continue to do manual steps when first upgrade Business ByDesign from 1.0 to 1.1, but it’s not predictable in way where every client got it at once and in the same way.
How many ways can I say that the cost reduction to be competitive in SaaS is a function of reducing the requirements for operations headcount and that it ain’t easy. Real technology has to be purpose built for the SaaS world. NetWeaver obviously was not. Hopefully even the On-premises crowd will reap some benefits of these changes.