The much ballyhooed and oft-discussed evolution of SAP's midmarket software strategy is finally upon us. As I type this, SAP's Henning Kagermann has just announced the availability of SAP Business ByDesign; formerly referred to as A1S.

Business ByDesign is, "the most important announcement of my career" according to Kagermann; heady words for someone who was rather dismissive of the impact of on-demand software architecture just 18 months ago.

Segmenting the Market

One of the biggest challenges SAP will have is segmenting the new offering. Take a look at the opening paragraph of the Fact Sheet we were provided in today's press kit:

The SAP Business ByDesign solution is a new addition to the SAP portfolio of solutions for small businesses and midsize companies. The on-demand business software solution complements and does not replace any of the other solutions in the SAP portfolio. [note: emphasis mine] SAP Business ByDesign specifically addresses a new market of prospective customers: growing midsize companies that typically have not invested in the types of integrated business solutions SAP provides.

To my mind, there is tremendous need and opportunity for a hosted, subscription-based, easy-to-use ERP solution for small and mid-market companies. That said, I don't see how the demand doesn't, at least in part, cannibalize the traditional SMB on-premise ERP solutions; of which SAP has several already in the market.

Henning put up a chart describing SAP Business ByDesign as a solution that addresses an entirely new segment of the market.

Note: This is not a recommendation to buy or sell SAP or any other security, but is merely a personal analysis to foster discussion for informational purposes only. At the time of this writing, I and/or funds I maintain discretionary control over, did not maintain a position (long or short) in SAP. We also may, at times, carry derivative options on underlying positions as a hedge.

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