3 February 2006 Enterprise applications giant SAP has finally committed to the on-demand software market. It is to make its mySAP customer relationship management (CRM) software available through a subscription-based licensing model.

SAP is following the trail blazed by on-demand CRM hotshot Salesforce.com. It also follows similar moves made by the one-time dominant CRM vendor Siebel.

“The SAP CRM on-demand solution delivers on this commitment by offering companies a new path for their CRM journey – to act immediately and grow strategically, without disruption,” said Shai Agassi, president of the SAP’s product and technology group.

But the announcement has been greeted with less enthusiasm in some quarters, with some market watchers suggesting that SAP has been forced to rush out an “inadequate” product.

“This service is being launched far too early with an inadequate set of capabilities. We can only think that someone on-high in SAP declared that the company had to be ready to launch at a specific date and it would go with whatever it had at the time,” said David Bradshaw, principal analyst at technology advisory company Ovum.

Customers will be able to use applications running off centrally managed servers from $75 a month. The service will provide sales force automation capabilities including account and contact management functions. Users will also be able to share data between the on-demand system and existing implementations of SAP’s software.

SAP’s presence in the on-demand CRM market may appear to increase the pressure on Salesforce, which has racked up impressive revenues and caught traditional CRM vendors off-guard. But its CEO, Marc Benioff, seems unperturbed. In an internal memo, he reminded his staff that SAP “now risks cannibalising its existing customer base”.

But despite his misgivings about the sophistication of the product, Ovum’s Bradshaw is convinced SAP has made the right move. “SAP is absolutely right to enter the on-demand market offering a wider choice for ownership and payment models is the right way to go for the entire software industry.”