Business software giant SAP will move into the hosted software market sometime next year, but getting the product right has proved tricky, according to SAP's products and technology group head, Shai Agassi.

SAP has been participating in test projects and working with customers for some time to craft its strategy for the ERP (enterprise resource planning) software, which will likely be offered with both hosted and on-premise options, Agassi said in a discussion with the press at SAP's annual gathering of industry analysts, in Las Vegas. However, the company plans to take its time perfecting its offering, and it intends to launch quietly when the software is ready for release.

"We won't do the kind of announcement Siebel has done," Agassi said, referring to Siebel Systems's dramatic cannonball into the hosted CRM (customer relationship management) market in late 2003. Siebel's then-chief executive officer (CEO), Tom Siebel, predicted Siebel would dominate the on-demand market within a year. Instead, the company continues to trail early pioneer Salesforce.com, which has 350,000 subscribers. Siebel has 44,000.

With Salesforce.com's success demonstrating customer demand for enterprise software sold as a hosted, managed service, top-tier ERP vendors like Oracle and SAP have been under pressure to come up with similar offerings, which are particularly attractive to small companies looking to minimize their IT challenges. Oracle will become the owner of Siebel's CRM OnDemand service once its Siebel acquisition closes, and Microsoft said this week it has begun offering a monthly subscription licensing option for partners that would like to offer its Microsoft Dynamics CRM software as a hosted, managed service.

SAP was rumored to be planning a hosted software announcement at its Sapphire user show earlier this year, but the event came and went with no news. Executives later confirmed that SAP was developing a hosted product for a 2005 release. Agassi said Tuesday that next year is a more likely launch target.

"We will come out with a product when we come up with a product that meets the needs of small businesses," Agassi said. "We have plans that will be clarified when we are ready to clarify them."

SAP already has a product aimed at midmarket businesses, Business One, a suite it acquired in 2002. With licensing prices starting at US$3,750 per user, Business One is priced beyond the smallest businesses. SAP sees a market for an even simpler ERP offering, for customers with little or no IT support seeking a product that's intuitive and easily managed. That's what SAP is working to build.

"We're still not there. I think there's a lot of things we can still take out from the product," Agassi said. "When you put your mind to it, you can simplify product. Everyone said the iPod was the simplest product imaginable, and then someone came along and said 'we can take out the screen.' And you get the iPod Shuffle, which becomes a best seller."

Hosting will be an option for SAP's SMB offering but it isn't the magic bullet for reducing complexity, in SAP's view. While Salesforce.com has thrived in targeting the salesforce automation market, enabling the entire range of ERP functionality is riskier -- some companies, even smaller ones, will never be willing to trust their core operational processes to an outsourced provider, Agassi argued. If a CRM provider has a catastrophe, companies can survive a few days without access to their sales systems. Losing access to accounting and order processing systems would be crippling, he said.

"People will take more risk with edge process than core processes," Agassi said.

The hosted applications market already includes several companies offering ERP suites, including NetSuite, which has a customer base of around 8,000 organizations. NetSuite has short, scheduled windows of downtime for system maintenance but has not had major outages, according to CEO Zach Nelson.

"Over the last 12 months we delivered at 99.9 percent availability," Nelson said. "These applications are far more available than internally hosted applications."