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SAP heading along pay-as-you-go route?

Alorie Gilbert CNET News.com

Published: 27 Oct 2004 08:50 BST

SAP has stayed on the sidelines of the pay-by-the-month software market, but that may soon change.

The German company, which specialises in business-efficiency programs, is getting ready to launch a service similar to those offered by subscription software companies Salesforce.com and RightNow Technologies. SAP plans to discuss on Wednesday the details of the initiative, which involves a new agreement with longtime partner Hewlett-Packard.

Under the agreement, SAP and HP will jointly market and sell SAP's business systems for a monthly fee as low as $325 per user, which includes technical support and installation services. HP will also offer to run and maintain the software for customers at its own data centres, requiring nothing but a Web browser to access the systems.

The companies plan to market the programs to businesses with less than $1bn in annual revenue, with specialised versions available for oil and gas companies, high-tech device makers, computer services firms and food companies. The packages, which include software for accounting and for order processing and fulfilment, are initially available only in the United States.

SAP and other big software companies have been reluctant to enter the market for pay-as-you-go software. They fear the model, an alternative to big, multimillion-dollar software deals, could dent their finances and market valuations, analysts say. A high-ranking SAP executive expressed scepticism about the model earlier this year, telling ZDNet UK's sister site CNET News.com that subscription software is overhyped.

But SAP may be coming around to the idea as Salesforce.com and other subscription pure-plays, including RightNow Technologies, report rapid growth and watch their shares climb.

The new pay-by-the-month programme is not technically subscription software, however. SAP is merely spreading out the cost of its software through a special three- to five-year financing arrangement, said Gary Fromer, senior vice-president of hosting at SAP America. At the end of that time, customers have the right to use the software forever and owe no further payments to SAP. They can even choose to cancel the hosting contract with HP.

Fromer said the move has nothing to do with the attention Salesforce.com and others like it are attracting. "I don't think it's relevant to Salesforce.com at all," he said.

SAP and HP have cooperated for more than 15 years to make their technologies compatible, and HP is an SAP customer. In recent years, HP has launched outsourcing services for managing large SAP deployments and has helped SAP launch its small-business software package, called Business One. In February, HP acquired Triaton, which provides SAP hosting services in Germany.