SAP offered an update on its Business ByDesign product to mid-market customers attending a London event late last week. The company now promises to solve the scalability issues that have come to light in recent months by next year, but other potential difficulties with the software have arisen.

SAP describes Business ByDesign as a complete on-demand enterprise resource planning (ERP) suite for the mid-market that includes software for financials, human resources, supply chain management, business analytics and compliance management.

The company announced the launch in 2007, and has been praised for the broad array of functionality and strong feature set that Business ByDesign will offer to small and mid-size companies.

However, since launching the software, SAP has been trying to solve the scalability issues inherent in running the solution through a virtual blade environment.

IDC analyst David Bradshaw summed up why SAP has had difficulties with its software-as-a-service (SaaS) architecture.

"My view is they made a mistake when building it. They did not build it like other SaaS multi-tenant systems that allow lot of users to share the same system," he said.

"All SAP customers are run on their own server blade," he added, explaining that it will be burdensome when SAP wants to do updates on the software as it will have to update every server individually.

"They are not publically disclosing how they will overcome this because they don't want to give away too much to their competitors," continued Bradshaw. " But if they do decide to rewrite the architecture of Business ByDesign, it is likely to be a long process. For example, when Microsoft rejigged its CRM on-demand software it took them two years."

Rainer Zinow, innovation vice president at SAP Business ByDesign, has acknowledged such problems, admitting recently that, although SAP has said that the solution is generally available, it actually has to limit uptake because the cost of operating the system is so high.

Zinow said at last week's event that he expects to have significantly reduced the product's total cost of ownership by 2010, and for it to be profitable.

"We are working with a set of 50 key performance indicators in order to do this, such as the cost per call per customer," he said. "SAP has managed to halve the cost of running Business ByDesign since its availability."

However, other issues were brought to light during a demonstration to customers and press that could cause difficulties in running the software.

These include an automatic lock that would restrict developers from using the system if the network fails. A developer would not be able to regain access for a significant time afterwards, although it is not clear how long.

Jon Collins, managing director at analyst firm Freeform Dynamics, pointed out that the lock will make Business ByDesign difficult to run on mobiles or unreliable networks.

This could cause difficulties for SAP, following reports in May quoting a senior SAP executive as saying that a mobile version of Business ByDesign would be available in the not too distant future.

Meanwhile, other analysts at the event from Forrester and IDC were slightly concerned that the application's performance appeared slow. Business ByDesign needs a "faster turnaround time", said IDC's Bradshaw.

While SAP will need to consider application performance and the network lock as issues that will affect Business ByDesign customers, the firm had other ideas on why customers are holding back from launching the software.

"There are two topics customers are generally nervous about," said Zinow. " Firstly how many consultants are needed to implement the system, and secondly whether the end users are smart enough to be able to work it."

To calm such anxieties, Zinow explained that Business ByDesign has no consultancy needs.

"We have built a tool that takes away all the technical aspects of customisation and holds built-in artificial intelligence," he said. "And it's easy for end users to get to grips with the system because we will offer a learning management system that gives users a learning map per work centre."

Strangely, even though SAP is having a difficult ride with Business ByDesign and has only a short time to clear up scalability issues given that competitors such as NetSuite and Salesforce.com are already in the SaaS ERP arena, SAP announced last year that it would cut investment in the technology by around €100m, and that it has "no further accelerated" investment planned for 2009.