SAP has rolled out an on-demand enterprise resource planning (ERP) service targeting mid-market enterprises.

Business By Design is offered as a complete solution for companies that have never used ERP software.

SAP hopes that the service will appeal to a new demographic of businesses that are too large for its entry-level Business One offering, but are not yet large enough to consider its Business All-In-One ERP suite.

The company estimates that this "sweet spot" of enterprises with 100-500 employees will open up a market worth roughly $15bn.

Joshua Greenbaum, principal analyst at Enterprise Applications Consulting, told vnunet.com that Business By Design could present formidable competition to competing services such as Salesforce.com.

"SAP has leapfrogged its competition in terms of ease-of-use and cost of operation," he said. "There is nothing like it on the market."

SAP has based Business By Design on its service oriented architecture system, which Greenbaum said will simplify the process of creating new applications and services at the user's end.

However, the analyst sees several potential pitfalls facing the offering. If Business By Design becomes popular with enterprises, it could eventually draw customers away from SAP's on-site offerings and cannibalise sales.

"There are very large customers that have divisions which can benefit from Business By Design. But, once that benefit shows up, there is going to be tension," said Greenbaum.

"One of the reasons this is being kept in the mid-market is to keep it separate, and ensure that it does not cannibalise SAP's flagship products."

The environment within the mid-market itself may prove to be SAP's greatest challenge. Greenbaum believes that the success of Business By Design could ultimately depend on how well SAP can acclimatise itself to the new demographic.

"Any effective campaign for the mid-market has to be based on a strong partner channel, and SAP does not have that channel," Greenbaum explained.

Just how well SAP can develop that channel could be what determines the success or failure of Business By Design, the analyst concluded.