The launch by SAP last week of a new pay as you go CRM service has received a luke-warm and skeptical response from market analysts who described the launch as premature and the product as inadequate.

Last week, SAP launched its CRM on-demand service, in an event that took place simultaneously in New York and San Francisco.

According to UK-based technology research group, Ovum, the capabilities at launch of SAP CRM On-Demand are very limited, with only salesforce automation, which itself has only few capabilities, such as account and contact management. SAP says it will have a rolling programme or quarterly releases, and the first release, due 'soon', will round out the basic sales offering. Later releases will add service and marketing capabilities. SAP said it was considering launching 'back office' capabilities as well, but gave no timescale.

Principal analyst at Ovum, David Bradshaw, says: "Frankly, 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 that time. Why this particular timing? Because SAP wants to grab attention while Siebel and Oracle are turned inwards, sorting out how to combine their CRM businesses. Another target has to be salesforce.com, and SAP attempted to use the service outages recently suffered by salesforce.com to justify its 'isolated tenancy' model."

Greg Gianforte CEO of on-demand CRM service provider RightNow Technologies believes that the new CRM service offering from SAP is contrary to its business culture. "The on-demand approach is a pay-as-you-go model and companies like SAP are used to seeing their revenue upfront. A very hard financial switch to make and still satisfy Wall Street while cannibalising their core business; we already saw what happened to Siebel when they tried, says Gianforte. "Neither SAP, nor Siebel/Oracle has been characterised as an organisation that has built a culture of customer success. In an on demand model, if you don't make customers happy, they will switch. You have to continually win their business based on the value you are delivering. This is the hardest change."

Despite the criticism, however, few analysts are prepared to write off SAP's chances to make an impact in the on-demand CRM space.

"Messy and disappointing as this (launch) is, we ultimately believe that SAP is absolutely right to enter the on-demand market," says Ovum's Bradshaw. "We've long been saying publicly and privately to SAP that it has to do this. Offering a wider choice for ownership and payment models is the right way to go for the entire software industry. One thing that SAP has to get its head around, though, is that this will be a two-way street - some customers who currently use on-premise applications will want to move to hosted solutions to reduce costs and overheads, and conventional outsourcing is both too costly for them and too big a loss of control.

"We've seen SAP stumble on the first outing of some of its other products before, only to eventually get it right some years later, and ultimately take a serious share of the market. We think that is what is likely to happen here, but the timescale will be several years."