Service on demand is a light service application and has yet to prove that it has the deep benefits of an on-premise service application. The on-demand service application is suitable for rapidly-growing SMB companies if they have plans to migrate to on-premise CRM, when their service functionality becomes more complex. SAP on demand runs on a single-tenancy model, compared to the multi-tenancy model offered by its competitors. Therefore SAP on demand would be more attractive if the customer is given a choice of both single and multi-tenancy models. SAP on demand would also be more successful if an on-demand ERP solution is provided.
SAP has the resources and bandwidth to compete against already established players in the on-demand market. In my opinion SAP is not going anywhere and they will eventually gain share in the SaaS market.
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