SAP knows big business. SAP knows small business. SAP now knows medium-sized business really well. At least, that’s what SAP hopes.

On Wednesday, SAP unveiled SAP Business ByDesign, a full suite of business applications delivered through the Software as a Service (SaaS) model. Unlike many big-iron vendors that dip their toes in the SaaS waters, SAP actually built this product from the ground up as a SaaS application, which should make SaaS evangelists happy.

If you look at this press information page, you’ll see that SAP is positioning this technology as the lower midmarket product in its SMB ERP product portfolio. It has SAP All-in-One, a vertical-specific suite of on-premise ERP software aimed at larger midmarket firms, with 100 to 2,500 employees. Then there is SAP Business One, a truly small business solution for companies with fewer than 100 employees. Now there is SAP Business ByDesign, aimed at companies with 100 to 500 employees.

As James Governor of Red Monk noted in an excellent blog review of Business ByDesign, SAP is one of those huge enterprise software vendors famous for complexity that is just plain poison for small and medium-sized companies. However, SAP likes to tell us that 65% of its customers are SMBs.

Last year SAP started airing television commercials during NFL football games. Clearly, these ads were aimed at rebranding SAP as a company that could serve SMBs. Every single enterprise software vendor you talk to says it’s going after the SMB market because it represents the best opportunity for rapid growth. With a three-headed monster of a product portfolio, SAP clearly means business. SMB business, that is.

Business ByDesign will feature on-demand software that will help medium-sized firms manage their finances, business analytics, human resources, projects, supply chains, customer and supplier relationships, and compliance.

Governor said SAP hasn’t hit a home run with Business ByDesign, but he thinks it’s offering a tool that may serve the medium-sized market well.

“I am pretty positive about BBD’s chances in the market, and it looks [like] a powerful set of apps for $149 per month per user. I do, however, feel SAP could have really smacked the ball out of the park had it driven harder on Web 2.0 front-end interaction. Time for SAP to get JavaScript religion.”

Dennis Byron, who says he’s a fan of the product, wrote on SeekingAlpha.com that SAP’s new product has a ways to go.

“Sorry, SAP, I am a great admirer but Business ByDesign (codenamed A1S) has a few problems. The name is too long, the beta set of users is too small, the price is too high, the reference implementations and demos are too much old SAP, and the channel strategy is too 20th century.”

I believe this is SAP’s first foray into SaaS. Companies like Salesforce.com and NetSuite have earned some well-deserved hype for their customer wins in the SaaS-delivered SMB ERP market. Now SAP is going to try to take them head on.

SAP is planning to sell this product through its channel partners, which is how most big vendors reach the SMB market. But will channel partners embrace this as an opportunity? New research from IDC suggests maybe not.