SAP has run into a nasty little rollout problem with its new on-demand Business ByDesign widgetry, the stuff that’s critical to its future growth and competes with, oh, say, Salesforce.com, NetSuite and Microsoft.

Seems ByDesign isn’t properly automated and so SAP’s grand plan to get 10,000 small to mid-sized companies up and running on the stuff and generate $1 billion in revenue by 2010 has fallen by the wayside.

It’s going to take SAP another year to 18 months to hit those targets while it uses the time to figure out how to make it cheaper. “Otherwise,” SAP CEO Henning Kagerman said, “the cost base will be too high and the profit will not be good enough.”

He’s looking for margins at least as good as what he gets on its conventional business.

So as it stands ByDesign will be limited to six markets this year and is expected to see less than 1,000 customers.

The news came when SAP posted weaker-than-expected results for the March quarter, the same quarter that gave SAP’s great rival Oracle problems with selling applications, suggesting to observers that there may be a message there.

SAP complained of the US slowdown – customers are slower to cut checks and the deals are smaller – and the strength of the euro. US sales were down 1%, while European sales were up 22%.

The company’s Q1 earnings were down 22% to $377 million thanks to the cost of acquiring Business Objects and a $62 million investment in ByDesign on revenues up 14% to $3.8 billion, but still below Wall Street estimates.

It said it would cut back on its ByDesign investment.

Impacted by exchange rates software and software-related services were up 15%, less than expected.