I dialed into SAP’s SME (small and medium enterprises) Global Business Update Call last week, where Jeff Stiles, SVP, SME, Volume & Ecosystem Marketing, provided us with a recap of recent SAP SME highlights, and shared strategic directions for 2010. I’ve been following SAP in the SME market since it acquired TopManage (which later become Business One) in 2002, so I’m always interested in checking their progress. Here’s what I heard and what I took away from the discussion—with the most interesting stuff saved for the end.
- SME is critical to SAP’s future growth. As part of recent restructuring changes, the company named Peter Lorenz, Executive vice president of Small and Midsize Enterprises (SME), as a Corporate Officer, elevating SME attention at the corporate level. SAP also recently hired Kevin Gilroy—who spent 24 years at HP, most recently as senior VP of HP’s worldwide small and medium business segment—as vice president for channel and business development for SAP’s small and midsize business organization in North America. SAP is also making substantial product, channel and marketing investments in Business One (B1) and Business by Design (ByD)—both of which are geared to smaller companies—as well as Business All-In-One (BAIO), geared to the upper mid-market. With the large enterprise ERP and BI market pretty well tapped, SAP has to figure out the SME formula to fuel growth. As noted in the next bullet, however, SAP’s SME definition and solutions skew to the upper end of SME, so the question remains, how low will SAP really be able to go in the broader SME space?
- SAP is growing its SME market footprint. Jeff shared a number of impressive stats, such as the fact that more than 77% of SAP’s 95,000 customers are SMEs, and that this percentage is growing. This has to be taken with a grain of salt, however, as SAP defines the SME market as companies with $500 million in annual revenues or less, which gets into some pretty big businesses. For instance, the U.S. Small Business Administration (SBA), has established two widely used size standards—500 employees for most manufacturing and mining industries, and $7 million in average annual receipts for most non-manufacturing industries. Nevertheless, SAP has tripled its SME base (using its SME definition) in last 3 years (with about 30% coming from the Business Objects acquisition), and says it is garnering 35 new SME customers per working day.
- SAP is investing in channels to enable SME growth. The direct, feet-on-the street sales model that has served SAP so well in the large enterprise space doesn’t scale to the economies needed in SME. In addition to hiring Kevin Gilroy, SAP is recruiting and enabling more SME channel partners and developing and expanding direct inside sales to do the job. Channel partners now account for more than 50% of SAP’s SME revenues, and inside sales accounts for 20% of the business. SAP has struggled with building effective SME go-to-market channels for a long time. But, it looks like it is making some good gains here. It is investing in “virtual agency” marketing services to help its 6,000 partners create their own targeted campaigns, and in SAP Marketing University to teach partners about marketing. Meanwhile it’s inside sales team hit 106% of its revenue target. Inside sales will be increasingly critical for SAP in SME—especially as it readies ByD for its grand broad market re-launch later in 2010.
- B1 gets a facelift and BAIO gets a refresh. Release 8.8 of B1, slated for Q2 2010, features a new UI with Web 2.0 capabilities for a better user experience, and cloud integration with partner applications. Behind the scenes, SAP has consolidated three individual lines of B1 code into one—making the economics much more attractive. SAP has also created packaged integration scenarios for subsidiaries of big companies, making it easier for them to integrate with their corporate HQ SAP systems; remote monitoring; and embedded, packaged analytics. Meanwhile, BAIO gets a refresh, with SAP extending the Fast Start (fixed scope, fixed fee) program with partner hosting offerings in 20 countries—another indicator that more companies just don’t want to or can’t run all of this themselves. SAP also said that its online solution configurator is helping to reduce the cost of sales, and that it will introduce a new supply chain relationship management module into the BAIO offering.
- Business Objects has been a boon. With 57% year-year growth, Business Objects has seen good traction with both SAP ERP customers (it tripled BI revenues with SAP ERP customers in Q1 through Q4 of this year) and non-SAP customers. SAP also intends to use Business Objects as a wedge opportunity, to get in the door and eventually replace older legacy systems with SAP ERP. The company recently announced a free personal use version of BI On Demand, which should boost more interest among the vast majority of SMBs that don’t yet use any BI solution.
And now to what I found most interesting–Business by Design, Chapter 2. What a long strange trip this has been. After launching ByD to much fanfare in 2007, things quickly fizzled. Going against conventional wisdom (and economics) SAP built its debut SaaS offering on a single instead of multi-tenant architecture. We all know what that means—lots of red ink because single tenancy doesn’t afford the economies of scale and skill that multi-tenancy provides. Anyway, since then SAP has limited ByD to about 100 charter clients, who are getting a lot of TLC. Release FP 2.5, slated for H2 2010 will sport multi-tenancy, making it economically feasible to sell, provision, maintain and support in a broader market. SAP will continue to offer a single tenancy option alongside the multi-tenant offering (both on the same code base).
Since this is ByD’s first multi-tenant varietal, SAP isn’t quite sure what the sweet spot will be but will stick with a 25-user minimum. This still seems a bit high for getting at the meat of the SMB market. By SAP’s own calculations, about 10% of users in a company use ERP, which puts it at 250 employees and up (whereas the vast majority of SMBs are much smaller). Another challenge SAP has is around routes to market for ByD. Few SaaS vendors have established successful channel programs with traditional IT VARs, many of whom have been skittish about the model. As I mentioned above, SAP will need to fire up the inside sales model for ByD, and create a lot of pull with marketing campaigns (enter the 100 ByD reference customers).
Another interesting note: SAP is incorporating Microsoft Silverlight to make it easier to make changes to the ByD UI, create mashups and integrate with Office. The vendor will also release an SDK for developers based on Microsoft Visual Studio.NET, hoping that all those Microsoft developers will be enticed to build add-ons and industry-specific extensions. And yes, there will be a store for that—SAP intends to build an app store down the road.
I don’t know if I’m reading too much into the tea leaves, but I’m a bit intrigued by SAP’s growing relationship with Microsoft for ByD. Microsoft Dynamics has yet to offer a true SaaS ERP solution, it just makes me wonder if there’s something up with that. Microsoft recently forfeited it’s small business accounting play to Intuit, and soon after, inked a deal with Intuit to integrate Intuit’s cloud-based Partner Platform with Microsoft Windows Azure—which looks to be a mutually beneficial relationship. Could SAP and Microsoft be hatching some type of joint effort in this space, aimed at the mid-market?
As ByD comes fully online again, SAP will probably spend more time than it would like to positioning it versus both B1 and BAIO. Though the on-site vs. cloud angle is clear, there is lots of market overlap. SAP will need to proactively guide both customers and partners to the right solution in terms of total cost, ease of use, functionality, ROI timeframes, etc. so it doesn’t waste time and energy competing against itself—or having its partners compete against themselves or its inside sales team.
It will also be interesting to see if ByD can replicate the experience of it’s 100 charter customers to a broader base, as it will be difficult to supply the same level of TLC that these early customers enjoyed. But clearly, SAP has to make ByD work to capture the market’s increasing appetite for SaaS and cloud alternatives—yes, even in the ERP space, as evidenced by NetSuite and Intacct.