How Are the Market Leaders Navigating the World of Value-added Resellers?

What are SAP and Oracle doing?

SAP and Oracle, the undisputed market leaders (at least in the tier one space, since they are still a long way from the success of companies like Microsoft, Intuit, and Sage—the latter having 4.7 million customers in the lower tiers), have certainly been fine-tuning their small to medium business (SMB) go-to-market strategies. SAP recently adjusted its sales organization, and its new SMB sales structure now parallels the mid- and enterprise-level structure, with customers divided into four hierarchical groups based on annual revenue. Customers with revenue in excess of $500 million (USD) are at the top of the hierarchy (meaning that they are characterized as strategic accounts, which are targeted directly or with the help of the tier one consulting partners). Small businesses with up to $100 million (USD) in revenues are addressed entirely through channel partners, with the hybrid (both direct and indirect) approach being applied for the rest of the market (midsized enterprises).

Part Two of the series The Cha(lle)nging World of Value-added Resellers.

Although a third of SAP's revenue comes from medium-sized companies, it still needs to push its SMB offering in order to meet its recently proclaimed lofty goal of expanding to an over 100,000-strong customer base by 2010, thereby driving SMB sales revenues to up to 45 percent of total revenue. SAP has set its sights on more channel business, with a plan to increase its customer base fourfold through partners. So far, the giant has built up a network of over 500 channel partners to serve this market, and in May 2005 started to roll out the PartnerEdge partner support and development program mentioned in Part One of this series. This relatively new partner program is a business framework that makes it easier for SMB-oriented partners to do business with SAP. It rewards partners who are focused on SAP business applications by supporting them in selling, implementation, and development efforts.

Throughout 2005, SAP invested heavily in resources, processes, and systems to build a three-level program that includes new sales and marketing benefits, a collaboration system for partners, and a new partner education system to help train partner sales and technical resources—all in support of long-term customer satisfaction. This program will be deployed globally in phases throughout 2006 (branded as the year of execution), and over time its structure will be expanded beyond SMBs to the rest of the SAP partner community. Incidentally, SAP reported strong growth in 2005 for both the number of partners (a more than 30 percent increase) and customers (now over 9,000, a 73 percent increase).

The SMB market and accompanying partner ecosystem are also critical to Oracle, which has implemented Oracle Partner Network (OPN) SMB-oriented offerings (for instance, the QuickStart Plus program in Europe, the Middle East, and Africa [EMEA]; and OPN Access in North America). These entry-level offerings provide support for new Oracle value-added resellers (VARs) and independent software vendors (ISVs) who want to expand their SMB businesses. Through OPN Access and OPN QuickStart Plus, partners have the opportunity to deliver the enterprise level functionality of Oracle's database and application server products (Oracle Database 10g Standard Edition One and Oracle Application Server 10g Standard Edition One), optimized for their SMB customers. These partner members pay a minimal annual fee, and gain access to technology training roadmaps, sales and marketing kits, developer tool kits, and selected training events and workshops. One should note that OPN Access only gives them resources specific to the sale of Standard Edition One products. To put things into prospective, OPN is a global business network of 15,000 companies delivering enterprise software solutions based on Oracle software. Through access to Oracle's products, education, technical services, and marketing and sales support, the OPN program aims at providing partners with the resources necessary for success, whereas partners who are able to demonstrate superior product knowledge, technical expertise and a commitment to doing business with Oracle can qualify for the Oracle Certified Partner levels.

Oracle has a comprehensive menu of products and services for organizations of all sizes, needs, and requirements. For one thing, the vendor offers four database versions, which range from its free version, Oracle Database 10g Express Edition, all the way to its enterprise edition, Oracle Database 10g Enterprise Edition. Its business applications solutions also give customers quite a large choice in the market, and include the flagship Oracle E-Business Suite, and recently acquired JD Edwards, PeopleSoft, and Siebel product lines (although these products have arguably had varied success in the lower end of the market and in different regions and industries). For SMBs, Oracle offers a series of lower-priced database and middleware products, including Oracle Database 10g Standard Edition One, Oracle Application Server 10g Standard Edition One, Oracle Database 10g Standard Edition, and Oracle Application Server 10g Standard Edition. Oracle Application Server 10g Standard Edition and Standard Edition One are among the first application servers designed for grid computing, and provide the foundation for adapting existing applications to a service-oriented architecture (SOA), making software assets more flexible in a shifting marketplace.

Oracle's SMB-targeted applications include Oracle E-Business Suite Special Edition, Oracle's JD Edwards Enterprise One, and JD Edwards World. Oracle E-Business Suite Special Edition is an integrated suite of core business applications that streamlines key business processes, such as financials, purchasing, inventory management, order management, manufacturing, and sales force automation (SFA). Oracle E-Business Suite Special Edition was devised to meet the needs of the SMB market by providing a relatively flexible and scaleable solution for growing enterprises, and retains the power of the "whole enchilada" Oracle E-Business Suite, at an affordable cost.

As for penetrating some emerging markets, in March 2006, Oracle announced plans to footprint twenty-six key cities in China and nine smaller cities in India, and to recruit more partners to support the needs of mid-market organizations across key industries in China. To date, these 35 cities have been activated by the mid-market team, and in 16 of these cities, the teams have executed a tech mid-market road show addressing over 2,500 customers and prospects. These cities, with populations ranging from 2 million to 30 million, are among the fastest growing cities in China and India, enjoying gross domestic product (GDP) growths of 10 to 16 percent in 2004, well above respective national GDP growths in 2004.

According to a 2005 status report by China's State Development and Planning Commission on SMBs, China's SMBs hire 75 percent of the country's total workforce, and contribute over half of the national GDP. Mid-market organizations are also reportedly transforming themselves from a labor-intensive model to one of automation, using information technology (IT) to improve productivity and lower costs. In its nearly 16 years of history in China, Oracle has conducted more than 90 percent of its business through partners. Today, China is one of the fastest growing markets for Oracle. Globally, Oracle China climbed to sixth position for new license revenues in fiscal year 2005 (which ended on May 31, 2005), up from tenth, three years before. In the Asian Pacific (excluding Japan), China came first in terms of new license revenues for fiscal year 2005.

As another key part of the new tech mid-market initiative, Oracle plans to establish partnerships (in non-metropolitan cities) with renowned ISVs that have strong capabilities to expand geographic coverage and penetrate vertical industries. Oracle pledges to work with current key partners (such as Digital China, Ingram, and Sonata) in its tech mid-market initiative, including by identifying and recruiting local ISVs. Equipped with development tools from Oracle as well as technical know-how, appointed ISVs will build tailored SMB solutions on top of the Oracle technology platform.

JD Edwards' Rebirth via Channel?

In response to SMB customer demand for continuation of Oracle's JD Edwards Enterprise One software on IBM's platform, Oracle recently announced plans to provide continuous enhancements to the former JD Edwards product lines and to strengthen its partnership with IBM to position the SMB reseller channel for promoting these applications. Specifically, Oracle has increased investment with IBM for joint delivery of these solutions to the SMB market; the investment will support go-to-market activities for these products with Oracle and IBM sales teams and VARs. Additionally, Oracle pledges to also work with IBM to deliver targeted programs supporting VARs with hardware and services programs. Together, Oracle and IBM are responding to user customer and reseller needs by striving to provide a one-stop source for integrated SMB solutions—including application software, middleware, database and hardware, business and technology consulting, rapid implementation and support services, training, certification, and financing programs, all to the end of making it easy to get started. This includes IBM's DB2 database software and eServer offerings.

JD Edwards is a brand that midsized organizations already rely on and trust. Oracle's JD Edwards Enterprise One is a broad suite of modular, pre-integrated industry-specific business applications, designed for relatively rapid deployment and ease of administration; this is suitable for organizations that manufacture, construct, distribute, service, or manage products or physical assets (see JD Edwards Touts Leadership in Collaboration and Flexibility—There Seems to be Some Notable Functionality Too). On the other hand, Oracle's JD Edwards World, built for the IBM "all-in-one" System i business computing solution (formerly the iSeries and AS/400 platforms), offers small businesses a fairly reliable, Web-enabled environment for management of manufacturing plants, inventories, equipment, finances, and people as a synchronized, integrated whole. These modules are tightly integrated and pre-bundled on a single database, helping reduce implementation cost and complexity (see PeopleSoft Revamps World for Its Mid-market "Express" Conquest). The expanded programs resulting from this increased investment aim at making it even simpler, faster, and less expensive to access and deploy solutions based on JD Edwards applications and IBM technology, by providing pre-configured systems that help channel partners and customers speed the time to business benefit.

Small and medium companies typically prefer to work with local VARs specializing in their vertical industry or geographical region, which results in relationships that are strong and based on value augmented by the reseller's expertise. As an example, MSS Technologies Inc., a provider of business management solutions and consulting solutions in the western US, works with Oracle and IBM to provide its mid-market customers manufacturing and financial management IT solutions based on JD Edwards Enterprise One and IBM.

The increased investment is directed at re-establishing and augmenting programs previously in place between JD Edwards and IBM, as well as at delivering new go-to-market programs to facilitate demand generation by IBM resellers for JD Edwards applications. Built on an already strong twenty-five-year relationship between JD Edwards and IBM, which resulted in loyal customers and partners, the new programs funded by this effort are expected to broaden to the Oracle-JD-Edwards-IBM ecosystem. In an effort to grow the current JD Edwards installed base (which has certainly been somewhat disconcerted in the wake of Oracle's acquisitions and the preying tactics of many competitors of late) and target new customers, this investment is also intended to assist in developing regional and country-level go-to-market programs. It will begin rollout in North America in early 2006, with plans to later expand to Europe and Asia, creating a network of resources for SMB customers and solution providers across industries and regions. For more information on the disruptive effects of the Oracle acquisition on the JD Edwards install base, see While Oracle and PeopleSoft Are to Fuse, Competitors Ruse—Leaving Customers (Somewhat) Bemused.

An example of an expanded channel relationship is the JD Edwards distribution program, which will deliver jointly developed, pre-integrated hardware, software, and services offerings through regional solution providers. Additional elements will include joint cooperative marketing to drive application software leads to the channel, and a joint advertising campaign to position and promote channel partners and the combined JD Edwards and IBM solutions in local markets. The companies also plan to leverage IBM's Small and Medium Business Advantage program to provide sales incentives, marketing tools and resources, training, and demonstration capabilities to the SMB channel partners.

This news preceded Oracle's late-April announcement of plans to provide continued enhancements to its IBM-technology-based JD Edwards World and JD Edwards Enterprise One applications beyond 2013, as well as news of Applications Unlimited (Oracle's plan to provide continual development enhancements to current Oracle Applications). This is part of Oracle's strategy to provide more visibility into product roadmaps, and to help customers derive continual success from their application investments. These should be encouraging signals that Oracle plans to protect the investments of JD Edwards customers and allow them to upgrade, if they choose to, at their own pace. The JD Edwards software has been available on the IBM platform for almost 30 years, and with over 4,500 customers globally, there is still tremendous interest in this product combination, from both new and existing customers. To that end, also in April, Oracle announced a new version of JD Edwards Enterprise One, and is expected to release a major new version of JD Edwards World in 2007. These releases are planned to support the most current version of i5/OS (the flagship operating system for IBM System i), and the IBM DB2 data server.

The alliance with IBM comes on the heels of a similar alliance in late 2005, when Oracle and Avnet Technology Solutions announced the expansion of their partnership in a significant effort to broaden global distribution and accessibility of Oracle E-Business Suite Special Edition, JD Edwards Enterprise One, and JD Edwards World offerings for SMBs. Avnet Technology Solutions is an operating group of Avnet, Inc., a global technology sales and marketing organization with more than $4 billion (USD) in annual revenue, and with locations in more than 30 countries (the Avnet parent generates more than $13 billion [USD] in annual revenues through sales in 68 countries). Avnet, long a value-added distributor of Oracle technology, and a Certified Advantage Partner in the Oracle PartnerNetwork, is working with Oracle to build on industry and market expertise to create a new business unit that will begin to authorize an extensive network of solution providers to market, sell, implement, and support Oracle E-Business Suite Special Edition and JD Edwards applications.

The Avnet and Oracle business application initiative were initially rolled out in North America in late 2005, and will expand to Europe and Asia, creating a network of resources for SMB customers and solution providers across industries and regions. The launch includes the establishment of a dedicated Avnet team to market Oracle E-Business Suite Special Edition, and to work with channel partners to sell, implement, and support the software. This will include technical and sales training for Avnet solution providers, developing sales readiness, creating assisted selling models, and providing implementation services.

In addition, Avnet will focus on partner enablement and certification to help partners become fully authorized implementation partners for Oracle applications, including both the JD Edwards line and the Oracle E-Business Suite Special Edition. Avnet and Oracle plan to have a substantial base of fully functional VARs authorized to resell Oracle applications by July 2006, and expect to add to this base incrementally every year.

Forget Not About Microsoft

At the end of 2005, Microsoft announced general availability of five industry-specific solutions developed in close alliance with selected ISVs participating in the nascent Microsoft Industry Builder initiative mentioned in Part One of this series. Although Microsoft has traditionally been exclusively oriented towards resellers (with perhaps some strategic account exceptions), this initiative was developed in the hope of offering proof of the software powerhouse's commitment to working even more closely with a worldwide network of partners to deliver innovative business applications. Both parties hope to deliver a winning group of solutions for their mutual customers, by combining the truly deep industry expertise of qualified best-of-breed partners with Microsoft's modern business applications, support plans, and research and development capabilities.

These industry-specific solutions are a part of the first wave of Microsoft's Industry Builder initiative, which will offer solutions packaged with Microsoft's support offerings and first-class code review. In other words, each of the combined solutions will be treated as a Microsoft Business Solutions (MBS) product, with MBS being responsible for all service and support. To this end, Microsoft is pledging to conduct a stringent code review of all partner-built extensions (via a neutral software testing third party), in order to verify the technical alignment with its software stack. ISV partners, who should certainly benefit from developing their own intellectual property, also must agree to keep current with future additions to Microsoft's platform. The initiative was announced at Convergence 2005, the annual event for organizations which use Microsoft products and services. With the first ISVs having already signed on, support for the initiative has reportedly remained significant, from both business partners and customers. MBS claims to have listened closely to its customers, identified unmet needs, and delivered solutions that meet those needs.

The first five solutions have been designed for businesses that specialize in retail, distribution, process manufacturing, professional services, industrial equipment manufacturing, and field service management. They have been developed for Microsoft Dynamics AX (formerly MBS Axapta), either via the Axapta Morph/X native development environment, or via an interface based on Microsoft.NET. Additional solutions will be released over the next several months. The reasons for starting with Dynamics AX stem from the product's architectural prowess, and the ease with which it can be expanded while preserving all modifications for future migrations and product updates (see Microsoft Axapta: Design Factors Shape System Usage).

The product's strong multi-company and multinational capabilities, combined with solid traditional and horizontal core enterprise resource planning (ERP) functionality (for example, for manufacturing, distribution, project management, and accounting), also position it as the best-attuned Microsoft offering for the upper mid-market. The Industry Builder initiative is also recommended only for select ISVs who have the wherewithal to develop and maintain industry modules in accordance with Microsoft's quality standards, and to package them with a Microsoft support offering. Given the third-party certification cost of about $50,000 (USD), the program is seen as viable for partners that can afford a ballpark figure of at least $1 million (USD) in research and development (R&D) investment per year. True, the product is the youngest in the MBS ERP family, and consequently has the smallest install base of 4,800 installations (compared to over 100,000 for Microsoft Dynamics NAV, formerly Navision, or several tens of thousands for Microsoft Dynamics GP, formerly Great Plains), but the product's client base grew approximately 20 percent in 2005.

The first solutions, available in various countries, including Australia, Belgium, Canada, Denmark, France, Germany, Iceland, the Netherlands, Sweden, the UK, and the US, are the following:

  • supply chain execution (SCE) for Microsoft Dynamics AX, by Manhattan Associates Inc.
  • process industries for Microsoft Dynamics AX, by Fullscope
  • professional services for Microsoft Dynamics AX, by Foliodev LLC
  • industrial equipment manufacturing for Microsoft Dynamics AX, by To-Increase
  • field service automation for Microsoft Dynamics AX, by Iteration2

The Microsoft Dynamics AX product, which typically covers about 70 percent of the prospective customers' requirements out of the box, has been getting strong consideration both from Microsoft's R&D team and from many ISVs and service providers worldwide. As for the rest of the requirements, up to 20 percent (of the whole) are typically generic to specific vertical industries, with the rest being attributable to each user company's specific needs. Previously, Microsoft would use ISVs to fill the 20 percent industry-specific gap, and a VAR for the 10 percent implementation tweaks, which would then leave the customer with three contracts to manage (and with much finger-pointing in the case of anything going awry).

Microsoft also maintains that although the Industry Builder initiative is currently limited in scope, expansion is on the horizon. As it indicated early in 2005, at Convergence, the giant started with a focus on very specific industries and geographies. But the Industry Builder initiative is global in concept, and the plan is to extend the initiative to other Microsoft Dynamics products later this year. Furthermore, each of these solutions is available to qualified Microsoft partner community members. For instance, Unisys Corp., a global systems integrator focusing on enterprise security, Microsoft enterprise software, open source solutions and support, outsourcing, and real-time infrastructure, works closely with the Industry Builder initiative solution.

Since these solutions were launched, the first Industry Builder initiative customers have reportedly gone live with the solutions, including Gold Kist Inc. and Heritage Bag Co., which are both using Process Industries for Microsoft Dynamics AX developed by Fullscope. Furthermore, since the introduction of the initiative at Convergence 2005, it continues to show momentum, with new ISVs signing on. To that end, Microsoft recently announced a new industry-specific solution for retail, Retail Chain Manager, developed by To-Increase, the software division of Columbus IT Partner USA Inc. In addition, Microsoft-certified partner Blue Fox Enterprise NV has also signed onto the Industry Builder initiative, with an industry solution for textile and apparel (expected to be available with Microsoft Dynamics AX in the second half of 2006).

MBS proudly points to the significant progress of the Industry Builder initiative, with six industry solutions now live on the Microsoft Dynamics AX price list, more than forty-five partners enabled to sell and lead implementations of these solutions across twelve geographies, and several recent wins. Especially worth noting, as an example of the kind of momentum the vendor has been seeing, is the fact that Microsoft VARs have closed more than ten deals for the SCE for Microsoft Dynamics AX solution by Manhattan Associates.

At Convergence 2005, Microsoft also discussed its intent to make its partners industry solutions more visible to customers and partners. Thus, at Convergence 2006, the vendor announced 5,000 industry solutions available to the Microsoft and Microsoft Dynamics community through Microsoft Solution Finder, an online directory of solutions that should allow customers to more easily search for and connect with Microsoft Certified Partners worldwide based on their industry, location, or specific Microsoft product. Using Microsoft Solution Finder, customers and partners can search for solutions offered by more than 220,000 Microsoft partner organizations worldwide. Microsoft Solution Finder can be accessed by existing and prospective customers and partners in eight countries today, including the US, Canada, UK, Denmark, Norway, Germany, Switzerland, and Austria, and the plan is for a total of seventeen countries to have access to the tool by mid-2006.

Many partners have contributed to a growing directory of specific industry solutions, which includes more than 5,000 software applications—more than 2,000 of which are tightly integrated with Microsoft Dynamics business management applications, which include financial management, customer relationship management (CRM), and supply chain management (SCM) solutions, in addition to Microsoft Retail Management System. To ensure the consistency and quality of the Microsoft Dynamics solutions, Microsoft is validating each of these solutions with at least two local customer references. The number of solutions profiled and validated is expected to increase steadily as Microsoft partners continue to add their solution profiles through Microsoft Partner Solution Profiler. On the other hand, the growing number of profiled industry-specific solutions should also help Microsoft identify unfulfilled customer needs and partner opportunities. For example, Microsoft is reportedly using the Microsoft Solution Finder directory to identify solution areas and industries where there are opportunities for existing partners and where targeted partner recruitment is needed. In addition, the profiles are being leveraged to connect partners to other partners.

In the final part of this series, we'll look at other solutions in the ever-changing world of VARs.

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