SAP Claims Big Gains In The Low-End Battleground
Business applications leader, SAP AG (NYSE ADR: SAP), traditionally
regarded too unwieldy and costly for small or midsize enterprises, has
been touting stellar increases in sales and acceptance of its Internet-based
flagship product mySAP.com by smaller companies. On November 15,
SAP America, Inc., a subsidiary of SAP, announced during an analyst briefing
that sales of mySAP.com solutions to small and medium-sized businesses
(mySAP SMB) have doubled in North America this year, reflecting
a nearly 40% increase in the SAP SMB customer base year-over-year.
claims that small and medium-sized businesses have been choosing mySAP.com
for scalable, rapidly implemented, cost-effective e-business solutions
delivered through SAP Certified Business Solutions
(CBS) providers, a network of 11 SMB channel partners dedicated to providing
SAP solutions across North America. In partnership with its CBS providers,
SAP supplies the end-to-end integration, unlimited scalability and most
pertinent business processes that small and medium-sized businesses require.
The company says that mySAP SMB solutions are supported by market-specific
expertise garnered from vertical solutions in more than 20 industries,
and from relationships with more than 13,000 SAP customers around the
first introduced Accelerated Solutions to the SMB marketplace in May of
1997," said Allen Brault, vice president of SMB Solutions for SAP America,
Inc. "The continued evolution and experience we have gained over the last
two-and-a-half years is illustrated in our SMB successes, which have uniquely
positioned SAP to leverage new business models and channels of distribution
previously not feasible."
SMB vertical solutions are developed by CBS providers and experienced
consulting partners, based on previous successful implementations. SAP
also claims that these solutions are now economically priced, low-risk
and quickly installed, and that they feature industry-specific functionality
and best practices for the SMB marketplace. SMB vertical solutions are
also available in a hosted environment. The SMB vertical solutions program
was launched at its user conference, SAPPHIRE, in June 2000, with a solution
for Internet service providers (ISPs) and application service providers
(ASPs) developed by CBS provider Plaut Sigma Solutions
and an oil and gas exploration and production solution for the Canadian
marketplace developed by FinTech Solutions Ltd. By
the end of 2000 the roster of market-ready solutions supporting the expansion
of the SMB vertical solutions program will include Automotive, Projects,
Biotechnology, Advertising Agencies, Wholesale/Retail, and Consulting,
with nearly 20 more in planning and development.
is also expanding the portfolio of SMB channel partners to include ASPs
that meet the needs of smaller-sized SMB customers for entry-level yet
scalable e-business solutions. As an example, FiNetrics is a SAP
ASP partner specifically focusing on the SMB market that provides per-user
application rental to small businesses, for which the cost of entry for
e-business applications is a simple Web browser. However, as SMB customers'
requirements expand with their growing business, the FiNetrics solution
scales with them, allowing easy migration to other mySAP.com solutions
without costly and time-consuming future migrations.
"Still water runs deep", an old adage says. SAP, while admittedly slow
and inflexible in the past, may have also impressed many by its persistence
and its ability to learn from its mistakes. It seems to have finally realized
that the enterprise applications universe does not necessarily revolve
around the 'planet SAP'. Its recent successes are, therefore, mainly attributable
to the entire company shifting to a market driven (instead of product
driven) culture. The company, which particularly belatedly recognized
its US image problem of being a stodgy behemoth, eventually resorted to
an internal restructuring and an external image renovation through much
more aggressive, US-focused marketing. Consequently, it may appear that
its US subsidiary has recently been less rigidly controlled by its German
parent. The company also seems to be more focused on partnerships and
working with other vendors as well as on nurturing its partners' channel.
SAP has also simplified and clarified the pricing scheme and the migration
path for its e-business products, which should also play a significant
role in customers acceptance of mySAP.com. These moves lead us to believe
that mySAP.com will be well accepted among companies of all sizes.
is by no means SAP's first attempt to penetrate the still untapped lower-end
of the market. Neither has SAP been the only Tier 1 vendor that has ever
attempted it. Over the last three years the market has seen a plethora
of fixed-scope and fixed-price applications, pre-packaged vertical solutions,
attractive support programs and hosting services with catchy names (FastForward,
Select, Genesis, etc.), all aimed at making it faster, simpler
and cheaper for enterprises under $500 million to use them. However, all
of these typically also involved some form of trade-off in the name of
expediency. The features traded might have been functionality, customizability,
platform options, solution scalability or extensibility.
small and mid-sized enterprises, like their bigger brethren, generally
operate in a dynamic, competitive environment and have global, multi-site
operations that are either wholly owned or that function in a supply chain
relationship. Consequently, all these companies need some level of support
for advanced functionality, scalability, supply chain management, customer
relationship management, e-commerce, and distributed computing environments.
And they have to accomplish these deeds with less (or completely without)
IT staff and a much more limited budget compared to their bigger counterparts.
For these reasons, the first generation of Tier 1 vendors' offerings for
smaller enterprises has had only a limited success.
example, SAP long ago introduced its AcceleratedSAP program, also
referred to as "ASAP," to facilitate mid-market implementations.
Reports have confirmed that ASAP enables companies of all sizes to implement
SAP R/3 faster and more cost effectively. Case studies have
talked about implementation times ranging from 4 to 11 months and projects
that stay within schedule and cost objectives. However, these studies
often failed to indicate how many modules or even which modules have been
implemented in that time frame and for what cost.
SAP has begun development of a series of pre-configured R/3 templates
for use within specific industries. By using pre-configured applications
known as SAP Accelerated Solutions, SAP has offered
small to medium sized organizations inter-enterprise solutions. The first
deliverable under this initiative was SAP Accelerated Financials. The
Accelerated Solutions also enabled SAP and its channel to offer a fixed
price and fixed time implementation program. Again, this has often not
necessarily been ERP, but rather a small part of ERP. By the time the
customer puts together modules to build a full ERP system for a mid-market
company, and then adds up the implementation time and cost, all the touted
benefits have been annulled. We do not intend to berate either SAP's or
other vendors' notable endeavors at simplification, but only to point
out that what had initially seemed like a bargain often may not have been
the one in the long run.
New Market Strategy
SAP seems to have learned a few lessons and have grasped the key factors
for greater success in the coveted low-end market segment. While the figures
presented at the briefing (39% of SAP customer base worldwide are companies
with less than $200 million in revenues, whereas 58.3% are companies with
less than $500 million; 125 new North American SMB customers in 2000,
etc.) speak in that regard, we are more impressed with SAP's new approach
to further penetrate this fertile ground. Its SMB market strategy is based
on a methodology that consists of the following three steps:
an opportunity and focus on it
a solution that best fits that opportunity
As for the
first step, SAP has estimated enormous opportunities in the market segment
consisting of companies with less than $500 million in revenues. The company
has estimated over seven million companies - potential customers - with
less than $50 million in revenue, over 22,000 companies with revenues
between $50 and $200 million, and over 4,500 companies with revenues between
$200 and $500 million. The opportunities have, therefore, been identified!
In the second
step, SAP plans to tackle these sub-segments in a somewhat different manner.
While the higher-end of the segment will be served with pre-packaged ('accelerated')
vertical solutions that are channel ready and repeatable, but also customizable,
the lower-end of the segment will be offered standard 'off-the-shelf'
pre-packaged solutions. These are going to be pre-customized and adapted
for e-business, and will be sold under the concept 'The right solution,
for the right market, and the right price'. While many may see this as
another instance of dj vu, the main difference is the sharpness of vertical
focus that SAP intends to deliver in these solutions for the smallest
customers. Granularity of vertical focus will go down to the level of
US-SIC (Statistical Industry Classes) codes within the following Industry
Manufacturing (7 solutions in qualification stage, 9 solutions in planning
Manufacturing (5 solutions in qualification stage, 4 solutions in planning
Products (2 solutions in qualification stage, 2 solutions in planning
(10 solutions in qualification stage, 9 solutions in planning stage)
Sector (2 solutions in qualification stage, 1 solution in planning stage)
Services (1 solution in qualification stage, 1 solution in planning
of vertical focus possibly represents a thought leadership that other
vendors may find hard to emulate. As an illustration, the service industrial
sector will feature vertical solutions for ASPs/ISPs, consulting firms,
ad agencies, legal firms, and recruiting agencies, to name but a few.
Although SAP plans to deliver over 50 vertical solutions in total, the
fact that only two are ready now, with seven more being ready by the end
of 2000 and only 18 more throughout 2001, may indicate the meticulous
approach of SAP and its partner network in developing these.
us to the third principle of SAP SMB methodology: SAP has also been relying
heavily on Certified Business Solution (CBS) partners for successful market
penetration. The CBS program is comprised of 11 partners dedicated to
developing, selling and supporting SAP products to small and midsize businesses
in North America. The word "partnership" does not seem to be used loosely
in this case - SAP has been showing a congenial approach and true commitment
to the success of its channel. SAP recognizes these partnerships as being
essential and is proud to claim that SMB channel revenues grew more than
100% while their customer base grew 74% in 2000 compared to a year ago.
CBS's, on their hand, praise SAP for providing them with all necessary
development help and 'jump-starts' in the shape of its already developed
generic Accelerated Industry Solutions, which SMBs further tailor to the
above described finely polished SIC solutions.
is the rigorousness of the vertical solutions qualification procedure
that SAP has imposed upon its partners; a CBS partner is supposed to provide
a sound business plan and marketing strategy, solution packaging strategy,
customers willing to be pilot sites, and meet a number of stringent requirements.
This level of commitment in developing the indirect channel may have only
been achieved in the past by a handful of mid-market vendors, MAPICS
and Great Plains being two of the most prominent.
Factors and Vulnerabilities
As well known and much publicized, the major factors of success in business
applications for the small and mid market segment are price, speed of
implementation, vertical focus, product scalability and scope expandability,
and a single point of contact. SAP seems to have captured most of them,
partly owing to finally breaking its product in more manageable components
(which provides for faster phased implementations and system agility)
and Internet-enabling it (which provides for easier deployability and
user interface intuitiveness). SAP's solutions within ERP, e-procurement,
supply chain management (SCM) and digital marketplace functionality provide
a wide scope of features. Few, if any, vendors can provide tightly integrated
applications of this magnitude under one umbrella. Furthermore, SAP has
possibly the strongest product technology in terms of support for almost
all industry relevant platforms and/or middleware standards. These facts,
bundled with SAP's corporate viability and mind share, have encouraged
even some pre-IPO startup companies (both dot-com's and brick-and-mortar's)
as well as some existing companies currently using PC-based applications
to opt for the SAP offering, which has not been quite conceivable until
one should not expect SAP's SMB initiative to go without challenges and
competition. Despite its notable effort in developing its pre-configured
Accelerated Industry Solutions, SAP has been doggedly trailed by a bad
reputation for protracted and costly implementations, as well as for a
complex, rigid product that often imposes radical changes on the customer's
business practices. This perception of complexity remains ammunition that
the smaller vendors will continue to exploit in order to hinder SAP's
attempt to penetrate their traditional stronghold.
SAP has more horizontal functionality than most of its competitors, it
is so spread over a range of industries that it is susceptible to focused
attacks from more experienced competitors within a certain industry. Further,
the incorporation of products from other vendors such as Clarify and Commerce
One has added another level of complexity to this mix. One should also
expect a possible internal competition within the CBS resellers' channel;
despite SAP's genuine interest in ensuring the well being of all members
of the channel, there will always be some overlap in both geographic and
vertical industry coverage between two or more partners.
should also carefully reevaluate its mySAP.com product migration strategy
for current R/3 customers, in order not to alienate and disillusion its
loyal customer base and possibly repel potential ones. It should also
more clearly articulate product upgrade requirements; With many components
to choose from it is sometimes difficult to understand what R/3 versions
are required to run the new applications and whether any components are
excluded from mySAP.com product upgrade agreements (thereby requiring
additional license.) However, the new mySAP.com pricing flexibility, as
well as the license fee credit policies may go a long way to easing upgrade
SAP seems to have raised the bar in providing solutions for smaller enterprises,
and Tier 2 and Tier 3 vendors might be in for a tough battle to defend
their turf, especially as they are concurrently trying to expand and modernize
their products with ever diminishing resources. SAP has proven itself
a tenacious and persistent fighter able to endure the long hauls.
Interested customers in particular industries should certainly consider
SAP's SMB offering and carefully determine their needs and implementation
time framework, bearing in mind problems typical with new product releases.
Organizations seeking a Web-based solution and out-of-box functionality
with little or no customization may benefit from evaluating the ASP offering.
Support, connectivity, ease of use, security, acceptance, and scalability
are only a few considerations. Current users of its traditional client/server
product may benefit from informing themselves of the ramifications of
switching to the ASP mode.
strongly recommend identifying your clear e-business strategy and conducting
thorough comparison-shopping, at least for the sake of information leverage.
Consider all options. Most importantly identify what needs are "must have"
requirements and a timeline for additional components. Once identified,
comparison-shop and use the related information to negotiate the best
price for the solution.
vendors offer their own version of SMB solutions with programs for rapid,
lower-cost implementations. While vendors' endeavors in that regard are
highly commendable, the "caveat emptor" approach is still applicable.
Although some smaller companies would be well off with scaled-down versions
of rapidly implemented, Tier 1 software applications, for many companies
this may not necessarily be the best solution.
mid-market companies today's dynamic business environment means the survival
of the most agile and flexible. When evaluating a software application,
companies often fall for a snazzy user interface or raw number-crunching
power. However, a flexible system should also offer features like tools
and templates, cross-reference checks, and many other parameterization
utilities that provide significant system changes without changing source
code. Make sure that what you select now will keep abreast of the technology
changes in the future. It may sometimes be more beneficial to implement
the right solution slowly than to rush the wrong one into place.
SAP SMB is the final choice, future clients should consider the following:
the license fee per component if the entire mySAP.com breadth is not
needed (after a thorough consideration).
for future incorporation of mySAP.com components by bundling them into
your contract now at negotiated license fees.
away from consulting partners who don't follow SAP's stringent implementation
methodology; the best scenario would be to use a partner belonging to
SAP's CBS initiative.
preliminary research on the industry expertise and reference accounts
of a regional CBS affiliate service partner. Also, familiarize yourselves
with the solution's strengths and weaknesses within certain vertical