Summary of Tier 1 Vendor Approach
This
note concerns the launch of SAP Business One by SAP
AG (NYSE:SAP), the pairing of SAP and the Tax and Business
Services (TBS) unit of American Express, and the delivery
of 13 new mid-market solutions designed specifically for companies with $50
to $500 million in annual revenues by PeopleSoft Inc. (NASDAQ:
PSFT). For details of these announcements see Part
One.
The
fact that the mid-market and the SMB segment are the next frontiers and a promised
land for all the enterprise vendors, small and large alike, has long not been
news. Still, the willingness of smaller IT departments to go for more sophisticated
technology beyond the all-too-common dispersed islands of information on Excel
spreadsheets, Access-based reports and queries, or even managers'
pocket paper-pads and post-it notes, does not guarantee any vendor an easy ride.
That has been proven by a number of trials-and-errors, and consequent strategy
reiterations that the larger enterprise vendors have espoused during last several
years.
As
well known and much publicized, the major factors of success in business applications
for the mid market segment have traditionally been price, speed of implementation,
vertical focus, product scalability and scope expandability, and a single point
of contact. Therefore, all the Tier 1 vendors discussed in Part
Two seem to have captured (or at least tackled) most of these, 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).
Their solutions within ERP, CRM, SCM, portals. Product lifecycle management
(PLM), and supplier relationship management (SRM) functionality provide a wide
scope of features, and very few smaller vendors can provide tightly integrated
applications of this magnitude under one umbrella.
Furthermore, these vendors have the strongest product technology in terms of scalability, and support for almost all industry relevant platforms and/or middleware standards, with Web service standards like eXtensible Markup Language (XML), Simple Object Access Protocol (SOAP) and Universal Description, Discovery, and Integration (UDDI) being already embedded within their latest product releases. These facts, bundled with their corporate viability and mind share, have encouraged many small companies to opt for their offering, which has not been quite conceivable until very recently.
This
is Part Three of a four-part note.
Part
One detailed events.
Part
Two began the discussion of the Market Impact.
Part
Four will discuss Challenges and make User Recommendations.
Competition at the lower-end of the market
However, at the lower end of the market, PeopleSoft and J.D. Edwards do not really compete yet, while SAP and Oracle offer a separate application suite in the form of SAP's Business One and the Oracle Small Business Suite, which uses the technology from NetLedger Inc., a company that is majority-owned by Oracle's chairman and CEO Larry Ellison. Tackling this market segment has proven to be a much tougher nut to crack, for several reasons.
The
main reason would be that this is the home ground of the likes of Intuit,
Microsoft Business Solutions (see Microsoft
Lays Enforced-Concrete Foundation For Its Business Solutions), the
Sage Group (whose US subsidiary is called Best Software,
see Best
Software To Hold Competition At Bay), and ACCPAC (see ACCPAC
-- Being
Much More Than Meets The Eye), as well as a number of highly specialized
smaller companies catering to specific industries for accounting systems, while
also building simple homegrown systems to handle functions like CRM or SFA.
These vendors understand this market and have thus gained market and mind share and loyal customers. Their knowledge of their customers' business is reflected in product interfaces, easy-to-use functionality, attractive price points, and in making application programming interfaces (APIs) available to external developers to help integrate their primarily accounting-based products with vertical market extensions provided by their partners. They offer "no-frills" online or retail sold business-application packages that attract small businesses early on; then these vendors provide more advanced functions and more scalable software as the small businesses grow.
Recently,
for example, Microsoft has released Microsoft Business Network,
a web-based communications network that allows transactions to be exchanged
between trading partners via XML or EDI, tied directly into ERP applications
of Microsoft Office applications. These vendors also can distribute
risk by initiating partner programs for developers, such as furnishing marketing
and technology resources to small developers as a way of extending the reach
into the SMB sector. The vendor does not get involved in direct support of its
partners' customers, but it does give these technology suppliers a competitive
edge in being able to hook straight into their existing renowned back-end applications
at small enterprises.
Oracle and SAP
More than their larger counterparts, SMEs are looking for relatively simple and inexpensive software that is easy to install yet it is also easy to customize and extend. Consequently, there is a plethora of micro-verticals around, from a chiropractor's office to a B2B mortgage banking solution. These clients essentially want the same things that larger enterprises want, but their peculiar requirements are quite diverse. One size does not fit all, at all. Thus, trying to sell dumbed-down versions of mySAP Business Suite or Oracle E-Business Suite, without a serious re-engineering of these products, has not worked so far in the lower-end of the market. To date, Oracle and SAP have responded by acquiring more suitable genuine products for the segment, while it is not unlikely to see PeopleSoft and J.D. Edwards follow suit in the future.
The
Oracle Small Business Suite, stemming from a couple of years old partnership
based on NetLedger, possesses some strengths, and its modest perpetual license
or monthly fee provides enough functional breadth and depth to suit many SMBs.
The product comes as a complete suite or as two components covering either back-
or front-office functionality; it aims to provide easy-to-use application services
for such processes as financial management and accounting (with multiple currencies
and consolidation of multiple companies, subsidiaries, and inventory locations),
CRM, inventory management, purchasing and e-commerce (with direct deposit, electronic
fund transfer (EFT), and multiple ship-to addresses). NetLedger has developed
a notable base of close to 6,000 customers and 100 partners (e.g., Sprint
and Yahoo), although almost exclusively in the North America.
The suite also offers a hybrid service delivery capability to enable small businesses
to own, manage and maintain system hardware while Oracle provides the software
and support remotely via the Web.
While
having resorted to an acquisition, which has even not been a common SAP practice
in the past, may mean the admission of failure to successfully capture the global
SMB market so far, SAP and Oracle might have thereby killed two birds with one
shot. First, an acquisition (or a sort of a close partnership in Oracle's case)
typically shortens the time-to-market, as proven by a number of achievements
in a short time bracket, and second, these vendors will have tackled the small
business market with a product designed specifically for that market, instead
of repeating their previous attempts of fitting a square peg into a round hole,
with functionally-depleted versions of mySAP Business Suite (i.e., formerly
R/3) or Oracle E-Business suite or their pre-configured templates.
Furthermore, SAP Business One and NetLedger provide simple products that can
be more easily sold and supported by SAP's and Oracle's channel partners. These
channel partners will also benefit from touting SAP's and oracle's leadership
position, brand recognition, and viability.
On
its hand, SAP Business One software features natively the SAP Enterprise
Portal's Drag & Relate capabilities obtained in its acquisition of
TopTier in 2001 (see SAP
Acquires TopTier To Further Broaden Its Horizons), which was another vendor
with Israeli roots. A user is for example able to add a data field to an invoice,
and then drag and drop the newly created data field into another part o the
system, which should be able to produce new report based on the data field in
case. At the time of its acquisition in 2002, TopManage had nearly 800 customers
in Europe, and it offered financials, distribution, and CRM functionality and
supported English, Spanish, and Hebrew versions. Today, it already has 1,300
customers and 150 partners in Europe, Middle East, and the Americas; it is also
now available in 14 languages and 12 countries, with the idea to be available
in 22 countries by end of 2003. It also features embedded business process management/improvement
(BPM/BPI) integration to mySAP Business Suite products (e.g. Business Intelligence,
Portals, Exchange Integration), and a strong Software Development Kit (SDK)
facilitating integration of third party software and services with SAP Business
One, since it utilizes SAP Business One business logic and has the ability to
read and write to and from each object in the system, and a simpler development
and maintenance of integrated processes
The
above might lead to an enthusiastic and stronger channel that eventually will
provide SAP with a product to sell to divisions of large global companies with
mySAP Business Suite used at the corporate level, by reducing the potential
of eroding divisional account control to another more nimble and/or more vertically
or plant-level focused ERP vendor's offering. The fact is that a high percentage
of SAP's customers outside the US are small and mid-market companies. One can
wonder why that is still not the case in the US. In addition to SAP's US-based
competitors' good propaganda job mainly by exploiting some well-publicized SAP
implementations' flops in the US, a major reason is still the nascent indirect
channel. Having only a handful of certified partners for the entire US market
sound rather dismal compared to the thousands that Microsoft Business Solutions
or Best Software cite, or he several hundreds touted by Lilly Software,
SYSPRO, or Made2Manage.
So far the direct sales approach has often proven inappropriate for the market segment. It is much a different case when a local partner, well versed with the issues and fears of the customer (and who can even strike a cultural rapport with them, being a native of the region) represents SAP or Oracle, particularly if the partner specializes in the customer's industry. The fact that SAP has had a strong channel-driven SMB business in the rest of the world may prove the point. Therefore, increasing indirect channels bundled with vertical industry and geographic coverage specialization remains a necessary step for positioning SAP as a relevant provider of solutions to this increasingly important market segment.
SAP and American Express seem to have grasped that the key to success in the SMB market is brand awareness, since SMBs are looking for support from incumbent vendors, with intimate knowledge of their vertical and business processes, ample local resources, and the commitment to support them both off and on site to achieve value over a long-term relationship. SAP realizes it will likely never match channel size of established players such as Microsoft Business Solutions and Sage/Best Software that already have large channels (over 6,000 and 19,000 respectively) starting with CPAs and independent resellers and ISVs. Thus, SAP does not seem inclined to recruit en masse the formalized small local resellers and Value-Added Resellers (VARs) that have so far dominated the low-end application market.
Selected
alliances like the one with American Express in the US and Hewlett-Packard
(HP) in Europe could help SAP make inroads in SMBs that do not have
a connection with SAP. TBS has 150 IT consultants in major metropolitan areas
committed to supporting SMBs, and is also developing its own sales channels,
which could significantly increase the number of SAP reseller outlets over time.
However, the alliance is non-exclusive, and TBS also has a long and successful
history of selling Best Software's MAS line products and Microsoft
Great Plains solutions, both of which will compete directly
with SAP Business One. TBS will have to walk a fine line in trying to unbiased
help SMBs decide which solution best fits their needs, without getting on a
bad side of any of its highly powerful and vain partners.
Therefore, we expect that SAP will make other channel deals in the future with other very large companies like American Express and HP that are already serving small businesses and are looking for additional products and services to sell. In turn, this smaller but high-quality channel will be developed by SAP global development support, product training and marketing and sales support, including pre-sales support and lead generation, while SAP will provide: 1) qualification guidelines, including partner sales capability and industry knowledge assessment, 2) an SMB Partner Portal to provide a single point of access to information, and 3) an investment in partners and customers to ensure a highly valuable partnership and best-of-class solutions for their businesses. SAP's global presence and technical capabilities indicate that the company can adapt product to local requirements in many countries. As the enterprise applications market leader, SAP also has strong credibility.
This
concludes Part Three of a four-part note.
Part
One detailed the events.
Part
Two began the Market Impact.
Part
Four will discuss Challenges and make User Recommendations.