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
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
Look also for a continued evolution of these applications, since over the last several 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 (e.g., Fast Forward', Select', Accelerated', On Board', Genesis', etc.), all aimed at making it faster, simpler and cheaper for enterprises under a few hundreds $ million to use them. However, all of these typically have also implied some form of trade-off in the name of expediency. The features forsaken will have been functionality, customizability, platform options, solution scalability or extensibility.
Unfortunately for both vendors and users, small and mid-size 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 complex supply chain relationship. Consequently, all these companies need some level of support for advanced collaborative functionality, scalability, supply chain management (SCM), CRM, e-commerce/e-sourcing, and distributed computing environments. And they have to accomplish these feats with less (or completely without) IT staff and a much more limited budget compared to their bigger counterparts. For these reasons, the first generations of Tier 1 vendors' offerings for smaller enterprises have had only a limited success.
a patient man may win the day, and the likes of SAP, PeopleSoft and Oracle
will likely get it eventually right through their deep pockets-backed perseverance,
their brand recognition, and repeated modifications and fine-tuning of their
strategy to win the less chartered lower-end of the market. The latest above
tacks should be regarded as prudent moves, although indisputably belated. Nonetheless,
these moves should confirm these vendors' commitment to smaller customers through
the renewed focus and better-attuned offering. A less known fact might be that
almost two-third of all SAP's installations are enterprises with less than $500
million in revenues; PeopleSoft too deserves commendation for achieving its
notable mid-market milestones (i.e., ~25% of all its customers are mid-market,
whereby lately at least one out of every three new PeopleSoft customers reportedly
also comes from this segment). For that reason, these moves should slowly alleviate
the market perception of these solutions being overkill for smaller enterprises.
is Part Two of a four-part note.
Part One detailed the events.
Three will continue the Market Impact.
Four will discuss Challenges and make User Recommendations.
Other Vendor's Approaches
Although many vendors have come with different tacks, one could notice two emerging school of thoughts among large enterprise applications vendors seeking to capitalize on the mid-market opportunity. Since these are much related to different ends of the mid-market, it would be useful possible demarcate these. The lower-end of the mid-market, or the small-to-medium enterprises/businesses (SMEs/SMBs) segment, could roughly be defined as companies with up to 500 employees and with up to $250 million in annual revenue, while the upper-end of the market would be enterprises with up to 1,000 employees and up to $500 million in revenues.
It is in the upper mid-market that these vendors stand the best chance of more immediate success given here they can still deploy a hybrid model of direct selling (which has been their forte) and rely on partners for implementation and services.
the high end of the mid-market PeopleSoft and J.D. Edwards
are also taking a business process approach, i.e., slicing, dicing and packaging
their existing applications along business process lines in order to attract
mid-market companies, although within this, J.D. Edwards appears to have a far
more fine-grained and less constrained approach, given its nativity within the
market segment (i.e., almost the entire product has been designed with a mid-size
to large customer in mind).Another factor is its increasingly strong relationship
with IBM Corporation, whereby the two not only sell pre-packaged
single server solutions based on IBM's server platform but also offer pre-integrated
software solutions in which IBM's middleware/enterprise application integration
(EAI) technology is embedded within the J.D. Edwards suite of applications (see
Edwards Finds Its Inner-Self Within Its 5th Incarnation).
The overall strategy is geared towards reducing complexity and total cost of ownership (TCO) and ROI, which have long been the key criteria for the mid-market companies that form JD Edwards' core market. In addition, the vendor has also lately taken steps to broaden its footprint so as to meet as many of the functionality needs of its customers as possible with serious investment in its CRM and SCM application areas.
However, as indicated earlier, PeopleSoft seems to have conducted a due diligence, learned a few lessons, and grasped the key factors for greater success in the coveted low-end market segment. PeopleSoft has internally identified its target customers' characteristics and needs, as to tailor the most appropriate solution. To that end, these companies have complex business requirements similar to their up-market brethren, they value integration and a one-stop-shop' provider's capability, but with modular components, and, as a rule, they have smaller IT budgets and project teams, creating the "do more with less" mantra as the order of the day. Furthermore, these enterprises typically look to scale both horizontally (i.e., to extend business processes across departmental silos, e.g., to achieve customer order capturing integrated with order management) and due to growth (organic or through acquisitions).
PeopleSoft's research also indicated that cost, complexity, and risk are the key considerations for these targets, with a distinction that the first time buyers (so called green field plants') put the highest importance on price, best-of-breed modular but integrated functionality, speed of implementation and quick ROI, whereas experienced (repeated or follow-up) buyers value the vendor's reputation & support and integrated software & services solutions the most.
the company has made genuine attempts to provide value proposition for both
profiles of mid-market customers. Each Mid-Market Solution bundle selected PeopleSoft
8 product functional components, which have being sold to larger enterprises
too, but with preconfigured implementation, training and support services, resulting
therefore with accompanying rapid, fixed-time and fixed-price implementations.
The company has come up with each solution after a painstaking process of analyzing
its first ~400 mid-market customers, identifying the functionality that each
customer had found critical to be implemented first, identifying the highest
ROI impact component, and finally, developing a pre-configured product set,
integrated business processes and fixed-price implementation scope for each
Moreover, to exceed the notion of dj vu offering from its peers in the past, PeopleSoft has attempted to offer a few differentiating extras' in its solutions, which are often neglected (or intentionally omitted) by many competitors and often come as unpleasant extra cost' surprises for the customer after the fact. Some of these lie in a pre-configured modular (and recently process-based ) integration, as the modular product structure enables customers to cherry-pick what they need and when they need it, thereby avoiding the proverbial overkill factor' of large applications. To that end, each available solution can be combined to create extended business processes, and, alternatively, any number of available add-on modules can be supplemented, and each solution and/or add-on module has a pre-configured fixed-price no frills implementation scope.
have been developed from PeopleSoft's own Compass Methodology,
which uses accelerated tools to pre-define the planning & strategy phases of
the implementation, and thereby avoid all-too-commonly dreaded "scope creep"
(the company touts estimated average 37% reduction in time and cost so far).
The methodology also caters for optimized best practices, as necessary workflows,
interfaces, and data conversions have been mapped out by each solution beforehand.
Although PeopleSoft, like every other vendor, frowns at customizations, these
are not prohibited, as a built-in change control allows for customizations'
tracking, but these implementations will logically carry a different price tag.
Once the project scope has been agreed upon and the appropriate solution has been pinpointed, PeopleSoft touts its no frills' complete solution delivery purported with unlimited user license number for an upfront flat rate, fixed price implementation and training, pre-configured hardware, rapid but full implementation rather than with a stripped-down' scope (i.e., standardized data conversion maps, developed testing scripts across all products, and pre-defined configuration data baseline best practices come delivered as a part and parcel of the implementation).
Also, by delivering projects (full-fledged implementations rather than only pilots) via its 35 mid-market implementation centers across North America (an implementation server is hosted in each centre), the company believes to have eliminated on average up to 50% traditional on-site delivery costs, as it eliminates hardware and database administrator requirements well until deployment on site, as well as consultants' travel and other expenses for the customer, it creates a non-invasive environment that removes on-site distractions by a daily grind business, customers gain access to the highest skilled PeopleSoft consultants that are not burned out by extensive traveling, and these resources can be leveraged across multiple customers.
Another pillar of success in this target segment lies in the delivery channel, for both implementation services and localized regional and vertical industries expertise. To that end, all of a handful of selected partners were made privy to the same above-mentioned implementation tools that PeopleSoft's own mid-market consulting group uses for deploying the accelerated applications, along with the usual marketing, sales and technical support.
to its agreement with J.D. Edwards, IBM again offers pre-configured eServer
infrastructure solutions that include the highly scalable DB2
database software, and a eServer xSeries or pSeries.
IBM Global Services (IGS) and its network of business partners
will deliver fixed-scope, fixed-price implementation services for PeopleSoft
applications. The first preconfigured bundled solution delivered was PeopleSoft
Accelerated CRM for the financial services, discrete manufacturing
and wholesale distribution industries.
may be interesting to notice IBM's mid-market aspirations albeit through a plethora
of Independent Software Vendors (ISV) partners within its huge ecosystem. At
the end of 2002, IBM laid out its strategy for the mid-market with plans centered
the Express banner versions of its WebSphere
EAI platform, DB2 database, Lotus Notes groupware and Tivoli
systems management products that feature a lower TCO, owing to near zero administration
and to aggressively priced initial license fees. Further, due to the immensely
successful former AS/400 (now iSeries) hardware
platform, IBM has achieved quite high brand awareness and, more importantly,
brand preference within the market segment. To that end, the Express portfolio
should reduce the complexity of middleware and, combined with the new attractive
pricing, might represent an excellent springboard for IBM mid-market e-business
application ISV partners (e.g., MAPICS, Onyx,
QAD, to name only some) should give IBM broad coverage across
geographies, functionality, industry, and company size, while for ISVs, IBM
represents a technology partner completely disinterested in building applications,
and that is even willing to bring significant marketing dollars to the partnership.
As IBM delivers more integrated software packages for SMBs (such as WebSphere
and Lotus Domino Express), it will likely first target them at iSeries customers,
a large installed base of SMBs.
approach to this upper mid-market segment comes through its industry specific
mySAP All-in-One solutions that are based on mySAP Business Suite, and come
with three deliverables: 1) SAP Best Practices, 2) SAP
One Server Kit, and 3) Vertical Solution Development Kit (SDK).
However, neither is necessarily focused on specific business processes nor is
granular in nature, as SAP's development and go-to-market strategy at the high-end
of the mid-market and the divisions and subsidiaries of large corporations is
based on the idea that the needs of the SMB market are distinguished by industry
sector not company size.
has tried to assault the US mid-market several times before, with only a limited
success notwithstanding. The earlier attempts with former mySAP.com (recently
renamed into mySAP Business Suite) lighter versions have not been as successful
as anticipated, mainly because they would still require more implementation
resources and effort than most mid-size customers could afford. Alternatively,
if the pitched solution was a significantly scaled-down and pre-configured version
of mySAP.com, without vertical functionality and customization facility, one
would have been hard pressed to justify going for it rather than for traditional
mid-market incumbents like QAD, SYSPRO, Agilisys,
Baan, IFS, Intentia, Lawson
Software, MAPICS, Ross Systems, to name only some.
The latest upbeat results and future outlook from many of these may speak in
regard of Tier 1 vendors' limited success in their space.
enterprises, like their bigger brethren, need some differentiation means in
the market, and that will not be achieved by implementing a cut-and-dried business
solution in a cookie cutter', me too' deployment approach. Thus, the part
of the mySAP All-in-One (formerly SAP SMB) initiative's tardiness
can also be written off to SAP's painstaking approach of certifying industry
solutions, although it has so far produced over 200 certified business solutions
(CBSs) worldwide. Thus, SAP has been earnestly engaged in its channel partners'
activities to ensure that they understand the needs of the mid-size customers.
Also borrowing the page from some its more successful smaller competitors' book,
SAP has been providing the help in co-developing Certified Business Solutions
(CBS) software add-ons that are vertical specific, down to the SIC-code, a concept
believed to have an appeal to the target customers.
with the recent launch of five new mySAP All-in-One vertical solutions, in addition
to those that SAP launched in June 2002, the vendor now offers 21 vertical solutions
in the US, with the plans to have nearly 40 solutions in the range available
in the US by the end of the year. Built on the mySAP Business Suite, they are
available through certified vertical solutions reseller partners (e.g., Osprey,
itelligence, Plaut, etc.) that package and
develop for mid-size enterprises within specific sectors with the aim of bringing
big business functionality, deployable in a limited timeframe, with predictable
costs and ROI. Although the aim is no different to that of its rivals, the combination
of the size of the SAP initiative in terms of the number of verticals it plans
to cover may set it apart. However, SAP has stiff competition from J.D. Edwards
and Lawson Software, which have a firm grasp on the mid-market and a growing
portfolio of pre-integrated vertical solutions that go further than SAP's, and
consist of hardware as well as software and services.
mid-market strategy is not yet quite clear, and it shows a mixed bag of all
the above moves. It appears the initiative is designed to move down into the
core mid-market with a reduced product set in addition to selling the full flagship
Oracle E-Business Suite 11i to the upper mid-market and large
companies. At the end of 2002, Oracle launched its new suite of applications
specially designed for the European mid-market sector. Oracle defines mid-market
on a regional basis, but it generally uses the term for business organizations
that generate under $1 billion in annual revenues. Thus, earlier in 2002, it
also stated its intention to launch region-specific versions of its enterprise
application offerings worldwide, with China targeted as one of the first markets
consequently has an initiative in place to sell a subset of its E-Business Suite
through channel partners in Europe, Middle East and Africa (EMEA) and Asia-Pacific
regions. This offering is called Special Edition, with Oracle's
commitment to fixed time and cost agreements. For a reasonable price tag (around
$100,000 based on 15 users), users will receive software to tackle financials,
procurement, order management and inventory management, also including support
services, all the hardware necessary, implementation services including configuration,
and tailoring to personal requirements (albeit within reason), plus an e-learning
product, which should aid adoption and reduce ongoing training requirements.
Manufacturing modules are also available if required, but these are not included in the fixed price. The fixed price means that if the partner overruns on the implementation for reasons not brought about by the user, it costs the user nothing more. The code base for Oracle's Special Edition is the same as its flagship product. This should mean that since a vast majority of the partners use Oracle's tools for additional add-ons and modifications, there might be only minimal training or increased personnel requirement necessary. SAP has the same approach with its pre-packaged mySAP All-in-One versions, but for the low-end SAP Business One product, partners will need to learn new skills and use different tools to maintain the product, which may limit SAP Business One's appeal to the resellers.
Oracle has yet to define its mid-market enterprise applications strategy for
North America but has indicated that outsourcing, Linux platform, business flows
(also often referred to as Fast Forward process-oriented pre-packaged applications),
and some vertical focus will be the key tenets. Contrary to its ERP peers, and
like Microsoft and IBM, Oracle sees applications as a way to
extend and leverage its technology stack. The company has had some success in
selling applications to mid-market customers in the past and is looking to leverage
this experience with a more focused delivery effort. With the combination of
its large direct sales force, a telemarketing organization, channel partners,
application outsourcing and consulting resources, it stands a fair chance, but
a lot will depend on how the vendor will deal with its channel. Oracle will
have to ensure clear dividing lines with its reseller community to avoid confusion
for its prospective customers.
concludes Part Two of a four-part note.
One detailed the events.
Three will continue the Market Impact.
Four will discuss Challenges and make User Recommendations.