Into the SMB Breach -- This Time with Feeling
It seems that everyone in the enterprise software market is after the great untapped riches that are allegedly there for the taking in the so-called mid-market. SAP, trying to put some luster on a bad quarter, announced its new A1S mid-market program just recently, with some fabulous goals in mind, including tens of thousands of new customers and a whole lot of revenue redemption. Wall Street, and more than a few analysts, yawned.
So this week sees Oracle making a similar play for the mid-market, albeit one that deliberately eschews any brash predictions or promises. But Oracle's efforts are not without their flaws as well, and, while not very yawn inducing (nor, seemingly, very coverage-inducing), they still beg the question that seems to have left the building largely unanswered: Is there really a massive mid-market opportunity waiting to be plucked by the likes of Oracle and SAP? I'm still not sure.
Okay, so we all know the numbers. Trillions, or is it gadzillions, of small and mid-sized companies just waiting, desperately, for an ERP white knight to arrive and slay the dragons of inefficiency and waste. All SAP needs is to tap into about 70,000 of these little money-pots, and all will be well in Walldorf.
I wrote (elsewhere) that there may be other, better prospects for SAP than just relying on the mid-market for salvation. And I firmly believe that the SMB landgrab looks more and more like a problem than anyone's version of a solution.
The analogy I'm working on right now is China as a consumer market for the "west." One of the great promises of Richard Nixon's opening to China in the 1970s was the prospect of a massive consumer market for western goods. Imagining that 1.3 billion buyers were soon to be available for our widgets and whodads, American and European companies rushed in to the China breach eyes, and wallets, wide open.
Thirty-plus years later, the China story is sad example of excessive expectations, and continuous trade deficits, starting with a mere $6 million more being bought from China than sold to its consumers back in 1985, to a whopping $232 billion trade deficit in 2006. So much for the "China market."
Et tu, enterprise software mid-market?
I'm just not convinced that there's that much gold in them thar hills. And it's not for lack of effort. In fact, if you believe the numbers that both SAP and Oracle have put out regarding the mid-market, they're already there in spades. Both SAP and Oracle boast that 2/3 of their respective customer bases come from the mid-market. I won't go into how hard it is to actually figure out what a mid-market customer really is (revenue measures are all over the map, and subsidiaries and affiliated entities of global companies keep getting counted as SMB customers), but let's just say I'm not really that comfortable with this 2/3 business. If they were really that successful in the mid-market, why would they be pushing so hard -- yet again -- to tee up another major initiative in a market they have both apparently already conquered?
So, one last point: If vertical is the way to go, then mid-market verticals must be the sweetest of sweet spots. At least that's Oracle's take: they started off telling me that there were 20,000 micro-vertical applications ready to be created by a partner network that, as of today, is at best a couple of hundred partners deep (with nine total having been "qualified" in the new Oracle mid-market program). The 20K number comes from some logic-challenged math: Oracle sees a universe of 70 industry verticals (70!) operating in 72 geographies. Multiply that by 4 major product lines, and you get 20,160 little opportunities -- red for Oracle already selling product, white for opportunities open to mid-market partners. That's being bruited about as a real number by real people. Omigod.
Of course, numbers like that makes loads of sense, as long as you also believe that there are about 1.3 billion mid-market companies out there. Which seems to be what we're all hoping. Against hope, I'm afraid.