During the launch of Business ByDesign, SAP said that it expects to achieve a run rate of adding 10,000 BBD customers a year by 2010. This raised questions about whether SAP will reach its previously stated target of 100,000 customers by 2010. I was concerned because it was always my understanding that BBD would be the engine for absolute unit number growth, even if that target seemed ambitious. With that in mind, I asked Leo Apotheker, SAP board member and head of sales to help clear up what I see as a confusing set of messages.
Apotheker claims that BusinessOne, it's small business offering could achieve 15,000 customer deals a year and that it would be a mistake to assume that most growth would come from BBD. That's a surprise because after several years in the market, SAP only has 15,000 B1 customers. If my reading of B1's progress is vaguely accurate, it has stalled. Where might these sales come from? Irregular colleague Prashanth Rai believes SAP could sell B1 significant numbers in India.
India has many small but growing businesses that need something and SAP has product in the marketplace. Even though I'm not particularly impressed with BusinessOne, no-one else really has a comparable offering.
But the real shocker is that Apotheker now says the headline figure as 'aspirational' and 'symbolic.' I asked fellow Irregular and fund manager Jason Wood for his take. He is confident:
These are not words you hear often in software but I'm not sure it really matters. If they reach say 65 or 70,000 by 2010 and ByDesign is achieving the run rate SAP claims the market will be happy. The big question in my mind is whether the BBD economics stack up, given this is a new model.
Despite the headline grabbing words, SAP cannot accurately predict demand two to three years out but in having offerings that span all market segments, it believes it can at least keep its investors happy. Notably, the most recent update on the company's website states:
SAP already leads the world with IT solutions for this market. In 2005, some 30% of order entry was achieved with SMEs. The company's aim is to grow that share to a range of 40% - 45% by 2010.
It is worth reminding ourselves from Jason's earlier words:
SAP's 300mm Euro bonus pool is tied to doubling the company's market cap by 2010. Absent significant organic customer additions, this would require – GASP – an aggressive M&A policy which belies SAP's history and stated plan of action.
If, as Apotheker implies, the company is no longer committed to an absolute number, what does it mean for the market as a whole? This is much more difficult to parse. On the one hand, Salesforce.com continues to impress, tracking at $1 billion in annual revenue and a bank of 35,300 customers accumulated over eight years. They're within striking distance of SAP's 43,000 customers, a number that has taken 35 years to achieve. On the other hand, no-one is sure just how successful SAP's newly minted BBD will be. On this occasion we're left with more questions than answers but it does mean that analysts will be keeping a close watch on whether SAP delivers.