I attended SAP’s Channel Partner Summit in Miami last week. While I generally applaud (and welcome) Jonathan Becher’s (SAP's CMO) decision to reposition SAP’s brand, I believe some bigger issues have yet to be reconciled or subdued. These issues impact SAP’s channel partners, the company itself and its customers.
Here are some of the key messages from SAP:
- Softening and broadening of the brand – Jonathan Becher described the progress SAP has made over the last decade or so in getting the SAP brand known and recognized. A key aspect of this branding effort was to showcase a major firm and note that this firm “runs on SAP”. Now, business people around the world know SAP as a provider of business software solutions. Jonathan is taking a different tack with future branding efforts. The focus around big customers will be lessened and more of the messaging will be about the way SAP products impact customers and their customers’ customers. This shift will help position the company better with the majority of its almost 250,000 customers who are not mega-gigantic firms.
- Move to industry solutions as opposed to individual product lines – SAP wants to downplay the selling of specific product lines (e.g., Business One) and instead have channel partners focus on vertical solutions. SAP wants partners to round out any missing business functionality within its products so that even greater market penetration is possible.
While these are admirable goals, SAP will find that the new strategy must reconcile with the existing channel ecosystems. For example, smaller partners won’t create the industry-specific verticals SAP yearns for unless it is in the partner’s economic self-interest to do so. An executive from a reasonably large reseller told Jon Reed and I that he has “run the numbers and won’t consider another vertical unless SAP has built out 80% of the solution”. He’s right on this point. If you were to develop a lot of new code for a very narrow micro-vertical (e.g., vending machine repair), you would be building a lot of code for a niche that might only have a couple hundred firms in it. As only a small percentage of firms replace their ERP solutions in any given year, your firm may need to wait decades to see any positive return on that investment. The Business ByDesign product line may be the most partner-resistant product line with regard to vertical functionality build-out as it is the newest and least mature product line at this time.
Another challenge is that smaller partners (the bulk of the channel ecosystem) are often familiar with one product line but not looking forward to knowing several. To create some cloud “solutions”, partners would need to marry SuccessFactors HR software, Ariba procurement software and a core SAP product line together. They might even need to create some HANA analytic solutions and use other SAP (or third party products) to complete the picture. And, this is all before net new industry specific vertical functionality is added in any big way. A small partner firm cannot afford to invest in so many different skill sets and train its scant workforce on each of them. Every different software application potentially brings with it different data models, platform components, programming languages, etc.
Now, I know that SAP has made it possible to run everything in a cloud environment and that HANA’s database architecture will eventually power all product lines, but, it’s not all apples to apples just yet. Can new functionality or a software object designed for Business ByDesign be also used, as is, in a different product line, like the Enterprise Suite? I don’t believe it can as there are differences in the technical architectures, data models, etc. of the different product lines still. Yes, the marketing names of SAP, NetWeaver and HANA are affixed to everything but each product line has its own special way of doing things for now. Complete compatibility and interoperability is still in the offing.
A Tale of Two Ecosystems
The event had two distinct kinds of partners in attendance.
On one extreme, you had global super integrators like Deloitte. SAP spent a lot of plenary talk time addressing these firms. We heard one SAP executive remark that SAP has a client with a data center that was bigger than salesforce.com’s entire cloud system. This kind of remark runs counter to what Jonathan Becher is trying to get across. SAP sells to more than the top 1% of businesses globally. Unfortunately, this concept is so well ingrained into SAP’s branding, executive banter, etc. that it will take a Herculean effort to re-focus the messaging.
The top 1% of SAP’s customers represents approximately 2,500 firms. In Fortune magazine’s annual ranking of businesses, the biggest firm last year has approximately $470 billion (USD) in annual revenues. But, look at how fast that drops off. By the time you get to the 1000th largest firm, revenues are only $1.8 billion – a drop of 261 times (that 261X not 261%.
Yes, it’s great when a channel partner of SAP’s sells one deal to a firm the size of Wal-Mart but the reality is that there are only so many multi-billion dollar revenue firms out there. The vast, overwhelming majority of firms are not in this rarefied space. In fact, most of SAP’s customers (by customer count not revenues) are small to mid-sized businesses (i.e., SMBs) that are often served by integrators and channel partners whose names many of you (and I) don’t recognize.
Firms that sell to and support the SMB space are often quite different from the big, multi-national integrators. Few are global. Fewer still possess all of the competencies (e.g., strategy, process design, change management and technology) that larger firms do. Many serve a limited geographic space. Finding, developing and retaining exceptional talent is often the biggest challenge these firms face. They sell against a very different set of application software products and promote SAP’s other products (Business One, All in One and Business ByDesign) in spite of SAP’s long-standing branding of its Enterprise Suite. The bottom line is that these partners are very different from the big integrators.
This conference needs to be bifurcated. One event should be for the largest integrators who want to sell exclusively to the 1%. Another event should be constructed for the partners who wish to sell to the SMB market. It would make SAP executives’ remarks and the breakout sessions’ content more focused.
The conference for the 1% market would be full of discussions about private clouds, MCaaS (managed cloud as a service) and, of course, the Enterprise Suite. It could be a conference about extending on-premises solutions with a few cloud bolt-on applications on the periphery. This conference could help perpetuate the on-premises landscape and the large fees its creates for the service partners and hardware vendors who have a vested interest in seeing this world go on and on ad infinitum. Alternatively, it could be a conference promoting private clouds or one that moves SAP's Enterprise Suite customers to SAP or a public cloud with SAP maintaining the code for the customers as part of its subscription fee. But, through it all, it would discuss a specific kind of customer with specific issues that are served by a certain kind of channel partner.
The conference for the 99% market would be very different. It could focus on the cloud space or the space where SAP partners are providing hosted versions of SAP’s SMB solutions. It could be for the integrators who serve SMBs and the divisions/plants of large firms that want a low cost but vertical-specific solution. This conference could be quite explicit is explaining how these partners can successfully and profitably grow their businesses especially in a subscription-based, value-delivered world.
Where did Business ByDesign go?
At no point last week did I ever hear a keynoter ever mention “Business ByDesign” (ByD). That was telling on a couple of levels.
Functionally, ByD is targeted for service firms and a couple of other verticals (e.g., high tech startups). It does not possess enough core manufacturing functionality at this time to go heads up against solutions like those from Plex or Rootstock (or soon from Kenandy and NetSuite). It is, nonetheless, a solid play in a couple of select verticals though.
Unfortunately for ByD, it must share the limelight, marketing budget, etc. with other SAP product lines like All in One and Business One. Both of these products have a substantially larger number of customers and lots of resellers. There are clear market overlaps between these three product lines.
The exact market positioning for ByD has changed a lot over time, too. I’ll skip the histrionics and just say that SAP appears to be selling it now as a divisional solution for larger firms. That’s a shame as the product has some of the newest functionality, multi-tenancy and architectural assets that SAP could put in a product line.
But ByD may be suffering from being one of too many similar product lines in a company that only has the time, resources and attention span for a couple. For railroad buffs, this story played out years ago with a Midwest U.S. rail carrier known as the Rock Island. This quote pretty much tells the tale:
“The Rock Island was known as "one railroad too many" in the plains states, basically serving the same territory as the Burlington, only over a longer route.”
ByD may be the one product line too many in SAP.
From last week’s show, I have concluded the following:
- Business ByDesign is the Dr. Pepper of the SAP product family – ‘so misunderstood’. It shouldn’t be but it is. Clarity around its ever changing place in the SAP product lines could go a long way to help sales, give comfort to the resellers championing it in the market, etc.
- Business ByDesign (and other SAP SMB solutions) won’t get the industry vertical build-outs that the market demands unless SAP provides a lot of the core application functionality. ByD is quite vulnerable on this point for now. How do you get partners to build all of the needed vertical solutions is something that vexes other software vendors, too.
- The re-branding of SAP as more than just a seller of solutions to really big firms is a great idea and maybe a few years overdue. This re-positioning may really help the channel partners who sell to the other 99% of SAP’s customers and prospects.
Disclosure: SAP covered my travel and lodging costs