No clear winner in SMB business apps race

Enterprise business software vendors that have moved downstream into the SMB space, jostle for market dominance.

update The SMB business applications market is so fragmented today that no vendor clearly dominates, according to an analyst.

Alan Tong, research manager for enterprise applications at IDC Asia-Pacific, said the contenders in the Asia-Pacific region's SMB (small and midsized business) market are a mix pot. They include strong local players like Kingdee and Ufida, as well as global multi-suite vendors SAP, Oracle and Microsoft.

He told ZDNet Asia in a phone interview: "On the whole, it's hard to pinpoint an overall leader in the SMB market for business applications in this region, which is clearly fragmented."

Market dominance varies between countries. In some Asian markets, niche vendors like Intentia and Qad are stronger than the enterprise apps powerhouses. But in countries like Thailand and Australia, SAP dominates, said Tong.

According to IDC, the Asia-Pacific applications market was worth US$1.06 billion in 2004 and is expected to grow steadily at a five-year compound annual growth rate (CAGR) of 13.2 percent, reaching US$1.97 billion by 2009.

Although there are no figures to confirm the size of the SMB applications market, Tong said in Asia, this segment has enormous potential since in most Asian countries, more than 90 percent of businesses are SMBs.

With an already saturated enterprise business applications market, it is not surprising that the likes of SAP and Oracle are eyeing the SMB pie. However, the ingredients for a successful strategy must first be understood.

Hans-Peter Klaey, CEO of SAP Asia-Pacific, said: "What the SMB market wants is a solution that works and can be implemented quickly with a return-on-investment at an affordable price.

"They also want global industry-specific best practices, because they have global customers, not just domestic ones. What we have done is we took best practices and brought down the implementation period to only 3 to 4 months," he added.

In order to be successful in the SMB market, enterprise software vendors need to work with local channel partners that recognize specific industry requirements better than they can. And that's exactly what SAP has done.

"We cannot build every solution that's needed for a certain industry. That's why we are reaching out to independent software vendors who can take the Netweaver platform and build highly-specialized solutions," Klaey said.

SAP's efforts to woo SMBs seem to be paying off, now that 80 percent of SAP's new customers are SMBs, he added.

Likewise, Oracle's Asia-Pacific strategy involves engaging more partners to customize products for the SMB market, according to Doug Kennedy, the company's vice-president for global alliances and channels at Oracle OpenWorld last month. For example, the software giant is focused on building a tighter relationship with system integrators in Asia, particularly those in India.

Kennedy, however, said it could take a while to educate SMB customers on Oracle's brand and products. He admitted that the company did not focus its brand name in that market segment in the past. "When we went down-market, changing business cycles had forced us back to where we sold most of our products, that is, the up-market," he explained.

IDC's Alan Tong agreed. "A vendor's brand name is important in the SMB market to be successful," he said. Oracle's E-Business Suite Special Edition, though tagged with the Oracle brand, is "struggling", he added.

Still, Oracle's acquisition of PeopleSoft and JD Edwards, with their accompanying partners, is likely to beef up the company's SMB business, Tong noted.

In the Asia-Pacific region, about 20 percent of a partner's business comes from Oracle right now, said Mark Shapcott, vice-president of partner development, strategy and operations at Oracle Asia-Pacific. "And we want to see that grow," he said.

The giant to watch
Microsoft is also the company to watch in the SMB applications market, Tong said. Having delayed the roadmap to deliver its next-generation business applications, the Redmond giant recently reorganized itself to focus on its Dynamics product line--which is a re-branding exercise for Project Green.

Bob Tarzey, service director of analyst firm Quocirca, noted that two-thirds of SMBs use Microsoft Windows as their main server operating system. "And as SMBs move to the latest version, Windows Server 2003, it has Microsoft's own application server, .NET embedded in," he wrote on his company's Web site.

Tarzey also noted that because the Microsoft platform is used widely among SMBs, the software giant "fancies its chances in the SMB applications market, but at present only has a small market share".

"If Oracle were to provide a strong suite of applications for SMBs based on .NET, it would be in a position to give Microsoft a run for its money. If it does not, it might end up surrendering the SMB applications market to Microsoft, as well as the infrastructure one," he added.

Ruth Connolly, general manager of Microsoft's Dynamics products in Asia-Pacific and Greater China, said the Dynamics portfolio is already gaining momentum with more than 5,000 mid-market ERP customers in the region.

"We have done a great deal of work over the last few years in terms of integrating businesses, products and channels, and although we’ve still got a lot more work to do, we think we’ve made good progress," she added.

For now, SAP is unfazed by the competition from Microsoft, if any. Klaey said: "A new (Dynamics) name doesn't mean a new product or architecture. It means nothing to customers.

"We want to understand the business processes of our customers, and that's what makes SAP unique. Selling boxes and renaming (products) don't bring value."