SAP and SME's: an update

I've just returned from spending a day immersed in SAP at a London hotel with European and South African SME customers, channel partners and the Business ByDesign team. It's been fascinating. While the focus was on ByDesign, I met with All-In-One customers. It provided a useful comparison in how customers are looking at the two solutions. Some of my analyst colleagues were a bit grumpy at the thought that ByDesign is still progressing at what seems a snail's pace but my take is that at least some of them miss the important points. I'll get to that.

One of the real surprises to me is that despite the fact SAP gets more than its fair share of negative press, its brand recognition and value is much higher in the SME marketplace than almost all other solutions. While any number of competitors might be on a short list, SAP is becoming one of the choices that a certain type of customer will frequently have on their short list. That confirms for me something I already know and which Vinnie Mirchandani reminds us of from time to time: press and analysts are only one point in the decision chain. We're not as important as we'd like to think - at least not in the decision making process.

However, SAP doesn't know how to make that SME story as effectively as it could. How often for instance do you hear SME success stories except in canned, legally immolated press releases? Its large company and technically driven mind set doesn't allow it to make best use of this class of customer. As a result, I don't think it really gets the bang per marketing buck that it could.

Contrary to popular belief, SAP doesn't have to be the cost sink that many SME's believe. I discussed TCO with an All-In-One customer who has managed to get the amortized cost down to $1,700 per user per annum for a 50 user system. Others may argue that is still too much but it is comparable with a similar number of users running Business ByDesign at current list prices. Some might say that's still too much but then a lot depends on what you think you're getting on the ROI side of the equation because that's where the numbers start to make real sense. Even so, SAP needs to do a much better job for the channel. A consistent groan is that SAP's perceived cost still frightens away a lot of board level decision makers even when it is the preferred technical choice.

While we were there, Infoworld published a story titled: SAP: Still no ship date for long-promised small business ERP suite where it claims that Bill McDermott, SAP's head of sales said:

"When this product hits the market, we won't have to do a lot of talking," he said. "The product and market will do the talking for us."

This implies the product is NOT in the market., something its competitors would like people to believe. During our conversation, Rainer Zinow, SVP ByDesign said that ByDesign IS generally available. That implies you can buy it. That is not quite true in terms that we usually understand it but indicative of the fact SAP has not managed to get its market messaging ducks in a row. Here's the reality:

• Yes, you can buy it - I've met ByDesign customers who are in production on the service.
• Yes, SAP has scaled back its marketing efforts for this product line significantly.
• No, you can't just walk up to SAP and get it. SAP has 45 reference customers and wants to reach 100 reference sites before hitting the marketing and selling gas pedal. It therefore qualifies in the kind of customer it wants during this slow burn phase.
• Yes - SAP still has technical issues with the service that keep its TCO higher than where it wants to be but that is improving.
• Yes - the product is getting better. The release of FP2 shows significant enhancements, the GUI looks great and screen performance, even on poor networks is impressive. It is a world apart from where they were when ByDesign was originally launched and should be a strong contender.
• Yes - saas purists will argue that ByDesign isn't a 'proper' multi-tenant offering and therefore unlikely to succeed. Many of those same commenters have a poor understanding about what ByDesign is trying to achieve. Neither do they appreciate the complexities or requirements of customers who might be attracted to the service. As Zinow said: "Customers say you can have as many tenants as you want but I only want my stuff on my blade." Having said that, SAP has not done a good job virtualizing the overall service and that creates a welter of practical problems it still needs to overcome such that ByDesign meets SAP's margin targets. They will get there.
• Yes - SAP still has to work out its channel strategy. BusinessOne channel partners take one look, see potential and think: 'How do we make money off of this?' SAP is in process of developing an SDK so that partners can create add-ons but that won't be available for at least a year. In the meantime, the channel is going to need re-educating about what it means to sell SAP. The days of mega buck consulting for SME's are done but value based work is a play that could differentiate the consultant of the future.
• Yes - there can be some confusion around where SAP positions BusinessOne, ByDesign and All-In-One solutions. There are overlaps and each has its strengths but each has a clearly defined market. The messages that attach to each need carefully articulating to both potential customers and partners. That has yet to become obvious.
• Yes - ByDesign is setting a benchmark for what it means to acquire, configure, implement and run 21st century software and that will, in the long term, impact all of SAP's product and service lines as well as the ecosystem. However, I believe the market is so large for what they are attempting to do in this segment that naysayers will end up eating their own words. The fact ByDesign (and to a lesser extent All-In-One) is reaching many more users in an organization than the Business Suite should be telling SAP and its detractors something.
• SAP has had so many technical issues with ByDesign that the market has pretty much decided it is a negative only story. It is difficult for SAP to get a positive message out into the market. McDermott's bluster isn't helpful because no software vendor has an implied right to success.

Having read all of that, some readers must be wondering if I ended up on some sort of proprietary SAP crack or was somehow dazzled by SAP's hospitality. No. As I've always said, customers speak far louder than anything I, any analyst, partner or the company can say. Those are the people I am listening to.

As a final note, I shot some video and over the coming days will put these up so that readers can judge for themselves what customers are saying.

Updated for short video of Rainer Zinow