I think the upcoming full scale roll-out of SAP Business ByDesign (ByD), an on-demand business application suite, is a critically important proof point for SAP’s strategic direction as referenced in my colleagues review of recent SAP Influencer Summit. It’s not just from the standpoint of: Do-they-have-the product to address midsize company’s enterprise software needs and do they have the messaging and the go-to- market execution to follow through to succeed? I believe ByD’s outcome has implications for how successful SAP will be in evolving its core large company enterprise software suite. It will be a test bed of core technologies that have implications for how the company evolves its product offerings and will measure to what degree SAP can shed some its internal inertia. I have no interest in pre-judging the outcome.
SAP has been criticized by many for what they perceive to be ByD’s tepid entry into the on-demand/SaaS applications market several years ago. It’s slow, cautious approach (limiting it to about 100 initial users) following a PR splash appeared to be a lack of commitment, conviction or follow through. Possibly this is partly the result of SAP’s history – going back to the 1990s - of failing to execute a small/medium size business (SMB) strategy, most notably in North America. Perhaps because of this, SAP is being extremely cautious in rolling it out.
ByD (and the SMB products – SAP Business One and Business All In One is important because – notwithstanding SAP’s existing presence in SMB markets – there is significant long-term revenue opportunities in extending its market presence in this area.
There are four proof points that we be a measure of how well SAP is executing its ByD strategy – and by extension how well it will be able to grow the rest of its business over the next five years.
Proof point one is delivering a superior user experience. SAP traditionally has not had good user interface and application flow design. Business All in One and Business One are beginning to improve but from what we saw the current version of ByD has a long way to go. Moreover, rather than simply being as good as the next guy, the company recognizes it has the opportunity to do much, much more to make using its software a slick experience. Not only the user interface but flow and clickwork through the application. I have thought for the past couple of years that the upcoming challenge for enterprise applications vendors was to harness technology to wrap software around the business process – not the other way around. ByD is trying to get there, but we’ll see how it looks in a year or two.
Proof point two is demonstrating that SAP can deliver fast time-to-value and affordability consistently. Midsize companies have requirements similar to larger ones but lack their budget to buy, implement and maintain the applications. For years, faster customization and easy maintenance and operation of highly functional applications have been key objective because it will reduce the total cost of ownership without compromising business value. The SMB sessions I attended at the summit had a number of customer proof points and the product demos showed it was relatively easy (in some cases with limited training) to develop applications for Business One and Business All-In-One that, for example, develop and integrate on-premises with iPhone applications. Much of this will apply to ByD, especially enabling partners to develop small applications. So it seems likely that partners will be able to produce a considerable number of solutions to address a broad range of industry/geography-specific business issues for ByD.
Proof point three is demonstrating that it has translated the new technologies SAP highlighted in its general sessions (in-memory analytics and cloud computing, to name two) into useful products that people use. In-memory computing takes advantage of the low cost of RAM to do complex analytics and business processes to give companies the ability to (for example) do iterative what-if analyses in a collaborative process to determine how best to respond to an opportunity or threat. It fosters a higher degree of visibility because data, metrics and measures can be updated instantly. SaaS has the ability to dramatically lower the cost of obtaining application functionality. In so doing, it can shift value chains to give software vendors many new revenues streams and a higher “wallet share” while saving customers money and enabling them to manage more effectively.
Proof point four is demonstrating that the company has the ability to market and sell to the SMB market worldwide. At the moment we think it has the assets on the ground to do this in Europe but it’s not clear how well it will do (or how quickly it will do well) in North America. It will be interesting to see what SAP does with the North American market, because it never has had much of an indirect channel – nothing even remotely close t o what Microsoft and Sage have. Notwithstanding its market momentum, Netsuite’s revenues in North America remain a fraction of Microsoft’s or Sage’s (or Intuit, for that matter). We think SAP will need to have a killer strategy and solid execution to grab a much bigger share of this market.
None of this will be accomplished fully in 2010 – the full roll out of ByD takes place in mid 2010 and many of the tools and technology enhancements will be introduced in the second half of the year. But if over the next 2-3 year ByD demonstrates significant market traction, it will show that large enterprise business can follow.
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Robert D. Kugel CFA - SVP Research