SAP announced recently it had signed its one thousandth SMB customer in the Australian market.
It must have felt like something of a vindication for Tim Cavill.
The company now has more than 18,000 SMB customers world wide, but back in 2003 Cavill would no doubt have got a few smug smiles from his competitors when he was put in charge of SAP’s first foray into the SMB market and asked to build a partner community around its newly launched Business One SMB solution.
At the time, the company was still recovering from a reputation for excruciatingly difficult and drawn-out implementations, not a particularly illustrious place to start from for an SMB solution offering.
Australian studies have shown that smaller businesses are far more reactive when buying technology.
They tend to purchase without the lengthy evaluation processes found in the enterprise and mid-market sectors.
They make instant decisions and expect instant results.
Cavill now takes care of SAPs partner community across Asia following a brief stint running the SAP channel for IBM.
Back at SAP, as vice-president for indirect channels for Asia Pacific and Japan, Cavill has a territory that stretches across six major hubs, China, India, SE Asia, ANZ and Korea.
“That product (Business One) has helped change some of the perceptions about the ability to be successful.
We have had the volume and have had the success,” says Cavill.
He explains that the software is totally different from the solutions it sells in the enterprise space.
“ It is a standalone, totally integrated offering,” he says. “It is an end-to-end offering, with a different code base. It was designed from the ground up for ease of deployment.”
According to the IDC study, “Understanding How Australian Small Businesses Buy Technology: I Want it and I Want it Now!” the sub-99 employee market represents 25 percent of Australia’s ICT spend, equal to $10 billion in 2007.
That’s a lot of dollars to leave on the table if you are a large software vendor that can’t access small business.
The SMB market’s reliance on a trusted advisor, whether it is the company accountant, or a traditional systems integrator or VAR, means that to make it in this space you need to rally something of an army of partners to your cause.
Cavill had to start from scratch, convincing a largely sceptical market that SAP in the mid and small business market was a possibility.
But the company has proved it could be done.
According to the run rate SAP calculated when it notched up its first thousand, four new SMEs a week have signed up since the push began in 2003.
And they’re not all mid-market companies that we in Australia would call a big business.
SAP’s Business One solution targets companies of up to about $50 million in revenue, while its other offering, SAP Business All-in-One, is for larger companies.
SAP Business All in One is suited to companies with revenue over $40 million and typically with 250 employees or more, explained Cavill.
SAP’s 1000th customer was Eurolinx, a distributor of cooking appliances.
It has just 60 staff in sales offices around the country.
Buying into the SAP Business One solution to streamline its business processes and gain better control over an expanding inventory, Eurolinx noted how much the software space had changed in recent times.
“There weren’t many software options for small- and medium-size businesses three years ago,” said Leia Colbert, director and managing director of Eurolinx.
“But since then we’ve seen many vendors launching specific SME software packages.”
She says the company looked at four options before signing with SAP.
If the small business company accountant is a viable route to market for a finance solution as the IDC research suggests, casting a wide net is necessary to make it in this space.
SAP has recently made big changes to its global referral and influencer program that better reflects this market reality.
Cavill explains the company already rewarded people who referred customers to its products, but he says the program wasn’t “industrial strength” and it wasn’t scalable.
To get at the loot you had to be a registered SAP PartnerEdge participant. Not so now. Anyone, even the company accountant, can register as a member under the new arrangements.
“We now have a program which embraces you. You don’t need to have a relationship as you did previously,” said Cavill.
“You simply go on site and register a profile. There are also mechanisms such as new alerts to educate the person or organisation around what SAP is doing, but you don’t have to be in the IT business and you don’t have to be able to implement SAP solutions.”
Such a broad-based attack on the market is not typical though. Most vendors, including SAP, are looking to sign up specialist integrators and ISVs that have a background with specific vertical market experience.
Strong economic conditions over the past ten years have been growing small businesses and many are now looking for growth solutions.
The market is swimming with competitors. Oracle is in there of course, taking on the Australian mid-market with its Accelerate solutions that target vertical markets with pre-packed application bundles designed for fast deployment.
The Microsoft Dynamics suite, acquired and assimilated to the MS ‘Borg’, has had a typically tortuous birth, but is beginning to earn respect and make traction as it gets more releases under its belt.
Microsoft CEO Steve Balmer has described his decision to take Microsoft down the business applications route as “the biggest decision I’ve made as CEO” and “one of the best decisions” he’s ever made.
There’s no doubt there’s a huge potential in business apps for the mid and small market, but these big players don’t have it all there own way.
Small business specialists like Sage Business Solutions and the locally developed Pronto (originally Prometheus Software and then part of Sausage Software between 1999 and 2002), have the product and scale to keep the major players at bay.
Pronto, for example, notched up its 1000 Australian customer by the beginning of 2006.
More recently, Harvey Norman Holdings joined Pronto’s customers list.
Harvey Norman turned to local competitor, Pronto, for a solution to launch Harvey Norman OFIS, the new venture designed to take on Officeworks.
It signed up for the PRONTO-Xi solution to manage its front and back office systems.
The stationery and computer chain will use the Pronto ERP solution for everything from online sales and purchase orders to fulfilment, distribution and financial management.
General Manager for OFIS, Paul English, said his organisation chose Pronto Software because “it was a cost-effective, flexible, out-of-the box solution that would also ensure speed to market”.
Harvey Norman OFIS has initially purchased a 60-user licence to support head office and the first two stores which will open later this year.
It will use a range of PRONTO-Xi modules including Financials, Distribution, Warehouse Management, Point of Sale, CRM, EDI, and iShop.
The company said it was particularly enamoured with the Pronto online capabilities, saying the user-friendly web-based shop front would help them match or beat Officeworks’ established Web presence when it launches next year.
Meanwhile, Sage continues as a well-established global player in the SME business apps space.
Mike Lorge, Australian Managing Director for Sage Business Solutions, is also pursuing a vertical market strategy to help it provide a faster implementation time.
Its main financials and ERP software, ACCPAC and CRM software SalesLogic and Sage CRM, are not vertical applications like its Timberline construction and property management solution.
Like its competitors’ software, within the broad-based ACCPAC, Sage solution providers can mix and match modules to accommodate the needs of vertical businesses in manufacturing, retail, hospitality and so on.
Oracle and increasingly SAP are going down the road of selling pre-packaged solutions that bundle several modules suitable for a particular industry.
They are also looking for partners with a similarly vertical orientation.
John Smith is Oracle’s General Manager Applications Alliances and Channels in the Australia and New Zealand regions and he says the company is always on the look out for resellers, systems integrators and ISVs with skills in mid-market verticals, because that is what the customers are looking for.
“A vertical focus is not only important for vendors,” he says. ”It’s important for customers as well. They want to talk to organisations that have a clear understanding of their industry, organisations that have intellectual property and a track record in their own industry.”
The need for customisation and vertical market expertise has also driven large software vendors to do more to encourage another type of partner – ISVs.
Lorge, for example, says Sage, has an accreditation program, or rather an endorsement program where partners’ third-party customisations and modules from established members of the developer community can be accessed to build up a vertical solution to meet your customer’s needs.
The concept of an ecosystem, where many organisations build their business around a common product or platform, is now so well established, savvy organisations actively seek to promote one by building their products and business model in a way that makes it easy for synergistic organisations to become involved.
An example of this approach is being developed by NetSuite.
The company has begun building its own ecosystem of third-party developers creating complementary software solutions on its on-demand platform, beginning with relatively trivial open source SuiteScript library of customisations and add-ons, to more ambitious and elaborate ones.
The New York-based provider of in the cloud ERP, CRM and BI applications announced its NetSuite Business Operating System (NS-BOS) in February this year.
The NS-BOS platform provides developers with access to the underlying SaaS infrastructure and engine of NetSuite so they can develop new applications and whole vertical solutions using NetSuite as a core platform using dedicated development and testing tools.
NetSuite also just announced a major deal with British telco BT which will see its integrated business applications suite offered to customers throughout the UK and the rest of EMEA.
BT will be offering its customers NetSuite’s product offerings and all other add-on modules including NetSuite OneWorld.
All offerings are delivered over the Web via the SaaS model.
Such telco relationships are critically important in the on-demand world and in the SME space, telecommunications companies have existing relationships with small businesses and are often in the position to act as a trusted advisor.
In another report from IDC Australia, the researcher foreshadowed a fundamental transformation for Australian SMBs this year.
In its top 10 predictions for the year IDC noted that the near ubiquity of broadband and the fact that tier-two service providers are gearing up to tackle the market would see SMBs become increasingly network centred.
More and more, suggests IDC, core IT functionality will be delivered via a hosted service supported by better outsourcing services.
While all major vendors are pursuing managed services strategies, this also applies to Software as a Service.
These hosted services will become mainstream, says IDC and will lead to more applications and infrastructure being replaced at the branch office level with hosted services and consolidated, virtualised and centralised server installations.
IDC particularly highlighted the role that telecommunications companies are able to play as a path to market.
Telcos can leverage their existing access to SMBs, not only to offer data and voice bundles but also to act as a channel to resell services such as managed services, remote backup, hosted applications or SaaS.
There’s never been more options for business to get access to the technology solutions they need to run their business more efficiently – on-premise, managed on-premise, hosted and managed, multi-tenanted SaaS – small and medium businesses can pick and chose best-of-breed or applications suites delivered how they want depending on their needs or business plan.
These are heady times in the business application space.
Salesforce.com is another on-demand vendor pursuing a platform approach to building an ecosystem around its core CRM offering.
Salesforce.com is buddying up with some major industry heavyweights and is looking certain to be a dominant player if the Software as a Service (SaaS) market ever consolidates to two or three major platforms as expected.
It could just as easily find itself an acquisition target.
Google, which has recently announced closer ties with Salesforce.com has had enormous success and is gathering experience and expertise in the on-demand space.
Since the launch of Google Apps the company has already attracted a staggering half a million businesses to their year-old offering.
Apart from the high profile multinationals like Procter & Gamble and General Electric, many are small and micro-businesses who are using the free services, but Google says there are more than a hundred Fortune 1000 companies running pilots.
Cap Gemini, which offers implementation and integration services around Google Apps, has signed on one 600-user customer and is reportedly planning to announce a “large European” user with tens of thousands of seats.
The combination of Salesforce.com’s CRM, the developer community building around the AppExchange and the force.com platform, tied together with Google’s e-mail, word processing and spreadsheet apps, could easily gather momentum in the small and mid-markets if not at the enterprise level.
An ecosystem built around the two could be very powerful.
At Dreamforce Europe on 7 May, CODA was to launch CODA 2go, hailing it as the first on-demand financial system built entirely on Salesforce.com’s Platform-as-a-Service.
In phase one the company says it isn’t looking to deliver as broad a portfolio as SAP, but it has what it describes as “a truly international, sophisticated accounting system that will support not just small and mid-sized companies but also enterprises.”
Not that the big guys will let the on-demand world go without a fight.
Microsoft and Oracle are both taking Salesforce.com on head to head with Dynamics CRM and Oracle’s Siebel CRM On Demand. Oracle found its answer to Salesforce.com in Siebel which it acquired a couple of years ago.
The SaaS product has now had two upgrades in the past 12 months, indicating Oracle’s intentions to make serious efforts in that space.
The latest upgrade in March this year added things like RSS feeds directly into applications and other social networking capabilities that can update a customer’s profile with latest news or changes to their MySpace profile as well as a host of other benefits.
The new release also saw better collaboration tools with improvements to how users make and share notes on customer records.
The On Demand product currently integrates with on-premise Oracle Apps but we will soon see that extended to the company’s Siebel and JD Edwards suite.
Nevertheless, Oracle’s stated focus for CRM on demand is the enterprise space, and in specific industries such as construction and consulting.
This could leave the mid and small market open to the likes of Microsoft, Salesforce.com, Sage and even SAP if it can get its solution right.
Lorge confirms a trend toward on demand, particularly in the firm’s CRM offering.
He estimates there is up to about 30 per cent of the market that is already willing to “seriously consider” a fully-fledged multi-tenanted solution.
The remaining 70 per cent is not ready in the mid term. Some of these might be willing to look at an on-demand solution as a pilot before bringing a deployment in house, explains Lorge.
Pilots and temporary deployment are also a market that Brett Yorgey, Managing Director of Microsoft Dynamics’ hosting partner JayThom sees as an early mover.
“It gives them a chance to play with it and then bring it on premise,” he explains.
Yorgey sees the greatest interest in on demand from customers who have perhaps invested heavily in an on-premise solution before, only to be disappointed, but there’s also a market from firms that have no CRM installed at all, or new start-ups who want to move quickly without the delay and cost involved with an on-premise solution.
Of the large established players, SAP has made the biggest commitment to putting an entire suite of business applications in the cloud with an aggressive plan for on demand which it calls Business By Design.
Business By Design is an entire suite of applications including financials, supply chain, CRM, purchasing, the lot.
But it’s not entirely clear how well that endeavour is progressing.
SAP has recently pulled back significantly from its original business plan and the project is now getting off to a slow start with China the only country in our region to get access.
France, Germany, India, the UK, and the US are the other five countries the company has decided to focus on.
SAP’s Cavill says the strategy is in its early days and Australia is not likely to see a launch of Business By Design until at least early next year when the product and go to market is “bedded down”.
“We know it is a different selling model, so we are putting new teams in place. We are a conservative company, so we make sure we have everything in place first. We make sure we have covered all the angles and then leverage like hell,” he says.
But SAP’s enthusiasm for on demand has clearly been tempered with the company announcing it is halving its planned investment in the technology this year.
SAP has quickly come to realise that the costs of hosting and bandwidth, coupled with the desire by customers to have extensive customisations is killing its margin.
At the same time as it cut its spending forecast it also cut back its revenue hopes for this year saying there will be no volume play until next year at least (more likely 2010).
The company is now planning to scale from its 150 existing customers over the coming years and hopes to build the business into a US$1 billion enterprise by 2011 or 2012.
The desire for customised solutions is a barrier to on demand solutions that both Lorge at Sage and Yorgey at JayThom point to.
It’s a barrier that more open, or platform-oriented solutions may be able to overcome.
By the time larger, more established players can get their act together, on demand business apps may have already ‘Borged’ the way of online search.
Business applications reach the SMB
By Staff Writers on Sep 30, 2008 11:17AM
This article appeared in the 12th May, 2008 issue of CRN magazine.