SAP’s latest advertising campaign spells it out very clearly. Procter &Gamble runs SAP, Lufthansa runs SAP, Adidas runs SAP: all of them major companies with big IT budgets and highly complex business processes.
So when the German enterprise resource planning (ERP) software giant launched Business One in the US in March 2003, a software package aimed at companies with between 10 and 250 employees, it met with considerable scepticism. When the product was launched in the UK in mid-May the reception was no different.
“People think SAP is too big, too fat and too hungry for small to medium-sized businesses,” says Tim Osman, head of SAP UK’s mid-market operations. “That’s a perception we have to work on.”
According to Osman, one of the things that differentiates SAP from the other top-tier ERP suppliers that have entered the small and medium-sized business (SMB) market recently is that it is not simply a pared down version of mySAP.com, SAP’s flagship software suite. SAP acquired the software when it bought Israeli company TopManage in March 2002. The product was designed from scratch for businesses of this size.
SAP should know. Its first attempt to tap the SMB market was All-in-One, a pre-packaged version of mySAP.com tailored for mid-market companies with more than 250 employees in specific vertical markets. But in terms of revenue, SAP currently derives just 8% of its revenue from sales to sub-$250 million companies. It plans to increase this to 15% by 2005.
Like all big ERP software vendors, SAP needs to boost sales in the SMB sector to sustain growth in licence revenue. This is because the high end of the market is reaching saturation point, forcing vendors to look to new markets. “There just aren’t hundreds of multi-million dollar ERP deals any more,” says Osman.
Subsidiaries, partners and franchises of larger companies are also targets. In theory, organisations that run mySAP.com centrally will be able to roll out Business One to smaller business divisions, or small supply chain partners and, since they share the same code base, reduce time and money spent on integration.
How SAP markets Business One will be crucial. Many small organisations will be wary of dealing with a company the size of SAP that is used to brokering multi-million dollar deals. When it launched the product in the US, SAP teamed up with American Express’ Tax and Business Services unit, one of the largest providers of business services to small companies. In the UK, it plans to exploit partnerships with hardware vendors such as Hewlett-Packard, as well as smaller, local resellers.
However, SAP still has a lot of work to do if it is to gain credibility among SMBs. Primarily, it will face intense competition from national mid-market application specialists such as Scala in Denmark and Sage in the UK, which have more experience of developing and implementing applications for this market. “SAP will need to move quickly to establish a strong reseller channel, as well as rapidly expand the language and country support capabilities of Business One,” says analyst Paul Hamerman of Forrester Research.
It can also expect intensive competition from Microsoft Business Solutions, which has the advantage that most of its target customers in this market already use its flagship products – Windows and Office.
But if SAP can gain an inroad into these accounts, it might gain a more loyal customer base. According to Boston Consulting Group, smaller companies tend to keep ERP systems for an average of seven years, compared with five years for larger companies. “These companies need to be sure that their vendor will still be around and still adding new functions to their product,” says Osman.
And nobody is betting that SAP will not be around in 2010, regardless of how well Business One is received.