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SAP Business ByDesign Hits the Market: History by Design Starts Now

by Joshua Greenbaum

January 1, 2008

SAP has announced its new ERP system for mid-sized companies, SAP Business ByDesign. Find out about its effect on customers, markets, and the makeup of the channel.
 

At the rollout of the long-awaited mid-market ERP suite, SAP Business ByDesign (formerly code-named “A1S”), I ran into the CIO of a company that has been an SAP customer for what can best be described as forever. I was a little surprised to see him there, as his company is much larger than the 100- to 500-user business that SAP Business ByDesign targets. It was a great opportunity to ask one of the many burning questions surrounding what is undoubtedly SAP’s biggest product announcement since SAP NetWeaver.

“Would you consider using SAP Business ByDesign in one of your subsidiary operations?” I asked.

“Absolutely” was the answer.

“How about just running the whole company on the new offering?” I asked, half joking.

His response was one of the most polite “no comment” remarks I have ever heard. Therein lies one of the biggest questions about this new mid-market, on-demand, model-driven, service-oriented offering: Should SAP try to bring all this innovation into not just the mid-market — whatever that is — but also the core of its Fortune 1000 customer base? Or, to ask the question more succinctly, how can SAP keep customers that use the core SAP Business Suite firmly in that camp while building an enticing new market for SAP Business ByDesign customers?

The answer for the foreseeable future is clear: SAP Business ByDesign will remain a mid-market product, intended to bring innovation, competitive advantage, and an enviably low total cost of ownership (TCO) to what SAP’s Deputy CEO, Léo Apotheker, believes is a prospective market of 650,000 customers. Meanwhile, SAP will have its work cut out for it making sure that this new product, and the new business model for SAP that comes with it, rolls out without a h itch. That includes keeping big customers happy too.

How Fast and How Far?

To say that SAP is cautious about how fast and how far to take SAP Business ByDesign is an understatement. The September 19, 2007 event that unveiled SAP Business ByDesign was deliberately intended not to be a lead-generation event. SAP doesn’t want to take orders on the new product until it has straightened out a couple of major issues:

  1. How will the company organize the new indirect sales channel that will take the product to the customers?

  2. What will SAP do about the potential disruption that comes from having this indirect line of business in a company built on selling classic on-premise software using a direct sales model?

These two issues represent the duality of what SAP is trying to accomplish. On the one hand, SAP is trying to build a channel that will generate what may turn out to be the lion’s share of the company’s growth and customers, if not revenues, in the coming years. On the other hand, SAP is eager to protect the core of its Global 1000 market from being drawn into the kind of revolution that big companies, such as SAP, are loathe to encourage.

SAP has to turn on a sales and marketing machine to capture tens of thousands of new mid-market customers, but not lose the big customers it already has, nor, frankly, change those big customers’ buying habits or preference for its big money-maker: SAP Business Suite. But that’s not all.

Dredging a New Channel

Building the SAP Business ByDesign channel won’t be easy. Indeed, internal issues about markets and customers aside, the number one problem facing SAP in making this new product a success is the makeup of the channel. It’s not clear whether a large number of companies that could pass as ideal SAP Business ByDesign partners are out there. Not yet, anyway.

That’s because there are a couple tricks to selling SAP Business ByDesign as a third-party reseller or integrator. One is that the traditional profit margin for the channel simply doesn’t exist with SAP Business ByDesign: the on-demand, model-driven, SOA-based underpinnings of SAP Business ByDesign eliminate enormous amounts of complexity from the implementation and integration processes, complexity that typically translates into big profits for channel partners.

This poses further challenges for SAP. Without the integration and implementation revenues, SAP’s channel partners will need to make up the shortfall in volume — all while selling a business solution directly to the CEO. Therein lies the multi-billion-dollar question: Where will the volume-oriented, mid-market CEO-savvy, reseller partners come from?

According to Apotheker, SAP’s top salesman, SAP will have to grow some new partners, steal others, and nurture them all for their role in this unique market opportunity. As with most aspects of SAP Business ByDesign, the channel-growing exercise takes time.

Meanwhile, SAP needs to keep moving with its “big iron” — SAP Business Suite — to make sure that the temptation noted by my CIO friend remains well tempered. That means continuing to innovate around verticals, support high levels of customization, and advance high-end offerings, such as governance, risk, and compliance and analytics, all while lowering the TCO.

The innovations that this new product brings to the mid-market must be matched, at least in the court of customer opinion, by a continuous stream of originality for SAP’s high-end customers. Why? Because, as everyone at SAP would agree, the last thing the company needs is a conflict between what is available for mid-market customers and what the top-tier customers are offered. This presents another dilemma.

An Opportunity with Teeth

In many ways the mid-market is a myth created to simplify vendors’ sales and marketing campaigns. In reality, the divisions that matter in the market are not between large companies and smaller companies. They are between companies that need technology to drive competitive advantage — no matter how complex the technology is — and companies that need technology to stay simple — no matter how much competitive advantage it yields.

It’s a given that SAP Business ByDesign will tempt big companies looking for simplicity, just as smaller companies that need lots of customization and vertical focus are going to be better off opting for SAP All-in-One, SAP’s more comprehensive on-premise mid-market product.

Either way, the latest addition to the SAP portfolio represents an enormous opportunity and an equally large set of potential problems. SAP’s challenge over the next year or two will be to navigate the problems while optimizing the opportunities. How it all ends may turn out to be the most important chapter in SAP’s 35-year history.

Joshua Greenbaum is a market research analyst and consultant specializing in the intersection of enterprise applications and e-business. Greenbaum has more than 15 years of experience in the industry as a computer programmer, systems analyst, author, and consultant. Before starting his own firm, Enterprise Applications Consulting (www.eaconsult.com), he was the founding director of the Packaged Software Strategies Service for Hurwitz Group. You can reach him at editor@netweavermagazine.com.

 

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