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SAP Loads a Silver Bullet

by Joshua Greenbaum | insiderPROFILES

October 1, 2010

SAP has a silver bullet of sorts — a solution that will significantly improve SAP Business ByDesign’s prospects in the market. It could even impact the entire on-demand ERP market in the future. Find out what this silver bullet is and how it could affect your organization.

It’s been almost three years since SAP launched, and then unlaunched, its SAP Business ByDesign on-demand ERP system. In the wake of the product’s re-launch last July, the question is now no longer whether the system will have a comeback, but rather what that comeback will look like for SAP and its prospective customers.

But before we delve into that issue, it’s important to ask: Is the small and midsize enterprise (SME) market ready for an on-demand ERP product that businesses can implement using a model-driven environment? In other words, does this product have any hope of attracting the thousands of buyers SAP needs to count it as a success?

To dig into the crux of the problem, we need to first answer an even bigger question: How is SAP supposed to build a partner base for selling a product that, by its very nature, eliminates a major source of partners’ income — that is, installing and maintaining enterprise software systems for SMEs?

The answer, it turns out, is that SAP has a solution — a silver bullet of sorts — that solves the partner problem handily and, in turn, will significantly improve SAP Business ByDesign’s prospects in the market. It will even, quite possibly, help change the rest of the on-demand ERP market.

So what lies behind this silver bullet? When it comes to driving thousands of paying customers to SAP Business ByDesign, product excellence isn’t all SAP needs to ensure success. A market full of buyers has to be clamoring, or at least thinking about clamoring, for a product like it. And a channel must exist that can find these prospective buyers, make a convincing enough argument for the product’s value to close the sale, and then actually make good money while delivering on the promise.

A Rocky Road Ahead: Recruiting a Partner Channel

Most SAP executives I’ve spoken with have acknowledged that successfully creating and driving a mid-market opportunity for SAP Business ByDesign wouldn’t be easy. After all, if it were a slam dunk, NetSuite would have done it already. The fact is that the products’ targeted market is proving to be a tough nut to crack.

Let’s start with the biggest issue — the infamous “channel” question — how to create a partner base that not only can, but wants to, sell SAP Business ByDesign. The margins on the product, combined with the need to secure tens of thousands of customers, means that SAP has to recruit and manage a host of partners who specialize in selling to SMEs in order to make good on its investment.

And these partners won’t be just any SME resellers — they’ll need some serious SAP street credibility. They will need to understand:

  • How to sell to a CEO (especially if the product’s selling point is that a company doesn’t need an IT department to run the software)
  • What makes a prospect’s business tick
  • Which regional or industry requirements might influence how customers buy

This ideal partner must also be able to fight off a major contender, Microsoft Dynamics, which has the number-one partner channel in the business and a pretty robust product set, which, while not yet ready for on-demand, is already available as a hosted product.

But to even begin to recruit these partners, SAP has to answer the margin question: How can partners make value-added revenue from a product that strips out the traditional design and implementation functions that have been the lifeblood of the SME partner channel since time immemorial?

The Silver Bullet: A Development Tool to the Rescue

SAP’s answer to the margin question — to be released by the end of the year — will not only offer something meaty that partners can build a business out of, but also help its customers deploy some very unique functionality that could position SAP Business ByDesign as an important part of their competitive profiles.

The answer is a new development tool, still without a formal name, that offers partners a way to build value-added functionality on top of SAP Business ByDesign. This tool will allow partners to use existing SAP Business ByDesign objects and functionality as building blocks for new apps and add-on functionality that can run on-demand alongside the system. SAP is also building out an applications marketplace to sell the partner products created with this tool.

This development is huge for SAP Business ByDesign, and it actually helps significantly roll back some of the other issues facing the product’s re-launch. Being able to build value-added apps means a partner can add industry- or geography-specific functionality to SAP Business ByDesign — giving the partner some serious margin points and the customer some serious competitive advantage. This way, the partners are not limited to just running a volume business — that is, selling a large quantity of product. Instead, they can take their innate value-add in a given industry or geography and use that expertise to build and deliver value on top of the product.

Following a Strong Precedent from Microsoft

This isn’t just a nice idea waiting to be tested in the market. In terms of the future success of the tool’s development environment, there’s actually a strong precedent to consider, and it comes from Microsoft’s customer relationship management (CRM) product, of all places. Microsoft CRM has a very similar tool, called xRM, which Microsoft’s CRM partners are using to build an impressive array of new functionality on top of the basic CRM package that Microsoft offers.

The beauty of xRM from a developer’s standpoint — and an advantage that SAP Business ByDesign’s toolset can count on — is that by starting the development process with an application that already has built-in data models, security, processes, and workflow, the developer can build custom apps much more quickly and accurately. The tool also allows partners to prototype a new app quickly, which helps tremendously in the sales process as well.

The ability to go where xRM has already tread makes SAP Business ByDesign’s development tool the chicken and the egg simultaneously. Armed with this tool, partners will have the incentive they need to get into the SAP Business ByDesign market and sell their value-added services.

Building a Viable Market

That value-added component — delivered in a cost-effective manner — will in turn help SAP start building a viable market for SAP Business ByDesign. On-demand ERP software to date has struggled with offering both low-cost deployment and high-value functionality, which is why NetSuite has had a relatively lackluster run of it. The ability to add “customized” value without breaking the value model of on-demand will help expand customers’ thinking about on-demand ERP and jumpstart latent market demand as well. 

Creating brand-new markets, channels, and customers to go with brand-new products is always a daunting challenge. SAP Business ByDesign’s silver bullet isn’t a guarantee. But if there’s a hope that the product will hit its mark, the new development tool is a big part of that hope — a very big part.

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