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SAP Touts SMB Progress, Allies with HP and IBM

Analysis of News Events
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Once the bellwether of large business enterprise resource planning (ERP), SAP is trying to show the world it can be all things to all people.


During the first week of May at its annual user conference SAPPHIRE 2008 Orlando, SAP made several announcements regarding its offerings for companies with 500-2,500 employees, which SAP calls small and midsize enterprise (SME). SAP said that its nearly 36,000 SME customers make up 75 percent of its customer base. That segment grew 28 percent over the previous year in the first quarter of 2008. SAP's SME growth was particularly good in Brazil, Russia, India, and China (BRIC). India is the fastest-growing SME market in terms of software revenue, SAP said.


SAP also noted the importance of partners to its SME success, claiming 85 percent of customers from that segment come to SAP via partners. The company said it would continue to invest in its partner ecosystem to support the growing SME marketplace needs.


Regarding products for managing small businesses (fewer than 100 employees), SAP provides an integrated application it calls SAP Business One. For midsize companies, it has SAP Business ByDesign, its on-demand solution, and SAP Business All-in-One, based on SAP ERP and NetWeaver technologies.


On the SME alliance front, SAP announced extended initiatives with Hewlett Packard (HP) and IBM. These announcements build the recently announced SAP Business All-in-One Fast-Start Program. Fast-Start, announced in late February, is a new program for SAP Business All-in-One that provides preconfigured industry-specific processes for midsize companies. The program includes an online "configurator" that estimates costs as well as needed hardware, software, and services. By entering the industry, number of employees, and number of users, one can get a quick cost estimate as well as a list of generic functions needed.


SAP said it would provide preconfigured, pretested, and preinstalled SAP Business All-in-One solutions on HP BladeSystem and HP ProLiant servers. The turnkey solution will include SAP Business All-in-One and the SAP MaxDB database. HP said it will base the solution on Novell's SUSE Linux Enterprise with systems built on the HP BladeSystem c3000 enclosure. SAP said this HP solution, specifically designed for midsize companies, will combine computing, networking, management, power and cooling, storage, and data protection within what it calls a single, affordable, and easy-to-manage enclosure. SAP asserts this solution will result in lower total cost of ownership (TCO) for midsize clients.


Not to be left out, longtime SAP partner IBM was central to another announcement at SAPPHIRE. SAP said it is expanding its relationship with IBM by packaging SAP software with IBM hardware. Less specific than the HP bundle, SAP said that it is "currently evaluating three potential offerings" and that customers will be able to choose among multiple preconfigured solutions. Hardware options will be IBM Power Systems, System x, and BladeCenter servers, while software will include SAP Business All-in-One, either IBM DB2 or SAP MaxDB database, and Novell's SUSE Linux Enterprise Server. SAP also said that clients will be able to order a preconfigured IBM Power Systems server consisting of SAP Business All-in-One and IBM DB2 running IBM i (formerly i5/OS).


SAP has enjoyed some success with its SAP All-in-One solutions, claiming its 10,000th customer in August 2007. A network of more than 1,000 SAP partners provide almost 700 versions of these solutions, which they develop, localize, and deliver based on industry-specific needs.


So has SAP finally arrived in the SME market? Way back in 1999, SAP introduced mySAP.com with much fanfare as well as market skepticism. The company had become known for one main product. Since that time, the company has grown from 21,000 employees to more than 51,000 and from $4.6 billion in annual revenues to $15.8 billion in 2007.Over time, mySAP, which started as an e-business initiative, morphed into a focus of its SME efforts. In 1999, many were wondering how SAP, a provider of huge, complex ERP systems to the world's largest entities, could possibly be successful going after the SME market.


While it was not a smooth road at all times, SAP eventually determined that partners and simplicity are keys to success in the SME market. In addition, since SMEs tend to use industry-specific software rather than generic, SAP has had to adjust its offerings to enable vertical solutions.


Furthermore, Software as a Service (SaaS) is growing in attraction to SMEs with a recent AMI report showing 21 percent of small businesses and 31 percent of midsize businesses using SaaS, double that of 2004. SAP has responded to the SaaS demand with its SAP Business ByDesign offering, now priced at $149 per person per month. However, SAP's co-CEO Leo Apotheker told reporters at SAPPHIRE that the online service is expensive to operate and therefore it would slice in half the spending on that solution.


Microsoft Dynamics (formerly Great Plains), Lawson, Sage, and Oracle are other prominent players in the SME ERP market. All except Oracle have their roots in SME, thus SAP often has an uphill battle to gain clients in that space. However, it has been aggressive in its marketing and pricing, luring many clients into its fold.


The partnership with IBM seems incomplete, while the announcement appears rushed, perhaps because of the coincident HP announcement. IBM can't be happy about SAP's database push or its operating system deals with Novell. While the companies surely build off one another, it is doubtful cooperation is consistent, which could lead to less-than-optimal integrations. By contrast, the HP bundle seems more packaged, with HP providing the hardware while SAP provides software. In the end, existing SAP customers of HP and IBM appear to have little reason to switch based on these announcements. The real proof of the pudding is going to be how well these solutions will be integrated. New SAP customers should investigate their options yet focus on the partner that will ultimately be central to implementation regardless of the package used.

Ron Exler

Ron Exler is a senior product manager at Arbitron, the media ratings company. Previously, he was an independent analyst and consultant. He was formerly Vice President and Research Fellow for Robert Frances Group (RFG), a provider of advisory services for information technology (IT) executives and vendors. Mr. Exler has worked with executives from some of the world's largest enterprises, so he understands how business executives make decisions. He also writes a blog (http://www.thegeofactor.com/) and was named one of the top English-language analyst bloggers by Technobabble 2.0. Mr. Exler has had more than 125 articles and technical papers published.


Prior to RFG, Mr. Exler worked for several enterprise software companies, including Landmark Systems (now ASG) and Intersolv (now Serena Software). He held positions in marketing, product management, research, sales support, software development, and training. He has an M.S. from the University of Wisconsin, Madison and also earned a B.S. from Oregon State University.



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