Business ByDesign: so what’s up with this? (Part 4 of 4)

In my final view point on the SAP SME business, I come to SAP Business ByDesign; which was met with a lot of hoopla during it’s launch, but has moved ahead slowly, given that it is a SaaS solution, which represents not only a technology shift, but also a major business model shift for SAP. The company continues to state that the ERP SaaS solution is meant for companies with 150 users or less; while SAP CRM On-Demand, which is not part of the SME business unit, is meant for large enterprises. In any case, PAC has not heard anything about SAP CRM On-Demand since its launch, and expects either a new version as part of Business ByDesign, or a quiet sunset. While that's the company line, I do find it odd that SAP is stating that the less complex SaaS solution (SAP CRM On-Demand) is for large customers, when the majority of users of similar SaaS solutions are in fact SMBs.

As for SAP Business ByDesign, PAC had the chance to see yet another demo of the solution, and while it is intentionally kept simple visually (in order have the best page view performance over the web), the solution looks impressive in terms of the functional coverage and process orchestration that it offers. Even though today SAP is starting with small customers, with time PAC believes that it will be scaled to larger and larger customers.

As for potential partner involvement, SAP stated that 47 partners are currently shadowing early deployments and that eventually the servicing around Business ByDesign will need to be scaled in order for SAP to reach a profitable business model. From the statements of several Business ByDesign customers, it seems that SAP is leveraging a lot of resources to make sure that any problems or issues of the customer are quickly taken care of... obviously this kind of hand-holding cannot go on forever!

Given that SAP Business ByDesign is running under a SaaS model, the skills provided by IT services firms will be quite different compared to on-premise implementations, and based on early feedback from customers, there seems to be a strong need for:
• project management skills
• process definition
• change management consulting
• data migration/ETL and cleansing

While project services opportunities surrounding a SaaS solution are typically smaller than for a comparable on-premise solution; given the complexity, functionality and processes that Business ByDesign can support, PAC believes that the SAP solution will offer a greater opportunity around process consulting and change management, in comparison to the more common SaaS SFA/CRM solutions of today.

However, the far bigger opportunity for large IT services companies may come in the form of hosting opportunities. Unlike SaaS vendors such as Salesforce.com or Netsuite, SAP has mentioned that while right now they’re providing the hosting for Business ByDesign, at some point they will look into opening it up.

PAC believes this is a direction SAP must go, since the company has deliberately slowed-down the expansion of the SAP Business ByDesign customer base due to performance and profitability issues. By spreading out the infrastructure/hosting costs to IT services partners (who are structured to be profitable in such a business!), SAP will relieve itself of some of the costs that go into scaling such a solution. While at the same time, it can make the SAP SaaS solution more interesting than others on the market, since it would also allow for the inclusion of customers who would require a partner to host a SaaS solution, such as the Federal government or many retailers, banks, etc. For example, under the Federal Lines of Business initiative, it is foreseeable that a SaaS ERP solution could be hosted by an approved IT contractor, while delivering the multi-tenant scale and benefits of SaaS across multiple agencies.

At the same time, while infrastructure costs are a key issue for SAP on margins, it is also the service deliver and processes within the SaaS model (how to efficiently do updates, optimize performance, etc.) that has led SAP to take a more conservative approach in the launch of Business ByDesign.

So for today, I don’t see a place for large enterprise SAP services partners around Business ByDesign; however, when (and if) the hosting business is opened up to the ecosystem, it will become a lot more interesting!


Want more insights?
I hope that you enjoyed our in-depth view of the SAP SME business... of course PAC is covering this topic and many, many others concerning the SAP Services market across the globe, with local insights from a team of consultants in the US, Europe, Asia and Latin America.

If you'd like to learn more about our off-the-shelf research around SAP Services, email me at p.russo@pac-online.com or check out our mini-site at: www.pac-online.com/sap to view our new reports!

UK SAP Consulting Services Market Fights Against Tightening IT budgets

Despite the worsening conditions of the UK economy, the SAP Consulting Services (CS) market will continue to see a reasonable growth in the next couple of years. PAC expects a growth rate of 5.4% in 2008, which although is a significant decline from 2007 (7.1%) is performing above the market average for the overall UK consulting services business of 4.8%. The SAP CS is expected to remain stable as we progress into 2009 and will see recovery there after.

A number of organisations have been in the cycle of investing in SAP and the related consulting services, in terms of ERP upgrades and business transformation. This has helped maintain a good stream of revenues throughout 2007 and the first half of 2008. For instance, UK public sector has been showing an increasing interest in SAP enterprise application software and services as local government organisations are forced to enhance services they deliver to citizens as part of the Transformational Government Agenda. A number of SAP Services providers have revealed that they have a strong pipeline in this sector.

However Q2 2008 is currently proving to be more challenging as vendors begin to feel the pinch of tightened IT budgets as inflation and the cost of borrowing increases. The retail sector for example has been suffering greatly in 2008 as consumer spending has significantly declined, and is inevitably having a knock-on effect on IT spend. Such scenarios will contribute to the decline in growth rate for SAP CS in the short-term.

On the whole, demand for SAP CS continues to be strong taking into account the performance of the overall IT consulting services market. SAP's growing ecosystem of both local and global players has played a crucial role in helping to push sales and meet the growing demand.

For access to our new SAP Services UK reports, go to: www.pac-online.com/sap

Will Infosys’ Actions Trigger Further Consolidation in the UK?

The recent announcement of Infosys’ bid to buy Axon has come as no surprise. It was a matter of waiting to see which type of player would snap up the company – Indian offshore player vs. a “Western Inc”. While the Western players are ramping up their SAP services capabilities on the whole, the Indian players are striving to climb up the value chain and penetrate the UK with most of the Indian players already having established a vast amount of SAP resources offshore.

The acquisition will help Infosys to leapfrog to the leading pack of UK SAP-related Consulting Services providers, and is expected to rank at #4, after IBM, Accenture and SAP itself! Although if Axon’s double-digit growth continues the way it has been in 2007 at 16%, Infosys can potentially reach #3 in 2008.

The acquisition of Axon will leave very few SAP services specialists in the market, such as Bluefin Solutions and Absoft. On the other hand there are also ERP specialists that focus on SAP as one of their key areas of expertise along with Oracle and/or Microsoft Dynamics for instance, e.g. Chelford Solutions. These smaller providers will face increasing threat of being acquired as I expect Infosys’ actions will trigger other IT services providers to consider acquiring the remaining specialists before their rivals do.

Note: Axon UK is profile in my "Supplier & Positioning Analysis UK" report at www.pac-online.com/sap

SAP Simplifies the SMB Sales Process (Part 3 of 4)

One question PAC has had in the past with SAP’s SME business was how long the company could extensively use expensive resources and executives on SME-related sales and projects. And SAP has confessed that the company was spending too much in terms of resources for the much smaller deals that they were going after in the SME space.

In order to adjust their model, SAP has focused on continuing to build out its channel base and now states that there are over 2,100 indirect sales professionals in their SME ecosystem. However with a still limited revenue pool (especially for BusinessOne as well as newer offerings), there is only so much opportunity for partners currently. As a result, SAP has aggressively developed its telesales model around the SME products, especially for BusinessOne, in order to increase their SME market, while also introducing two very interesting web-based tools aimed at making the sales cycle more efficient for SAP and for partners.

1. The first tool encompasses all SME solutions:
www.sap-best-fit-adviser.com
This tool’s purpose is to guide prospects towards which SAP solutions are right for them, between the four ERP platforms. This also helps to screen leads from SAP, which they then flow out channel partners, unless it falls into their direct sales team.

2. The second, and more interesting tool, is focused around SAP All-in-One:
www.configurator.ch/dojo/apps/us/solution-configurator-v015.jsp?lang=en
It allows prospects to gauge what the total cost (including software, hardware (based on a 6-server infrastructure), implementation services and financing) to implement SAP All-in-One will be depending on their company size, industry and functional components to be leveraged. Working very much like a “Build my Car” feature on an automakers website, the pricing is only an estimate, but should be within +/-20% of the actual cost, according to SAP. All of the packaging falls within SAP’s “Fast-Start” program, which involves partners like HP, IBM and Intel on the hardware side, in addition to SUSE Linux, as the operating system, and SAP’s MaxDB, as the underlying database (which also is the database used in the Business ByDesign solution).

I believe that the addition of such tools show some progress made by SAP in adapting a portion of their business towards a more volume sales based model, something that clearly was foreign to the company 5 years ago, but is now maturing within the SME business unit.

Next: Business ByDesign: so what’s up with this?

HP Finalizes EDS Acquisition: #2 in IT Services; #7 in SAP Consulting Services

Now that it's official, it's time to see what effect the addition of EDS will have on HP's IT services business!

To start off, in the U.S., HP adds EDS' #2 position behind IBM to become a $17 billion IT services (Project Services+Outsourcing) company in the U.S. versus $20.1 billion for IBM in 2007 (according to PAC figures). For HP, this is a jump from #14 to #2.

For the SAP Consulting Services segment in the U.S. during the same period, the addition of EDS to HP would place the company as #7 in the U.S., up from HP's #15 position. So unlike the effect on its total IT services (and in particular, outsourcing) position, HP will be strengthened in the SAP space, but clearly will still be in "challenger" territory.

So what will EDS bring to the table for HP around SAP services?

While both company's took a very infrastructure-focused and "cost of running SAP" approach to clients, EDS will improve HP's position in Brazil and in the U.S., two areas where HP services related to SAP were quite weak, and will help expand HP's SAP client base beyond HP's manufacturing/SCM comfort zone.

At the same time, in my opinion, HP+EDS's global capabilities (business consulting; industry focus; SAP skills in each country) will still far from the leading players (SAP Consulting, Accenture and IBM), since both suppliers were still in a development mode as far as their respective SAP businesses are concerned prior to the acquisition. They were far from covering all topics, with a solid base of resources in all major regions/countries.

For more in-depth market research go to: www.pac-online.com/sap.

SAP SME: What Partners Should Know (Part 2 of 4)

In general, PAC believes that SAP All-in-One is currently the most interesting product for large SI’s covering SAP Consulting Services in the large enterprise who are considering to tap into a new growth segment in the upper-mid-market; while keeping an eye on the development and scaling of SAP Business ByDesign for the future.

As for SAP All-in-One, high growth verticals currently include high-tech, renewable energy, oil/gas, life sciences, CPG, services, retail and the public sector (local government focus). On the other hand, sectors where SAP is traditionally weak in the U.S., such as Financial Services, are not a major focus.

According to SAP, the company is most interested in “high-growth” vertical segments, where a company may be $100 million in size today, but looking to expand towards the future. And PAC agrees that SAP has an interesting message for such mid-market companies, since they offer simple / lower-TCO solutions, with the ability to scale-up to large enterprise solutions, being that Netweaver is becoming the common platform among SAP ERP 6.0 and the SAP SME solutions, and that SAP All-in-One is essentially a simplified version of ECC 6.0. Additionally, the clout that an SAP ERP solution can bring to a pre-IPO bio-tech (just as an example), is also a motivating factor for many such companies to choose SAP as opposed to other SMB ERP products out there.

Additionally, being a "bridge product" between the mid-market and large enterprise, SAP All-in-One also allows for a much easier re-tooling of existing skilled resources and to create a new business category within a partner's SAP practice. I believe this can be a very lucrative business for SAP Services challengers and "tier-2" IT services players given this complementary focus, and that the mid-market in particular is still seen as a major growth area for SAP in the mid-term... if successful, outpacing the large enterprise business!

Next: SAP Simplifies the SMB Sales Process (Part 3 of 4)

Infosys to Acquire Axon & Potentially a Top 10 Position!

Infosys announced today its intention to acquire the SAP-Services specialist Axon for approximately $750 million, at a 19.4% premium over their share price.

The acquisition will create the largest SAP-Services provider of the major Indian Offshore players, and should place Infosys somewhere inside of the top 10 suppliers of SAP Consulting Services in the U.S.

While Axon is still a relatively new name in the U.S., they themselves acquired a large market-share in the U.S. through the acquisitions of SAP specialists Zytalis, Premier HR and TUI Consulting. Key clients include Xerox, BP, Orange, TXU, Transport for London, as well as major sub-contracting engagements in the U.S., such as the Home Depot.

At first glance, while Axon does quite a bit in the SAP Consulting Services market as a sub-contractor, the combination with Infosys should strengthen their go-to-market approach by doubling resources, and bringing together on-site project management, training and implementation skills with Infosys' offshore delivery prowess around SAP.

Will this bring another wave of consolidation between challengers in the SAP Services market?
I believe so, since while SAP Consulting, Accenture and IBM have gained critical mass in this market by offering a consistent set of services and capabilities across most geographies, other IT services companies have struggled to become truly global suppliers to this segment.

Here is a UK-centric point of view of this acquisition from one of the UK's leading IT thought leaders (and a former PAC partner), Richard Holway.

An Update on SAP’s “SME Business Unit” (Part 1 of 4)

Following PAC's attendance of SAP's SME Influencer Event, I will be posting some of my takeaways on particular topics in 4 parts, including "what partners need to know," "simplifying the SME sales model" and "What's going on with SAP Business ByDesign?"

In my first entry, I thought it would be good to see how far the SAP SME business has come over the past +5 years...


SAP SME Business Update

Like many large software vendors, SAP has been aggressively targeting the SMB (small-to-medium sized business; SAP calls it “SME”) segment; and like almost everyone, this effort has been met with mixed results. It could be argued that the exceptions to this segment have been Intuit, who has a far simpler offering composed of accounting software and very light business functionality; as well as Microsoft, who is the king of the volume software business, but at the same time has had its own issues cracking into the SMB ERP business with its Dynamics solutions.

On the other hand, unlike its direct ERP competitors such as Oracle or Microsoft, SAP has actually been targeting the mid-market for a much longer time. For example, SAP R/3 was initially targeted in 1992 to subsidiaries and smaller divisions of its large enterprise customers with fewer than $100 million in revenues. However, in the end, R/3 rode the 3-tier architecture wave and became the #1 ERP product for large enterprises.

Following a few more attempts to offer simplified versions of R/3 to the SMB segment, SAP began earnestly targeting the segment again in late 2002 with the development of the SAP SME (small-to-medium-sized enterprise) business unit that combined SAP Ready-to-Run (now SAP All-in-One) and the acquisition of TopManage (now SAP BusinessOne), along with the development of a true indirect sales channel, which had been lacking in its previous attempts.

Fast-forwarding to today, SAP states that over 30% of SAP’s order entry is classified as “SME.” Considering that back in 2003 “SME” included companies with <$500 million in revenue, and couple of years later “SME” was adjusted to include companies <$1 billion in revenue; it is clear that a lot of direct / upper-mid-market SAP ERP 6.0 customers are captured in this figure. What I do find as impressive is that according to PAC’s own back-data and SAP’s new customer figures, since 2002, the SAP BusinessOne customer base has grown from ~800 customers to over 20,000 today; and SAP All-in-One has grown from ~4,000 (mainly in Central Europe) to over 12,000 today. Additionally, PAC estimated that there were approximately 300 active partners between SAP BusinessOne and All-in-One in 2003, and according to SAP, the number of partners has grown to nearly 2,200 today.

Other interesting facts & figures as Q208 include:

• 37,550 of SAP’s total 50,100 customer base are “SME”

• 85% of SAP’s SME customers come from partners sales

• The SAP All-in-One product is currently the main revenue driver (between the 3 SME products – All-in-One, BusinessOne, Business ByDesign); PAC estimates that slightly less than $1 billion is derived from this solution.

Up next... more on SAP All-in-One, and how large SI's can focus around this solution successfully!

Assessing the Business Objects Services Opportunity

With the acquisition of Business Objects, SAP has significantly broadened its BI footprint and has led many IT services partners to assess internally what their own Business Objects skills look like, and how best to fuel further growth in their SAP practice with these new solutions.

Attending SAP / Business Objects Industry Influencer Summit, I was able to first have some fresh information on the recent performance of the Business Objects business, as well as the integration of the company into SAP.

While pointing out that typical large software acquisitions are met with an initial 10-30% decline in revenues and new customers over the first four months, SAP claims that actual results beat their own forecasts, and results actually grew year-to-year in Q208. The company attributes this to keeping a fair amount of the Business Objects employee base intact, and maintaining Business Objects independence by creating a new business unit for the company’s operations while maintaining its branding as “Business Objects, an SAP company.” So while there may be a great deal of complexity being sorted out in how Business Objects will be integrated into Netweaver and other SAP software products, at the same time, the Business Objects business unit maintains an open-application stance, and as a result is free to aggressively pursue deals independent of SAP. An excellent example of this has been the Business Object’s On-Demand services, which is a fast growing offering aligned with Salesforce.com, pulling user data from Salesforce.com’s own datacenters. Another interesting side note is that all of the Business Objects employees who I met were still dishing out their far more colorful Business Object business cards, without any mention of “an SAP company.” So the common theme seems to be that it is business as usual…

In general, PAC foresees the growth and activity around Business Objects to continue to pick-up in the second half of 2008. The initial campaign to replace Hyperion in SAP accounts post-acquisition led to over 100 new customers in 100 days, according to SAP executives, and they now claim that they are currently running at a pace of 2 new customers per day! Some examples offered include Heinz, Airgas, City of Edmonton (which also had SAS and Cognos), Rezidor and Navy Federal (NFCU).

For the IT services provider partnered with SAP, the opportunity for added growth in the current economic client for the end of 2008 and into 2009 is quite attractive. During the event, SAP gathered several of its leading Business Objects partners on stages(Accenture, Deloitte and IBM) and their respective information management leaders to discuss the current business climate. It is clear that the market for all business intelligence solutions (Business Objects, Hyperion and Cognos) is quite strong, and in fact, counter-cyclical to the current economy in the U.S. One point that I found interesting mirrored what I have seen in my own research in U.S. retail sector IT spending habits. Unlike past economic downturns, there no longer seems to be across the board cuts made to IT. Rather, IT investments in the retail sector are being made aggressively in operational areas, where optimization can be applied to merchandise planning, and standardization of IMS (information management systems) can create huge maintenance savings along with productivity gains for the retailer. Many similar themes can be seen in nearly all sectors, accept perhaps for banking, as of now.

In terms of activities around SAP, the migration of SAP BW customers to Business Objects is widely expected in the coming years as a way for SAP customers to move into enterprise-wide information management as opposed to SAP-centered information management. SAP BPC (Business Planning & Consolidation – formerly Outlooksoft) is currently the hottest growing segment around information management, and while SAP is certainly strong on the structured-side of the governance topic, it remains to be seen how well they will fair on the unstructured side, which seems to be a key topic as well for CIO/CTO’s. An important point for IT services suppliers to consider is that the amount of work now done offshore around information management has surged. Some of the partners cited that as much as 90% of workdays were completed offshore on such projects, helping to reduce the total costs for customers.

Moving forward, while Business Objects solutions will continue to be positioned as application-independent, they will also taut the performance and interoperability gains by using Business Objects with SAP. This is clearly a theme in the coming release of SAP EPM 7.5 in 2009 where integration between Business Objects XI with SAP Netweaver will be completed. Another benefit will come with functionality synchronization, where configuration will be driven from the SAP ERP system automatically into EPM, GRC and Business Objects BI.

I believe that as a result, IT services suppliers aligned to SAP must do an internal audit to understand what Business Objects skills exist today and where? Some of the more advanced suppliers, such as Accenture, have long ago consolidated much of their BI platform resources into a single unit. The next step should lead to additional interaction and collaboration between SAP and Information Management practices within IT Services suppliers, as combined projects should increase. With the coming releases of Business Objects through 2010, there will be more and more processes running between various SAP application and Business Object, which may necessitate at least a portion of Business Objects resources being embedded within an SAP practice; similar to how many suppliers will allocate industry-specific resources to SAP.

SAP Business Objects and SME Analyst Event Coverage Next Week!

Next week PAC will be attending both SAP's "Business Objects Influencer Event" as well as a separate "SME Deep-Dive" in Boston.

With the integration of Business Objects operationally complete, PAC expects more news from SAP on its new strategy targeting the "business-user" and "office of the CFO" segments, as well as updates on the planned integrations between Business Objects (for my European colleagues, please stop calling it "B.O."! ;-)) and the rest of the newly formed business unit housing GRC, Duet and other SAP BI components.

On the SME side, PAC is of course very interested to hear what's new around Business ByDesign, following decelerated roll-out to GA. Particularly in the area of service delivery for Business ByDesign, will SAP consider opening up third-party hosting for its IT Services partners? Potentially opening up a huge opportunity in the mid-market?

...expect new postings next Tuesday, Wednesday and Thursday!

As for PAC's SAP Services Research, the "SAP Consulting Services Market in the UK - 2008" is now available online and is a thorough examination of this IT Services segment, trends, expectations and positioning. Expect the USA and Germany in the next couple of days, and Japan and France next week!