SAPs Business ByDesign
Brings Partner Conundrums in SAAS Model “>
SAP has spent four years and somewhere between $400 million and $500 million building its newly announced Business ByDesign software suite, an on-demand integrated package of applications geared toward the midmarket.
Billed as the worlds largest business applications company, SAP is pitching the suite as something that is completely different from its legacy, on-premises ERP (enterprise resource planning) software. In contrast, Business ByDesign will be affordable, much faster to deploy and have a lower total cost of ownership, company officials have said.
That approach—faster, easier and cheaper—will require a different way of thinking not only for SAP, but for the partner channel the Walldorf, Germany, company is looking to build. While SAP currently has about 2,500 partners selling its midmarket software to between 25,000 and 29,000 customers, the fact is those partners have built their business around a rather standard business model in the software industry: relatively low volume and high earnings based on annual license and maintenance revenues.
The Business ByDesign model, in contrast, is one of high volume and relatively low monthly revenues.
Companies like Salesforce.com, which has built one of the largest SAAS (software as a service) channels in the world, are already charting the on-demand byways. Its no secret that the road to profitability is longer in the SAAS world than it is in the on-premises one.
Click here to read more about the battle for on-demand supremacy between SAP and Salesforce.com.
Theres also a shift in the type of partners SAP will need to sell Business ByDesign. Whereas the companys current partners are by nature technically savvy, those skills will likely not be as heavily relied upon with Business ByDesign, which uses an integrated software model to enable business processes. The idea, said SAP Deputy CEO Leo Apotheker, is that systems integrators will not be part of the Business ByDesign implementation road map.
“What we need [are] partners that have an understanding of the business of customers. You dont necessarily need to have superior deep technology and IT knowledge. What you need to have is business savvy to support customers, to be able to visualize and help customers get the most benefits out of the technology,” Apotheker said in an interview with eWEEK. “You dont have to be a technology company to [resell] Business ByDesign. We will supply the technology.”
But in its quest to sell Business ByDesign to 10,000 new customers by 2010—and build a channel to do so—SAP has some challenges in front of it.
AMR Research analyst Simon Jacobson said in a Sept. 21 research note that outside of CRM [customer relationship management] and some business-to-business functions, “we have yet to see whether the market for SAAS-based ERP products is viable. Overcoming the skepticism of CIOs to have all their enterprise data hosted outside their firewall is no small undertaking. Demonstrating to partners that there is a profitable reality to participating in the evolving ecosystem to support this new application will not be easy.”
The catch comes in the fact that demonstrating to partners that there is a profitable reality to participating in the Business ByDesign ecosystem will not be easy, Jacobson said.
Business ByDesign is targeted toward companies with between 100 and 500 employees. It is designed to fill the gap between SAPs two current midmarket products: SAP Business One, for companies with fewer than 100 employees, and SAP All-in-One, for companies with more than 500 employees.
Apotheker said he expects partners to come from a variety of sources—SAPs existing All-in-One partner channel, NetWeaver (the underlying integration and orchestration platform for Business ByDesign) and totally new sources.
“Some of our existing All-in-One partners have expressed an interest in a separate business model for Business ByDesign and we have some new partners showing up,” he said. “Some partners are actually creating businesses to support and resell Business ByDesign. All variety of partners are approaching us on this.”
Apotheker said he is not trying to build a single channel but rather multiple channels. “There is a great business opportunity as well for partners to use our infrastructure, our components, our composition capabilities to build solutions,” he said. “So, for example, if someone has a desire to build Web 2.0 add-ons or widgets, this company would be using SAP technology to sew together [components] with SAP Business ByDesign.”
While using Business ByDesign as a platform would arguably bring in those tech-savvy partners used to working with SAP now—particularly SIs specializing in building composite applications using NetWeaver—the model still represents a shift from old to new.
“The main challenge is that SAP is asking for something that companies havent traditionally asked for in a channel,” said Joshua Greenbaum, an analyst with Enterprise Applications Consulting. “On the one hand, they are asking partners to be very savvy selling business solutions to a business person. On the other hand [the partners would need to be] content on making profits of low margin, high volume. Business ByDesign removes the implementation, integration and customization costs that have traditionally been the bread and butter of most partners.”
There are not, according to Greenbaum, many examples of high-quality, high-volume partners out there. “Its going to be a challenge for SAP to find, nurture and build a critical mass” of partners for Business ByDesign, he said. “On the other hand, the product has enough promise that it will happen.”
As Greenbaum and other IT analysts have said, where SAP will find a critical mass of partners is a complicated question. The issue is two-fold. First, SAP has to be careful not to cannibalize its current channel. While All-in-One partners who already sell to the midmarket would be a natural fit for Business ByDesign—maybe building SAAS as a second line of business—the volume versus low value might not be a sufficient motivator for those partners. The other issue, while unspoken by SAP, is that the company will likely look to Microsofts well-established midmarket channel as a logical place to cull from. But that leaves potential partners in a quandary.
“SAP is hoping Microsoft partners will take an interest,” said Greenbaum. “But [partners] are going to have to take sides. Microsofts approach has been to go after SAPs customers. Thats going to put partners in a position—and they probably wouldnt want to play that competition game—where they will have to pick one or the other.”
While Microsoft has largely relied on an indirect channel model to sell both its Dynamics suite of applications, as it moves to more of a SAAS model for delivery, the Redmond, Wash., company faces issues similar to SAP—how to get technology-heavy partners to sell business solutions. “Its not going to emerge overnight,” said Greenbaum.
Microsoft is investing $20 million in its Dynamics partner network. Click here to read more.
Interestingly, Microsoft announced Sept. 27 that it will offer its Premier Support to its Dynamics customers. The offer is designed to simplify the processes and decrease the complexity involved in supporting the Dynamics portfolio of applications. The Premier Support package includes a single point of contact through a technical account manager, a single process for engagement, access to expertise on infrastructure and applications, and on-site support. The interesting part is that the service will be supported by Microsoft and not its partner channel—leaving questions of just how much partner roles are changing in the evolving applications market.
“We work together with partners to deliver Premier Support Offering to our customers via one point of contact, which is the best of both worlds in terms of partner insight and vendor knowledge,” Andy Beadle, group manager of Worldwide Enterprise Support Services at Microsoft, said in an e-mail to eWEEK. “Premier allows us to continue the best practices collaboration skills demonstrated in the Microsoft Dynamics Support business and engage with the Microsoft Dynamics implementation partners (both verbal and automated) for both proactive and reactive services.”
Not only will SAP host the Business ByDesign suite—cutting that part of the equation out for potential partners, at least in the short term—it will also perform the application management services for a centralized upgrade and support structure, said AMRs Jacobson.
“This ultimately fosters a closed loop between how SAP manages the products sale and management. While SAP is doing the initial hosting, expect it to farm that function out over time,” he said.
But SAP, like Microsoft, has the luxury of time afforded by a hefty bank balance to develop a channel-building strategy. SAP is taking a phased approach to releasing Business ByDesign—its been tested by 20 beta customers and will be tested by 20 more, with 40 additional customers in the pipeline—until its full release next year. SAP will also take a phased approach to building a channel, putting its direct sales team on board first and using much of 2008 to figure out how to build its channel.
“SAP will rely on a direct sales force to create the model, create the demand, and fulfill it,” Jacobson wrote in his research note. “Once it hits the appropriate volume, SAP can then truly begin to rely on the partners to fulfill the heavy lifting.”
Jacobson said SAP is proposing a royalty split that creates the incentive for partners to sell—though its not clear yet what that split is. He said that because the deals are designed to reach people who traditionally do not buy SAP software, he expects to see new skill sets emerge from the partner channel. Those could include telesales and marketing, data conversion tool sets for some legacy packages, and eventually hosting services.
As Business ByDesign takes on critical mass—ultimately a measure of the softwares success or failure—Greenbaum sees a different set of partners emerging, those who do a lot of integration work, bridging Business ByDesign with SAP and non-SAP systems.
“Initially there will be relatively few companies in terms of doing rather complex integrations,” he said. “But if Business ByDesign is going to be successful, it is going to be integrated with a lot of back-office, non-SAP systems. That will in effect be the measure of its success—how central it is to an overall company and how deeply committed they are to the product.”
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