Buoyed by positive results in 2005, SAP executives are confident about capturing a bigger share of the market. The vendor is in the midst of enhancing its go-to-market strategy and is counting on its growing roster of channel partners to do battle with itWhen he looks at the competition for market share in the enterprise resource planning and customer relationship management space, SAP executive Rodney Seligmann recalls the Battle of Verdun.
The battle was a nine-month saga in 1916 during which 1 million French and German soldiers lost their lives for less than 100 meters of French countryside and a single hill.
"If you think about it and read the history, the irony is that there didn't need to be a battle at all," Seligmann said. "At any time, either party could have taken that hill and kept it."
In the eyes of Seligmann, the chief operating officer of the Waldor, Germany-based vendor's Territory Sales Organization, and of fellow generals at SAP, it appears the major combatants in the ERP and CRM space—SAP, Microsoft, Oracle and Sage—are drawing and redrawing the trench lines much as French and German field marshals sketched them in 1916.
The market leaders often cite market share among each other—SAP, 38 percent; Microsoft, 24 percent; Oracle and Sage, 19 percent each—Seligmann said, but fail to account for the fact that as a total of the potential ERP market, the four and several smaller players account for only 7.7 percent of the market.
"Ninety-two point three percent of the market is open space," he said. "The time for us to win and gain open space is right now, before anyone else does. This morning someone bought some software; if not from us, there is less open space out there."
New Plan of Attack
With a new go-to-market strategy designed to leverage direct sales, resellers and independent software vendors, the software vendor has positioned itself to break out from the trenches this quarter and capture enough open space in the next 12 to 18 months to end the long-running battle for ERP dominance, SAP officials announced at its Field Kick-Off Meeting for sales executives and partners this week in San Antonio.
Under the new plan of attack, ISVs will build industry-specific, out-of-the-box solutions from its Business One and All-in-One applications that can be marketed and deployed quickly into "micro-verticals" in the SME (small and midsize enterprise)—companies under $1.5 billion annually—through a combination of resellers and direct sales resources.
Direct and channel sales will operate as a single unit in the SME space and account executives and regional sales managers will be compensated equally for channel sales in their territory and are expected to deploy the channel to meet larger quotas, SAP officials said.
The micro-vertical strategy is designed to build prefabricated solutions from All-in-One and Business One with industry and even role-specific functionality, deploy easily and spread through the market rapidly, said John Haddad, managing director of Small and Medium Enterprises at IDS Scheer, a business process management firm and All-in-One partner.
"It allows us to go out there and go nuts," Haddad said. "The key to the All-in-One sales is repeatability. It's all built, it's all tested, and it's all referenceable. We can promise to deliver it in a fixed time, at a fixed scope, for a fixed price. That's important to an SME who doesn't have the time to waste."
"I lead with the price," said Scott McMahon, a partner in Apollo Consulting, a business process management consultant and Business One reseller. "Because there's no question about what the cost will be, I can lead with it and the customer doesn't have to walk down the road of the sales cycle worried about what price they will find at the end."
Next page: SME opportunity is outpacing the enterprise.
SAP's new direction is a recognition of opportunity shrinking in the large enterprise and growing in the SME, SAP officials and partners acknowledged.
"Their ideas about the opportunity are spot on, especially in the SME," said Daniel Head, director of sales at SoftBrands, a manufacturing solution provider and Business One partner. "SAP's finally discovered the white space. It's SAP, Microsoft, Oracle and everyone else. Look where their core competencies are. Microsoft's is in office applications, Oracle's is in database applications. SAP is the only one with a core business in business applications. They're the only player in this space gearing their business model around their strength."
According to SAP estimates the enterprise space comprises some 45,000 companies and 49 percent of the nearly $1 trillion spent on IT annually. The SME space accounts for nearly 79 million businesses—614,000 midsize (between $100 million and $1.5 billion in annual revenue); 78.3 million small enterprises (between $10 million and $100 million)—and 51 percent of the IT spend.
SME, which grew by 14 percent in 2005, is outpacing the enterprise, which grew about 4 percent last year, according to SAP statistics. The space is expected to grow by more than 8 million firms by 2008.
The market also is maturing, said Ralf Mehnert-Meland, director of business development for SAP's Business One unit.
"The truth is, there is the Fortune 1000 and there is the Fortune 10,000, and those companies are growing sophisticated, as sophisticated as their larger cousins," Mehnert-Meland said.
"A $30 million company is much closer in needs to a $300 million company than a $3 million company. They need the same speed and capability of an enterprise company, but they don't have the same resources. You must have a product that addresses those resources."
Next page: "We are counting on the channel."
Recognizing the differences in the nature of the applications and customers, SAP is developing separate channel communities for All-in-One and Business One.
All-in-One VAR and ISV partners will develop and deploy micro-vertical solutions nationally because the program requires deep business process knowledge. Solutions will be sold collaboratively by the ISVs, their own resellers and SAP sales units.
Business One ISVs will build add-on applications for micro-vertical industries, which will be sold by resellers based on geography, where locally based organizations can provide more support for small organizations. The program will be 100 percent channel-based.
"We are counting on the channel to make this happen," said Michael Sotnick, SAP's senior vice president for SME business. "They're the only ones who can deliver this kind of coverage."
SAP's channel is already reaping rewards, said Donna Troy, senior vice president of global SME indirect channels. The channel picked up some 5,500 new customers in 2005—1,700 All-in-One and 3,800 Business One—a 49 percent jump and more than half of SAP's total growth for the period.
To support the channel, SAP is rolling out 14 new or improved tools to its PartnerEdge Program in 2006.
The company also is recruiting new partner locations for its Business One program (278 in 2005) and new vertical solutions from partners for the All-in-One program (48 for a total of 550 in 2005). Channel executives are careful to note that they would prefer existing partners open new locations or vertical practices before recruiting new foot soldiers.
"The fewer partners the better as far as a management issue," said Dan Kraus, vice president of SAP Business One. "It's fewer resources, fewer personalities, fewer things to worry about from a business planning perspective. We always want to think about helping a partner put feet on the street in a new location or a new vertical before we go after a new partner."
Because of the limited channel strategy and the equal compensation measures for in-house sales, partners said infighting and channel conflict are nonexistent at SAP.
Next page: Marshalling support.
Regardless of the solution's capabilities, however, SAP is charging uphill into the smaller market, where the company's reputation for big business solutions scares off some customers, partners acknowledged.
To change the image, SAP is launching a multimillion-dollar marketing campaign that includes a "major" advertising buy, to deliver the message that SAP is designed to fit small shops, said Scott Lutz, the software maker's vice president of small and midsize enterprise marketing.
"When I first started doing SAP [two years earlier], it was originally a hard time convincing some that this was a good fit," said Carl Marin, vice president of Radio Beacon, a warehouse management solution provider and Business One partner. "They have done such a good job disputing that myth that sometimes customers discount SAP as too small. It's a lack of awareness that will be corrected this year."
Much of the awareness will likely come from SAP's base in the Fortune 1000, where it can trickle down to their subsidiaries, suppliers and partners in the SME, said Head, of SoftBrands.
"For so many companies, even if they don't know it, they are already touched by SAP, they're already SAP-centric," he said. "Forty percent of the [enterprise] market runs SAP. If you're a contract manufacturer for a chemical company in Cincinnati that runs SAP, you could keep your own costs down by running SAP. Many people aren't even aware of their SAP influence. It's a fact we make them aware of."
Such situations are a sign to Seligmann that SAP and the market are ready to take the field this year.
"What makes this the year to do this is that everything is maturing at once," Seligmann said. "The partners, the solutions, the organization, brand awareness, the market are all ready for this. This battle will be won or lost in the next four to six quarters, and I want to truly win this before we're fighting over inches and feet."
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