Cloud, SMEs and partners for SAP

SAP is looking towards a combination of the SME marketplace, an innovative partner community and the Cloud as the basis for its future development and growth.

This emerged from a recent round table session featuring Eric Duffaut, President of Global Ecosystem and Channels with the company. As Duffaut acknowledged, SAP used to be known for building complex software intended to solve complex problems. But that has now changed quite significantly.

“Now 50% of the revenue comes from outside of ERP, and the products the company offers are now relevant to companies of all sizes. For example, 80% of the revenue base now comes from the SME market sector. SAP is still not the company we want it to be, however. We want to be a $20bn company. Last years it was a $12.5bn business with an operating profit of $2.5bn, which is a close on 21% margin.”

Part of the plan underpinning this goal is the move to being what he calls an open innovator, working collaboratively with a growing network of partners to develop the SAP product and service portfolio. Partners, to SAP, represent an important extension to the sales force and the innovation force. The company is particularly looking at the potential of the mobile market and what he calls the unwired enterprise.

This is a market SAP now believes in. It is also a market that needs to be combined with the other thrust of SAP development, shortening the time to value. Cutting this time is now an important target for the company, particularly in the light of the well-entrenched perception of the company as often providing a different result.

The SME strategy is now the core element of the company’s plans for growth, and it now has a dedicated portfolio of solutions for the SME sector. Using this, the company aims to extend the SAP brand as a solution that can fit all areas and types of business.

According to John Antunes, SAP’s UK Director of SME and Channel, while the SME market is full of potential it is also fraught with danger:

“Recent research over the last 10 years of the Sunday Times Fast Track 100, which identifies the fastest growing businesses in the UK each year, shows that 53% of the companies in the 2001 list are now not trading. The key ingredients of the survivors are seen as good management, adaptability and innovation. And the latter is seen as not just developing new products but also developing the business to meet changes in the marketplace.”

There is an important point here, in that innovating at the business model level gets trickier the larger the business becomes, and it would be SAP’s contention that this soon gets to be only possible with the right management tools in place. The company’s approach to supporting SMEs using SAP is to have the right solution available to them at the right time. This means giving them the opportunity to mix and match on-demand and on-premise offerings, and deliver them to the right device, as and when needed by the user.

David Maitland, Head of Software Solutions at SAP partner 2e2, stated that he sees SAP’s Business By Design as being better than the competition, not least because in practice there is always a need for users – and SMEs in particular – to talk to people who know how business works. To this end, SAP has a comprehensive complement of consultants available for just such a purpose. Longevity and establishment is also important from the partners’ perspective, he suggested, and SAP has been around a long time, and will continue to be so.

Maitland's company is part of the innovation force SAP is building, having developed its own applications development kit to work with and as a complement to Business By Design. One particular area he expects to see strong innovation is in the application of Business Intelligence, building on the company’s acquisition of Business Objects. BI is seen as being particularly valuable to the SME community working in increasingly competitive markets.

The Cloud is also seen by Maitland as being an important tool for the partners to exploit, because it means that while the gross revenue per customer will be lower the margin will be higher:

“This is because the partners will be able to concentrate more effort on their particular IP and their specific systems integration capabilities that they can provide. The Cloud -based services will deliver the common, standard elements of SAP as foundation services on which the partners build. ”

Duffaut sees the Cloud giving partners much greater opportunity to build their own IP on top of SAP and monetising that. This, he suggested also opens up opportunities for new types of partner to appear. In fact he sees the Cloud bringing a re-intermediation in services available:

“We have no ambition to take Business By Design and use it to create all the tools and services that might be needed. We welcome co-innovation and we expect out partners to build most of the applications and services that users will require. We need to scale, so we need the partners to be more than the sum of the parts.”

This objective is based on building out its partner network, a move which does beg the question of its achievability. A classic model of the partner-based business model is Progress Software which, as the core provider of applications development software and technologies to a large, global partner community, is big and profitable. But the collective revenue of the partner ecosystem that is based upon that core software is many times larger.

In fact, it is quite possible that SAP’s ecosystem could easily top $20bn now, but with the new partner model coupled with the Cloud delivery model (which carries with it the attendant switch from licence sales to annuity revenue streams), it could find its own revenue growth actually slowing or flat-lining, at least for a while.

That is not to suggest it is therefore a wrong move: it is not. Indeed, it is an essential move if SAP is to ensure a strong presence in the SME ERP/BI markets as they cast their eyes in the direction of the likes of NetSuite and Microsoft.

But it is a move that will change the business model of the company itself, shifting some growth and revenue from its own bottom line to those of its partners, as well as helping those partner bottom lines to growth organically.

The SAP ecosystem could soon be generating huge revenues, but the company itself will need to prepare for getting a much reduced share.