SAP Boom is Here to Stay (Part Three)

By Sam Sliman
President, Optimal Solutions Integration

SAP's launch last week of its on-demand Business ByDesign midmarket solution is arguably the most significant event of the past decade in the enterprise software industry. It is only fitting that this third installment of my four-part article examines how SAP’s loud midmarket push might raise the present SAP consulting boom to a deafening roar.

For those of you living under a rock who haven’t yet heard the news, here’s the skinny version of SAP’s Business ByDesign announcement:

Unveiled September 19th, SAP Business ByDesign (SAP BBD) is an on-demand solution targeted at midsize companies (100 to 500 employees) looking to simplify their I.T. requirements while improving the efficiency and flexibility of their business processes. SAP BBD is designed around four key principles—completeness, ease of use, adaptability and significantly cutting total cost of ownership (TCO). The cost is $149 per user, per month with a minimum of 25 users. A $54 per month, per user price is available for up to five users—a plan designed for companies looking to access limited portions of the suite. No maximum number of users has been set.

Sizing up SAP’s midmarket push

• SAP estimates that there are more than 60,000 companies in the size range of 100 to 500 employees in Germany and the United States alone and sees a worldwide market potential of more than $15 billion. • To put it in ‘big-picture’ context, SAP hopes to boost the size of the addressable market for SAP solutions to $70B from $30B by 2010 with SAP BBD. • It is important to note that presently 65% of SAP’s total customer count is small to midsize businesses (SMBs). This translates to roughly 26,000 of its 39,000 total customers. Small and midsize businesses spend about $1 billion a year on SAP software licenses, which makes up about 30% of SAP's total licensing revenue. • SAP is very serious about its new Business ByDesign solution. SAP BBD has been under development for the past four years; one-fifth of the SAP's 12,300 developers are working on SAP BBD; and 95% of SAP BBD code has been created from scratch. SAP plans to spend approximately $500M on SAP BBD through the end of 2008, and expects to have 10,000 SAP BBD customers by 2010. Post 2010, SAP aims to win 10,000 new customers annually and $1 billion per year in new revenues from SAP BBD.

SAP midmarket consultant opportunities

To date, SAP has been fairly vague on market strategy details for SAP BBD, saying only that it will rely heavily on resellers and independent consultants who advise businesses on which software to buy and how to install it. Nonetheless, given the depth and breadth of the midmarket, and taking into consideration the eventuality that many midsize companies are on track to becoming large businesses, it is reasonable to assume that opportunities will abound in the midmarket space for consultants with the requisite SAP skills to facilitate growth.

Business process expertise

SAP consultants can play a vital role helping midsize clients with business process transformations and redesigns, as well as with selecting the best SAP solution for their immediate needs and future growth goals. Consultants with business process expertise are particularly relevant to an SAP BBD deployment, as the solution is specifically designed as an event-driven business process creation and automation tool. While implementation of SAP’s midmarket solutions is a far cry from the multi-month engagements that go along with a large-enterprise SAP ERP deployment, skilled SAP consultants are still needed to guide installation, integration and configuration. No question the projects will be smaller than those with large enterprises, but there will be orders of magnitude more of them.

Vertical market expertise and experience with international operations

SAP BBD is essentially a hosted ERP system, and ERP (unlike CRM, i.e. Salesforce.com) is complex, involving tasks such as supply chain management, procurement and accounting, for which requirements and regulations can vary greatly. Also, ERP is not standard across industries, nor even more importantly, across geographies. The regulatory differences are profound. Lastly, ERP has deep vertical content. Although SAP BBD is relatively easy to configure for smaller businesses with relatively straightforward needs, this on-demand solution will most likely require some degree of individual customization, particularly in cases where vertical expertise and international operations come into play.

Customization for a competitive advantage

Industry analyst Josh Greenbaum hits the nail on the head with his assessment in a recent blog post of SAP BBD's unique ability to help SMBs gain a competitive edge -- a capability, according to Greenbaum, utterly absent in existing SaaS solutions. To be sure, whenever there is a competitive advantage to be gained, there is sure to be a need for consultants capable of unleashing a solution’s full potential. The user interface for SAP BBD is decoupled from the business logic which lets users (through consultants) design their own interfaces. It is perhaps here, in customization for a competitive edge, where SAP consultants might discover a sweet spot.

SAP NetWeaver and SOA skills

With the launch of SAP Business ByDesign, SAP has re-affirmed its commitment to enterprise service oriented architecture (SOA). It is not incidental that SAP BBD is based on SAP NetWeaver middleware and an SOA design. When asked what happens when SAP BBD customers grow beyond 500 employees; and more specifically, if SAP will suggest these growing customers move to licensed, on-premise software, Apotheker responded: “I think [SAP BBD] will scale, and will continue to develop. It's not the final version. Partners will add to it. It's just the beginning and not the end.”

As is well known, SAP is in currently in the midst of transitioning its large-enterprise customer base to its new NetWeaver-based SAP ERP. Because SAP BBD runs on NetWeaver, it can access all the services in the overall SAP Enterprise Service Repository. Customers can expect SAP to fill in gaps and last-mile solutions via composites from partners. With this strategy, it is pretty clear that SAP has set fire to both ends of the SOA candle. Moving forward, SAP consultants adept in NetWeaver and skilled in SOA will be well positioned to provide services to a broad range of SAP customers—from small to medium to large.