SAP’s Big Bet on SMBs—With a Fast Growth, Millenial Twist

sapEarlier this week, I had the opportunity to meet with Kevin Gilroy, SAP’s Senior VP and GM for Global Small and Midsize Enterprise Segment & Indirect Channels to hear about SAP’s plans to go big in the small and medium business market, which SAP refers to as small and medium enterprises (SMEs). In a nutshell, the vendor is dramatically ramping up market, channel and solution initiatives to boost its profile and market share in SME.

These initiatives come with an interesting twist. Much of what SAP intends to do in the SME space will focus on recruiting partners—from both developer and VAR ranks—who can provide start-up millennial businesses with next generation solutions to help them grow at lightening speed.

The company claims that it is coming at this from a position of strength, with 80% of its 253,000 customers coming from the  SME ranks. But, SAP’s defines SMEs, as companies with revenues under $1 billion, which skews larger than how most vendors and analysts define it. So what shape will SAP’s new SME initiatives take?

Sharpening the SME Lens

telescopeTo put things in context, SAP’s courtship of SME isn’t new. As I discussed in Top SMB Takeaways: SAP Sapphire 2013, SAP has been sharpening its SME lens for a while. Last year, the vendor announced several new programs to bring the benefits of HANA’s data-crunching power to SMEs,  provide customers with the choice of running its solutions in public, private or hybrid cloud environments, and to make its solutions easier to buy and use.

As I noted in that post, SAP was focusing these initiatives not at the SME masses, but on high-growth SMEs, which SMB Group call Progressive SMBs. Progressive SMBs are growth driven, and more likely to invest in and use technology to gain market and competitive advantage than other SMBs. Our data shows that Progressive SMBs are also much more likely to anticipate revenue gains than peers whose tech investments are flat or declining.

Now, SAP is further sharpening the lens to zero in on millennials that are starting, running and making decisions in SME companies. According to Gilroy, millenials have a different view on technology than older counterparts. They are more comfortable with technology, and more likely to view it as a growth engine, instead of as a cost-cutter.

With a broad portfolio of cloud, mobile, analytics, ecommerce, talent management and ERP solutions, SAP offers many entry points for  these SMEs. The vendor has made some key acquisitions, including Ariba for ecommerce, and Success Factors for talent management, that broaden its footprint in the born on the cloud solution space. SAP has also introduced cloud-based options for many of its traditional on-premises solutions, such as SAP Business One. SMEs often prefer cloud solutions because they can usually be deployed faster, with less technical expertise and without big upfront capital expenditures, paving they way for SAP and its partners to expand their addressable market.

Furthermore, SAP is infusing HANA into its SME offerings, announcing general availability of the 9.0 version of the SAP® Business One application, version for SAP HANA. This is the first business management solution for SMEs running on SAP’s in-memory HANA computing platform. It enables SMEs to analyze structured and unstructured information within seconds instead of days, and use predictive analytics to gain new insights into data and optimize business decision-making.

Powering Up Partner Programs

1-hands-holding-jigsawSAP is powering up partner recruitment to fuel SME expansion. The vendor recruited 500 partners in 2013, growing the partner base to more than 11,500 worldwide, with about 1,000 in the U.S. Gilroy indicated that SAP is planning for double-digit channel growth, but will take a selective recruiting tack. In addition to looking for partners with a next-generation development vision, such as Liquid Analytics, SAP wants partners that are ready to scale their businesses to keep pace with SAP’s double-digit growth in SME.

The vendor has introduced and refreshed several programs to help partners go to market more effectively, including:

  • SAP Marketing University, a free, foundational marketing program to empower partners with the marketing skills they need to grow their businesses. SAP indicates the program has already led to over $1 billion in lead generation activities. Once partners have gone through the program, SAP provides them with the same marketing assets that are available to its internal marketing and sales teams.
  • Partner involvement in SAP’s Run Like Never Before ad campaign, launched in October of 2013. To data, more than 200 partners have taken executed campaigns as part of this program, which is 100% MDF reimbursable.
  • New “buy now, pay later” SME financing options that give SMEs zero-percent financing for up to 24 months for the purchase of any SAP product on the reseller price list.

Perspective

We’ve all seen how quickly innovative, fast-growth SMEs can become marquee brands, from tech sector stars such as LinkedIn to consumer brands such as Green Mountain coffee . SAP sees this too—and that technology is putting the creation-destruction cycle for businesses in hyper-drive.

So SAP’s big bet on becoming the leading IT solutions provider for these high-growth SMEs makes sense. As important, SAP is making an authentic effort to consumerize the SAP experience by reducing friction in choosing, buying and using SAP solutions.

But in this noisy SME space, crowded with competitors coveting the same high-growth SMEs, SAP still needs to do more to dispel the long-standing myth that SAP is only a big business brand. Although SAP solutions may be a good fit for high-growth SMEs, the vendor isn’t a household name with them or the millenials that its is seeking out.

SAP will also need to be cautious not to overplay the millennial hand. While millenials are likely to be more digitally savvy than older generations, the U.S. Small Business Administration says that self-employment among younger age groups has actually been dropping. From 2005 to 2010, self-employment among indi­viduals age 25 and under decreased 19 percent, compared to a 7 percent drop in the overall population. In reality, self-employment rates increase with age. For example, they were 2 percent for those 25 and under and 23 percent for those 65 and over in 2010. Simply stated, while millenials may prove to apply technology in business in more innovative ways, they are a relatively small part of the entrepreneurial population.

However, SAP is moving in the right direction. As it increases its investment to understand and engage with SMEs, SAP can continue to fine-tune its SMB story, and widen the circle of high-growth SMEs that will hear it and relate to it.

SMB Technology: Mind, Matter, Money–and the Cloud

SMB Group recently wrapped up our 2014 Small and Medium Business Routes to Market Study, in which we looked how U.S. SMB (small businesses are defined as those with 1-99 employees, medium businesses as those with 100-999 employees) technology adoption and the buying cycle in ten key solution areas. As part of this study, we gather SMB perspectives their top business challenges, how technology impacts their businesses and technology spending plans.

Top of Mind: SMB Business Challenges

As SMBs grow, so do their top business challenges, as shown on Figure 1. Small businesses with are most concerned with growth and cash flow issues, such as attracting new customers (57%), growing revenue (47%) and improving cash flow (37%).  These challenges remain important for medium businesses, with growing revenue (45%) and attracting new customers (40%) continuing to top the list.

Figure 1: Top SMB Business Challenges

Slide1

Business growth creates added complexity and some very significant differences in terms of business challenges. Most notably, medium businesses (33%) are twice as likely as small (16%) to view attracting and retaining quality employees and securing and protecting my company information as threats (22% and 9%, respectively) as one of their top three priorities. Medium businesses are also much more likely to put improving customer experience and improving employee productivity as a top challenge than small businesses.

Technology Matters

Regardless of what their top business challenges are, SMBs share a mostly positive view about technology’s role in helping their businesses. As Figure 2 reveals, 67% of small and 81% of medium businesses say that technology solutions help them to run their businesses better or that technology solutions help them to significantly improve business outcomes.

Figure 2: SMB Views About Technology’s Role in Business

Slide2

SMB IT Spending: A Mixed Bag

While most SMBs’ believe that technology helps them achieve business goals, IT spending plans are a mixed bag. Although 46% of small businesses plan to increase IT spending over the next year, 45% anticipate flat or decreased spending on technology (Figure 3). Considering that 51% small businesses spend less than $10,000 annually on IT (excluding salaries).

For medium businesses, the calculus is more bullish, with 57% expecting to spend more on technology, and just 35% expecting flat or decreased technology spending. However, most medium businesses plan for a relatively modest 1% to 10% IT spending increase.

Figure 3: SMB Technology Spending Outlook

Slide3

SMB Group recently wrapped up our “2014 Small and Medium Business Routes to Market Study,” in which we

And the Cloud…

The good news for technology vendors is that most SMBs are making the technology-business performance connection. In addition, cloud-based solutions are making easier than ever for SMBs to benefit from technology. Our study shows that SMBs are steadily moving to the cloud, which eliminates the barrier of big upfront capital investments. All else being equal, the cloud has made it easier for SMBs to digest technology—both financially and technically—than comparable on-premises offering.

However, given IT spending constraints, and the exponentially expanding array of tech solutions, vendors need to double down on demonstrating a direct relationship between helping SMBs gain business outcomes in the areas most critical to their businesses.

Reading between the lines, it may be time to look at cloud pricing models the financial ability of SMBs to absorb additional monthly subscription costs. In anecdotal conversations with SMBs, I’m hearing more lately about what I call “subscription fatigue.” While price of an individual cloud solution may be quite reasonable, the costs for multiple solutions can add up quickly–and so can the complexity of managing different contracts. As monthly bills mount, solution vendors will need to go the extra mile to prove value–and continue to prove it month to month.

In addition, especially in the small business space, some vendors, such as Google and Intuit, are moving to push the cloud price curve significantly downward. All of which points to the fact that its time for cloud vendors that target SMBs to take a more realistic look at the pricing and pricing models that they will need to build significant volume in these markets.

For more information

SMB Group’s 2014 Small and Medium Business Routes to Market Study examines how U.S. SMB technology adoption and the buying cycle in ten key solution areas:

Business solutions: ERP, financial and accounting; collaboration; marketing automation, contact and customer management, workforce management, business intelligence and analytics.

Infrastructure solutions: security; data backup, online storage and sharing; server virtualization; desktop virtualization; integration.

The study assesses the entire SMB technology solution purchase cycle, including needs identification, information sources, advice sources, key selection and short-list criteria, and purchase channels. Fielded in February 2014, the study is based on the results of a 700-respondent web-based survey of SMB technology solution decision makers and influencers, and segmented into eight employee-size segments and 18 vertical industries.

Please contact Lisa Lincoln at (508) 734-5658 or lisa.lincoln70@smb-gr.com for more information about the study, including a Table of Contents.

Cloud Is The New Normal for SMBs—But Integration Isn’t

SMB Group recently wrapped up our “2014 Small and Medium Business Routes to Market Study,” in which we looked how U.S. SMB technology adoption and the buying cycle in ten key solution areas, as shown below.

Business Application Solutions

IT Infrastructure Solutions

·   ERP, Financial and Accounting

·  Security

·   Collaboration

·  Data Backup

·   Marketing Automation

·  Online Storage and Sharing (new addition for 2014)

·   Contact and Customer Management

·  Server Virtualization

·   Workforce Management (new addition for 2014)

·  Desktop Virtualization

·   Business Intelligence and Analytics

·  Integration (new addition for 2014)

Cloud Adoption is Soaring

The most dramatic finding is that 92% of SMBs are now using at least one cloud business solution, and 87% already use at least one cloud infrastructure solution. (Figure 1).

Figure 1: SMB Cloud Adoption

cloud adopt

Furthermore, when compared with our 2012 Small and Medium Business Routes to Market Study, we see  cloud adoption increasing in every solution area. For example, since 2012, SMB cloud adoption is up 10% for collaboration, 5% for business analytics and 2% for accounting and ERP. The same types of gains hold true for infrastructure  applications. In addition, we see that as SMBs shift to the cloud, purchase channels are also changing to favor direct purchase from software or a software-as-a-service/cloud vendors  and to managed service providers (MSPs).

Integration Remains Problematic

However, while the cloud has made it much easier for SMBs to access and use new applications, it has yet to do much to help SMBs integrate them. Although 63% of SMBs have at least partially integrated some applications, 79% still rely on manual Excel file uploads or custom code for integration, instead of using modern integration solutions or pre-integrated solutions (Figure 2).

Figure 2: SMB Integration Methods

integration

Integration is essential to helping SMBs reap the full business process value of new applications—and of course to gaining a more unified, consistent view of the business. But as this research signals, vendors need to do a lot more both to educate SMBs about the value of application integration, and to make their integration solutions easier to use and more affordable.

For more information

SMB Group’s 2014 Small and Medium Business Routes to Market Study assesses the entire SMB technology solution purchase cycle, including needs identification, information sources, advice sources, key selection and short-list criteria, and purchase channels. Fielded in February 2014, the study is based on the results of a 700-respondent web-based survey of SMB technology solution decision makers and influencers, and segmented into eight employee-size segments and 18 vertical industries.

Please contact Lisa Lincoln at (508) 734-5658 or lisa.lincoln70@smb-gr.com for more information about the study, including a Table of Contents.

 

 

New Patterns Emerge: IBM PureApplication Service Takes to the Cloud

ibmpulseEarlier this week, I attended IBM Pulse along with a crowd of about 11,000 other customer, partner, press, influencer and analyst attendees. Historically, Pulse has been the IBM event that focuses on service management and infrastructure. This year, the vendor positioned Pulse as “the premier cloud computing conference.”

Pulse followed closely on the heels of IBM’s acquisition of SoftLayer last year, and on its decision to put SoftLayer technology at the center of its cloud strategy. So it’s not surprising that many industry observers viewed the event as a great opportunity to reassess IBM’s cloud strategy at a time when customers are accelerating towards the cloud. How ready is 104 year-old Big Blue to compete in the cloud infrastructure and platform as-a-service (IaaS and PaaS) space against players such as Amazon, Google and Salesforce.com’s Heroku as technology transforms at a dizzying rate?

The sweeping range of announcements that IBM unleashed signal that it is now all in on cloud computing. IBM launched Bluemix, an open-standards, cloud-based platform to build, manage and run applications; announced its acquisition of Cloudant, a cloud-only database as a service (DBaaS) for building mobile and web apps; introduced Service Engage, which provides cloud-based subscriptions for systems management; and cited plans to bring Power Systems into SoftLayer’s cloud to support Watson-based analytics solutions.

In addition, IBM announced that it is bringing the power of its PureSystems patterns approach to the cloud. Extending PureSystem’s cloud capabilities gives customers and business partners tools to simplify and speed delivery of cloud services across both public and private clouds.

PureApplication Service on SoftLayer

First, IBM announced the beta of PureApplication Service on SoftLayer.  As background, PureApplication Service uses best practice “patterns” to rapidly deploy specific applications. In a nutshell, patterns are like tried and true recipes to set up, deliver and manage the infrastructure plumbing for a given application. Instead of having to piece together all of the ingredients, customers get pre-formulated virtualization, operating system, middleware, wiring, and installation patterns that dramatically slash the time it takes to stand up an application. Putting PureApplication Service on SoftLayer brings these portable, reusable patterns to the cloud, and opens up new opportunities for new use cases. As important, it makes it easier for businesses (and partners) to support a hybrid IT environment that’s consistent regardless of where the app resides.

This will make it easier for some tech-savvy SMBs to take a do-it-yourself approach. But by far, the bigger SMB opportunity is via business partners. For instance, with PureApplication Service on SoftLayer, partners can more quickly move SMB on-premise apps to a public or private cloud, and spend more time on higher value-added business process services.  It also provides the opportunity to quickly provision new services, with the ability to rapidly access a development and test environment, implement disaster recovery, or provide added capacity for peak use periods.

To provide the best experience during the beta, IBM has selected 8 key patterns that deliver mobile, web, database, analytics, BPM and Java capabilities to help clients create new applications on PureApplication Service on SoftLayer. IBM also has several partner patterns available for beta, targeting the financial services industry.  The goal is that all 200+ patterns on PureApplication System will become available as a service on SoftLayer by the time the offering is officially launched.

DevOps on PureSystems

Second, IBM announced a soft-bundle to help clients jump-start DevOps with PureSystems. IBM’s PureSystems integrate networking, storage, scalability, virtualized environments, middleware, license management and monitoring into one solution for cloud solution development and delivery. DevOps on PureSystems pulls together key components of IBM’s Rational tool set to make it easier for developers to plan, develop and test cloud solutions, and then to monitor and iterate to meet changing requirements or correct problems.

This means that programmers can access a development environment much more quickly and thus dedicate to actually building apps, iterating on the code, and  incorporating timely feedback from customers to deliver a stronger solution.

Today, DevOps on PureSystems is only available in an on-premise model, but I have little doubt that this too will become available via SoftLayer in the very near future.  Again, while few SMBs have internal development teams, this offering—especially once its available in the cloud—should help IBM woo more next-generation developers to its fold. For more on DevOps on PureSystems, see an IBM blog discussing DevOps at Pulse.

Perspective

IBM is betting big on software development for the cloud, with a $1 billion investment in cloud software development on tap through 2015, representing a double-digit percentage increase over the past two years.

The PureSystems announcements—in combination with those for BlueMix, Cloudant and Service Engage—underscore that IBM also intends to get out in front of the next generation of cloud development and delivery. More automated, integrated and accessible cloud delivery and development solutions will fuel new development and delivery options for IBM partners, and help more customers—including more SMBs—to benefit and get more value from the cloud.

For additional perspectives on IBM’s PureSystems announcements, watch my interview with Pete McCaffrey, Director of PureSystems Marketing, recorded at Pulse.

Disclaimer: I attended Pulse as an invited media guest.

 

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