SAP’s 5 + 1 Strategy to Build SMB Consideration and Adoption of Business One

SAP logoWhen it comes to business management and  enterprise resource planning (ERP) solutions, SAP often isn’t on the radar for small and medium businesses (SMBs). But, while the ERP giant is best known for its large enterprise solutions, SAP Business One is aimed squarely at providing small businesses with a unified business management solution.

In this three-part series, I interview Luis Murguia, who was recently appointed Senior VP and general manager for SAP Business One to discuss how the solution fits into SAP’s strategy, and what makes it a good fit for SMBs.

In this third and final post, Luis talks about SAP’s plans to accelerate consideration and adoption of Business One.

Laurie: Luis, you’re still relatively new to your Business One role. But looking out over the next year or so, what are your goals, and how will you measure success?

pillarsLuis: When I joined the team, we put a plan in place called five-plus-one priorities. Why five-plus-one, why not six? Because this one is very special, so we have five pillars, and one overall priority that is common across all five pillars. The five pillars include:

  1. Continuing to optimize Business One for the cloud is number one. Right now we offer a multi-tenant environment, we want to be able to scale that to serve tens if not hundreds of thousands of customers.
  2. Number two is speeding adoption of the HANA database among Business One customers. HANA provides an incredible source of innovation, helping customers to run much faster in real time.
  3. The third pillar is to accelerate two-tier ERP adoption. Business One is used not only by small businesses, but also in larger companies who use SAP Business Suite at corporate, and use Business One for operations in divisions and subsidiaries.
  4. Fourth is simplification. We are aggressively pursuing simplification if all of our processes. In July we are on target to reduce the number of products on our price list by 70%, to make it easier for our partners and customers to select and configure Business One
  5. The fifth pillar is to raise the dial in terms of volume and building mindshare among small businesses. Our Business One customers are small and maybe not well known, but they are on social media promoting their success so other small businesses can see the value of it.

So those are the five pillars. The plus one is very dear to my heart; I call it people, talent and diversity. Business One will be as good as the people we have working on it. We’re investing a lot of effort in terms of training, developing career paths, and helping employees continually find more challenging more interesting areas to work in to help them grow as individuals and as professionals. So that’s the core pillar that will make Business One stronger. As I said, Business One will be as strong as the people that are a part of the business.

Laurie: That’s very key, but is often not given enough airtime. If your employees are engaged and motivated and able to keep up with new skills, you’re much more likely to get good results! I think you’re right that it’s the glue.

Luis thank you so much, for painting a picture of Business One for us, where it is today, and where you want to take it.

This is the final post in a three-part series examining SAP’s Business One strategy and directions.

Taking the Plunge: Triggers for Small Businesses to Move to SAP Business One

SAP logoWhen it comes to business management and  enterprise resource planning (ERP) solutions, SAP often isn’t on the radar for small and medium businesses (SMBs). But, while the ERP giant is best known for its large enterprise solutions, SAP Business One is aimed squarely at providing small businesses with a unified business management solution.

In this three-part series, I interview Luis Murguia, who was recently appointed Senior VP and general manager for SAP Business One to discuss how the solution fits into SAP’s strategy, what makes it a good fit for SMBs, and how the vendor plans to move Business One from being one of SAP’s best kept secret onto SMB short lists for ERP solutions.

In this second post, we talk about the triggers that motivate small businesses to move from entry-level accounting to SAP Business One, and how SAP and its partners help them take the leap.

Laurie: So, SAP Business One provides small businesses with more of their industry-specific needs already configured right out of the gate, and getting it in a cloud model means they don’t have to worry about installing hardware and software. But just the thought of moving from an entry-level or lower end accounting to a more robust ERP system can be very intimidating for smaller companies. So what triggers do you see motivating them to finally take the plunge and move up?


bandaidLuis:
I think a lot of us in most aspects of life; we tend to keep putting Band-Aids on pain. But finally someone says I can’t keep putting on the Band-Aids on this, I need something more comprehensive to manage my business with? I remember the story of the largest manufacturer of white boxes, white label PCs in Brazil. They were very successful in selling to schools, and any place that needed a large number of PCs because they were very price competitive. What triggered ERP adoption for them was the day they delivered the wrong PC configuration to a big customer. They lost a fortune scrambling to produce another batch, and they also realized that they almost lost one of their most important customers because of contractual requirements and remedial penalties.

Laurie: Ouch.

Luis: They were trying to do all this with manual processes and Excel files. But when you are using a lot of Excel files that need to be aligned and synchronized. In this case, they only needed one disconnect to get massive mistakes with the customer’s configuration. So they realized they had to bite the bullet and get their house in order to be much more operationally efficient.

Laurie: Okay, so how do SAP and its partners help small businesses avoid pitfalls when they’re ready to take this leap and implement Business One?

Luis: Well, some of our most successful US partners insist new customers pass a week of product training before they implement Business Because when end-users feel comfortable with the application, this helps guide the implementation and ensures users get value from it right away. So attention to end-user training is really making the difference when it comes to successful implementation.

This post is the second of a three-part series. In the third, we’ll explore SAP’s Business One strategy and goals for the future. 

Yes, Virginia, SAP Does Have a Real Small Business ERP Solution

SAP logoWhen it comes to business management and  enterprise resource planning (ERP) solutions, SAP often isn’t on the radar for small and medium businesses (SMBs). But, while the ERP giant is best known for its large enterprise solutions, SAP Business One is aimed squarely at providing small businesses with a unified business management solution.

In this three-part series, I interview Luis Murguia, who was recently appointed Senior VP and general manager for SAP Business One to discuss how the solution fits into SAP’s strategy, what makes it a good fit for SMBs, and how the vendor plans to move Business One from being one of SAP’s best kept secret onto SMB short lists for ERP solutions.

In this first post, we discuss Luis’ background, Business One history, and some of the key differentiators it has in the SMB ERP market.

Laurie:  Hi this is Laurie McCabe from SMB Group and today I’m talking to Luis Murguia, Senior VP and general manager for SAP Business One. Business One is SAP’s flagship ERP solution for small and medium businesses. So Luis you’re relatively new in this role, can you tell us a little bit about where you come from, and why you decided to become part of the Business One team at SAP.

luisLuis: Thank you Laurie, and great to catch up. I’ve been with SAP for 9 years, in the enterprise division as well as the partner organization. For the past 6 years, I ran SAP’s European partner organization. Throughout my career I have been involved with the ERP market. I started my career in providing ERP solutions for small wholesale food distributors, working with solutions like Peachtree, QuickBooks. Then I moved into selling HP3000 servers pre-loaded with business management software. So I’ve been involved in helping small business find new ways better ways to run the business and be more successful throughout my career.

Laurie: It sounds like you have a well-rounded history and in terms of small business solutions, which brings me to my next question. Many people think of SAP primarily as a big company a big company that sells sophisticated, high-end business solutions to other big companies. So what’s SAP’s role in small business?

Luis: Great question. Ben Horowitz, a venture capitalist that I admire a lot, was also a CEO of a start-up that became very successful in the dot-com crisis. He describes innovation as a really good idea that initially looks like a bad idea. This because any good idea that looks good off the bat is probably not innovative, as it s likely that many people are already doing it. For example manufacturing a car is a good idea because people need cars, but everybody knows it.

Laurie: So unless you’re like Tesla it’s not necessarily a new idea.

Luis:  Exactly. 10 years ago people thought the idea of making a high performance car that runs 100% on electricity was such bad idea was no one was doing it. But then Tesla did it. Likewise, Business One, which is designed for small businesses, doesn’t appear to be a fit for SAP. But actually, we can leverage many SAP strengths, including industry knowledge and best practices, such as order to cash, and package it for small business. That’s what makes Business One such a novel and successful product. We instill and capture expertise from SAP’s big business ERP to help our smaller business customers be more competitive.

Laurie: Ok, explain a bit of the Business One history for us.

Luis: Business One has about 50,000 customers. The solution has been available for the last 15 years, and we are accelerating growth, adding close to 1500 new customers every quarter. Every day, about 15 new companies in the world choose Business One to manage the business.

Laurie: Why do you think growth is accelerating now?

diversityLuis: I’ve been with Business One for just about four months, and I see two great takeaways to date. Number one is that Business One can be run in the customer’s own facilities, as well as in the cloud. Businesses like having this choice. The second reason, and perhaps more important, it is that more customers are choosing Business One because of the in-depth industry functionality that has been developed by our partner ecosystem.

Laurie: So is the focus for Business One to differentiate with industry specific versions or customizations?

Luis: That is 100% correct. And let’s talk a little bit about customer size segmentation too. We divide the Business One market into three distinct segments: companies with less than 50 employees, those with between 50-200 employees, and ones with 200 to 1,000 employees. The first, businesses with less than 50 employees will usually be running QuickBooks, as a standard off the shelf solution. In the 50 to 200 employee category, companies are probably using Microsoft Dynamics, Sage or another solution that they’ve customized to some extent, but they don’t have the critical mass to afford systems integrators to meet all of their requirements. Business One really fits the bill here, because we have over 600 micro-vertical customizations.

Laurie: So Business One has become a software development platform?

Luis: Yes, standard accounting, standard invoicing, management, sales, taxes, and other functionality is in there, and the ISV can build specific micro-vertical functionality on top of it–say for photo copier dealers or microbreweries, which have very different requirements. And in that 50-200 employee segment, that’s exactly what they need, a full solution to manage unique requirements, off the shelf. They can derive more value from a complete micro-vertical solution with Business One as the foundation.

Laurie: And having it available in the cloud probably helps a lot too.

Luis: Yes, in the US, over 85% of all new Business One customers are choosing cloud deployments. Many sign a contract a perpetual license from SAP for financial reasons, because most will stick with an ERP solution for a long time. It is much better, just like its better to own the house than renting the house–the math says you should buy not rent. But they are having partners run and manage Business One for them in the cloud. Say you are a microbrewery in Chicago. You don’t worry about servers, disasters or backups; you eliminate the traditional headaches associated with IT infrastructure. So even though many buy a perpetual license, all the infrastructure and management is in the cloud.

This post is the first of a three-part series. In the second, we’ll examine key triggers and requirements that drive small businesses to move from entry-level accounting solutions to SAP Business One. In the third, we’ll explore SAP’s Business One strategy and goals for the future. 

SAP Business One, Chapter Two: Raising the Small Business Bar

In the world of SAP enterprise resource planning (ERP) solutions for small and medium businesses (SMBs), SAP Business One is sometimes overshadowed by SAP Business All-in-One (BAiO), which has SAP’s large enterprise ERP at its core, and by and SAP Business ByDesign, which is SAP’s first software-as-a-service (SaaS) ERP entry.

But Business One, which is designed from the ground up to meet the needs of small businesses with fewer than 100 employees, has quietly kept growing both its capabilities and in new customer acquisition. During the past year or so, SAP has also made some significant new investments in three key areas: mobile, on demand and big data.

Taken together, these developments could open a new chapter for Business One–and for small businesses that want to use IT to transform their businesses.

Chapter One–A Brief History

Business One has its roots in SAP’s acquisition of TopManage Financial Systems in 2002. SAP made the acquisition to provide small businesses (and subsidiaries in larger companies) with an affordable way to move up from entry-level accounting solutions to a single, integrated business management offering.

The solution is designed for small businesses that have little or no IT resources. It provides a unified suite of financials, sales, customer relationship management, inventory and operations capabilities, along with embedded analytics and reporting capabilities.

Over the years, SAP has continued to invest in Business One to keep pace with changing market requirements and global demands. Business One is now available in 27 languages and 40 localizations. To help partners more easily extend solution functionality, SAP built an integration platform for Business One that has since attracted over 550 add-on solutions. Today, Business One has over 35,000 customers in over 80 countries. At its current pace, SAP estimates that it is on track to add about 5,000 new customers per year.

Chapter Two–Mobile, On Demand and Big Data

Fast forward to today. SAP is infusing Business One with the new mobile, on demand and big data capabilities it needs to take the solution to the next level.

On the mobile front, SAP launched Version 1.5 of its Business One mobile app in February 2012. The mobile app gives customers access to key Business One functionality, such as alerts and approvals, real-time Crystal Reports, customer and supplier data and inventory information via mobile devices. The app is available for the iPhone and iPad via SAP, and for Android devices through its partners. Looking ahead, SAP plans to add new mobile functionality for as sales document creation so that sales reps can do more on the go. SAP is also updating the user interface (UI) so that mobile users can have multiple windows open the same time so they can more easily view the information they need.

In March, SAP introduced Business One OnDemand to offer Business One in a cloud-based, subscription model. The OnDemand version has and will maintain the same functionality and interface as the on premise version. SAP is certifying partners to host the solution to ensure that they meet security, performance and quality standards. In most cases, these hosting partners provide the back-end infrastructure, and team with SAP VARs who sell and implement the solution. SAP has also created a Cloud Control Center that supplies partners with automated tools to manage Business One OnDemand throughout the solution lifecycle.

Some pundits have claimed that Business One OnDemand is not a true, multi-tenant, software-as-a-service (SaaS) solution. So I asked SAP for clarification on some of the technicalities and learned that users do need a remote desktop solution (such as those from Citrix or Microsoft) to access Business One OnDemand. And, while the solution is multi-tenant in that users share the same instance of the application and SQL server, each user has its own database schema.

Since Business One OnDemand requires a remote desktop solution and customers don’t share a database schema, cloud purists are likely to discount it. However, these details are much less likely to create issues issue for actual small business customers–and may work in SAP’s favor.

The fact that SAP’s on premise and on demand versions share the same interface and database structure means that existing customers can move to the cloud without complex data conversions or additional user training. Meanwhile, SAP Business One can now get into consideration among prospects that are only considering a cloud solution. And, some of these prospects may prefer to have their own dedicated database schema, along with access to the 550+ partner apps that are in Business One arsenal. Finally, NetSuite, arguably the leading SaaS ERP vendor, has been moving away from its original small business focus to concentrate more on the mid-market and departments of large enterprises, ironically paving the way for SAP to make inroads here.

SAP also announced Analytics powered by SAP HANA for SAP Business One, which will be generally available in late 2012. HANA is SAP’s “big data” solution. It’s a column-based, in-memory database that allows applications to zip through calculations for millions of records in just fractions of a second. SAP HANA for SAP Business One is scaled for the needs of small companies. It combines the SAP HANA-based application with SAP Crystal Reports software so small businesses can get the benefits of speedy data crunching and use the tools that they are already comfortable with to analyze this data. The solution includes a set of predefined, ready-to-run dashboards and reports.

While some small businesses may not require this added horsepower, the offering is relevant for those that need to more effectively analyze more and more complex content–including audio, video, and text–to compete effectively in their markets. These customers will be able to create interactive reports and run ad-hoc analysis much faster than they could before; navigate through various business objects from one screen; and use free-style search to access information more quickly.

The Rest of the Story

SAP Business One isn’t for all small businesses. After all, although the price tag is low compared to other SAP offerings, Business One still represents a significant expenditure compared to the typical small business accounting solutions.

But, even amidst–or maybe because of–economic uncertainties, our SMB Group 2011 Small and Medium Businesses Routes to Market Study indicates that there is sizeable segment of the small business market that plans to increase IT investments. These “progressive” small businesses see IT as a means to create market advantage and achieve their business goals. While price is a factor, they rate other criteria–such as the ability to customize solutions, strong vendor reputation and local support and service–higher than other SMBs when making technology purchase decisions. Business One hits the mark on these criteria, and consequently, is likely to enjoy continued good growth in this segment.

However, this progressive segment is demanding and will expect SAP to stay ahead of the curve. To do so, SAP will need to address a couple of additional areas in this new chapter, including:

  • Collaboration and social. One of the biggest trends in social-collaboration space is to connect collaborative activities with business processes. SAP has already merged its Streamwork team with its newly acquired SuccessFactors’ Jam team, and the combined entity is hammering out SAP’s future direction in this area. SAP needs to add social and collaboration capabilities to Business One sooner, rather than later, to ensure that Business One customers can take advantage of integrating collaborative and business processes.
  • Mobile applications for external users. Business One has a solid solution and game plan for internal (employee) mobile apps, but what’s the plan to extend access to selected functions to external customers, partners and suppliers? The SMB Group’s 2012 SMB Mobile Solutions Study indicates strong plans among small businesses to provide mobile apps for external users for activities such as appointment scheduling, payments, marketing offers and service. Over the long-term, partners should probably be responsible for developing most of these apps, but SAP needs to seed the area to jump-start partner app development.

Overall however, SAP Business One, Chapter Two is off to a good start. The mobile app has already been downloaded more than 34,700 times; about 60 partners are preparing to come on board to offer Business One OnDemand; and over 30 customers are in ramp up with Analytics powered by SAP HANA for SAP Business One.

In addition, while large enterprise solutions will continue to dominate SAP news, SAP’s commitment to and investment in small business solutions is growing. For instance, the vendor recently announced that it is sponsoring a global competition with Ashoka Changemakers, The Power of Small: Entrepreneurs Strengthening Local Economies.  The contest is designed to identify innovative strategies that can help small businesses grow and thrive in underserved communities.

The bottom line? SAP clearly takes small business seriously–and small businesses that are ready to move up from stand-alone accounting solutions should take SAP Business One seriously too.

SAP Business One: Big Business Capabilities on a Small Business Budget

SAP has forged its corporate identity in the large enterprise space, serving the likes of Coca Cola and Dow Chemical. But, while attending SAP’s Sapphire user event last week, I had the opportunity to meet with Andreas Wolfinger, Global Head of Solution Management and Product Management for SAP Business One, and Jennifer Schulze, Director SME Solutions Marketing (who I interviewed in this SMB Spotlight video) and get an update on SAP Business One –which may be SAP’s best kept secret.

In a nutshell, SAP Business One is designed from the ground up to meet the needs of small businesses and departments and divisions of large businesses. Geared to organizations with limited or no IT resources, SAP Business One offers a unified business management solution that integrates core business functions, including financials, sales, customer relationship management, inventory, and operations. Also included are embedded analytics, ad hoc queries, and standard reports, and integration with SAP Crystal Reports software. Because SAP Business One is built as a unified solution, it can help small businesses get the synergy they need across different business functions, streamline processes, and cut down on redundant data entry and errors.

SAP offers the solution in 40 countries and 25 languages—providing coverage that few other small business ERP vendors can rival. SAP Business One also boasts about 550 add-on solutions, many of which provide industry-specific functionality.

Business One is a packaged solution that customers can run on-premise, but is also available in hosted and hosted subscription offerings. It has a very small footprint, which enables smaller companies to run the solution on a laptop instead of a server. Business One customers are typically up and running in 2 to 8 weeks. Available via SAP Business One partners, pricing (including software license and implementation) typically starts at about $20,000 for five users.

To expand awareness and extend its market reach, SAP introduced the SAP Business One Starter Package in May. The starter package offers a fast, affordable, low-risk on ramp even for very small businesses. It includes pre-configured administration, financials, sales, purchasing, and inventory processes and implementation services for up to 5 users. Pricing starts at under $2,000 U.S., and companies go live in 3 to 10 days. When and if you need to add more users or functionality, you can upgrade to the standard edition of SAP Business One, without having to migrate data, learn a new application or re-train users.

Despite its small size, SAP Business One can also take advantage of sophisticated technology that can provide businesses with a competitive edge. For instance, I was surprised to learn that SAP has Business One running directly on HANA, SAP’s column-based, in-memory database, in its labs. HANA enables applications to zip through calculations for millions of records in just fractions of a second. According to SAP, this is valuable even for companies that don’t have to crunch through huge volumes of data. For example, in-memory technology will also improve the performance of the application. Though not yet ready for prime time, SAP plans to introduce Business One In-Memory Database with the release of the 9.x family, slated for early 2012.

Small businesses have very diverse needs and constraints, and Business One won’t fit the bill for every small business. However, small businesses that want a flexible, capable integrated, on-premise business suite may be pleasantly surprised to learn about–and investigate–what SAP Business One has to offer.

SAP Aims for SME

I dialed into SAP’s SME (small and medium enterprises) Global Business Update Call a couple of weeks ago. Jeff Stiles, SVP, SME, Volume & Ecosystem Marketing, provided analysts a recap of recent SAP SME highlights, and shared strategic directions for 2010. I’ve been following SAP in the SME market since it acquired TopManage (which later become SAP Business One) in 2002, so I’m always interested in checking their progress. Here’s what I heard and what I took away from the discussion—with the most interesting stuff saved for the end.

  • SME is critical to SAP’s future growth: As part of recent restructuring changes, the company named Peter Lorenz, Executive vice president of Small and Midsize Enterprises (SME), as a Corporate Officer, elevating SME attention at the corporate level. Though SAP has been investing in SME solutions, marketing and sales for several years, this appointment indicates that SAP is redoubling its efforts to crack the SME code. SAP also recently hired Kevin Gilroy—who spent 24 years at HP, most recently as senior VP of HP’s worldwide small and medium business segment—as vice president for channel and business development for SAP’s small and midsize business organization in North America. SAP is also making substantial product, channel and marketing investments in SAP Business One and SAP Business by Design—both of which are geared to smaller companies—as well as to SAP Business All-In-One, which is designed for the mid-market. As noted in the next bullet, however, SAP’s SME definition, solutions and pricing still skew towards larger SMEs, so the question remains, how low will SAP be able to go in the broader small business market?
  • SAP is growing its SME market footprint: Jeff shared a number of impressive stats, such as the fact that more than 77% of SAP’s 95,000 customers are SMEs, and that this percentage is growing. However, SAP defines the SME market as companies with $500 million in annual revenues or less, which gets into some pretty big businesses. For instance, the U.S. Small Business Administration (SBA), has established two widely used size standards—500 employees for most manufacturing and mining industries, and $7 million in average annual receipts for most non-manufacturing industries. Nevertheless, SAP has tripled its SME base (using its SME definition) in last 3 years (with about 30% coming from the Business Objects acquisition). The vendor indicates that it is garnering 35 new SME customers per working day, and that it is enjoying good growth among small businesses and in the lower end of the medium business market.
  • SAP is investing in channels to enable SME growth: The direct, feet-on-the street sales model that has served SAP so well in the large enterprise space doesn’t scale to the economies needed in SME. In addition to hiring Kevin Gilroy, SAP is recruiting and enabling more SME channel partners and developing and expanding direct inside sales to do the job. Channel partners now account for more than 50% of SAP’s SME revenues, inside sales accounts for 20% of the business, and 30% derive from SAP’s direct outside sales team. SAP has struggled with building effective SME channels for a long time. But, it looks like it is making some good gains here. It is investing in “virtual agency” marketing services to help its 6,000 partners create their own targeted campaigns, and in SAP Marketing University to teach partners about marketing. Inside sales will be increasingly critical for SAP in SME—especially as it prepares for the launch of Business by Design’s next version in mid-2010.
  • Business One gets a facelift and Business All-in-One gets a refresh: Release of Business One 8.8, slated for Q2 2010, features a new UI with Web 2.0 capabilities for a better user experience, and cloud integration for partner applications. Behind the scenes, SAP has consolidated three individual lines of Business One code into one—making the economics much more attractive. SAP has also created packaged integration scenarios for subsidiaries of big companies, making it easier for them to integrate with their corporate HQ SAP systems; remote monitoring; and embedded, packaged analytics. Meanwhile, Business All-in-One gets a refresh, with SAP extending the Fast Start (fixed scope, fixed fee) program with partner hosting offerings in 20 countries—another indicator that more companies just don’t want to or can’t run all of this themselves. SAP also said that its online solution configurator is helping to reduce the cost of sales, and that it will introduce a new supply chain relationship management module into the Business All-in-One offering.
  • Business Objects has been a boon: With 57% year-over-year growth, Business Objects has seen good traction with both SAP ERP customers (it tripled BI revenues with SAP ERP clients in Q1 through Q4 of this year) and non-SAP customers. SAP also intends to use Business Objects as a wedge opportunity, to get in the door and eventually replace older legacy systems with SAP ERP. The company recently announced a free personal use version of BI On Demand, which should boost interest among the vast majority of SMBs that don’t yet use any BI solution.

And now to what I found most interesting—Business by Design, Chapter 2. What a long strange trip this has been. After launching ByDesign to much fanfare in 2007, things quickly fizzled. Going against conventional wisdom (and economics) SAP built its debut SaaS offering on a single tenant model instead of a multi-tenant architecture. We all know what that means—lots of red ink because single tenancy doesn’t afford the economies of scale and skill that multi-tenancy provides. Anyway, since then SAP has limited ByDesign to about 100 charter clients, who are getting a lot of tender loving care. Feature Pack (FP) 2.5, slated for H2 2010 will sport multi-tenancy, making it economically feasible for SAP to sell, provision, maintain and support it in a broader market. SAP will continue to offer a single tenancy option alongside the multi-tenant offering (both on the same code base).

Since this is ByDesign’s first multi-tenant varietal, SAP isn’t quite sure what the sweet spot will be but will stick with a 25-user minimum. From my perspective, this still seems a bit high for getting at much of the SMB market. By SAP’s own calculations, about 10% of client companies’ workers currently use ERP. Although this percentage may grow, right now this puts ByDesign at 250 employees and up (whereas the vast majority of SMBs have fewer than 100 employees). Another challenge SAP faces is around routes to market. Few SaaS vendors have established successful channel programs with traditional IT VARs, many of whom have been skittish about the model. As I mentioned above, SAP will need to fire up the inside sales model for ByDesign, and create a lot of pull with marketing campaigns (enter the 100 ByDesign reference customers).

Another interesting note: SAP is incorporating Microsoft Silverlight to make it easier to make changes to the ByDesign UI, create mashups and integrate with Microsoft Office applications and features. SAP will also release an SDK for developers based on Microsoft Visual Studio.NET, hoping that all those developers will be enticed to build add-ons and industry-specific extensions for ByDesign. And yes, there will be a store for that—SAP intends to build an app store down the road.

I don’t know if I’m reading too much into the tea leaves, but I’m a bit intrigued by SAP’s growing relationship with Microsoft for ByDesign. Since Microsoft Dynamics has yet to offer a true SaaS ERP solution, it just makes me wonder if there’s something up with that. Related to this, Microsoft recently forfeited it’s small business accounting play to Intuit, and soon after, inked a deal with Intuit to integrate its cloud-based Partner Platform with Microsoft Windows Azure—which looks to be a mutually beneficial relationship. Could SAP and Microsoft be hatching some similar type of joint effort in this space, aimed at the mid-market?

As ByDesign FP 2.5 comes fully online, SAP will probably spend more time than it would like in positioning ByDesign against both Business One and Business All-in-One.  Though the on-site vs. cloud angle is clear, there is lots of market overlap. SAP will need to proactively guide both customers and partners to the right solution in terms of total cost, ease of use, functionality, ROI timeframes, etc. so it doesn’t waste time and energy competing against itself—or having its partners compete against themselves or its inside sales team. It will also be interesting to see if ByDesign can replicate the experience of its 100 charter customers to a broader base, as it will be difficult to broadly supply the same level of attention that these early customers enjoyed.

But clearly, the vendor must make ByDesign work to capture the SME market’s increasing appetite for SaaS and cloud alternatives—yes, even in the ERP space, as evidenced by NetSuite and Intacct. SAP’s recent investments, Peter Lorenz’ new chair at SAP’s corporate table, and Kevin Gilroy’s appointment to steer North American channel and business development indicate that this time, the vendor intends to go much further to make sure that it’s cloud and SME formulas work.