Cover Story

Casting a long shadow

With its upcoming Business One launch, SAP intends to grow its SMB business three times faster than the overall ERP market. Akhtar Pasha reports.

The market for enterprise software is expanding and large software deals continue to be won. However, opportunities are few and far between. As large deals are susceptible to delays and disruptions because of long sales cycles and the increasing number of signatures needed to close such transactions, Enterprise Application Software (EAS) vendors are increasingly focussing on Small and Medium Businesses (SMB).

SAP controls 50 percent of the ERP market (Source: IDC India) and is still associated with the large software deals common in the late 1990s. When placed in this context, SAP’s evolution and concomitant success in selling to SMBs is impressive. Some might assume that SAP’s entry into the SMB business is a recent initiative. It isn’t. SAP was exploring the SMB opportunity even while it was selling to the enterprise market in the late 1990s.

Early-mover advantage

The company’s SMB initiatives in India date back to 1998 when SAP appointed two resellers—HCL and SISL—to cater to the SMB market. Recalls Nagaraj Bhargava, Director, Marketing, Alliances & Sales Operations, SAP India, “We have spent considerable amounts and time in the SMB segment. Few people know that we created an SMB-specific strategy team as far back as 1998.” The team has been building databases of Indian SMBs and classifying them both by vertical and by location. Additionally, SAP has been conducting road shows in 10 cities, which, in 2005, will increase to 32.

Bhargava adds, “Our new licence revenues from SMBs are significant. We are expecting 20 percent of new licence revenues in 2005 from SMBs, and with Business One (a business management solution for small and medium-sized businesses) hitting the market in Q4 2005, we expect this figure to swell further.” Srinivas Rao A, the company’s Director of Sales for SMBs opines: “SMB revenues coming out of India are the highest in the APAC region. We see a 25 percent increase in new licence revenues in the first half of 2005 compared to the previous year.”

Notes Alan Sedghi, Chairman & Managing Director, SAP South Asia, "India is one of the top emerging markets for SAP globally. About a third of SAP India’s new licences comes from the SMB market."

SAP is targeting a significantly higher growth rate for its SMB business. While the overall EAS market is growing by 12 to 13 percent annually, SAP wants its SMB business to grow at three times that rate. A third-party survey of ERP deployment in the SMB segment in 2003 found that the SMB ERP market is expected to reach Rs 700 crore by 2008, and that there are 20,000 SMBs in India that have a turnover exceeding

Rs 5 crore. All the EAS vendors’ existing customer lists put together may not total 1,500. The market opportunity thus becomes apparent. Rao says that the introduction of Business One will help SAP seize this opportunity.

Playing the All-in-One card

With Business One hitting the market in the last quarter of 2005, we expect our SMB share to swell further Nagaraj Bhargava Director Marketing, Alliances & Sales Operations SAP India

SAP’s success in the SMB segment can be attributed to two factors—mySAP All-in-One and its All-in-One partners. In 2003, SAP had 35 SMB customers, a figure that doubled in 2004 when 75 SMB customers were added. Sedghi says, "Of the 80 deals that SAP India has closed so far this year, 50 are in the SMB space. Our target is to have 110 new SMB customers by end-2005."

Today, SAP India has 340 SMB customers running All-in-One. According to Gartner India, All-in-One is a leading product because of its industry focus, global reach and fixed-price implementation. It is a unique offering for the mid-market because it is actually the mySAP product with a template-driven deployment methodology implemented by SAP partners. Each partner re-markets and implements an industry-specific offering that uses a combination of SAP industry templates and partner-specific templates to configure a turnkey solution for the customer with fixed scope and implementation at a given price.

Remarks Pranav Kumar, Gartner Asia-Pacific's Research Director for EAS, "SAP's success in the SMB segment can be attributed to the culmination of multiple factors. SAP India has done well to execute its mySAP All-in-One marketing—organising multicity roadshows in smaller towns, acquiring partners who are instrumental in getting the verticalisation factor (best practices) that suit SMB requirements—thus bringing down the cost considerably."

Take the case of Roots Industries, an auto ancillary that specialises in the manufacture of electronic horns for four- and two- wheelers. It supplies these to OEMs and exports a sizeable part of its output to automakers in 15 countries. Says O A Balasubramaniyam, Managing Director of the company, “Our in-bound and out-bound deliveries are growing, and our revenues have jumped from Rs 20 crore in 1998 to 70 crore in 2004 [Roots’ target is to touch Rs 100 crore in 2005-06]. We wanted a scalable solution to manage this growth, and mySAP All-in-One fitted the bill.” Roots benchmarked mySAP All-in-One with Oracle, and found that the SAP vertical solution for automotives comes with customised best practices—it has 30 built-in templates. Additionally, the Accelerated SAP (ASAP) methodology helps bring down implementation time, thus helping the company get a quick RoI. “While we acknowledge Oracle’s technology strengths, particularly in databases, we felt from day one that SAP had a stronger application. Secondly, SAP has more customer references in most verticals that are rapidly growing, and has a clear product roadmap,” observes Balasubramaniyam. In terms of vertical industry coverage, Kumar of Gartner adds, "SAP has taken verticalisation more seriously than Oracle has. Additionally, Oracle needs to grow its application stack...the company is still revamping its strategy and is yet to come out with a clear SMB roadmap."

Another SMB, Panacea Biotec, manufactures and markets branded vaccines, and pharmaceutical and biotechnology-based formulations. Its Chief Technology Officer, Sandeep Gosain notes, “mySAP All-in-One has best practices suited to the pharma industry. The solution complies with standard pharma procedures —Good Manufacturing Practices (GMP) and 21 Code of Federal Regulations (CFR) Part 11—required for drug manufacturing. Quality control and quality assurance are well integrated, and sales and logistics are built-in. In comparison, we found Oracle has no pre-configured systems for the pharma vertical. SAP brings the micro-vertical best practices from the vast knowledge of its partners...this reduces the time to implement a solution, and also the cost, to a great extent.”

Partners driving verticalisation

The second factor influencing SAP’s SMB focus is its All-in-One partners who serve small and mid-sized customers operating across verticals and micro-verticals. In 2004, SAP India added five new SMB partners, taking the total number to 10. The mySAP All-in-One partners in India are OBT Global, Siemens Information Systems, Bristlecone, Tata Steel, Wipro, CVS IT, Genovate, Unisoft, Caritor and SpectraSoft. These partners bring the verticalisation and best practices element into the package. They have a deep understanding of an SMB’s needs as well as of industry best practices. The partners build micro-vertical solutions based on the mySAP All-in-One platform; these are qualified by SAP before being rolled out for customers. SAP’s SMB solutions are sold exclusively through certified SAP All-in-One partners.

Says Srinivas Rao A, “Our offering is already 20 percent customised to the needs of verticals. All-in-One partners further customise the solution making it 90 percent pre-configured as per a vertical’s requirements; this reduces the customisation required to a large extent. They also add tools, bolt-ons and best practices which are certified by SAP. Our success in the SMB market can be largely attributed to these All-in-One partners.”

OBT Global, a SAP All-in-One partner, has been closely working with companies in verticals such as pharmaceuticals, textiles and engineering (discrete manufacturing and construction), and has a Centre of Excellence to demonstrate its vertical capabilities. Comments company President Ramesh Kodali: “Verticalisation was initiated in 2003 with the objective of increasing the success rate and cutting down cost—usually associated with customisation and implementation time—so that the acceptability of the product improved. SMBs do not have full-time teams to work with implementation teams. For example, we have customised the formulation of bulk drugs (processes are built into it) much closer to customer requirements in the pharmaceutical industry.”

SAP offers ERP solutions customised for 15 verticals that include automobiles, textiles, chemicals, consumer products, hi-tech electronic manufacturing, engineering, construction and heavy machinery, extrusions, sugar, rubber, tyres and jewellery.

Next frontier

SAP is excited about its next big release (Business One) that’s due in Q4 ‘05. The solution is specifically designed for small businesses that have a turnover below Rs 25 crore. It is a single-PC solution that covers the core operations necessary to run successful businesses, with key modules such as finance, sales & marketing, inventory, Materials Resource Planning (MRP), HR and CRM. It can be implemented in just 2-3 weeks, and costs Rs 10 lakh for a 10-user licence.

Kumar opines, "Business One is a lower-end product and there is a clear need for it. However, marketing to this segment is a different ball-game and it requires an extensive network of partners." But Sedghi is optimistic about SAP’s success in the SMB segment. He says, "With Business One, SAP India will be in a ramp-up mode, closing as many deals as possible. Our aim is to close at least 25 deals by end-2005."

It is interesting to see SAP’s success with SMBs, and its ability to lower its reliance on mega deals. Bottomline: the company appears to be firmly on track to grow its SMB business faster than the overall market.

akhtar@expresscomputeronline.com