Large-scale enterprise resource planning vendors have maxxed out their best clients and are scurrying to find new markets. Since every ERP vendor knew this day would come, they have spent the past few years promising to deliver a scaled-down version of their respective solutions to the small to medium/mid-sized
business (SMB) market.
For years, the promise has been nothing but lip service.
Some vendors thought themselves clever and changed the packaging, along with a feature or two, and tried to sell that solution to the SMB market, with little or no success. However, the market is finally seeing some offerings from the big guys, some of which may actually be viable solutions.
Earlier this year, SAP AG launched SAP Business One into the American SMB market. Plans are in the works for a Canadian release; however, no date has been set.
According to SAP, this solution is affordable and easy to implement. It will enable SMB companies to streamline their operational and managerial processes, and provide fully-integrated financial and sales management capabilities. This sounds exactly like what this market wants.
However, Business One is another attempt by SAP to dumb down its flagship R/3 offering, according to industry analysts, which the company has been trying to do since 1994 when it released “”Project Heidelburg.””
On paper, SAP has hit all the right notes, particularly when it comes to affordability and ease of use. But can SAP actually get its product out to the SMB customer? After all, SAP and its brethren — PeopleSoft, Oracle and Siebel — operate largely as direct sales force organizations and not through the reseller channel, which is crucial to the penetration of the SMB market — on both sides of the 49th parallel.
“”In order to get any kind of traction in the mid-market space, or gain market share, you need partners,”” said Paul Edwards, director, strategic partnering and alliances for IDC Canada. “”They’re going to have to start developing partnerships [and] SAP, as an example, doesn’t have a real strong partner base.””
SAP wasn’t the first large enterprise resource planning vendor to attempt an SMB push. Last year, PeopleSoft announced the expansion of its Accelerated Solutions program for the mid-market, designed to provide a rapidly deployable, fixed-price customer relationship management (CRM), financial, human capital and enterprise service automation software application.
Siebel Systems also brought an offering to the mid-market — Siebel 7 CRM, but the company continues to experience a tough time gaining a foothold in this very finicky market space.
SMB customers are not, on average, loyal to one vendor — buying choices are based primarily on price, ease of implementation/use and return on investment (ROI). According to AMR Research, other SMB needs include a license to service ratio of 1:1, along with quick training and simple and intuitive customization, which are challenges for vendors not accustomed to implementing solutions with such restrictions.
So why are these companies trying to bring SMB solutions to a market overflowing with choice, where spending is frugal, IT departments are sparse and solutions must be operable out of the box?
Perhaps, according to Gartner Dataquest, it’s because the penetration of such software in the small and mid-market is only about 20 per cent, especially by CRM applications — the main ERP component used by SMB companies.
“”There are not a lot of ERP implementations being sold in the mid-market. But there’s certainly a lot more CRM because there are other attributes within ERP that some of these businesses would want,”” added Edwards. “”CRM sales are driving ERP module implementations (in the mid-market).””
According to AMR Research, the SMB market, combined with divisions of enterprises, represents a US$44.1 billion CRM opportunity over the next 10 years. To add fuel to this growing fireball of a market, according to Gartner, SMBs accounted for 41 per cent of e-business purchases in 2000. That number is expected to grow to 57 per cent in 2005.
One of the many hurdles the SAPs, PeopleSofts and others face when bringing SMB solutions into the Canadian and American markets is that their definition of what constitutes an SMB company differs greatly on either side of the border.
In Canada, a mid-market company can have annual revenues anywhere from $20 million to $250 million, and according to IDC Canada, have 100 to 500 employees. In the United States, these parameters define a small American company. An American mid-sized company ranges from US$500 million to US$1 billion. In Canada that teeters on large account territory.
“”Their products are really suited towards an American mid-market firm rather than a Canadian mid-market firm,”” said Warren Shiau, software analyst for IDC Canada. “”To a certain extent, they’re priced the same way (too).””
Another hurdle, and perhaps the most difficult one to overcome, is the need for SMB channel partners, which most of the large vendors have no experience with. For all intents and purposes, SAP, PeopleSoft and Siebel may be big fish in a small pond, but in the SMB space they are unknown quantities that, like every other new company entering the market, have to start from the ground up. Their reputations in the large ERP vendor market become null and void.
“”Oracle, as an example, they do have a channel for their database product. Not [that] that’s the same thing, but at least they understand the dynamics of the channel. They understand what it means to build a channel and to support a channel, whereas, some of the other vendors may not have a good grasp of that,”” said Shiau.
“”They’re going to have to build a strategy for partners in the channel [and] they’re going to have to build everything around that strategy — infrastructure and so forth — that they need to support,”” said Edwards. “”(Unfortunately for them) there’s only so many partners in Canada that can just jump in and start to do some kind of ERP implementation and sale — ERP is pretty involved.
All is not doom and gloom, however, for companies wanting to enter the SMB ERP market.
“”It’s not as hard as you would think because they don’t run into the problem of competing against an incumbent vendor, or a vendor that is really high in the mind share of the client,”” said Shiau. “”It’s more a question of convincing them that this is a functionality that could help improve their efficiency.””
What it boils down to is being able to convince SMB companies of the benefits of replacing their manual processes with automation. “”Are we offering a valid ROI proposition?”” said Shiau.
“”It comes down to a question of replacing something that’s being done by manual process versus automating it. It boils down to, “”Are we offering you a valid ROI proposition?””
While companies find ways to successfully enter and remain in the SMB ERP market, there is one vendor that may actually be able to make SMB ERP in-roads — Microsoft.
“”As long as the client company buys into the Microsoft application framework, they can just buy into the various small modules to get the functionality they want,”” said Shiau.
Microsoft made its SMB move last year when it bought Navision and Great Plains Software, and then formed the Microsoft Business Solutions unit. The acquisitions reportedly gave Microsoft more than 250,000 customers, most of which were in the mid-market, as well as thousands of channel partners worldwide.
While many SMB ERP vendors shudder at the thought of having to compete against a goliath like Microsoft, one company — AccPac International Inc. — welcomes it.
“”Frankly, it’s helping us more than it’s hurting us at this point