Wednesday, 29 October 2008

SAP Q3 post script

(By Anthony Miller) What stood out for me about yesterday’s concall (and see SAP withdraws guidance as loses share to Oracle) was the impact the downturn is having on small businesses. SAP co-CEO Leo Apotheker commented that decision deferrals and postponements were more apparent among SMEs due to their constrained access to capital. In conjunction with its partners (both implementation and financial) SAP is focusing on affordable, ‘quick-implementation’ packages with rapid ROI (terms not often associated with the German ERP vendor, dare I say). Co-CEO Henning Kagermann, pointed out that sales of their SME on-premise packages (Business All-in-One and Business/1) are up, but gave a very measured statement on their hosted service, Business-by-Design (BBD), currently in ‘controlled roll-out’.

I think SAP is between a rock and hard place in SME-land. SAP’s traditional implementation partners usually stay shy of the ‘true’ SME market as it’s simply not profitable for them. As I have said many times before, like large enterprises, SMEs also want a bespoke solution but they can only afford an ‘off-the-peg’ price. Many SIs offer template-based SAP implementations to reduce cost and effort (both for them and the customer) but I would doubt pricing comes close to solutions offered by ‘true’ SME ERP vendors such as Unit 4 Agresso, Exact and, yes, even ‘our very own’ Sage. Of course, SMEs then have to trade off customisation for cost, at least to some extent, but that’s frankly an easier decision in the current environment. Low cost service delivery clearly helps, indeed is essential in my opinion, and you can draw your own conclusions as to which players are better positioned than others. Meanwhile, SAP’s key mid-market product, BBD, is late, cutting off another route to the SME market.

What will keep SAP – and most other software players – rolling along is its maintenance business, now 41% of total revenues, though even this is under threat. Earlier this year, SAP in effect imposed a massive maintenance rate hike on customers by introducing an ‘enhanced’ support programme. The backlash is still being felt (for example, see Computerworld). This has prompted US-based third-party Oracle support services company, Rimini Street, to move into SAP support, though it will take some considerable time before they have any significant impact on SAP’s maintenance business. Normally, maintenance is the one expense few CIOs would be brave enough to forego. But for those running stable releases of back-level software, surely they will be tempted to look at alternatives, if not a perhaps ‘temporary’ pause in support payments.

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