SAP Increases its Midmarket Options

While Oracle and PeopleSoft are busy devoting time and resources to the acquisition saga, SAP has been the beneficiary. Some customers view SAP as a safer choice given the uncertainty around the future ownership of PeopleSoft and the former JDEdwards family of products. Even without the distraction of the acquisition issues, all vendors in the ERP market are looking at the midmarket as an area of expansion. They also realize that this is a market segment that Microsoft covets, and that it has devoted $850 million for marketing, research and development, and building sales channels to grow market share of its Microsoft Business Solutions ERP products.

SAP has had several recent announcements on midmarket products:

• It launched an updated version of SAP Business One that adds integrated material requirements planning (MRP) capabilities, enhanced integrated CRM features, and support for additional database such as Sybase Adaptive Server and IBM DB2 Express.
• It introduced new hosted vertical ERP solutions that combine SAP’s technology with HP’s hosting, storage and security services. The first available solutions will target the following markets: consumer products-food, oil and gas fuel distribution, technical service providers, and high tech device manufacturers.

SAP Business One

SAP Business One is sold through reseller channels and competes primarily with the Microsoft Business Solutions enterprise applications and products from QAD and Best Software. TopManage Financial Solutions, an Israeli company that SAP acquired in 2002, developed the Business One technology. SAP’s strategy is to reach out to the midmarket through its partners, while also hoping to gain additional business from the smaller subsidiaries of its enterprise customers. SAP’s challenge is overcoming its reputation of being difficult to implement and designed for large organizations. But, as Business One is based on code developed by TopManage, and is not a scaled-down version of SAP’s enterprise technology, it should be evaluated on its own merits. SAP estimates that 30 percent of its annual sales are generated from midmarket companies, and it wants to move that number closer to 40 percent.

ROI Advantages of Hosted Solutions

SAP’s hosted solutions include implementation, maintenance, training, support and application management services that are delivered by SAP or a channel partners. A dedicated SAP manager is assigned to each customer to provide a central support contact. The end user accesses the applications through a Web browser. Customers pay a monthly per user cost that starts at $325. Rather than a subscription fee, the monthly cost includes license, maintenance and implementation charges, so at the end of the contract, customers own the SAP licenses.

The advantages of a hosted ERP solution include a faster ramp-up time and lower initial and ongoing costs. With limited IT funds, and limited in-house support staff, midmarket companies require technology that fits their way of doing business without extensive customization. The vertical focus of the SAP solutions should also lower customization costs, which are often a source of expensive consulting fees. Upgrades, another costly aspect of ERP applications, are handled by the vendor, which enables new features to be delivered faster with minimized disruption to the business users.

Hosted applications can provide an attractive ROI as faster deployments can lead to a faster path to realizing benefits. But when investigating SAP’s hosted software option, keep in mind the following points that apply to all hosted versus licensing purchasing decisions:

• Weigh out the full cost of the licensing agreement. Does it require a longer commitment that you want?
• How easy is it to add or subtract users? Are there any additional charges you incur by modifying end-user licenses?
• How flexible are the support terms? Can you upgrade or downgrade your service agreement without paying a premium?
• If you find that the application is not meeting your needs, what are your options for canceling the service? What financial charges will you incur?

Conclusion

In the quest to capture more market share, the top ERP players are offering midmarket companies viable alternative packaging and pricing that provide them with enterprise-level capabilities at a more affordable price. They are also adding more industry-specific capabilities, usually available through their resellers, to improve the implementation process and reduce the time it takes to deploy the technology. As SAP and other vendors in this market continue to refine their products to make them more cost-effective, a careful investigation of the options on the market can lead to an improved ROI on the notoriously expensive process of deploying a business application system.