Last fall, NetSuite created a bit of controversy by offering SAP customers a migration path from SAP Business ByDesign to its own flagship product targeting the small and mid-market. This in and of itself might not have been that controversial, except for the fact that the SaaS ERP vendor issued the press release under the pretext of SAP customers needing a migration path since the German software company was allegedly discontinuing the product. This understandably created a bit of confusion and uncertainty in the market – undoubtedly accomplishing what I assume was at least part of NetSuite’s intent in this case.
However, this raises the question: where exactly does Business ByDesign fit in SAP’s overall product roadmap and strategy? More importantly, how does SAP compare to other ERP vendors in the small- and mid-size market? While our own industry contacts and market experience validates NetSuite’s claims to a certain extent, we wanted to confirm the anecdotal and hearsay data points that we had come across in our experience and research.
Forbes recently published an article providing some clarification on the first question. The article outlines how despite spending three billion Euros developing the product over seven years, it hasn’t gained much market traction – roughly 800 customers and 23 million Euros in annual revenue. The article also cites industry sources that claim that while the company is shifting R&D funds away from the product (never a good sign of long-term product viability), it is shifting more attention to its HANA platform across the board. So, while it’s clear that the product’s R&D budget is being cut, it’s not 100% clear why. All we know is that there are significant concerns about the market’s acceptance of this product, especially when compared to other SaaS and mid-market-focused ERP systems.
This leads us to the second question: how does SAP Business ByDesign compare to other ERP vendors? Our 2014 Clash of the Titans report outlines some of the strengths and weaknesses of SAP, Oracle and Microsoft Dynamics at a macro level. In addition, our own experience helping clients select and implement these leading ERP systems confirms that the market has unique perceptions and biases about each product. For example, mid-sized organization tend to fear SAP more when compared to other ERP vendors, which is partially due to the high number of high-profile ERP failures they seem to experience (to be fair, SAP also has the largest market share, which naturally means more opportunities for failure – learn more in our upcoming Confessions of an SAP Expert Witness webinar).
The direction of SAP Business ByDesign and the perceptions of how it compares to other ERP vendors in the market lead to three even more important questions in the ERP industry:
- 1. Where does the cloud and SaaS ERP fit in the middle market? The failure of Business ByDesign to gain any significant traction in the market may lead some to blame soft demand for SaaS solutions. However, as outlined in our 2013 ERP report, the market share of SaaS and cloud ERP systems has increased exponentially over the last three years. For every Business ByDesign failure, there are SaaS success stories in ERP vendors such as NetSuite, Salesforce, Workday, Plex Systems and Kinaxis. The only difference is that the middle market has a different appetite for cost and risk.
- 2. How viable is the two-tier ERP systems approach? Two-tier ERP strategies – a sort of best-of-breed approach where companies may use separate systems for different purposes in their organization – are gaining traction. Not every organization is cut out for a single, consolidated ERP system so fortunately there are other viable options in the market. For example, some organizations may find that having one system for operations and another for financials may make more sense. As outlined in the Forbes article, Oracle has done a particularly good job of positioning a two-tier approach with its products, such as with JD Edwards, eBusiness Suite and Hyperion.
- 3. How important is an ERP vendor ecosystem? The Forbes article also underscores the challenges that SAP has had building an open ecosystem of third-party consultants and products, which is hurting the vendor’s results in the middle market. Mid-market companies have a lower tolerance for risk so they are less likely to paint themselves into a corner via a proprietary or closed ecosystem. Just as Apple’s iPad and iPhone sales grew exponentially when they opened up application development for the platform, vendors such as Microsoft Dynamics have seen success with similar strategies. Similarly, we at Panorama Consulting have fueled our growth by building an ecosystem of independent ERP consultants and other related services for our clients.
The good news about the rise and fall of Business ByDesign is that it shines a light on some of the trends and realities of the ERP software industry – particularly in the middle market. SAP may have stumbled in this market but perhaps they will regain their footing with the HANA platform. In the meantime, there are many ERP vendors that are cracking the code on how to successfully cater to the middle market, all while providing alternatives and options for ERP buyers along the way.
Learn more by watching our Clash of Titans on-demand webinar.