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SAP Business ByDesign: navigating the product roadmap
SAP's Business By Design is the company's product for the SMB market but it's going to be a tough challenge
SAP recently announced the release of Business ByDesign 4. Earlier this week, along with close colleagues, I had a lengthy briefing on the latest release, the roadmap direction and channel strategy.
The others on the call were my video partner and SAP specific analyst Jon Reed, Frank Scavo, who undertakes primary market research along with buyer advisory services and Leonardo D'Araujo, a principal with a Canadian SAP VAR that is developing a BYD practice. The composition of this group is important because it brings together key disciplines needed to fully understand technology providers. Onwards...
BYD 4 is a major release with more than 800 enhancements both across horizontal aspects of the application suite and vertically across the industries it supports including invoice automation for professional services business and FIFO inventory valuation for goods based business. For international entities, SAP added four more European specific country support. For developers, the big news was that the SDK is now generally available.
So far, so dull in the minds of many but an important milestone indicating that SAP remains committed to this line of business.
Our group was more interested in the roadmap and partner support topics.
Earlier in the year, SAP announced that BYD was being rolled into the SuccessFactors organisation. The surprise was that a very early decision was made to effectively break up the suite and build out stand alone OnDemand applciations. I have said on several occasions that I believe this to be flawed given that SAP is attempting to build upon a Tier-2 go to market strategy for mid-market business. My big area of concern is financials, which lies at the core of the suite and is intimately entwined to thousands of business processes.
In the enterprise unit, SAP does not believe that financials will go to the cloud. Or atl east not any time soon in large numbers. This is quite the reverse of the trend we see in the SME space and which companies like NetSuite, FinancialForce and Workday are increasingly validating the market among larger companies. Even Oracle is deploying Fusion Apps in the cloud by default although in that case it is because Fusion is a highly complex solution that few outside Oracle understand sufficiently to make it a viable on-premise candidate.
Fortunately, SAP has ring fenced BYD into the SFSF unit so whatever the big dogs think matters less. However, it is still a lingering issue because SAP as a whole has to believe in the viability of an 'all-in' cloud approach for investment to continue. Right now, ByDesign is a cost sink hole at a time when CFO Werner Brandt wants the company shaving five percent from costs before closing out this year.
Financials is an interesting area because the development trend over time suggests that it grows rather than shrinks. In this case, SAP is starting with 'order to cash' as the process imperative that defines functionality. That means it starts with the sales order but is cut off from CRM or (say) build to order in manufacturing environments.
SAP has confirmed that this new version, the first release of which will be sense tested later this month and later in the year. represents a second code base for SAP. The company says that it has had the ability to carve out financials since 2006. that's something of a surprise to me because in 2006, BYD financials was pretty bare. Regardless, the approach does not necessarily mean that what they will offer makes market sense.
SAP acknowledges there is a clear difference between 'book-keeping' where the basic debits and credits are the centre of development but 'accounting' which is much more process driven and more complex. This creates a difficult functional development problem for SAP. Right now it is hard to understand how the roadmap will unfold. SAP is aware of this and is slating release for Q1 2013. This gives them plenty of time to consult and assess what they need to release. I expect to get a more thorough briefing on this topic in September when SAP will host a day devoted to cloud topics.
More broadly, the important thing to understand is that the broken up suite has a rollout roadmap going through 2013 at quarterly intervals. Everyone will have to get used to a new naming convention. The next release won't be BYD 4.5 or 5 but 2012/11 with 2013/02 following on.
The channel strategy is undergoing a revamp. Yet again. While SAP continues to go to market with SIs, it now has 150 VAR channel partners across 11 countries with the largest having more than 50 customers. It had been experiencing difficulty on-ramping partners in part because the cash commitment for new partners was substantial.
That has been partially addressed by SAP billing partners quarterly in arrears. This has the effect of helping partners better manage cashflow. I was surprised to find that SAP is offering partners 30 percent commission on sign up and renewal. This can climb to 40 percent where the deal value reaches certain thresholds. This is more generous than other schemes I have seen and I do wonder if it will be sustainable.
Of greater concern has been the quality of consultants in the VAR commmunity. Part of that problem relates to the fact that BYD VARs need a firm grasp of process based systems. That has again been addressed through better education programs and may be further alleviated once we see what the stand alone On-Demand applications require in terms of sales and implementation effort.
However, I was left wondering what pricing for these On-Demand apps will look like. Right now, SAP has a baseline billing amount of €1,000 per month for up to five enterprise users. Beyond that, the usual €133/user/month figure kicks in with a minimum of 15 users for the full suite.
The SAP sweet spot is 25 users which works out at an annualised revenue run rate of €44,000 pa. This put it in the same ball park as NetSuite which is running at average billings around the $50,000 pa rate. NetSuite prices very differently to SAP and so it will be interesting to see how SAP decides to compete on a price basis once the OnDemand apps are available.
I felt that once again we're seeing Business ByDesign going through something of a reboot exercise. It seems slow to learn from what the market has done the last couple of years, preferring instead to build out its own models that sometimes work but often need considerable refinement and which are ponderously slow to execute upon.
The break up of the suite means that SAP has just given itself the potential headache of maintaining two parallel code bases with all the long term integration headaches that might well entail. Quite what shape these new apps take will become clearer next month. My reservations are on the record. I will be pleasantly surprised if SAP can convince me that my concerns are unfounded.
The yawning gap is in third party applications. Right new they are thin on the ground, in part because SAP has been turtle slow in making the SDK generally available to the VARs/SIs. This is a massive disappointment given that I was testing code building on the SDK almost a year ago and didn't feel it presented that many difficulties.
Given the future direction, SAP is going to need a catalogue of hundreds if not thousands of applications if it is to be attractive to the mid-market. That catalogue will need to be ramped very quickly. Once again - how this happens represents more questions for SAP to answer in the coming months.