My very first meeting at Sapphire 2011 was an update by Rainer Zinow on SAP Business ByDesign on its status, traction and plans for the future. The briefing was also attended by other analysts who cover (exclusively or at least in part) the SME enterprise application market. Rainer started the meeting by throwing us a curve and asking us what we wanted to hear – a refreshing change from the usual, “Here’s what we want to tell you.” My question was essentially how SAP was progressing in building the volume business ByDesign is intended to be. It looks like a lot of progress has been made but momentum is still building.
SAP now has 500 Business ByDesign customers and says it is on track to meet its goal of 1000 by year end. After the briefing I tweeted that factoid and almost immediately got a response questioning, “How long does it take to go live on #SAP ByD? Can they mathematically get to 1000 implemented by year end?” My response was (in not so many Twitter words), don’t confuse selling with implementation.
SAP never said that 1000 customers would be live. In fact one of the ByDesign customers I spoke with today (Technodyne) actually went live in 16 weeks. But my experience from talking to ByDesign customers over the past several years is that there is the same variability in implementation cycles as there is for any ERP. I’ve seen ERP go in quick and dirty, fast and solid, well-paced and methodically, or slow and painful. The time required in order to go live often has as much, if not more to do with the company doing the implementation than the solution itself.
That is of course providing the solution is a good fit and, in the case of small companies, not overly complicated. But the whole reason SAP started from scratch in writing Business ByDesign was to reduce the level of complexity that becomes inherent in a solution that starts out as a large enterprise solution, and grows more complex through evolution. Today ByDesign is still primarily targeting companies with 50 to 500 employees which do not require highly tuned industry-specific functionality. There is one industry in which it is particularly strong (professional services) and there will be more industry specific functionality developed, but SAP never sees it becoming an option for certain industries requiring certain select functionality. Don’t expect a version for pharmaceuticals or oil and gas any time soon.
So what else can I share with you about the status and momentum of Business By Design? If you have been following SAP’s “on demand” plans you will have noticed a major strategy shift over the past year plus. Originally there were really two on demand strategies – one for SME (small to midsize enterprises) and one for larger enterprises. SAP called this the “Line of Business” (LOB) on demand applications, presumably because these other on demand solutions were targeted to specific areas of the business such as sales, procurement or human capital management. But they weren’t ERP. They extended or surrounded ERP, which for the large enterprise was largely staying on premise, or perhaps being outsourced or hosted. Originally these LOB applications were developed using a very different infrastructure than that used to develop and deploy ByDesign, with some technology acquired through SAP’s acquisition of Frictionless Software.
But that all changed as SAP made some breakthroughs in the ByDesign infrastructure. ByDesign became multi-tenant , which was an important step in turning it into more of a volume business. Then, the underlying technology behind ByDesign became the platform of choice for new on demand development at SAP including Sales On Deman, Career On Demand and Travel On Demand and others to come. Sourcing On Demand remains on Frictionless and Carbon Impact runs on a different platform (River). The development teams were consolidated under Peter Lorenz and development, support and management of the products moved to China.
The release of the SDK (Software Developer’s Kit) ByDesign Studio is also an important consideration. In the early days, while there were certainly ways to configure and tailor the solution, no customization of ByDesign was supported even though the software ran as a single tenant. But with the release of the SDK, SAP can offer customization in multi-tenancy, although with the stipulation that all customization is delivered in the context of the SDK. Additional business objects, and additional logic can be added and partners are also able to further monetize these efforts by publishing to an online SAP store. While available from the store, the customization or extension is purchased from the partner who develops it. Of course SAP takes a cut… after all it is providing the showcase and vehicle for purchase, as well as the SDK itself and it takes an active role in quality certification. And of course the software is hosted by SAP. Remember it is not licensed but sold as a service.
This ability to customize is important as Business ByDesign moves from being just a solution for small to midsize companies. SAP sees a strong market in large enterprises – not at the corporate headquarters, but perhaps in more of a tiered solution structure, satisfying the needs on divisions, business units, remote locations, etc. The first integration scenarios delivered with Feature Pack (FP) 2.6 were also important first steps in supporting this multi-tiered scenario. But even as ByDesign starts to penetrate these larger enterprises, SAP assures us it will also remain true to its heritage, as a midmarket solution. Indeed, even these larger enterprise implementations start off small, sometimes with 10 users, perhaps as a pilot. As they achieve some success, users still need to sell the solution internally. So it opens the door, but there is still the need to go back and do more selling. This is the only part that to me doesn’t lend itself to a real volume sales business. For very high volumes you need to get in and sell and then move to the next sale, and the next… all without losing the relationship with the customer that has become more and more important to SAP. The one redeeming factor is that in some cases this added selling has led to as much as an 80% penetration which is unheard of in the large enterprise (Business Suite) world.
Today SAP hosts the software in two locations: Germany and in the United States. And just this afternoon news broke of a partnership with China Telecom to provide the service in Asia. I’m sure we’ll hear more about that in the days and weeks to come. But in the meantime, SAP is fully certified to be SAS 70 Type II compliant, satisfying more stringent requirements than the Type I compliance achieved by most service organizations, including the ability to be able to sustain operation with power and with no air conditioning for 3 days. While this may not have seemed to be a requirement in the past, recent disasters and extreme weather conditions make this more relevant today.
All told, after getting off to a slow early start, momentum is building and SAP has a very good story to tell about progress made in turning the Business ByDesign business into a volume business.