Rumors of the Death of SAP Business ByDesign Greatly Exaggerated

I have been hearing rumors about the death of SAP Business ByDesign for several months now. Most of them come to me from SAP competitors, although a few have come through ex-employees. Note the emphasis on “ex.” No employee of SAP has ever confirmed or even hinted at this. However I have to admit the messaging around Business ByDesign has not always been crystal clear, which has allowed for these rumors to spread.

Prior to the SuccessFactors acquisition Business ByDesign was positioned as the platform of choice for development of all cloud offerings. But with the acquisition and the accompanying infusion of “cloud DNA” that story changed. All of a sudden the Business ByDesign platform wasn’t important. The powers that be at the time (SapphireNow May 2012) said,  “Customers don’t care about platforms. They only care about beautiful applications.” We heard less about By Design and more about the benefits of loosely coupled applications over tightly integrated ones. The market interpreted that to mean that Business ByDesign would be broken apart into different bits and pieces and might not survive as an integrated suite. SAP didn’t go out of its way to squash that rumor, so it too spread.

Then came Sapphire Madrid (November 2012) and there was a new platform in town. The HANA cloud platform started showing up on slides with little or no fanfare, and less explanation. The more SAP talked about its cloud strategy, the less we heard about Business ByDesign. Hence more confusion.

Until now

Earlier this week SAP presented a Business ByDesign strategy update to several industry analysts, including yours truly. Most importantly, it positioned Business ByDesign relative to other products in its portfolio. While I often find SAP graphics confusing in that they are too technical and attempt to say too much, I found the graphic shown refreshingly effective.

BBD

But it does assume you know something about SAP products, so let me explain. Business ByDesign is essentially a midmarket product, targeting companies that are smaller than the very large enterprises where the Business Suite is sold, and companies that are bigger than the SMBs which is the intended market for Business One. Business ByDesign shares this space with Business All in One, which sits a little higher. Remember, Business All in One (BAiO) is essentially the same underlying ERP that is a big part of the Business Suite. But BAiO bundles ERP with industry-specific content and best practices to make it a better fit and an easier implementation for those midmarket companies in (many) supported industries – midmarket companies that don’t have quite the deep pockets of the large enterprise.

You’ll notice BAiO also dips down into the Business ByDesign space. Business ByDesign is SaaS; BAiO is not, although SAP does offer some cloud alternatives for the Business Suite and BAiO, which have traditionally been deployed on-premise. But these cloud options are more like a hosting environment than SaaS. This overlap might result because of deployment preference or it might result because industry-specific requirements are not be satisfied with the Business ByDesign suite.

But you will also notice the Business ByDesign block extends upward into the top of the midmarket and also encroaches on the large enterprise space as well. Business ByDesign will be offered as two different packages, under two different names, but with one single code base. Business ByDesign is the complete suite, while SAP Cloud for Financials is a subset, including the finance and accounting piece of ByDesign. Even though it will share a code base, the code base was tweaked so that SAP Cloud for Financials could stand alone, without the other non-accounting “legs” of the solution.

The reasoning behind this split into two packages is to address two different buying patterns. SAP Business ByDesign is intended for “Mid market companies and subsidiaries [that] expect an out-of-the-box ready-to-use suite with open interfaces.” SAP Cloud for Financials (the subset) is for “Large Enterprises [that] expect an open ERP backbone to be complemented with SAP and non-SAP Line of Business applications.” While the Business ByDesign buying pattern is pretty clear, the SAP Cloud for Financials might require a bit more explanation.

Conceptually, these two different approaches aren’t all that different. Few large enterprises today are huge monolithic organizations. Instead they are comprised of operating units, divisions and/or business units. While these units might have some operational autonomy, financials will have to be consolidated at a corporate level. Where these units operate as a separate legal entity, a full ERP solution is most likely needed. While in the past these units may have been left to on their own to select and implement ERP, today, standards are more the norm. The 2013 Mint Jutras ERP Solution Study found 94% of companies (with multiple operating locations) have defined standards for ERP today. What better way to enforce these standards than through a cloud-based SaaS environment?

Where does Business ByDesign fit in this scenario? It fits as an integrated suite at the subsidiary level. A lot of different ERP vendors talk about this two-tier kind of approach. Some even advertise they can integrate with SAP at the corporate level, simply because of SAP’s dominance here. A cloud solution at the subsidiary level has a lot of appeal here because it helps the enterprise assert a level of control while also providing some flexibility and autonomy at the subsidiary level.

But how about if we pull a switch here? What if we start to think that maybe the corporate financials might be due for an update or even a major overhaul? With the siren call of the cloud becoming more and more compelling, why not consider replacing that legacy accounting solution at corporate with a modern, technology-enabled, cloud-based solution? You might not think the financial modules of an ERP designed for a midmarket company have the accounting chops necessary to support a large enterprise. But then most accounting applications designed for the midmarket aren’t built by SAP. In fact, SAP can and has used the same design team for Business ByDesign (and therefore SAP Cloud for Financials) that architected the Business Suite. And at that level SAP has dominated for years.

All told, this one simple graphic speaks volumes about the relative positioning of the SAP products. Is there room in SAP’s strategy for three different products (four if you count BAiO, with its separate go-to-market strategy)? I am not only tempted to say yes, I am tempted to say, “Hell, yes.” Think about it. SAP is the 800 pound gorilla and even 100 pound gorillas can handle a diverse portfolio.

Addressing Concerns

So what about some of the accusations and assumptions that have been floating around the rumor mill? Let’s counter a few of them.

“SAP is pushing Business One in the cloud instead of Business ByDesign.”

ByDesign has two characteristics that define it: it is a midmarket suite and a cloud solution that is deployed exclusively as software as a service (SaaS). It was never intended to replace SAP Business One at the low end of the market, but when a small company wanted SaaS ERP, it was the only product SAP had to sell. Now that a “cloud” option exists for Business One, that is no longer the case. This is a clear segmentation of the market by company size. Also, Business One has momentum. With over 40,000 customers and a large and mature channel in place, now that a cloud option is available it is only logical it is starting to gain its own fair share.

“SAP is no longer developing the product.”

SAP has been continuing to develop Business ByDesign, but these efforts might not have been particularly visible over the past couple of years. While SAP Cloud for Financials and Business ByDesign share a common set of code, some effort was involved in order to allow SAP Cloud for Financials to stand alone and yet be easily “coupled” to other solutions. This tends to be “under the covers” work.

And then there is HANA. Business ByDesign pre-dates HANA.  It was built in the NetWeaver era and used MAX DB (database) and TREX (search and classification). In order to take advantage of its advanced technological capabilities, Business ByDesign also had to transition to HANA, resulting in more “behind the scenes” work.

SAP assured those of us on the recent call that it was continuing to invest in the product and the platform. That said, it is also (better) defining the current target market. SAP will focus on developing the ERP backbone and specific capabilities for service industries, while also adding (open) integration capabilities. It will continue the transition to HANA for scale and extensibility. And it will also transition to HTML5 and benefit from the work done on the Fiori applications for a responsive, mobile-first user interface.

“Business ByDesign is a technological dead end. It is based on Microsoft Silverlight.”

See answer above.

“SAP themselves view it as a failure; otherwise it would be available world wide. Instead it is only available in a few countries.”

Twenty four percent (24%) of Business ByDesign business has been in the US and 32% in Germany. But it is available in 15 different countries. Is it concentrating its attention on all 15? No, but then not all 15 of them have really strong economies today. The SAP installed base is a prime market for Business ByDesign so SAP is going where it has the most customers and can make the biggest bang for its buck. That only makes good business sense.

Three more countries are planned for 2013 (New Zealand, Japan and South Africa) and an additional 3 are planned in 2014 (Brazil, Belgium and Singapore).  In addition customers are running customer-specific localizations in another 31 countries.  How many countries does it need to be in?

Summary

The supposed death of Business ByDesign seems to just wishful thinking on the part of some competitors. Although I also observe other SaaS ERP companies welcoming SAP onto their turf, as much for validation as for healthy competition. Let’s face it, all other ERP companies love to single out those competitive deals where they have beaten SAP.

Instead of a death knell, I am seeing renewed focus and commitment across SAP at the board, and executive level, as well as in the field. This represents a commitment to the cloud strategy in general and Business ByDesign specifically. Now, more than ever, SAP is clear about its target for the product:

  • The SAP installed base and upper mid-market are key for the Business ByDesign suite. Customers with higher revenue and user count threshold are prime targets as well as subsidiaries of large enterprises.
  • Large enterprises will be the target for packages such as SAP Cloud for Financials and other line of business cloud solutions like SAP Cloud for Customers and SAP Cloud for Sales. SAP will stress integration capabilities with SAP and non-SAP cloud / on premise systems.
  • Its primary industry focus will be professional services, public services and distribution.
  • While the product is available in other countries, SAP will focus its sales efforts where it has its largest installed base and where economic indicators signal a strong market. As a result, go to market efforts will focus on the US, Germany, the UK, Netherlands, Canada and Australia.
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