Reconstructing SAP’s SMB strategy…and ByDesign

SUMMARY:

SAP has a new man at the helm of its SMB division. What does he do about Business ByDesign and BusinessOne while keeping an eye on the cloud? There will be some very tough choice to make in the coming months.

bydesignLost – at least to me – among the ongoing announcements from SAP was the presser about a new position on SMBs and the appointment of former Netsuite executive Dean Mansfield into the role of heading up that line of business. It is an unenviable job but I give SAP kudos for hiring from the outside someone with cloud smarts and with a pedigree of operating on a global scale.

Frank Scavo attempts to get behind the press release with some well chosen words about Business ByDesign, the red headed bastard child of former exec Peter Zencke’s imagination which, by any measure, has been a disaster.

Scavo notes that the language used by CEO Bill McDermott is ambiguous but leads to the conclusion that ByDesign is no longer part of SAP’s core strategy. He says (quoting McDermott and then adding color):

ByDesign is still part of our product portfolio and we now have ByDesign on SAP HANA, which is absolutely a game changer because everything is faster and better on HANA as you know. [Emphasis mine.]

McDermott is a careful speaker, and his use of the word “still” is revealing. He wouldn’t dream of saying, “The Business Suite is still part of our product portfolio,” or “SAP HANA is still part of our product portfolio.” The word “still,” therefore, indicates that ByDesign is not part of SAP’s core strategy.

Here’s the problem – or rather the history of problems that leads to this most recent development:

The doomed history of Business ByDesign

Sometime in the 2003-4 timeframe, Zencke proposed a new suite aimed at SMBs that could be run as a hosted solution. At the time, cloud as we now know it was very much in its infancy. In essence, Zencke reckoned you could take core parts of the SAP R/3 process engine and wrapper them with web services to create…voila! – a cloud offering that would complement and enhance the overall product portfolio.

If you’re SAP it all made sense: re-use the IP, refactor for a different delivery model, simplify (ahem) where possible and reach a new market.

Unfortunately, by the time SAP was ready to hit the market sometime around 2007-8, and had spent many millions in developing ByDesign, the world had moved on. At the initial launch, there was quiet if skeptical approval.

At its architectural core, ByDesign was not built as a multi-tenant solution and SAP quickly discovered that scaling out was a costly nightmare for a solution that could never turn a profit. It also butted up against another simplified version of R/3 – All-in-One, which was already being successfully sold in some markets where the full R/3 suite was too heavy. At the time, I recall feeling sorry for Jeff Stiles who had the impossible job of convincing hard noses like me that BYD really was a great addition to the SAP family of products.

At that stage, SAP withdrew it from the market and spent 18 months re-engineering so that it could get better operational metrics and performance. It was still a mini R/3 with an interface to match although not as crappy as many in use at the time. By the time they were ready to go into market, Brian Sommer and I had taken a deep dive. While we were bullish on the product we had plenty of reservations and especially around the complexity of configuring some 10,000 processes. Get it wrong and you’d have a devil’s own job fixing it later. Just like happens with R/3.

Even so, I for one – and in retrospect probably the only one –  was willing to put my neck on the block and declare it not only fit for purpose but a potential winner. What I could not know was just how little support SAP really had for the product, despite the valiant efforts of some of SAP’s most loyal and long standing employees. Nor could I know just how hard it would be for partners to onramp consultants who had to endure a lengthy training process just to understand what they were hefting.

Once it was ready to relaunch, McDermott made his now infamous claim that Netsuite would be on the bad end of a 90mph fastball. Check this cheeky take from Scavo:

Quarters came and went, SAP talked up the BYD numbers, eventually plateauing at something like 1,000 customers. Of those, roughly 250 were what you’d call ‘friends and family’ so that the real in market sales were a paltry 700-750 and stagnating.

In 2012 along came Lars Dalgaard via the SuccessFactors acquisition and what did he do? He blew up the ByDesign suite into pieces, saying that people wanted to buy functionality and not the suite. I was flabbergasted. In all the years I’ve been around software, I’ve never seen or heard such an insane idea. SAP did nothing to stop him, in the belief that as the only guy at board level with cloud experience, he must know best.

Another more cynical view might be – let’s shove this bag of crap onto the new guy.

At the time, I was outspoken on this topic internally at SAP where I had a degree of influence. I explained that preserving the suite elements and allowing ByDesign to behave like a platform was likely its best chance of success based upon the idea that the suite/platform combination would not only win but prove scalable inside the partner ecosystem. Netsuite had validated that strategy yet SAP had way more resources with which to make it successful. In my view, they could still get something useful out of the mess and, keep customers happy.

Some people got it and efforts were made to bring that vision to market along with some nice UI touches that added sparkle to ByD. But SAP’s core development was firmly focused on HANA and within 20 months, SAP had pretty much canned BYD development. That is pretty much where we are today, other than some re-engineering to put BYD onto HANA and the maintenance of existing customers.

What next for BusinessOne?

business1On the other hand, BusinessOne has prospered, albeit steadily, to the point where SAP has some 50,000 customers.

This is a mature, very well developed solution that customers find is affordable and adds value to their business.

It too has been given the HANA treatment but it now remains a question as to what Mansfield can do to forklift it to the cloud or whether he revisits BYD with a view to going all out for sales in existing R/3-ECC-Business Suite shops. That would be the natural hunting ground for BYD.

At this stage, it would be a very brave person who’d be willing to bet on a twice failed and revamped BYD without spending another shedload of money re-engineering when BusinessOne, properly developed for scale out cloud operations might be a viable answer that simplifies the range and makes buying decisions easier.

Where to now for SAP SMB?

At this stage we cannot know. We only have a press release that, as Scavo points out was vague, a new man at the helm who will need to make his mark but who has genuine cloud smarts. The problem he faces is one I have seen before. Mansfield knows there is a burgeoning mid-market cloud play for a solid suite that’s up for grabs.

Netsuite has done well but then it is really the only genuine competitor in the market for that style of solution. But – in a company where the DNA is very much on-premises, Mansfield needs his organization to get itself ring fenced as fast as possible so that he can develop his own team of developers, marketers and sales. From what I have seen in other companies, anything else will fail. And it won’t be easy persuading SAP’s board to invest in SMB when it can fry much bigger fish with HANA based industry solutions that rake in millions of dollars.

On the competitive front, Netsuite continues to march on, FinancialForce is ramping fast across multiple dimensions and may yet break out of its S-MB market now that its new UNIT4 overlords are in place. Plex Systems is ramping as well with investment going into raising its manufacturing cloud profile and with a solid solution that address modern transformational requirements. Kenandy is a dark horse but again, we understand it is ramping.

As for the rest? SAP is a company many of us love to hate and love again but as always, no-one can ignore it.

 

Image credit - Featured image © igor - Fotolia.com

Disclosure - SAP, Plex and FinancialForce are partners at time of writing. Netsuite is about to become a partner.

    Comments are closed.

    1. freebalance says:

      SAP is discovering the age-old software problem of trying to move downmarket with the expected sequence of events:

      1) Build complex functionality for large organizations
      2) View SME software as “toys” that lack sophistication
      3) Watch the SME market grow while large organization market plateaus
      4) Discover that the large organization market has expensive problems problems where learning, customizing, updating costs are fully justified,  but that SMEs value simplicity and low total costs
      5) Create a horrible product for the SME market
      6) Claim that your product is simple
      7) Scramble to redesign product to actually make it simple within a development organization with a culture of addressing complicated problems
      8) Experience high costs associated with leveraging existing product where over the course of time, the cost of leveraging old code generates diminishing returns and, finally, negative returns relative to writing the software from scratch for purpose

    2. cliveboulton says:

      SAP BOD buy Exact. https://twitter.com/fscavo/status/490256018937352193

    3. PabloMizzlewhizzle says:

      In my opinion, there are/were two majour problems concerning ByD.

      1) As freebalances noted, ByD’s functionality is just a lightweight R3. Integrated financials are a very important point for growing companies but SAP always tried to have a whole suite with every department available but no functionality perfectly delivered. So, instead of focusing on specific (NEW!) industries and REALLY caring about their needs, SAP built a product with a nice cloud platform model but targeting the old existing business models and therefore finally stuck in the middle between all other internal and external ERP-solutions.

      2) For some reasons related to sales structure and incentives within SAP it always seemed to me that there was barely no marketing- or sales team which really tried to sell this product. Unbelievable if you think about a multi billion dollar investment.

      So in terms of technology I think this product has some prospect but if some more years will come without a BUSINESS strategy I don’t see any interesting prospects for Business ByDesign…

    4. says:

      As a person who was in the SAP Business One family for 11 years, I can maybe add some insight on this.
      SAP Business One is a great product for on premise focused customer omers where the functionalty is a good fit and they have a great partner channel that are committed to the solution and some smart people driving the go to market.
      However, the core architecture needs a full re-factoring and just moving some components to HANA wont do the job as SAP are doing.
      Also releasing new functionality only on HANA to try to force customers to buy and partners to sell HANA is also not a great strategy in my view …. HANA is a sweet piece of technology but customers buy tech on their own timeframe and for their own reasons…limiting choice through a false mechanism is a strategy that won’t win friends and influence people.
      I also spent a lot of time showing partners and customers how to leverage other technologies such as Ericom’s AccessNow to try to get more browser based adoption but unfortunately there was not much traction internally to support this approach at SAP as folks were more interested in building a lower end solution on a new architecture.
      Of course, the secret here is to listen to partners and customers more and do less design and strategy in a closed room with a core group of internal folks who will all follow along without argument with a potentially flawed strategy for fear of rocking the boat – recognised by many as the cause of ByD’s still-birth.
      Cloud is the future…and it took me a while to really get on board with that…and the technology cannot be a retro fit…as REM once sang…you cant get there from here…thats part of the reason why I decided to make the shift from SAP to another vendor, who shall remain nameless in case people accuse me of just flogging an alternative because it suits my current circumstance.
      Having been living it now for 4 months and diving deeper in to the whole platform enablement process and technology behind this I am even more convinced that re-factoring is the only way forwards…not just for SAP but for all the legacy ERP vendors as most, if not all are struggling with the same challenges

    5. says:

      You can be sure of one thing, SAP spent millions of Euros on trying to sell and market ByD to the detriment many times of their other solutions like SAP Business One.

    6. cliveboulton says:

      freebalance 

      9) Throw in towel and sell out. Often to private equity who gut R&D, and load up the software company with huge debt in order to extract Wall Street sized bonuses. Thereafter charge monitoring fees for greenhorn MBAs who know zip about ERP companies to advise mgmt.