Out in the cold: small businesses' ERP deficit

Out in the cold: small businesses' ERP deficit

ERP leaders, SAP and Oracle, have failed to deliver compelling on-demand solutions for smaller businesses

It took the United States just 45 months to defeat the combined forces of Germany, Japan, and Italy. It has taken SAP 48 months to get Business ByDesign, its SaaS (software as a service) play for the SMB market, off the ground. And it still isn't ready for prime time.

Oracle, meanwhile, doesn't even pretend to care about smaller businesses; CEO Larry Ellison has repeatedly said that it costs too much to go after a relatively low-margin market. And Microsoft? It has a tentative SaaS offering, and just for CRM at that.

So small businesses' on-demand ERP options are limited to offerings from small providers such as Intacct and RightNow Technologies.

The real problem here is that the major enterprise software players are structured to deliver massive, on-premise business applications like SAP R/3, Oracle E-Business Suite, and Microsoft Dynamics. Doing anything else requires not just technological change but cultural change -- as well as a willingness to accept a new business model. And there's no better example than SAP.

NetWeaver sinks Business ByDesign

Last week, the German software giant put the brakes on Business ByDesign, just days before the opening of its annual Sapphire conference. "We have to work out how expensive it will be for SAP if we run this product in a hosted environment. We have to make sure we make enough money with the product," said co-CEO Henning Kagermann.

The company is now projecting "substantially less" than the originally targeted 1,000 customers in fiscal 2008 and is pushing back by as much as 18 months the previously stated targets of 10,000 customers and US$1 billion in revenue by 2010. Not only is the company pessimistic about BBD's rate of growth, it's cutting back spending on the program by some US$160 million this year, notes Sanford Bernstein analyst Charles Di Bona.

Digging a little deeper, it appears that a large part of the messy economics of BBD is (big surprise) Netweaver 7.1, SAP's latest iteration of the big honking platform that nobody likes.

In an interview at Sapphire with a group of industry watchers called the Enterprise Irregulars, Kagermann spilled the beans, saying, "We know we can have TCO, but need NetWeaver enhancements. There's a very close link between the TCO of Business ByDesign and NetWeaver." SAP set a price of US$149 per user and tried to work backward to a cost structure that allowed for a reasonable profit, but hasn't been able to do it.

Kagermann deserves credit for frankness, but that's about all. SAP has talked about the SMB market for years, but has yet to get the program off the ground. Jeremiah Stone, a solution manager for Business ByDesign, says BBD has been cooking for four years, including two years of application development. Think about that: four years of development without serious thought to the business model. And now, it's cutting spending on a program it once called critical to the success of the company. Astonishing. Makes me glad I'm not a shareholder.

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