Sapphire show addresses SMBs

A Q&A with SAP's president of global field operations

BOSTON - In a move to broaden its customer base, SAP AG has launched a new channel partner program aimed at small and medium-size businesses (SMBs). The program was unveiled at the company's Sapphire user event in Boston, which ends Thursday.

At the event, SAP board member and president of global field operations Léo Apotheker took a break in his meetings with customers and partners to talk with IDG News Service about the company's SMB channel activities, new value-based pricing model, rival Oracle and more.

IDGNS: Some say you're relatively late to enter the midmarket. Would you agree?

Apotheker: We became active in the midmarket long ago. In fact, of all the major applications software companies, we were the first to put a special emphasis on the midmarket -- with our acquisition of TopManage and the launch of our Business One model.

IDGNS: Why the new channel partner program now?

Apotheker: We had partner programs before. They were sufficient. Otherwise, we wouldn't have a 30 percent order entry in the midmarket. But we looked around and asked what we can do better. We hired Donna Troy, a channel expert. She came to the conclusion that we had to go to the next level. And that's what we are doing now.

IDGNS: So you're going to beef up your focus on SMBs?

Apotheker: Well, to be frank, we don't believe there is such a thing as an SMB. When you meet an entrepreneur, shake his hand and ask what he does in life, he'll never say he is the proud owner of an SMB. The term SMB is really just a name that quantifies the size of a market. Size implies a certain number of characteristics in terms of resources, capabilities and needs. What differentiates a third-tier auto manufacturer from a tier-one producer, for instance, are their unique processes. At the end of the day, however, SMBs have many of the same needs as large companies but on a much smaller scale. Many of them are also global players, with very sophisticated processes on their own scale. So we're scaling to their resources and treating them for what they are.

IDGNS: Some say SAP software is really designed for big companies. Would you agree?

Apotheker: Interesting question. We have this reputation. When we acquired the technology of Business One a few years ago, we had around 18,000 customers. There aren't 18,000 multinational companies, so that means we already had a presence in the midmarket prior to Business One. Our R/3 software already had many capabilities for midmarket companies. That said, we knew what we had to do to get better.

IDGNS: Your Enterprise Services Architecture (ESA) seems like something only big companies like the The Home Depot can implement.

Apotheker: I beg to disagree. ESA is very easy to implement. It has nothing to do with holistic client-server business applications. But what is challenging about ESA is the transition and migration. Users have to make sure data moves well, and they must avoid business interruption. This is absolutely essential for midsize companies. They can't afford to bring down their system for a week because they have to fix something or want to migrate to a new system.

IDGNS: So you're saying ESA is easy?

Apotheker: It's a piece of cake. The most interesting and value-added part of any implementation, however, is never the technology, but rather how to extract business value from technology. And that's where we'll help our customers. We have programs for this.

IDGNS: Salesforce is a name in the SMB area. Is the company's hosted, subscription model something for you to duplicate?

Apotheker: The real question is whether Salesforce is a good model for users? A subscription model is just another way of paying for software. Despite all the propaganda, Salesforce sells software, and it's not very good software -- but that's another matter. There's also a price issue. When you do the math, you'll discover that after two years, you pay more than you would if you had installed the application inhouse.

IDGNS: What about hosted services in general?

Apotheker: I can imagine that in some situations, it makes sense to have a hosted solution. The real issue is whether customers, particularly midsize companies, are still in control of their business processes. When you farm these out as you do in the Salesforce model, you can't bring them back in. Studies show, however, that the vast majority of SMBs prefer to keep control over their processes.

IDGNS: Don't you offer hosted service?

Apotheker: Yes, but we've always included a clause that we can port the application into the customer. It's been our experience that SMBs want to keep inhouse those business processes that are of real differentiating value. I think Salesforce is a fashion. They've found a niche.

IDGNS: Oracle made some midmarket announcements prior to Sapphire. Surprised?

Apotheker: No, Oracle is the greatest 'me too' company on the planet. Retek is a good example; PeopleSoft too. Oracle is a company that knows how to react.

IDGNS: Oracle is in all the markets you're in, right?

Apotheker: Yes, they're positioned in the low, mid and high market. But whether they're successful is another question. Just look at our first quarter results in 2005. We sold more software licenses in the U.S. than Oracle, together with PeopleSoft, sold worldwide.

IDGNS: But Oracle seems prepared to play hardball. Aren't you a bit concerned?

Apotheker: Make my day. Go ahead and play hardball. They don't even know what hardball is.

IDGNS: Aren't you worried about Oracle's next move after Retek?

Apotheker: There is a difference between rational and irrational behavior. What we announced with The Home Depot shows that we didn't desperately need Retek. We have expertise in the retail sector. Acquiring Retek would have been nice. The company has good people and some bits and pieces of technology that would have fit into our portfolio. But we were only willing to pay a given price for that.

IDGNS: Do you see another retail opportunity out there?

Apotheker: You'll be the second to know.

IDGNS: How about pricing? What's all this talk about value-based pricing?

Apotheker: When you sell something that generates a loft of value, you need to ask yourself how to price it. Should it be the cost of production? Or could it be the value it generates for the customer. We want to see whether we can offer a mix of pricing that would combine user pricing, which is a standard metric, and engine pricing, which is also a standard pricing metric, with some process for value-based pricing. We essentially need to agree on what value a piece of software can generate for the customer. This is easier said than done but we have developed a methodology for this.

IDGNS: This sounds very challenging. Has anyone attempted a value-based pricing model?

Apotheker: Yes, for some consulting services. We see metrics that we can apply to software as well.

IDGNS: When do you plan to offer value-based pricing?

Apotheker: Probably for the 2006 price list.