Global software provider SAP is working to shed its reputation of being inaccessible to the small-and-midsized market.The Walldorf, Germany-based company, known for its enterprise relationship planning software system, is targeting what it termed a $15 billion "untapped" global SMB market with a new business model that will cost an estimated $500 million over two fiscal years.

"When someone hears the term SAP, they think very large enterprises, multinational, very large implementation projects," explained Steve Ernst, principal of North American influencer programs and the SAP CPA Advisor Program, of the company that generated some $12 billion in annual revenue in 2006. "They don't think about small, $5 million, $10 million businesses. They don't think about the fact that we have more than 13,000 worldwide customers of SAP Business One."

It's that colossal stereotype that SAP intends to change.

A hosted ERP offering - for now titled A1S - is what the company's new business model will be based on, according to Jim Dever, director of global media relations. SAP hopes that A1S will attract small and midsized companies that may not be on any ERP system.

Though a release date had not been disclosed at press time, Dever said that when launched, A1S will offer customer engagement, hosted delivery and a subscription-payment option.

Recently, SAP unveiled a new enterprise platform on which the A1S product will be based - enterprise service-oriented architecture by design.

"We already attract more software revenue in the [small and midsized enterprise] segment alone than most of our competitors sell in total software revenue, regardless of the customer segment," said Hans-Peter Klaey, president of global SME enterprise for SAP, in an e-mail. "However, the SME segment remains largely underserved and there is room for SAP to expand its presence."

Since 2003, SAP has offered two on-premise business management products for small and midsized concerns: SAP Business One, an out-of-box integrated system geared towards SMEs with between 50 and 150 employees that offers operations such as customer relationship management, accounting, reporting, sales and distribution, purchasing, and warehouse and partner management; and mySAP All-in-One, which is based on the mySAP Business Suite, and is typically slated for companies with several hundred employees.

Last year, SAP introduced the use of SOA, a blueprint that allows the creation of new applications on top of existing enterprise solutions. Dever described it as "the engine under the hood" of the latest generation of mySAP ERP products.

FOUNDED ON IBM ROOTS

Founded in 1972 by five former IBM executives in Mannheim, Germany, Systems, Applications and Products in Data Processing was created with the vision of developing standard application software for real-time business processing. One year later, R/1, the company's first financial accounting software, was complete, laying the foundation for the development of other software components.

It wasn't until the 1990s, however, that the company made the Internet-based client-server R/3 system, which would eventually evolve into its flagship product, mySAP ERP and the mySAP Business Suite, a generation of enterprise software now based on NetWeaver, the company's open IT integration and application platform.

"We built our reputation by serving the DuPonts of the world and the Coca-Colas and DaimlerChrysler, and that's what we're well known for just because of the impact of those names," Dever said. "We're building on that base of business to go after small business now and to reach out into the midmarket."

FORGING CPA ALLIANCES

Meanwhile, in an effort to raise awareness in the CPA community about Business One and its offerings, the company in 2004 launched its SAP CPA Advisor Program, which now has more than 550 members.

"We are getting the message out, so when [CPAs] are advising their clients, they're now much more aware that SAP has a product that very well might suit that client of theirs," said Ernst. "Or if they're growing and outgrow that accounting software [and] they need a business management system, through our marketing efforts and CPA program information, they are going to be aware of that."

The latest version of mySAP All-in-One is already on the enterprise SOA-based system, which is part of the company's increasing commitment to midsized companies, according to Dever. Using a PC interface and navigation powered by NetWeaver, this new version would still allow partners the power to customize the system for vertical industries.

SIZE DOESN'T ALWAYS MATTER

In addition to mySAP All-in-One currently being the only midsized platform on SOA, the difference between SAP Business One and mySAP All-in-One is not necessarily in the size of the companies using the programs, Dever explained. Business process complexity, industry focus and verticality gauge the choice between the two.

"At the very basic level, All-in-One ... will appeal to a larger-size company with more complex requirements," he said. "But there are a couple of factors that come into play, and complexity is as important as the actual size of the company and the number of users."

Ernst describes the sweet spot of Business One as those businesses that require five-, 10- and 15-seat licenses. "At the same time," he added, "that doesn't eliminate the company that has 100 employees that each need to be on the system, nor does it eliminate the emerging company with two people."

Building on the core offering of its ERP product, the company has been able to extend its services to adjacent functions such as supply chain management, CRM and business intelligence. "The whole theory with SAP has been to give a single platform to a company, so that the different areas - such as finance, HR, manufacturing - all could work off the same set of information," Dever said.

"I know it sounds a bit stark and a bit abrupt," Ernst said, "but stand-alone accounting software is dead."

In the coming months, SAP plans to continue its growth. The company has a goal of increasing its total customer base to 100,000 by 2010 from its current base of 38,000, and to double its total software market from $30 billion to nearly $70 billion.

"This small and midsized enterprise push is the key growth engine for doing that," Dever said. "The overriding goal is to make SAP the leader for enterprise management solutions of all sizes."

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