SAP unveils mid-market solution…ByDesign

The much ballyhooed and oft-discussed evolution of SAP's midmarket software strategy is finally upon us. As I type this, SAP's Henning Kagermann has just announced the availability of SAP Business ByDesign; formerly referred to as A1S.

Business ByDesign is, "the most important announcement of my career" according to Kagermann; heady words for someone who was rather dismissive of the impact of on-demand software architecture just 18 months ago.

Segmenting the Market

One of the biggest challenges SAP will have is segmenting the new offering. Take a look at the opening paragraph of the Fact Sheet we were provided in today's press kit:

The SAP Business ByDesign solution is a new addition to the SAP portfolio of solutions for small businesses and midsize companies. The on-demand business software solution complements and does not replace any of the other solutions in the SAP portfolio. [note: emphasis mine] SAP Business ByDesign specifically addresses a new market of prospective customers: growing midsize companies that typically have not invested in the types of integrated business solutions SAP provides.

To my mind, there is tremendous need and opportunity for a hosted, subscription-based, easy-to-use ERP solution for small and mid-market companies. That said, I don't see how the demand doesn't, at least in part, cannibalize the traditional SMB on-premise ERP solutions; of which SAP has several already in the market.

Henning put up a chart describing SAP Business ByDesign as a solution that addresses an entirely new segment of the market.

Large	SAP BUsiness Suite	>2500 employees	~$30B market
Midsize	SAP Business All-In-One	<2500 employees	~$15B market
Midsize	SAP Business ByDesign	100-500 employees	~$15B market
Small	SAP Business One	<100 employees	~$15B market

Note: This is not a recommendation to buy or sell SAP or any other security, but is merely a personal analysis to foster discussion for informational purposes only. At the time of this writing, I and/or funds I maintain discretionary control over, did not maintain a position (long or short) in SAP. We also may, at times, carry derivative options on underlying positions as a hedge.

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Comments

[Cornel Schoeman]

Indeed, which company would not look at rapid implementation time and a quick return on investment - SAP could have hit the sweet spot.

[Patrick]

Good comments on the A1S "launch" - to use the term loosely. I'll link to it from my blog today, where I'm also talking about the problems that legacy vendors have trying to enter the SaaS market. It's ironic, too - it was companies like SAP who created the market conditions (i.e., customer frustration) that led to the rapid growth in the on-demand market in the first place!