SAP needs to re-think its SME strategy

There’s little to no more buzz generated in today’s web-sphere by SAP’s Business ByDesign.  Let’s travel back a few years back (2007 to be exact) when former SAP CEO Henning Kagermann made the “most important announcement I’ve made in my career.” by announcing SAP Business ByDesign. SAP had set some huge promise for its killer solution to entering the Small-to-Medium Enterprise. More importantly let’s look at the important metrics that came with the annoucement:

“SAP hopes to add 10,000 Business ByDesign customers a year by 2010″

“SAP said that it has spent $500 million over four years with 1000 developers hammering away at the new suite.”

From Leo Apotheker’s interview with eWeek:

“Salesforce has a CRM application. It happens to be that the vast majority of businesses on this planet do a little more than just CRM. Our attempt is to get rid of all these acronyms. Businesses dont really buy acronyms, they buy a processes flow, a business model.”

This was an extremely bold set of statements for a company that has little to no experience in the small to medium sized business run. First, CRM is the absolute LIFEBLOOD of a SME. How do I know? I used to run one and work for one now. Also most SME’s can find open source solutions or easy to use SaaS’s to satisfy their specific needs (like Supply Chain, Project Management, etc). SAP itself is ridden with a plethora of ridiculous acronyms. (i.e. XI, PI, BW, BI, CRM, SRM, SCM, ERP, ECC, R/3, etc…) The absolute kicker of the the whole interview is that he states “Businesses buy a business model”. This is absolutely untrue.  SME’s don’t buy business models, they create them, and in most cases its the reason the SME’s exist in the first place – they redefine existing business models.

So where is Business ByDesign? As of September 2010, it’s at about 80. I’ve always said that SAP should have bought back when it was “cheap”. built the product and their company (for that matter) in a much more agile fashion. Even after 11 years, still only has 150 developers, compared to the 1000 developers SAP threw at Business ByDesign. At the time was trading at $35 and is now at $115 with a $15B market cap (compared to SAP’s current $62B). market cap represents nearly a quarter of SAP’s market cap today without being anywhere near profitable on Business ByDesign. Hindsight is 20/20.

I’ll end with this blog post from Infor that I think demonstrates SAP’s need to re-think its strategy: The same business processes that make enterprise companies like SAP so strong are the same ones that hinder them from enter into new and unknown markets.