A Guide to SAP’s SME Software Products

a guest post by: Chris Thorman, Senior Marketing Manager of Software Advice (www.SoftwareAdvice.com)

This post comes from Software Advice CEO Don Fornes, a web site that reviews manufacturing software systems.

Throughout its existence, SAP has been known as an enterprise-class applications vendor – one that sells only to really big companies. At the same time, SAP has attempted – through marketing, channels and development – to move “down market” into the realm of small and mid-size enterprises (SMEs). Today, that strategy has resulted in a portfolio of software solutions that might need some explaining. I’ll give it a try.

Before we dig into the SAP portfolio, it’s important to understand a few things about the SME market:

  • There exists a range of SMEs and one-size does not fit all. A $750 million SME has very different needs than a $10 million SME.
  • The smaller the SME, the less likely they are to adopt complex technology. When they do get into technology, they typically like Microsoft platforms (e.g. .Net, SQL Server).
  • SMEs were the first to adopt software as a service (SaaS), and that model continues to gain traction within the SME market. Any SME strategy must include a SaaS strategy.

The implications of those three points for SAP were that SAP could not just “re-package” its core SAP Business Suite – the “big company product” formerly known as R/3 – and call it an SME strategy. SAP actually tried this throughout the 1990s, but in 2002 they started on a new path toward specific solutions designed just for the SME market.

SAP products by size of business, as measured by employee count

By far the biggest differentiator between the various SAP solutions is the size of organization for which they are designed. Of course, SAP Business Suite is designed for large organizations – those with thousands or tens of thousands of employees and likely hundreds or thousands of ERP users.

All-in-One, with its preconfigured industry solutions, is able to go further down market to serve organizations in the 500+ employee range – the high-end of the SME market.

ByDesign is targeting organizations in the 100 to 500 employee range. Over time, as ByDesign matures functionally and becomes more scalable, we expect increasingly larger organizations to adopt the ByDesign SaaS model. So, in our diagram we indicate this as moving up-market.

Finally, Business One is clearly targeted at the low-end of the SME market. It’s simplicity is a fit for organizations with fewer than 100 employees, but at least ten.

SAP Products by Application Functionality

From a functional standpoint, there is a wide variation in the capabilities of the various SAP products. Business Suite, again, is extremely full-featured. So too is Business All-in-One. Business ByDesign is not as fully featured as its on-premise siblings, but SAP is investing rapidly in developing more functionality. Finally, Business One remains a fairly simple applications suite; its primary capability is core accounting, complemented by hundreds of add-on modules offered by a network of roughly 1,200 reseller partners.

SAP Products by Industry Coverage

SAP has long prided itself on offering very specific functionality for a wide range of industries. Business Suite, of course, has very deep coverage across most major industries. Business All-in-One inherits this deep industry functionality, since it shares the same code base.

Business ByDesign and Business One offer narrower coverage of industries, since they are newer solutions. SAP is still extending the core horizontal functionality of these solutions (e.g. CRM, SCM) and will, over time, extend the vertical industry functionality.

In the case of Business One, SAP offers a very robust set of developer tools, which allow third-party reseller partners to extend the solution to meet the needs of specific industries. Over time, we expect SAP to incorporate these add-on modules into the core Business One codebase. Microsoft has executed a similar strategy with its Microsoft Dynamics products.

Software Deployment Options

Traditionally, SAP solutions were installed on-premise; that is, the software was installed locally at each of a customer’s facilities. From an architectural standpoint, there is software to be installed on a server (i.e. the core application functionality and the database), as well as on the client machine (i.e. each user’s computer). Some SAP applications are web-based, meaning that all software is installed on the server, while users access the application via a web browser. Regardless, any software would be installed and maintained at the customer’s facilities.

Through a network of reseller and hosting partners, SAP began to offer hosted versions of its solutions in the late 1990s and continues to offer these solutions today. Business All-in-One, specifically, is offered in both an on-premise and hosted model. Business One, however, is only offered as an on-premise solution, meaning that all software is installed at the customer’s facility.

Business ByDesign is a clear departure from SAP’s traditional on-premise model. Business ByDesign is a pure web-based solution, offered on-demand. That is, all of the software is hosted at an SAP data center and every user accesses the system through a web browser over the Internet.

Pricing and Cost of Ownership

Pricing for Business Suite and Business-All-in-One is a traditional mix of package licenses and named-user licenses. That means that a buyer will pay a certain amount to purchase the applications they need, as well as a separate license for each user who will access the system. The later licenses will vary in price based on whether a user is a power user or an infrequent user accessing reports, etc. Finally, the buyer will have to purchase a maintenance contract (typically 15% to 20% of the original license price), which will entitle them to customer support and upgrades.

While Business Suite implementations are often seven-figure investments, we believe that a Business All-in-One implementation can cost as little as $350,000, including software and services. Of course, most implementations become more complex due to customization and integration, so many will cost substantially more than $350,000. Since Business All-in-One is available on a hosted basis, SAP also offers – through its partners – subscription pricing.

SAP Business One follows a similar pricing model but costs far less. Again, the cost depends on various factors, including the number of users and the type of access each user will need. We believe that Business One implementations range from $25,000 to $250,000. The variation will be driven in large part by the number of third-party add-on modules that are purchased and how much customization and integration is performed by the channel partner.

Business ByDesign offers the most unique pricing amongst the various SAP products. A pure subscription model, Business ByDesign costs $149/user/month. There is, however, a minimum licensing requirement of 25 users, which brings the total monthly minimum subscription to $3,725 per month.

To compare Business ByDesign pricing to the other SAP solutions on an apples-to-apples basis, we can compute a net present value (NPV) of $27,416 (assuming a ten-year life for software and a 6% discount rate). Of course, that is just the lowest-level price. A company with 300 users could expect to pay the equivalent of a six-figure, up-front investment (say, ~$200,000).

Business ByDesign, by design (pun intended), is not meant to be customized intensively. Therefore, buyers can expect to invest far less in customization and integration, assuming they can make the out-of-the-box version work for their business.

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