The aptly named Business ByNetsuite program guarantees at least 50% savings to current SAP R/3 customers relative to – watch this! – the annual maintenance fees they are now paying to SAP. Yes, it’s not a price-to-price comparison. With the perpetual licence model customers pay upfront, but are still forced to pay annual maintenance fees – with SaaS there is only a subscription fee, and now NetSuite proves it can be half of only the maintenance component of traditional software’s TCO.
NetSuite’s timing could not be better: in the middle of the economic downturn SAP just increased maintenance fees – and as fellow Enterprise Irregular Brian Sommer sates over @ ZDNet (emphasis mine):
In light of the current economy, SAP’s timing on this cost increase was unfortunate at best and a strategic blunder at worst. Raising customer costs in a down economy is a gutsy thing to do unless you are absolutely sure of your customers and their willingness/ability to pay more.
Well, apparently not all customers are willing, and NetSuite has already presented a showcase convert from SAP to their own system.
Of course it does not mean NetSuite is ready to replace SAP as such. NetSuite is a very good integrated SaaS offering for small to midsize businesses, while SAP (and next Oracle) is what most large corporations run their business on. Comparing the two would be comparing apples and oranges. NetSuite themselves make it clear this is a divisional offer: they can handle smaller divisions of large companies, many of which likely replaced a legacy system with the parent company’s SAP R/3 as a result of acquisition. There’s no way the entire corporation could switch to NetSuite, which is why the new program offers NetSuite-to-SAP connectors for enterprise reporting.
Would these divisions not be better off with a comparable SaaS offering from SAP themselves? Most likely … and there is one, albeit not highly visible. the Business ByNetSuite name is clearly a play on SAP’s very own Business ByDesign, introduced with great fanfare a year ago.
I’ve seen demos of SAP’s system, and am convinced it is the most functionally complete on-demand enterprise system available anywhere, and @ $149/user it is reasonably priced. After some initial doubt most analysts seem to agree the product has strong feature-set, but they also all point to potential execution problems, as well as SAP’s positioning dilemma.
Business ByDesign is clearly meant for the SMB / SME market, but even there it is facing off with two other SAP offerings: Business One and Business All-in-One. Confusing? Sure it is, even for customers. There functional limitations and BYD is clearly not a sufficient system for a large corporation, but within the SMB range it could very well serve customers SAP would rather see in the other “buckets” for its B1 and A1 products. SAP’s insistence on the strict segmentation is largely myopic: it assumes a SAP-centric world with loyal customers: but they have choices, including NetSuite.
SAP is clearly facing the dilemma of trying to get on the SaaS train while at the same time not cannibalizing their existing on-premise software market. In fact it isn’t simply a SaaS vs. on-premise game, BYD brings in new technology some of which has not yet made it to the main SAP Business Suite. But the best technology and feature set is not enough, it needs clear direction, marketing and sales execution. Announcements around SAP BYD’s delay, then counter-announcements that it’s not a delay, just “reduced acceleration in marketing”, the conflicting then all-but-disappearing messages from SAP at their major conferences certainly don’t help.
SAP has an excellent but poorly-positioned product that is hard to get: that’s an open invitation to competitors like NetSuite, and NetSuite is clearly smart to take advantage of SAP’s blunder.
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