I wanted to refrain a little while from commenting on SAP’s announcement of the long-awaited (and oft-maligned) Business ByDesign on-demand product (as an aside, is it just me who feels a little finny calling a SAP product SaaS?). Zoli has covered the launch previously, but I wanted to return and reflect on what it all means – and how it changes the competitive landscape. After the announcement at SAP’s Sapphire event, which I missed due to my attending Google IO, pretty much every ERP commentator weighed in with a perspective – I wanted to talk to a few different people before I gave my two pesetas.
So there’s a myriad of issues here, and it’s hard not to be clouded by the on-again, off-again history that ByD has been plagued with – having said that we need to look at ByD afresh to gain some kind of insight. I spoke with both NetSuite (see disclosure statement) and SAP recently to get their reaction (and counter reaction) to the launch. NetSuite, in echoes of a feisty Marc Benioff in the early days of salesforce, came out with the following deck that articulates some of the weaknesses they perceive in ByD:
Now it has to be said that many of their points relate to issues with the newness of ByD – and an obvious retort is that just because a product is new doesn’t mean it’s a weak offering. Their point about the strength of their own developer community is a valid one, and ByD is starting of from ground zero in relation to this. However on the flip-side, SAP itself has a developer community an order of magnitude bigger than NetSuite’s and they will no doubt be encouraging these developers to add some value to the product – the big disclaimer in all this is that we have no real idea of what the ByD development platform will actually look like – one would be more than surprised if SAP hadn’t learnt from previous mistakes and had created in this version the ability for third parties to build specific offering on top of ByD – but at this stage it’s a little bit unknown.
Moving on to their next point, that of the functional shootout held during the Sapience conference last year, this is a little bit of a red herring. Firstly the product tested at Sapience is different from what is out in the wild today, while secondly there have been some questions raised about the fairness or otherwise of what occurred there – I don’t want to go into that issue but suffice it to say I’d take the Sapience result with a bit of a grain of salt.
In terms of the last slide in the deck – this is all a bit disingenuous – Business ByDesign is for all intents and purposes a brand new product so of course it’s history starts today. That said, SAP is plagued by the fact that multi-tenancy seems to be only a very recent thought for them – it does raise some questions around a fundamental understanding of on-demand software and economies of scale – multi tenancy is one of the cornerstones and it’s hard to see how SAP could have got this so wrong until now.
Moving on to price, Dennis Howlett comments on ByD’s pricing saying:
SAP has a reputation for being expensive. Even at $149/user/month for a minimum of 25 users Business ByDesign still weighs in at $44,700 per annum… That still sounds like a lot until you hear that SAP is prepared to go down to 10 users. At this level, we’re looking at $17,800
That’s a significant margin on top of NetSuite’s pricing (it’s not completely apples with apples, but even discounting the price differential, ByD at 50% is a significant step up in terms of price). I asked NetSuite to clarify their pricing and they came back to me with the following:
Our standard pricing is $99 per user per month, and a $499 base fee per month. We also have a lower per user pricing tier for employee center users (i.e. users who’ll be using NetSuite just for time & expense management).
Beyond all of this though, and what interests me more, is how SAP is going to message this product. let’s face it – they’re the big guys, used to big ticket sales to large enterprises – moving down market where agility, price and a message that resonates with customers are the critical factors – is a hard ask. It’s very much like the salesforce and Siebel battle all over again, NetSuite gets to play the feisty young startup, defining a new industry. To that end, and as something of an aside, I’d expect to see NetSuite CEO Zach Nelson become much more aggressive in his media relations – while NetSuite were the only game in town, Nelson could remain a little quiet and concentrate on executing. With ByD in the wild I’d expect to see many more Benioff-esque moments – we’ve already seen a few with Nelson calling out SAP in recent earnings calls, and NetSuite using guerilla marketing tactics at SAP events – expect that sort of behavior to increase. As Howlett points out:
NetSuite’s bigger problem is brand recognition.For all its years in the market, it hasn’t really managed to take the SaaS/cloud high ground for integrated applications. SAP can bulldozer over it (and pretty much anyone else with the exception of Salesforce.com) anytime it chooses.
Which speaks to a much more energized Zach Nelson raising his head over the parapets in the weeks and months to come.