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Recently, I found a keynote from Dr. Jürgen Kreuziger (Senior Vice President, TIP Core Lifecycle Management) from SAP’s Virtualization and Cloud Week that describes SAP’s Cloud Strategy. There was a one slide in particular that caught my eye – it shows differences between SAP’s OnPremise and OnDemand offerings:

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Something about the slide intrigued me. I couldn’t quite figure out what it was.  I had heard about the new offering:  Business One OnDemand  but I hadn’t really thought about the impact on ByDesign.

In the past, ByDesign was often described as the Cloud option for all SME and mid-sized customers: “SAP positioned ByD as suitable for companies with 100 to 500 employees and 25 to 100 ERP users”. [SOURCE]. Initially, even fewer users were mentioned:

How low will Business ByDesign go?

SAP executives said the suite will support as few as 10 seats, down from 25 before. [SOURCE]

The recently announced Business One OnDemand meant that that a new OnDemand offering for this market segment was available and ByDesign was then reduced to the OnDemand offering for the mid-sized customer.  

Blogger Cindy Jutras also noticed this shift:

Unlike SAP Business One, ByDesign is and has always been a SaaS only solution. Originally SAP segmented its SME portfolio only by company size, either by annual revenues or by number of employees.  Today SAP uses a slightly different positioning scheme. Business One is still viewed as the most affordable and recommended for small and growing businesses whether these companies are seeking an on-premise or on-demand solution. Business ByDesign, offered exclusively in a SaaS environment, is positioned as the best solution for mid-size companies looking for SaaS ERP.

This change in itself not as a bad thing – rather it is a sign of the healthy evolution of SAP’s Cloud offerings. 

I kept returning to Kreuziger’s slide and thought about what would happen to ByDesign if an OnDemand version of Business All-In-One ever emerged.  “That is never going to happen” I thought but I was curious and started digging and found some material on hosting options for All-in-One – one that most interesting was the subscription-based hosting option:

The subscription-based hosting option – an extension of the SAP Business All-in-One fast-start program – allows your organization access to an SAP Business All-in-One solution that is hosted and managed by a select SAP partner. Because you pay only a flat monthly or quarterly subscription fee, you minimize up-front costs and ongoing in-house IT requirements.

Business Challenges

    • Inability or reluctance to absorb up-front capital expenditures for IT investments
    • Restricted cash flow for software licenses and hardware acquisition
    • Limited IT resources to manage software and IT infrastructure in-house

Key Features

    • Access to a hosted SAP Business All-in-One solution – Run your business without buying new hardware and software
    • Application and infrastructure management services – Leverage IT management expertise delivered by SAP partners
    • Maintenance and support – Take advantage of ongoing maintenance and support from SAP partners

Business Benefits

    • Minimize up-front capital costs associated with traditional software acquisition, including those for software licensing and hardware, by using a subscription-based payment model
    • Avoid the need to hire IT staff to manage and support software and the underlying IT infrastructure
    • Achieve flexibility to buy and deploy an SAP Business All-in-One solution based on your own financial and IT preferences because of a variety of licensing and deployment options [SOURCE]

I found the marketing material this fascinating, because, in some respects, it was similar to that of the marketing material provided for those interested in ByDesign. 

Indeed, the imagery used by SAP to promote this hosting option for Business All-In-One also associates this option with the Cloud.

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[SOURCE]

SAP partners for the SME market also describe this hosting option as being “OnDemand”.

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[SOURCE]

The following table provides a quick comparison of the three solutions:

Hosted by

Multi-tenancy

Subscription

Focus

Business All-In-One: Subscription based hosting

Partner

No

Yes

Mid-sized

Business ByDesign

SAP

Yes

Yes

Mid-sized

Business One OnDemand

Partner

Yes

YES

Small

Purists might argue that this Business All-in-One solution really isn’t a SaaS – just an application being hosted in the cloud. I have no details on the technical architecture used – it might even be an example of “Single-tenant (or Multi-instance) SaaS” (as defined by blogger Cindy Jutras): Each company is given its own instance of the (hosted) software, but may share common services, such as an integration platform, and security [SOURCE]. This lack of multi-tenancy – as opposed to that present in Business One OnDemand – is presumably based on the use of OnPremise technology in the subscription-based hosting solution.

Conclusion

SAP is very careful to distinguish between Business All-In-One (OnPremise) and ByDesign (OnDemand) for the mid-sized market. An older comparison between the three environments is seen below.

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[SOURCE]

The subscription-based model for Business-All-in-One hosting definitely muddies the water and threatens this clean distinction. I’m not saying that the functionality offered by both solutions is the same – for example, the user interface for Business-All-in-One is out-dated and based on the typical Business Suite UIs – I’m just suggesting that vague distinctions between OnPremise vs OnDemand models or between subscription-based vs. traditional-licensing models as the main differentiators aren’t valid. 

It is wiser and more useful to use differentiators that reflect specific platform functionality (mobile support, integration into other SaaS platforms, etc) rather than painting with broad strokes in a manner that fits into SAP’s Cloud strategy but doesn’t provide customers with an accurate portrayal of their options.   For example, I’d suggest using the distinction between “general industry functionality” and “deep industry-specific functionality” as a more appropriate sales device. 

Other changes in this market sector may be coming based on the acquisition of SuccessFactors.  A recent statement regarding SuccessFactors and ByDesign from 2012 1st Quarter Results suggests that the two are complementary without providing details

SuccessFactors’ solutions are highly complementary to SAP’s core HCM offerings as well as SAP’s strong cloud assets: SAP Business ByDesign for the suite cloud market and SAP’s line of business cloud offerings for large enterprises such as SAP Sales on Demand.

Although focused more on LE market,  a quick comparison between the HCM functionality between ByDesign and SuccessFactors shows that SuccessFactors’ solution is more complete. 

ByDesign is now being squeezed by various other OnDemand offerings. It has been squeezed out of the lower-end market by B1 OnDemand. In certain circumstances, it could be challenged in the midsize market by the Business All-in-One subscription-based offering and now SuccessFactors may also entering the field – though currently just in HR. The entrance of these intruders is not a bad thing – it forces SAP to describe the use cases that fit ByDesign in greater detail to distinguish it from these other offerings.  This clarity benefits those individuals deciding which solutions best fit their business requirements – it allows them to make purchasing decisions on a solid foundation rather general marketing messages.  

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  1. Jon Reed

    Dick, well done, important blog post. I have been commenting on the same thing but not in as organized as way as you just did. What I said recently to a colleague who works in the ByDesign space is that “A year ago, ByDesign seemed to have a lot of momentum and B1 didn’t – now the opposite seems true.”

    I think your analysis of ByDesign moving up market is absolutely right. To some extent from what I have heard from SAP leadership this is seen as a matter of cost. Basically, SAP believes they can offer B1 more affordably on the very small end of SME. I believe that’s why you are now seeing the “25 employees to 250 employees” type descriptions for ByDesign the last six months or so. And of course the emphasis on ByD for Subsidiaries play.

    One concern I have is that in the customer’s view, they might not see it that way. I’ve done videos with some pretty small ByDesign customers who loved the product and saw it as a great fit with their “grow fast into a midmarket company” strategy. I see those prospects as great ones for ByDesign and it would be a shame for that aspect to be lost in marketing distinctions based on company size.

    A much bigger concern is that with Lars Dalgaard.on board as the head of SAP on-demand solutions, I would want to hear something publicly from him about the future of ByDesign. While I always agreed with you that ByDesign was not on the chopping block when SAP acquired SuccessFactors, I do believe Lars has to be behind this product if it is to regain lost momentum. By “behind” I mean that he will need to make clear the ByDesign team has his backing. An updated roadmap from the ByDesign  team itself would be part of this as well, including the schedule for more country-specific product rollouts. I’m hoping we talk to ByDesign product leadership at Sapphire Now and get an update from their end as well shortly. See you there!

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    1. Richard Hirsch Post author

      Actually, ByDesign is critical in SAP’s broader OnDemand strategy, because it provides business functionality that other possible competitors / PaaSs from the consumer space don’t yet have. This functionality will give SAP an advantage when they have all the building blocks (Neo, Integration as a Service, etc) in place.

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  2. Judson Wickham

    ByD is absolutely moving up-market. In fact, the market has been divided by SAP into two segments: SAP is directly selling ByD to companies with over $500m in revenue, and the channel is strictly for under that amount.

    At the same time, we are getting a lot of interest from funded startups with 5 to10 employees. So it seems ByD is moving both up and down.

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    1. Richard Hirsch Post author

      Yep, ByD is actually present in the entire OnDemand market spectrum – however, such behavior doesn’t make for clean product marketing where various products only cover a particular part of the market.  Especially the move in the LE market is probably not mentioned into order to avoid taking away customers of that size who should remain OnPremise.  In the first picture in my blog, you’ll see that LE OnDemand just has extensions (with the exception of SuccessFactors) of OP functionality rather than more general offerings.

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  3. Jonathan Wilson

    Dick, I think the other point that needs to be made is that technically SAP Business All-in-One (BAiO) is not a separate product to SAP Business Suite.  They both use the same Business Suite (ERP, CRM etc) and NetWeaver (BW, Portalm PI etc) components, with the real distinction being the way those products are licensed.

    Again the difference between a subscription based BAiO solution and any other kind (whether deployed on-premise or hosted by a third-party), is around who holds the SAP licences. With a subscription based solution the licences are managed by the third-party, whereas with the other models the customer has a direct relationship with SAP.

    It’s a subtle distinction, but if you can have subscription based BAiO, then in theory you could also have subscription based Business Suite, if SAP were willing to allow this licensing model for LE customers.  However, my understanding is that this is not possible (for LE customers) currently.

    Great post (as always), and look forward to seeing some more clarity in this area as SAP’s cloud strategy develops.

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    1. Richard Hirsch Post author

      I like your comment about licenses . This is an important issue, especially for customers that already have licenses for their OnPemise installations.  It would interesting to see how the presence of such licenses impacts negotiations associated with OnDemand offers. 

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  4. Sina Moatamed

    SAP’s cloud computing challenge is a question of product maturity versus having the right architecture.  All these marketing efforts around how many users and revenue are not reflective of the real differences.  I feel for the SAP marketing folks.  But I think an appropriately focused conversation would be the best approach.

    Any customer who approaches SAP cloud offerings with a comprehensive RFP process will quickly understand the differences.  Let’s look at the SME space first.  B1 is a more mature product then ByD.  For instance B1 can support the financials of more countries than ByD.  This could be a major issue that could impact selection for an SME or subsidiary.  ByD is a make-to-stock system, but B1 can also support make-to-order.  There are more integration options in B1 than ByD as well.  If that is the case, why wouldn’t SAP have developed the on-demand option for B1 sooner?  Why ByD in the first place?  It’s all about architecture.

    SAP started its SaaS efforts with ByD. When ByD upgraded to 2.0, the architecture evolved to properly support multi-tenant operations.  They also introduced the Trex in-memory architecture.  It would be safe to call ByD their SaaS 1.0 effort.  HANA now represents their SaaS 2.0 offering.  ByD will evolve again leveraging HANA.  So it’s safe to say that the HANA platform is SAP’s ultimate cloud play.  It’s a function of giving yourself the right foundation before you can build the house correctly.

    The problem is the need for more time.  When you look at the left side of your pyramid, these are very mature platforms but lack the architecture to make it a proper cloud offering.  The proper platform (HANA) is currently LoB apps and an ERP platform that needs to mature.  B1 customers may not care about the nuance differences and I can see how the on-demand version will gain some traction.  As you move up the scale the expectations will change.

    For a company that has built its entire business on the promise of the suite, their cloud offerings have yet to provide the same level of comprehensive capabilities and vision.  I feel pretty confident that ByD architecturally can scale for any size business.  The problem is that it lacks the vertical capabilities for larger enterprise adoption.

    So for right now, to articulate a cloud strategy SAP may introduce on-demand platforms from the left of your pyramid, while they ramp up the development and/or acquire cloud assets.  I think we will know when they have arrived when we see a comprehensive large enterprise ERP suite built on HANA that can be delivered as a SaaS or on-premise platform or as a hybrid.  How that will ultimately materialize, we will have to see.

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    1. Richard Hirsch Post author

      Great comment.

      I agree that there are distinctions between the various SME offerings but such differences are rarely articulated which leads to confusion in the marketplace. 

      I also like the comment about the impact of a HANAized ECC system as being able to run OnPremise or OnDemand. I’ve never really thought about this potential and I’m curious as to what impact of such offering would have on ByDesign.

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    2. Judson Wickham

      I don’t think the lack of vertical support is an issue, as many partners are building those extensions right now. It’s just a matter of time.

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