SAP Pushes CRM in Latest Bid for SMB Sales

Small and medium-sized businesses constitute the bulk of the economy, it’s no surprise that enterprise software and hardware vendors have been going crazy trying to figure out ways to market to them.

Take the case of SAP: Just over two years ago, it began efforts to target medium-sized businesses with MySAP CRM, its customer relationship management product, which it offered as a hosted service.

Since then, Salesforce.com (NYSE: CRM) and Oracle (NASDAQ: ORCL) have grown to dominate the market with their products, leaving SAP behind in the dust; Microsoft is emerging as a real threat as well, with its Microsoft Dynamics CRM 4.0 available both hosted on-premises and in software as a service (SaaS) form; and SAP has been forced to push back the rollout of Business ByDesign, its SaaS suite, by 12 to 18 months.

Undaunted, SAP (NYSE: SAP) announced new CRM functionality in its Business All-in-One solution for medium-sized companies at SAPPHIRE Europe, its user conference being held in Berlin this week.

The new CRM functionality in SAP Business All-in-One borrows from the Web-based SAP NetWeaver integration and application platform.

Here’s the kicker — Business All-in-One is a customized, on-premises solution — meaning the business customer hosts applications on his or her own server, which is quite the opposite of the SaaS approach.

So which approach does SAP think will work? SaaS, or customized and on-premises?

The more successful players in the CRM arena, Salesforce.com and Microsoft (NASDAQ: MSFT), both follow the SaaS approach, but SAP may be taking a different tack because it’s looking to upsell customers.

“I think SAP’s appeal with All-in-One is primarily going to be to the company that wants more than CRM,” Josh Greenbaum, principal at Enterprise Applications Consultancy, told InternetNews.com.

SAP’s strength is a back-office enterprise resource planning (ERP) system, and “most companies, particularly in the SMB space, want good CRM — they don’t necessarily want a tremendous amount of back-office functionality,” Greenbaum said.

That’s where Microsoft is going to be strong, because Microsoft Dynamics CRM “is very much focused on an Outlook-like experience that is a stand-alone product, although it has integration capabilities with back-office products,” he said, adding that the “largest part of market demand” is for a stand-alone CRM product.

The move also seems at odds with recent market trends. A recent survey by Access Market International Partners found that 21 percent of small businesses and 31 percent of medium businesses used SaaS in 2007, twice as many as in 2004. Their drivers were lower cost and ease of use.

Yet SAP sees its All-in-One product line finding a market, targeting users too high-end for Microsoft Dynamics and too low-end for Oracle.

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So far, it’s won at least a few converts to its way of thinking. Small and midsized businesses constitute about 75 percent of SAP’s overall customer base, having grown about 28 percent from the previous year, the company said at its SAPPHIRE Orlando conference earlier this month.

Additionally, the company has teamed up with other major players to penetrate the SMB market. Its partners have unveiled more than 80 solutions in the All-in-One line, all products for small vertical markets.

With HP (NYSE: HPQ), it has announced an All-in-One solution with its SAP MaxDB database and Novell (NASDAQ: NOVL)’s SUSE Linux Enterprise preconfigured on HP BladeSystem and HP ProLiant servers.

SAP also expanded a strategic partnership with IBM (NYSE: IBM) to offer Big Blue’s Power Systems, System x and BladeCenter servers bundled with SAP Business All-in-One. The bundles also included either IBM’s DB2 or SAP’s MaxDB databases running on Novell’s SUSE Linux Enterprise Servers or IBM i, formerly known as i5/OS.

Meanwhile, SAP’s rivals have also enlisted partners to broaden their SaaS-based offerings as well. iEnterprises, for instance, has enabled Microsoft Dynamics CRM access from Research In Motion’s (NASDAQ: RIMM) BlackBerry.

Although SAP recently announced that it was porting its CRM applications natively to the BlackBerry, it may not fare as well as the iEnterprises/Microsoft solution.

SAP’s move “won’t play in the SMB market because it’s an adjunct to the larger product, and that kind of high-end enterprise function is something that’s going to appeal much more to the larger companies than the midmarket,” Greenbaum said.

That may prove problematic, considering how high the stakes are high for SAP in the space. Efforts to woo the midsized market to its solution come against a backdrop of weakness in its core ERP business, particularly in the U.S.

The latest quarterly survey by ChangeWave Research on planned software spending showed a sharp drop in expected ERP purchases over the next 90 days, with an 11 percent decline from January’s figures. Among ERP vendors, SAP is faring the poorest according to ChangeWave, with a 12 percent fall in intent-to-purchase.

The company also remains plagued by market troubles in the U.S., laying off hundreds of employees here. On Sunday, co-CEO Henning Kagermann told the press in Berlin that while business conditions in the U.S. were still “challenging,” they weren’t getting worse.

Additionally, he said demand in Europe and Asia remains strong, a claim that follows announcements earlier this month that SMBs are adopting the company’s business software especially briskly in Brazil, China, India and Russia.