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In the SME market, IBM is SAP’s biggest competitor?

Posted on October 11, 2007

Back in July, I read the IBM (IBM) and SAP (SAP) Q2 conference call transcripts and said it was a time to just lay back and enjoy the sun. The two company’s quarterly financials made for good beach reading. There would be plenty of time when the leaves turned here on Cape Cod to dig deeper, I said.

Hello Columbus Day!

In response to that post, dolphl2man wrote in and said, “Hi Dennis I agree with your feelings on IBM and SAP. There has been chatter regarding these two companies getting together. Any thoughts?” I responded, thinking of comments by SAP founder Hasso Plattner made a year earlier, that it’s always fun to “what if” but I really don’t believe IBM wants back into the “ERP applications” game (having exited in 1991). There are multiple reasons but the most important are channel conflict and IBM’s strategy of becoming almost totally a services provider. Happy and peaceful coexistence.
Then after SAP’s Business ByDesign (BBD) announcement, I thought about dolphl2man’s question some more. Rather than getting together, I think SAP might be in for a fight with IBM. At BBD time, I noted that BBD puts SAP right up against its long-time partner Microsoft as well as Inuit (INTU), and salesforce.com (CRM). I noted that SAP also needed to build a BBD ecosystem from among Microsoft, Intuit, Lawson (LWSN), Infor, and so forth partners.

Now I realize that in Lawson, and Infor and that “and so forth,” and after all these years, IBM is still the one. IBM is actually SAP’s biggest competitor in its strategic move into the small/medium enterprise (SME) market with BBD. (For SAP, by the way, SME really means just “M,” the medium enterprise.) Although IBM does not directly “own” the applications intellectual property in this segment, it partners heavily with all those that do. That includes not only the Intentia and heritage wings of Lawson but as many as 10 pieces of Infor, including the original IBM Mapics ERP software buried within Infor. There are also dozens of small industry-specific application suppliers, especially in all types of wholesale distribution, and even the JD-Edwards (JDE)-heritage portion of Oracle (ORCL). These suppliers have dominated the mid-market for decades. To be successful in its goal of doubling its customer count by 2010 with Software as a Service (SaaS)-paying BBD customers, SAP has to “unhook” thousands of IBM AS/400s (iSeries, or whatever).

Of course, ERP is not just MRP-plus anymore but most of these AS/400-heritage application suppliers have kept up by adding supplier and customer relationship management (SRM and CRM) modules that approximate the freestanding SRM and CRM suppliers’ products in functionality. This is the same functionality that BBD touts as superior to Microsoft, Intuit and other more “S” oriented BBD competitors. And as a group the IBM partners cover industry-specificity at almost the four-digit SIC level.

All these suppliers are already moving or will be moving to a SaaS delivery methodology if BBD and Microsoft market dynamics force them. And more good news for IBM and bad news for SAP; these long-time partners will use IBM to help them make that move. IBM WebSphere middleware will underlay much of the necessary software re-engineering to make it happen and IBM’s services groups can even provide the hosting. Looked at as a group, the IBM ERP lineup is much more functionally capable to serve the mid-market than the multiple Microsoft (MSFT) ERP offerings grouped under the Dynamics brand. (Note: Oracle management said as recently as its most recent conference call that it did not want to get into this space, deftly dodging the point that it is already heavily into the space because of JDE.)

–Dennis Byron

Tags: SME, ERP, CRM, SRM, SaaS, AS/400, iSeries, SAP, IBM

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