SAP: Cloud ERP at the core of its SMB market strategy

SAP continues to expand its portfolio at high speed. While at first sight, most new product announcements seem to address large enterprises, medium-sized and small enterprises, too, are part of SAP’s addressable market. In a recent Expert View our ERP expert Patrick Rahali and I provide our view on SAP’s ERP product strategy, which comprises SAP S/4HANA, SAP Business One and SAP Business ByDesign.

Unlike in the large enterprise space, which is mostly dominated by Oracle and SAP, the vendor landscape for ERP systems that address small and medium-sized businesses (SMBs) is highly fragmented. As a result, competition is fierce, and the market remains dynamic.

Besides SAP and Oracle, other international players include Microsoft, Sage, Infor and Epicor. At local level, they compete with a large number of vendors: in Germany, for example, the ERP market segment is buzzing with hundreds of small local software makers.

Even though SAP is less known for offering ERP software to small and midsize companies, it is active in this market. And this segment is in fact key to the vendor’s growth. Besides, SAP needs to win new customers for its ERP products, as they open up cross-selling opportunities. And SAP Business One may act as an entry-level solution for small and medium-sized businesses; customers that are growing and expanding fast may want to switch to the flagship solution, SAP S/4HANA, in the future.

In our view, SAP Business One has its defined role as an entry-level ERP system. The ERP market for SMBs is highly dynamic, and it remains challenging for SAP to maintain and grow its existing market share in local countries.

SAP Business ByDesign is a good product, which has developed into a suitable ERP suite and is constantly growing. However, it does not have the same strategic importance for SAP as SAP S/4HANA does, a fact that is unlikely to change. But, at least, SAP Business ByDesign will contribute to the transformation of SAP's ERP business for the cloud age.

SAP’s partners are the key to success. This includes the need to sharpen the above-mentioned positioning of SAP S/4HANA Cloud and SAP Business ByDesign, as both products can be used for similar things. More details on our analysis can be found in the recently published Expert View written by Patrick and myself. 

Like every other ERP player, SAP must create awareness and gain market strength in the fast-growing cloud ERP segment. Once again, SAP faces its competitor Oracle, which is making every effort to expand in the cloud ERP market (see our blog post post “Oracle: All hands on Cloud ERP”).