Sanjeev Aggarwal's Blog

January 20, 2010

Intuit and Microsoft – two SMB market leaders partnering on cloud platform strategies to deliver web applications

This agreement provides an end-to-end applications development environment and marketing/sales channels for application developers to develop and market application solutions to small businesses. Key elements of the agreement include:

  • Broadening the applications developer community to develop SMB focused applicationsIntuit to provide a SDK to help developers build applications on Microsoft Windows Azure Platform (and Visual Studio) and federate these web applications into Intuit Partner Platform (IPP) and launch these applications through the Intuit App Center (IAC).
  • Expand channel for application developers to promote and market their applications – Business Productivity Online Suite into Intuit Partner Platform (IPP) by year-end – Salesforce.com’s Force.com PaaS platform. Microsoft and Intuit will join forces to expand channels for application developers by introducing them to IAC. With capabilities to buy and access these cloud-based applications from the IAC and support for single sign-on will make it easier for SMBs to use these applications.
  • Microsoft to integrate Microsoft Business Productivity Online Standard Suite (BPOS) is a set of messaging and collaboration solutions hosted by Microsoft, and consists of Exchange Online, SharePoint Online, Office Live Meeting, and Office Communications Online. SMBs that use BPOS will have access to Intuit’s SMB focused business applications like QuickBooks and additional applications available through the IAC.

This relationship is focused on the U.S., the region where Intuit has majority of its presence. Microsoft and Intuit will support joint marketing programs targeted at the applications developers, channels and SMB companies.

In today’s fast-paced and volatile business climate, SMB need cloud-based application as they provide much better total cost of ownership (TCO) compared to on-premise installed applications. This relationship will provide significant benefits to SMBs that have shown increasing appetite to adopt cloud based solutions. The key benefits to the SMB community from this relationship are:

  • For Microsoft Windows Azure cloud platform service (PaaS), the Intuit relationship is a key endorsement of Microsoft as a key player in the SMB segment and of a company that has a good understanding of how to work with application developers. This combination will provide good competition to the
  • With Microsoft withdrawing from the small business accounting application area, creates a much more favorable partnership environment between the two companies to collaborate on the applications and channels front. A cooperative relationship between these two SMB focused companies will yield tremendous benefits to the SMB community.
  • With more than four million Intuit’s QuickBooks customers, the Inuit App Center will present a very attractive opportunity for applications developers to showcase their applications to the QuickBooks user community.

July 31, 2009

Prognosis on SAP’s Business ByDesign – SaaS based ERP solution for the core mid-market

I came across a good analysis on some aspects of SaaS vs. on-premise vendors and solutions in the smoothspan post Why Do SaaS Companies Lose Money Hand Over Fist?

After reading through the post and various responses, I have some comments that could shed more light on the SaaS vs. on-premise topic and how this relates to SAP’s continued focus on Business ByDesign.

  • The global ERP market opportunity driven by the large number of SMB/mid-market companies. In the U.S. there are 11 times more mid-market companies and on a worldwide basis the number is 13.5X.

     

    # of U.S. Companies

    # of Worldwide companies

    Enterprises (1000+ empl.)

    9,000

    52,000

    Mid-Market (100-1000 empl.)

    100,000

    700,000

    Ratio – Mid-market/Enterprise

    11X

    13.5X

     

     

  • The enterprise market is heavily penetrated by ERP type solutions, mostly on-premise solutions. The U.S. mid-market has less than 42% ERP penetration. This penetration of ERP solutions is much lower outside the U.S. Existing SaaS solution vendors until now have primarily focused on the U.S. market, with less than 15-20% international sales (other than Salesforce.com). SAP being a global company, has the potential of ramping up fast in the international markets which is very under penetrated, where SAP already has established relationships and market presence (significantly more than any of the SaaS vendors). This presents a significant upside revenue opportunity for SAP in the mid-market (especially in the 100-500 employee segment which is outside of the sweet spot of other SAP midmarket solutions – BusinessOne and Business All-in-One).
  • One also needs to look at the Total Cost of Ownership (TCO) of SaaS vs. on-premise solutions. A recent paper investigated details on this, The TCO of Cloud Computing in the SMB and Mid–Market Enterprises; A total cost of ownership comparison of cloud and on–premise business applications. Thee general conclusions are:
    • Considering a 4 year TCO, works in favor of the SaaS ERP solutions when the number of users is less than 400 users. Beyond these numbers of users, the on-premise TCO starts to become better (lower). These would be mostly enterprise companies, who favor on-premise solutions.
    • When considers a TCO beyond 4 years, on-premise solutions are better (lower). Again, these tend to be larger companies.
  • Most of the SaaS vendors like Salesforce.com and NetSuite have a much higher sales and marketing expenses ratio (~ 54% of revenue as shown in the smoothspan post Why Do SaaS Companies Lose Money Hand Over Fist?) primarily driven by their direct sales model. For Business ByDesign, for which SAP is promoting a channel driven model, this percentage should be lower.
  • R&D spending of 16% by SaaS companies – the strategy that needs to be explored by vendors looking to develop SaaS products, they need to seriously consider SaaS platforms like force.com (from Salesforce.com) and QuickBase (from Intuit). The developers that have used these platforms, have significantly reduced both their initial R&D spending and also their product development timeframe, brining SaaS solutions to market in some cases 1-2 years sooner. These SaaS/cloud platforms-as-a-service were not available when SAP embarked on development of ByD (or would they have used one, even if it was available…I am sure they have developed a significant internal expertise with this development experience). It is prudent for SAP to control the roll-out of Business-ByDesign until the product, delivery and channel kinks have been worked out. Prediction – Past experience with German engineering should alert the ERP market that in 2010, SAP will probably deliver a successful mid-market SaaS ERP solution for the core mid-market.

Reviewing the above, including good reviews from the current customers of Business ByDesign, it would be prudent for SAP not to scale back efforts on the roll-out of Business ByDesign – as strategy they have consistently communicating to the market.

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