SAP Gains Ground With Midmarket Channel Efforts

SAP is slowly gaining ground in its effort to build a channel around its midmarket ERP software, expanding into a dozen new U.S. geographies this year and adding three dozen new VARs to its partner roster. That growing presence has SAP's Redmond rival spooked, partners say.

"Ninety percent of our competitive situations are with Microsoft. If they discover we're in a deal, they'll discount their software 50 percent. They've done that three times in the last two weeks," said Forrest Koch, CEO of Omega Business Solutions, a Beaverton, Ore., services firm that specializes in serving midmarket customers. "Two of those prospects went to Microsoft. The third saw the value and went with us."

Omega has a history with Microsoft: It became part of the software giant's channel through Microsoft's 2001 purchase of Great Plains, whose ERP software Omega had a long history of reselling. But Omega grew disenchanted with Microsoft's crowded channel and with the functionality of the aging Great Plains software, and began returning phone calls from rivals looking to poach partners. Koch initially resisted SAP's advances -- "my understanding was that SAP was for very large businesses," he says -- but eventually agreed to look at Business One, SAP's ERP solution for smaller businesses. Once he did, Koch said he was hooked. After gradually building Omega's SAP client base over the past few years, he sold off its Great Plains practice earlier this year.

SAP touts a growing number of partners with similar stories to tell. At this week's sales summit in Washington, D.C., SAP executives met with more than 450 representatives of VARs that partner around SAP's Business One and All-in-One, its ERP line for midsize companies. In addition to previewing the newest version of All-in-One, due at the end of the year, SAP executives gathered partners for feedback about its PartnerEdge channel program, which launched two years ago.

"We continue to make changes and tweaks based on partner feedback," said Michael Sotnick, SAP's senior vice president for small and midsize businesses. "The program is absolutely hitting the mark in terms of our expectations."

SAP's channel program remains tiny compared to those of its chief midmarket ERP rivals, Microsoft and Sage: It has around 200 Business One resellers and two dozen All-in-One VARs in North America. But its presence is slowly expanding -- it's added 26 Business One resellers and nine All-in-One VARs to its network so far this year. Company executives say the program's limited size is by design.

"Our philosophy is absolutely a 'value versus volume' philosophy," Sotnick said. "There's been a healthy amount of attrition within our partner network -- some at our request, based on lack of performance and lack of investment, and some self-selection. Maybe 10 partners have asked to leave or been asked this year."

Those who remain say the SAP channel's small size is one of its greatest strengths. Tryarc, a Los Angeles-based services firm with that serves clients throughout California, chose to focus on SAP's stack after experiencing the frustration of selling Microsoft's.

"We found there was a lot of competition and undercutting -- partners would undercut each other on the same deal," said Rob Delf, a partner in Tryarc.

Tryarc and Omega say they're seeing steady sales growth and increasing market awareness around SAP's offerings. Some prospects still need to be convinced that SAP is a viable midmarket player -- the decades-old image of monolithic and complex enterprise SAP deployments is an entrenched one, Delf admitted -- but once they see the software, potential clients generally come away impressed, resellers said.

Later this year, SAP will add another potent weapon to its arsenal: "A1S," SAP's forthcoming entry into the hosted ERP field, where it will go up against rivals like NetSuite and a plethora of hosted CRM vendors. Partners are just beginning to get peeks at A1S, but Delf said he looks forward to learning more: "It's just beginning to ramp up, and there's a lot of talk about it right now."

Meanwhile, SAP is continuing its efforts to fill out its midmarket channel. Sotnick laughs gleefully when asked about his "wish list." For Business One, he wants to find more partners in the Midwest and Southwest, and continue to build out SAP's footprint on the Eastern Seaboard. Around All-in-One, he's looking for services firms with expertise in verticals including life sciences, distribution and manufacturing.

"We're very active in our recruiting," he said.