Can a software vendor that's best known for selling big applications directly to big corporations evolve into a channel friendly company?
SAP, Europe's largest software company and a major player in the global IT market, is expanding beyond its ERP application roots into new areas such as business analytics, mobile computing, data management and cloud computing. And it's counting on the channel to help it get there.
Next week SAP will hold its annual Sapphire conference in Orlando where customers will be looking for clues about the company's plans and strategies for the upcoming year. Joining them will be hundreds of solution providers -- both long-time SAP partners and more recent recruits -- who will likewise be looking for the latest information about the company's strategic direction.
"It's a good way to understand what they're working on, what's coming down the path, what's unfolding," Marty Carney, CEO of WCI Consulting, told CRN. WCI, a Dallas-based company that focuses on business analytics, was recently named SAP's fastest growing global reseller in the SAP PartnerEdge program. As such, networking with customers, prospects and SAP executives are also on Carney's agenda.
SAP reported revenue of 14.2 billion Euros ($18.5 billion) last year and about 25 to 30 percent of those sales were made through indirect channels. Co-CEO Bill McDermott's goal is to grow that figure to 40 percent by 2015.
"The channel ecosystem is an essential element of our growth strategy," McDermott said in an interview at SAP's U.S. headquarters in Newtown Square, Pa., in December.
McDermott said he was satisfied with SAP's channel efforts so far, noting that channel sales have tripled from what they were when he became co-CEO in February 2010. But partner recruitment is ongoing because the company needs solution providers' domain expertise in its designated growth areas and ability to reach small and midsize enterprises (SMEs).
SAP also needs partners to get more sales feet on the street to support its growth plans to reach annual revenue of 20 billion Euros ($25.9 billion) by 2015. "We simply can't cover everything with a direct sales force," McDermott said.
The company today, however, is a comparatively small player in the channel with about 10,000 partners worldwide, including about 3,000 VARs, with the remainder being comprised of systems integrators, service providers and ISVs. That's in sharp contrast to competitors like Oracle, which has about 20,000 channel partners worldwide, and Microsoft's stable of more than 500,000 partners worldwide.
While many know SAP best for its enterprise-class ERP applications, the fact is that 78 percent of the company's customers are SMEs -- which in North America SAP defines as businesses with annual sales of $500 million or less. "We're trying to make the point that SAP [products are] for great companies, not just great big companies," McDermott said.
And close to 80 percent of those SME customers are currently served by channel partners, a number SAP has decided will over time become 100 percent. That's an opportunity for solution providers, given that sales to SMEs are growing at 1.5 to 2 times the rate of the company's overall software sales.
NEXT: SAP's Channel Enlightenment
While SAP's evolution into a more channel-focused company has been underway for several years, the transition accelerated in early 2010 when channel veteran Kevin Gilroy was named to oversee the vendor's North American channel operations. Gilroy spent two years building up the North American channel program, including implementing a "comp-neutral" compensation plan for the company's sales force to reduce channel conflict, and increasing spending on channel-related marketing initiatives.
"They didn't understand the partner model a few years ago," said WCI's Carney. "They've done a great job of opening up new territories for us and developing new policies to work with their partners. They now understand that they can scale up only so much with their direct sales and the best way to scale is to bring in channel partners."
"The strategic changes they've made are significant," agreed Prashant Jain, senior vice president at Sparta Consulting, in a phone interview with CRN. Sparta Consulting, a Santa Clara, Calif.-based solution provider, works with SAP Business All-in-One and Business Objects. He cites changes in SAP's organizational structure and sales incentive plans to make the company more channel-friendly – changes that have led to SAP and Sparta working together on several $5-million deals.
In January Gilroy was promoted to lead SAP's global indirect channel efforts, essentially tasked with building worldwide the kind of programs he implemented in North America.
"My goal at the global level will be to add value to the regions; regions like [North America] are my customer. And I'm going to listen to them, listen to the partners, listen to the employee base, and understand what we need to deliver for the 21st century channel model," Gilroy said at the time.
John Graham, a 10-year SAP veteran, was named to take over Gilroy's North American channel executive post.
Many of SAP's solution provider partners today resell SAP's Business One and/or Business All-in-One application packages for small and midsize businesses, respectively. In North America SAP appears satisfied with the number of Business All-in-One partners it has today. But, Gilroy has said that expanding the channel for Business One is one of his priorities.
NEXT: SAP Emphasizes The Channel To Boost SalesSAP also is putting more emphasis on leveraging the channel to help it boost sales in what the company has identified as its key growth areas: business analytics, mobile computing, data management and cloud computing. "One of the things we're trying to get accomplished this year [is] aggressively expanding the number of partners that we have in North America to help us increase our reach," Graham said in a teleconference for journalists and analysts last month.
Pointing to business analytics and mobility technologies SAP acquired when it bought Business Objects in 2008 and Sybase in 2010, respectively, Graham said: "We have an opportunity with our partner channel to really get into a whole set of industries where historically SAP has not been as dominant or played as much, and we can utilize these new technologies to get there."
And while SAP partners have largely been limited to SME customers, Graham made it clear that the vendor is recruiting partners with expertise in specific industries or solutions -- such as business analytics and mobile computing -- who can sell to enterprise customers. "We're working aggressively with the partner community to have them focus not only on the traditional SME space, but also work with us and sell into the enterprise space," he said.
One example of that is SAP's decision to give solution providers who work with the Business Objects business intelligence software to once again sell to enterprise-class customers, those with annual sales greater than $500 million. In the years after the acquisition, SAP largely restricted resellers to SME customers -- a move generally seen now as a mistake.
"Candidly, over the last couple of years, we've had some challenges in that area," Graham acknowledged in his recent press/analyst briefing. "We're going to give the business analytics partners the ability to sell into the enterprise space. When Business Objects ran their channel, the channel had the ability to sell into any size account, anytime, anywhere. And that was not necessarily the case with SAP over the last couple of years. We realize that if we're going to get that channel [to become] more vibrant with us and continue to grow and expand, we've got to give the channel partners the ability to work with us in that enterprise space."
"About three years ago, it was tough," said WCI's Carney, noting the restrictions SAP placed on reselling Business Objects software to big companies. While WCI could still offer its business intelligence and data warehousing services to big customers, the solution provider often found itself competing with SAP sales representatives who were selling software and services together.
But with the restrictions lifted, WCI is now co-selling with SAP on potentially big deals. "It's a great opportunity for us," Carney said.
SAP has put financial incentives and "compensation-neutral" policies in place to encourage its direct sales representatives to work with partners who specialize in business intelligence technology – a move that Graham said should help "re-invigorate the business analytics channel."
NEXT: Opportunities With HANA And Cloud-Computing.Another potential opportunity for SAP channel partners is working with the company's HANA (high-performance analytics appliance) in-memory computing technology that boosts a computer's ability to handle high volumes of transactions and complex business analytics problems.
Last month, SAP outlined a strategy to use HANA and its Sybase database software to challenge leaders like Oracle, IBM and Microsoft in the data management software market. In February, the company unveiled SAP HANA for SAP Business One and SAP HANA Edge Edition, products made exclusively for the channel and designed to help small businesses solve "big data" problems.
That's an intriguing move, notes Alex Rooney, vice president at Vision33, an Irvine, Calif.-based solution provider and SAP gold partner that resells SAP Business One and SAP Business ByDesign, the latter SAP's Software-as-a-Service (SaaS) or cloud-based applications for mid-size companies. Some of Vision33's larger Business One customers are wrestling with high transaction volumes and big-data analysis problems and Rooney, in a phone interview with CRN, said HANA could be a good fit for them.
"We're very excited about the potential opportunities this brings," said Sparta's Jain about adding HANA to business analytics systems and other Sparta solutions. The company is also buying into SAP's mobility push, using the vendor's mobility technologies for a range of business analytics and line-of-business mobile applications.
SAP is a relative latecomer to the cloud-computing arena where it faces stiff competition from Oracle, NetSuite and Salesforce.com, among others. The company struggled with early releases of Business ByDesign, the company's flagship cloud offering, before getting it right with a truly production-ready version of the software in late 2010. SAP had about 1,000 customers using Business ByDesign as of the end of 2011.
But, the company took a big step into the cloud-computing market in February when it completed its $3.4-billion acquisition of SuccessFactors, a developer of cloud-based human capital management software. While the SuccessFactors application alone is a significant addition to SAP's cloud lineup, McDermott has emphasized that the "cloud DNA" acquisition speaks to his efforts to change SAP's traditional on-premise software culture.
SAP's cloud efforts are being led by Lars Dalgaard, SuccessFactors' founder and CEO, who has been put in charge of SAP's cloud strategy. Last month, Dalgaard was named to SAP's Executive and Global Managing boards that set the company's top-level strategies and management policies -- a sign of how important the cloud initiatives are seen at the top.
NEXT: Changes In SAP's North America Management Ranks
It hasn't all been smooth sailing, however. Last month the company reported significantly slower software sales growth in its first fiscal quarter with software license revenue in the Americas falling by 4 percent year-over-year. "Sales execution" problems in North America were to blame.
It was near that same time that Robert Courteau resigned as president of SAP North America and the company named Geraldine McBride as his replacement. McBride came to SAP from Dell where she most recently served as vice president of Dell Services for Asia Pacific and Japan. Before her Dell tenure she worked at SAP for 15 years in a number of senior executive and sales management roles.
Graham has been promoted to chief operating officer of SAP North America, reporting to McBride, but he retains overall responsibility for North American channel operations. Key channel management people who report to Graham are Mark Milford, national vice president, ecosystem partner group, who is responsible for managing VAR channels in North America; and Carolee Gearhart, global vice president, OEM, who oversees relationships with OEMs, systems integrators and other strategic partners.
But perhaps the biggest hurdle SAP is still working on is simply transforming itself into a company that knows how to work with the channel.
"Do I love the SAP channel partner program? Yes. But does it have its warts? Yes," Karen Mills, executive vice president at Idhasoft, an SAP reseller that works with the Business All-in-One and Business Objects product lines, told CRN in a meeting last December.
"The [channel] program is very good. It's the execution, it's the marketing. It starts with brand-awareness and SAP doesn't have the brand-awareness among small and midsize companies," said Mills, who sits on SAP's partner advisory council. Some of the remedy is simply devoting more resources to marketing to SMEs and publicizing SAP success stories in those markets, she said. But some of it is getting SAP's sales and marketing machinery that lie outside the partner program to buy into the channel concept.
"I would love to see more marketing-spend on the products for the small and midsize company markets," agrees Vision 33's Rooney, who also sits on the partner advisory council. And just dealing with a big company like SAP can be a challenge for even the company's top partners. "Sometimes getting things through the SAP machine takes work," notes Rooney, whose company has been named SAP Business One partner of the year multiple times.
As the channel accounts for an increasingly bigger percentage of SAP's sales, however, Rooney has seen the cultural mindset within the company slowly come around -- especially within the last two years.
"The DNA of a big corporation doesn't change overnight," he said. "I think they want to change that significantly. You have to remember that just a few years ago there was no channel at SAP."