Midmarket crush

As the tier one vendors look down market and tier two players look up, the small-to-medium sized business enterprise resource planning market is getting crowded. The simple reason for this is that both want to grow their businesses beyond their current, saturated markets. However, just which operators will survive this midmarket crush remains to be seen.

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By  Matthew Southwell Published  July 24, 2003

I|~||~||~|At this year’s Oracle Appsworld, the database giant claimed that an increasing number of midsize organisations across EMEA are selecting its E-Business Suite Special Edition. Among those organisations that have already opted to implement the midmarket enterprise resource planning (ERP) app are Kuwait’s A’amal Holding Company and Arabian Construction Company (ACC), which will also act as one of the vendor’s five implementation partners in the Middle East.

The news that more medium sized operations are opting for Oracle’s midmarket offering coincides with the official launch of E-Business Suite Special Edition in the Middle East, which took place at the beginning of June. Comprising financial accounting, sales order management, inventory management and purchasing modules, the application is targeted at companies with up to 25 users.

“With Oracle E-Business Suite Special Edition, it’s even easier and faster for smaller organisations to become part of the e-business eco-system using exactly the same software as their larger counterparts,” says Anthony Peake, director of applications marketing for EMEA at Oracle.

While the midmarket offering boasts similar functionality to its fully loaded counterpart, the Oracle E-Business Suite, the vendor says it is significantly cheaper and much easier to implement. Key to this price reduction has been the pre-packaging of the software, the use of Linux and the migration of the Oracle training programme to the web. As a result, companies no longer have to send employees they cannot afford to be without to offsite training courses.

“We are looking at about US$100,000 to buy this product, implement it, do the training and the customisation and get a production environment up and running,” says Ayman Abouseif, senior director of marketing, Oracle Eastern Central Europe, Middle East & Africa.

Oracle is not the only tier one vendor targeting medium sized companies. PeopleSoft, for example, is in the process of acquiring JD Edwards to boost its midmarket penetration, while the takeover target itself continues to espouse its vertical specific messages to grow its already strong midmarket customer base. “We’ve designed our applications to be rounded business solutions, based on market demand in specifically targeted industries — we’re not one of those suppliers trying to force complex top-end solutions to fit the needs of midmarket companies,” says Tim Caulkett, regional director of JD Edwards.

Even SAP, which has a long history of being applicable for only the largest of enterprises, is targeting medium sized companies. In fact, the vendor says that within the MENA region, more than 40% of its relevant market potential is generated in the midmarket and that the small-to-medium sized business (SMB) sector will generate a significant portion of its revenues in the coming months.

“Nowadays, the challenge is to move more and more towards the midmarket, mainly via solutions based on mySAP All-in-one. In new countries, like Egypt, as an average, the target for the next 18 months will be to have 15% of SAP software revenues coming from the SMB market,” says Sergio Maccotta, COO of SAP South East Europe & Middle East.

||**||II|~||~||~|In addition to pushing All-in-one, which is aimed at companies that require a high degree of industry-specific functionality, the German software giant is also touting its Business One solution, which is targeted at organisations that require less complex functionality. “With this approach, we’re now able to meet the requirements of companies of all sizes — from very small companies to subsidiaries of large multinationals,” comments Maccotta.

Tier one vendors, such as SAP and Oracle, are targeting the midmarket for a number of reasons. However, the overriding factor is that they simply have to if they wish to expand their client bases beyond large enterprises, the majority of which have already completed ERP implementations.

“The tier one vendors are moving downwards and this is primarily the result of saturation in large accounts. There is only a limited amount of large scale companies both globally and within the region, which means that once these accounts have been captured they have to move down the market,” confirms Torben Pedersen, senior analyst, IDC Middle East & North Africa.

While the tier one vendors are moving down market to boost their revenues and increase their client bases, tier two software vendors are moving up market for similar reasons. To ensure that they can do this successfully and deliver the functionality midmarket companies require, the likes of Sage, Microsoft, ACCPAC and ICICI-Infotech MEA have all beefed up their application offerings.

“We are seeing quite a number of the tier two vendors investing in their current applications to try and develop suites that would suit the midmarket companies,” says Pedersen. “We have seen it with Insyst [now ICICI-Infotech MEA], which has acquired Xmederies to incorporate CRM into its back office applications, and with Sage, which acquired SalesLogix,” he adds.

In addition to purchasing SalesLogix, Sage has also acquired Tetra and State of the Art. Shishir Srivastava, executive director of Sage Software in the Middle East, says these acquisitions were inspired by the demands of its installed base, which was demanding additional functionality. However, he also adds that the extended suite of products helps Sage in the midmarket.

||**||III|~||~||~|“It was imperative for Sage to provide its resellers and customers with a credible upgrade path to a bigger product, hence the acquisition of Tetra and then SalesLogix and State of the Art. Existing customers drove the strategy within Sage, but the products also help us move into the midmarket space,” Srivastava confirms.

While Sage has acquired Sales Logix, ACCPAC has also added CRM functionality to its software stack. Elsewhere, the acquisition of Great Plains and Navision by Microsoft has seen the creation of Microsoft Business Solutions, which the Redmond giant hopes will allow it to dominate in the midmarket ERP software space.

“All of our acquisitions have been focused on the midmarket and the products/solutions that are available to our customers today are designed with the midmarket in mind,” says Venkat Raman, channel director for the Middle East at Microsoft Business Solutions.

Unsurprisingly, both the tier one and tier two vendors believe they have what it takes to win out in what is becoming a midmarket crush. For instance, Oracle’s Abouseif believes that the vendor will continue to win market share from its competitors in the Middle East.

JD Edwards’ Caulkett agrees. “We provide the integration, functional richness and scalability that can provide a stable basis for business growth, which is classically what mid-market companies are all about,” he says.

However, Hari Padmanabhan, president of ICICI Infotech MEA, argues that none of the tier one vendors will experience long term success in the midmarket.
“They [the tier one vendors] have been thrust into the midmarket segment and this is not a particularly positive thing. You can’t really take a dinosaur and put it in a cage. Their moves are being pushed by commercial considerations and they are not doing anything particularly unique for the midmarket,” he says.

||**||IV|~||~||~|IDC echoes this view, and suggests that the tier two vendors are more likely to make inroads into the midmarket than the large enterprise software vendors. “We have seen a number of [tier two] companies in this area make headway by developing suites… and I think the current tier two vendors are geared up to capture a share of the midmarket,” says Pedersen. “The tier one vendors are just too big, as are there solutions,” he adds.

||**||V|~||~||~|Whether the tier two vendors can build on this apparent lead and come to dominate the midmarket remains to be seen, especially as the tier one vendors will undoubtedly throw massive marketing budgets at the challenge in an attempt to increase both their mind and market share. What is for certain though, is that both the tier one and tier two vendors will need to address the midmarket’s specific technology requirements if they are to succeed.

Foremost among these needs is accelerated implementation times, as faster implementations mean lower costs and a more swift return on investment (ROI).
“Midmarket customers are primarily interested in ROI, they want a limited number of licences and they want to spend less money on services. Furthermore, they want it installed quickly,” confirms Jyoti Lalchandani, regional director, IDC Middle East & North Africa.

To ensure that rapid rollouts are the norm rather than the exception, both tier one and tier two vendors pre-package their applications. JD Edwards has done this through its OneMethodology, which sits alongside JD Edwards 5 and is designed to enable the rapid implementation of customers’ primary needs.

“It’s essentially a workshop-based implementation approach with a simple goal — the speed and predictability of an on time, on budget implementation, coupled with a solution configured to a customers’ unique way of doing business,” says Caulkett.

Rather than pursuing a specific methodology, SAP has tackled implementation times by delivering a dedicated solution in the form of its mySAP All-in-one offering. Oracle has pre-configured instances of its Special Edition solution. This means that the vendor’s partners simply have to copy it onto the customer’s server.

“The software is up and running straight away and the partners can then take a couple of weeks to customise the reports and other things. This is how we can shorten the implementation time from a couple of months to a couple of weeks and reduce costs,” explains Abouseif.

||**||VI|~||~||~|Elsewhere, ICICI Infotech MEA speeds the deployment of its solution set by ensuring that as many businesses processes as possible are built into its product. According to Padmanabhan, the vendor has managed to achieve a 70-90% fit for most companies in the region. “Those [processes] that do not fit can be quickly mapped onto the product, so we go quickly from where they are to where they need to go,” he adds.

Another defining characteristic of the midmarket that is closely linked to the need for accelerated implementations is the availability and quality of its human resources. “People are also an important factor… and midmarket companies don’t have the people. They have to get their staff trained quickly so that the company can start achieving ROI,” explains Marc Van der Ven, general manager, ACCPAC Middle East.

It is this lack of surplus staff that has led Oracle to migrate its training to the web and driven Microsoft Business Solutions to take a more hands on approach with local customers. “Implementations in the midmarket need more handholding because the customer may not have a sophisticated IT set up... Also, technical consultants have to play multiple roles and wear multiple hats to make sure midmarket customers can use the product effectively,” explains Raman.

The fact that most small-to-medium sized companies demand close relationships between implementation teams and their own staff means the channel has a prominent role to play in the midmarket.

“Midmarket companies not only require some technology, they need a partner who provides them with sound advice, a company who understands their industries, that has a vision of the economic future and that will be there to further support them — not only in a year, but in five years, in ten years and beyond,” says Maccotta.

“We strongly believe, that this [through partners] is the best way to address the requirements of small and midsized companies — providing them software, hardware, maintenance, business content, and financing options,” he adds.
Sage’s Srivastava says local market complexities make this even more important in the Middle East. “The local midmarket is reasonably complex in its requirements, which cannot be delivered on by any one single software supplier.

||**|||~||~||~|Furthermore, midmarket customers require bits and pieces of customisation and sometimes third party applications. No software manufacturer is as well equipped to do this as a systems integrator,” he explains.

As such, Sage has five partners that cover their own country and neighbouring geographies. Each one is being encouraged to develop their own vertical speciality to ensure that they don’t compete with each other. “We will drive in the midmarket space through these partners and through vertical speciality,” confirms Srivastava.

Sage’s model is far from unique within the Middle East. ACCPAC, for example, has a select number of partners that it works through, while Oracle has just finished training the five systems integrators that will sell and implement its midmarket offering throughout the region.

“Special Edition is only available to customers through our partners. The reason for this is that smaller customers prefer to buy from local IT organisations because they feel that they have a better understanding of the local market and local conditions. Small companies like to deal with smaller companies,” says Abouseif.
“We selected our partners by looking at those that had good experience with Oracle, good experience within the midmarket and a good geographical spread over the region and over various verticals,” he explains.

Moving forward, it appears that once the midmarket offerings of the tier one vendors have matured and the tier two vendors have bedded down their extended applications, it will be price points and services levels that distinguish the winners from the losers. As such, it could well be down to the quality of a vendor’s partners that determine whether or not they escape the midmarket crush.

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