SAP Begins to Battle for Midmarket Sector

Can SAP sustain its rapid growth by reaching deeper into the midmarket -- and Windows NT -- segment?

SAP has experienced tremendous growth thanks to a rapidly expanding enterprise resource planning (ERP) market -- a market that continues to grow at a torrid pace of 40 percent annually. But analysts predict that the ERP market growth will subside, primarily due to a Year 2000-caused resource drain.

In preparation for the transition, ERP vendors are turning their attention to the midmarket segment -- also a major market for Windows NT. A recent survey of ERP vendors from AMR Research Inc. (Boston) confirms that there is increased activity between ERP vendors and companies in the $50-million to $500-million range.

Vendors are now locked in a struggle for the hearts and minds of this newly ERP-aware segment, and many smaller players may fall by the wayside. "The various trends in the ERP midmarket all point to a market ripe for continued consolidation," observes Bruce Bond, analyst with GartnerGroup (Stamford, Conn.).

Leading the pack is SAP, which "will remain market leader in the business application arena for the foreseeable future," says Dennis Keeling, senior consultant with Ovum Inc., a market research firm based in Burlington, Mass. "[SAP's] R/3 product suite may not be the most exciting client/server solution, but it is certainly the most robust, scalable, and proven one."

SAP achieved revenue of $3.7 billion worldwide in 1997, a 60 percent increase over 1996. The company now has more than 10,000 customers worldwide. But all may not be rosy.

"There are problems with SAP's slow approach to componentization," Keeling says. "Although appealing to the inherently conservative ERP market, this approach may leave the door open to more nimble competitors. SAP will find it hard to maintain its former growth rate and influence as alternative solutions from competitors become well known."

In addition, SAP "battles a reputation for implementations that are far too complex, lengthy and costly," Bond says. One solution has been its AcceleratedSAP (ASAP) program -- consisting of templates, guidebooks, training, and consulting -- which has cut initial implementation periods from 18 months to as low as six months. But previous attempts to enter the midmarket -- such as Heidelberg and SAP Lite -- have failed, Bond notes. He predicts that SAP will have moderate, but not dominant success in the North American midmarket.

Competitors such as Baan "have been more focused on smaller customers than SAP has up until now," says Robert Dorin, senior analyst with Aberdeen Group (Boston). "SAP is just starting more midmarket initiatives. SAP has always been viewed as a more expensive and costly implementation project, but they're addressing this perception very effectively with ASAP."

In fact, ASAP recently played a role in getting R/3 up and running at The Wolf Organization (York, Pa.), a distributor of building materials. The company purchased six Unisys Windows NT-based servers to integrate and streamline its sales, distribution, financial, and other management processors on R/3. The system, running on six Unisys HR/6 six-processor Windows NT servers with 750 GB of EMC RAID storage, will support 275 concurrent users spread over 50 sites.

About half of SAP's new sales now come from Windows NT customers, confirms Peter Barth, technology marketing manager with SAP. Some industry experts, however, feel that SAP's complexity will continue to dog the company, especially as it attempts to reach smaller sites. In turn, companies ready to handle such complexity may be candidates for more scalable Unix systems.

After SAP released its Windows NT ERP products, many companies had expectations of deploying on NT, only to have their hopes dashed, says Bruce Robertson, director with Broderick MacJohn Inc. (Fort Lauderdale, Fla.), an SAP consulting and systems integration firm. "Almost every client that I've dealt with over the last four years has started out thinking that their SAP project was going to be smaller, Robertson says. "They always ended up needing much more horsepower than they thought -- typically an HP-UX server with an Oracle or Informix database." One MIS director reports that because of the size of his company's installation, his SAP representatives were urging him to move off of Windows NT to a Unix platform. "We decided to go with Baan, since they had more low-end scalability," he adds.

Is there a threshold where SAP still prefers Unix over Windows NT in its customer implementations? "It's a case-by-case decision," says Barth of SAP. "We really have to look at the requirements of the business before making a fit. The performance of the system depends not only on the operating system, but the configuration on the database and other factors. Each database uses different techniques to implement features."

Microsoft's SQL Server 6.5, for instance, is limited by "row-level locking -- the locking of only the record that has actually been changed," Barth says. This limitation is lifted in SQL Server 7.0, he adds. Still, available hardware may be a limiting factor, he points out. "For some system requirements, a lot of processors for database performance is needed."

It's well documented that R/3 still scales higher on Unix than on Windows NT. Hewlett-Packard Co. recently announced that the HP NetServer LXr 8000 system, running SAP R/3 on Oracle8 on Windows NT Server Enterprise Edition, has scaled to 700 SD (sales and distribution) users. The Intel Pentium II Xeon-based NetServer ran with eight processors. The highest benchmark reported by SAP is 14,400 SD users in a three-tier client/server configuration, achieved by Sun Microsystems with its Sun Starfire E10000 servers running Oracle8 on Solaris.

"I'm sure there are high-end applications where SAP might feel that the customer has a better chance of being happier on a Unix machine than an NT machine," Dorin speculates. "I'd recommend Unix for some high-end applications. There probably still is a class of enterprise applications for which NT is still a risky proposition."

All things considered, Robertson feels that "SAP has done a lot" to reach the midmarket and Windows NT users. "They've come from a traditionally mainframe environment into a client/server environment, and provided an easier front end, and have enabled separate modules to be installed. SAP is still very rich, very complicated, and it's going to take some time to see how it's going to work in the middle market."