SAP Pays Partners, Goes with Gusto for Small and Medium-Sized Business Customers

In early April, SAP announced a new referral and incentive program for its partners and nonpartners to drive small and midsize customers’ business SAP’s way. The move, paying for new software business, was a first for the German software giant, and it shows just how much thirst enterprise software vendors have for new customers in the SMB business applications market.

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Those who can receive the referral fees consist of nearly every conceivable company in the software sales channel and SAP ecosystem: value-added resellers (VARs), solution resellers and independent software vendors (ISVs) who may or may not currently be authorized SAP partners. In addition, the referral program applies to alliance partners, technology and business consultants, accountancy practices and other companies already working with SAP.

No potential partner, it seems, has been ruled out. “For these companies, the program can be the first step in a long-term partnership with SAP,” the announcement noted.

“In order to address the small and midsize market, it’s essential that you have a ‘go to market’ model that is inclusive of channel partners,” says Patricia Hume, SAP’s senior vice president for channel sales and strategic alliances in the SMB sector. “And the further down market you go, the more important it is to have the appropriate partnership to be able to capture marketshare.”

Like other software vendor referral programs, such as Oracle’s SMB plan called Accelerate, the reward is cash for those who generate leads eventually closed by SAP. The “closing reward,” as SAP terms it, is usually 5 percent of the deal’s net software license value with a maximum amount of $50,000.

These customer bounties—also know as influence or partnership fees—are not anything new to the enterprise software industry. “[The referral fee] strategy is not in any way unique and certainly not a radical idea,” says Warren Wilson, a research director at Ovum.

But SAP’s offering of the fees is, nonetheless, telling. The fees “are just another sign of the intensified competition that SAP and Oracle, in particular, are engaging in for the midmarket,” says Wilson. “And, boy, they’re just going after the midmarket hammer and tong.”

The Mid-Market Land Grab

Once an afterthought of the giant software vendors, the midmarket area has suddenly become fertile hunting grounds. “It’s big, growing fast and it’s relatively untapped. Most companies are still using Excel spreadsheets” [to manage their businesses], Wilson says of small and mid-market companies. “What they’re using is almost archaic systems compared to what you can do with SAP.”

Out of sheer economic necessity (there’s only so many Coca-Colas and Wal-Marts to sell to), enterprise vendors such as Oracle, SAP, IBM and Microsoft have, in the last year or so, set their sites on conquering the SMB business application market. To achieve that, the vendors have overhauled their application offerings and marketing messages.

“They all have the same goal: Make these applications easier to consume, less expensive, less complex, with more prebuilt tailoring for specific industries and processes,” Wilson says. “They’re just hungry for it.”

Evidence of just how much the times have changed can be seen in SAP’s Business One ERP product line, which targets companies with 10 to 100 employees. Or its Business ByDesign on-demand software offering, which turns the traditional software licensing, installation and maintenance model on its head. This, after all, is the same company that made its bones implementing large, complex and expensive software rollouts almost exclusively to the Fortune 1000.

When asked if SMB companies are surprised by SAP’s newfound attentions, Hume confirms that they are. “Right or wrong, SAP has been for 35 years the leading industry supplier of ERP to large enterprises,” Hume says. And now, she adds, SAP’s goal is to “bust the myth that SAP is only for great, big companies.”

SAP’s Mission: 100,000 Customers

One of SAP’s often-stated goals is that, by 2010, it wants to have 100,000 customer organizations running its software. In addition, SAP cofounder and legendary leader Hasso Plattner let it be known that he’d like to see SAP with 100 million users toiling away on SAP products.

As of 2008, SAP has a total of 46,100 customers worldwide. SAP’s entry into the lush SMB market is obviously one way in which to achieve its goals. Hume notes that 74 percent of SAP’s customers fall into the small and midsize category (under $1 billion in annual revenues).

To reach its lofty goals and penetrate the SMB market, SAP realized that it was going to have to expand existing partner relationships and create new ones that would eventually drive recommendations and business to SAP. And better market itself.

The SMB arena is a “very local market,” Hume says. SMBs “tend to purchase from trusted advisers, people that they’ve been working with for years, who have helped them design and define their processes.”

So the new partner program, enhanced with the referral fee, was aimed at raising SAP’s profile among the previously ignored and untapped market. “It was important that we start to build more voice out there, with more people that can, if you will, not necessarily sell SAP products but smell for small and medium-sized opportunities,” Hume says. Which is why the referral program is open to a wide range of people and businesses playing in the software industry.

That SAP decided to pay for customer leads was somewhat surprising to Steve Torres, vice president of business development at Axon Global, a technology consulting and systems integrator and an exclusive SAP partner. Not that his company doesn’t welcome the new financial incentives. Torres likens the referral fee to a “reimbursement [from SAP] of your costs to help you drive revenue for us,” he says.

In the past, “there was no monetary reward system [from SAP] that said, Here’s a benefit for doing what you’re doing,” Torres notes. How SAP would typically reward a company like Axon would be to include Axon in new business opportunities with potential SAP customers, “inviting us in to [deals] where we might not otherwise have been called,” he says.

Now with the financial incentives, Torres says the SAP-Axon relationship will only become stronger. “Sometimes nothing speaks as loudly as the reward,” Torres says. “You can have a marketing campaign that talks about healthy partnering relationships, or you can write a check and prove it and remove all doubt.”

SAP’s Hume says while the referral program and the monetary incentives are essential to the new channel strategy, it’s not the only element. The new products, which expand SAP’s portfolio of software offerings and “bust the myth” of SAP as just a provider of software for giants, are just as critical.

“We now have multiple offerings in the portfolio, which is exactly what the small and midsize market needs,” Hume says. “It needs choice and to go at the pace it needs to.”