ERP Part Three - ERP Economics: Building Applications:
By Ann Grackin
on Jan 4, 2011
ERP Pricing for the SMB entails a holistic strategy.
Full Article Below -
In the last ERP article we talked about selling to SMBs and some of the challenges as far as costs go.
Here we want to talk more about the product strategy, development costs, and how that impacts the ability to serve and compete in the SMB. Again, these are not judgments about who is better or worse, they are just the situation as it stands.
That which is unique about these companies is their focus. Rather than a myriad of multiple applications, they focus on a rich ERP, without lots of new adventures. Not that they are not keeping up on architecture. Au contrarié. Most of the companies here have invested significantly in the last few years, writing from the ground-up service-oriented architecture (SOA), and open source solutions (OSS) that are highly configurable. These approaches help keep development costs down as well as make implementation and integration easier.
In addition, as we have discussed at length before, they focus on a single code base. So, On-Demand customers, for example, experience upgrades when they first log in. An example of the single code base, though not On-Demand, is HarrisData. Their approach is remarkable: no service fee for five years, and they keep their customers up on the latest revs during this time. The single code based approach significantly reduces the cost of development and support—absolutely!
Picking a platform: IBM/DB2? .net? Java/J2EE; new web 2.0? Oracle; Sybase? DB2? SQL? Supporting and porting to multiple platform/development environments and data bases can also get pricey. Separate teams need to be funded, and need multiple partner relationships to keep up on each environment.
With On-Demand some of these concerns vanish.
Feature Function Focus
Here is another strategy these companies use to keep costs down but capabilities high. Rather than chasing every industry or segment, they develop extremely deep in an industry. This keeps them from developing things that are not of value to that special group. Large ERPs are burdened with the 200 year requirement lists for dozens of industries.
Finally, let me talk a bit about some of the interesting briefings that we have had with truly successful SMB ERP solutions providers. Many in the software industry as well as end-users are unacquainted with this segment, the companies, and the successes they have had. Many of these companies have provided in-depth briefing and product deep dives. In these short profiles I want to highlight certain characteristics within the categories; so this is not a competitive comparison, but just calling out some highlights of the sector.
The S in SMB
BlueLink— “. . . we are the company users come to when they grow out of QuickBooks,” the team told me. With over 500 customers and growing, BlueLink, a Canadian company, has quite a bit more than QuickBooks! They provide robust capabilities including accounting, inventory, distribution, CRM, etc. Yet your project is going to be modestly priced.
Other examples in this category might also be SAGE.
M and S in SMB
Here are companies that cater to the Small and Mid-sized. Definitions vary, since the real issue in selecting a solution has less to do with business size, but rather its business model, complexity and information scale requirements.
We found these companies very interesting, due to their focus and specialization. As mentioned in our last article, success in this sector is all about focus. Some of these firms really specialize!
NetSuite— Grown from ecommerce roots, they have made a master presence in industries like etailers, Wholesales Distribution and manufacturing (see our paper on the challenges of WSD in the 21st Century). NetSuite is a great example of the SaaS play. They really have mastered this environment, providing other cloud service beyond the software, such as data storage, back-up in the cloud, and Business Intelligence.
HarrisData— You can feel the passion when you talk to many of these companies. One of the reasons is their closeness to their customers. Harris services manufacturing and distribution, but also financial services companies. Many ERPs are financial centers. Here the center is the customer – a customer-centric ERP. We saw a demo with HarrisData in IBM-land. They keep loyal to this platform, since there is a huge population of IBM-centric companies out there that don’t want to deal with multiple hardware shops.
Syspro— Here again, we want to emphasize the reach of these companies—fourteen thousand users across the world for Syspro. The SMB ERP companies have thousands of customers with huge customer retention rates! Many of these companies have had a complete re-engineering of their solutions in the last few years (in fact almost all on this list have). Here we want to highlight this keeping up with the technologies: Syspro, for example, has a large mobile roll-out.
Plex— Plex Systems is a company that rose out of the factory floor solutions. This also therefore has a strong quality solution and in today’s world traceability allows them to compete with best in class manufacturing systems. Also introducing an On-Demand (though they still provide on premise) solution, Plex is a great example of the successful focus on On-Demand. Highly configurable solutions allow them to provider rich options but on the single code base.
Visibility— Here is another example of focus. Visibility is also focusing on Engineer to Order, Build to Order Manufacturing companies such as Aerospace, Industrial and Construction to name a few. Customized user screens allow deep dives from procurement right into vendor specs, for example.
CDC— I will date myself a bit and remember Ross System, now part of CDC. A strong focus in international and industries like Food, Beverage and Pharma, which gives them deep functionality and support for Compliance departments, a huge issue in these firms. Again, this example of focus means the ability to compete against larger firms.
Many of these companies have incredibly straightforward user pricing. No hidden application or separate module fees. For example:
One fee for the whole company—unlimited users.
Per user, but all modules
Maintenance: Most of the SaaSs have little to no service fees, or multiyear quality and support for no additional fees.
We’ll talk more about that in upcoming articles and compare various approaches.
Financial Staying Power
Industries, segments, modules, all cost money to pursue. But from an end-user perspective—you know who you are! If you are in process industries, you are not very concerned about build to order in the Telco industry. These tend, therefore, not to be the concern of the SMBs. They are looking for financial staying power and the cash put back into the product!
In the next ERP article we will talk a bit about the economics of SMBs—the cost of implementation.