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SAP, Oracle may strive in vain for SMBs seeking smaller, more vertical apps

Oracle and SAP are trying to push their enterprise applications down into the midmarket, but few SMBs are looking for all-in-one enterprise resource planning (ERP) applications not tweaked for their own vertical.

SAP Inc and Oracle Corp. have trouble reaching customers in the midmarket, despite several efforts to move their products downstream, because small and midsized businesses (SMBs) use a variety of industry-specific application sets, according to a new study.

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The survey, from AMI Partners Inc. in New York, found that just more than one-third of companies between 100 and 999 employees currently use enterprise resource management (ERP) software. About one-fourth plan to upgrade existing ERP modules or deploy ERP at their business for the first time.

AMI-Partners surveyed 502 midsized businesses in the United States for the report.

SAP and Oracle are both targeting SMBs as they seek to reach past large enterprises and tap into a market with more and smaller clients. SAP's low-end product is SAP Business One, and Oracle countered earlier this month with the launch of its Oracle Accelerate program.

But of companies already using ERP, 37% used industry-specific solutions, more than used any other single vendor, according to AMI analyst Laurie McCabe, one of the authors of the report. The two largest vendors were Microsoft with 15% market share among respondents and Sage with 13%. Only 5% used SAP for their ERP deployment, and another 4% used Oracle.

The growing but fragmented nature of the market means that systems integrators (SIs) "are actually well positioned in the market," McCabe said, as long as they stay aware of which products their potential clients are considering.

"I definitely think the vertical strategy is key, because obviously all of these midmarket customers, that's what they're buying," she said. "At a really high level, it's just keeping a pulse on the customers, and the projects, and their needs."

A vertical focus also lets SIs learn the ins and outs of their customers' industry so they can offer customers advice with business processes along with the technology, McCabe said.

Industry-specific ERP products can be a challenge to compete against for SIs selling broader, or less specialized software. But a knowledge of the industry and the combination of software that works best for it can keep those SIs competitive, according to Annette Balgord, president of Balgord, Inc., an SI-based in Oakville, Ont. That focuses on nonprofit organizations. She added that Sage itself has been encouraging its users to verticalize over the last year.

"It's just more competitive out there, and if you want to be more competitive, you have to be an expert in what you're selling," she said.

Balgord said her company only sells only Sage products -- a decision that nets it better terms from Sage, as well as more co-op marketing money.

In addition to finding the right mix of horizontal software, Balgord also uses Sage MIP, a nonprofit-specific application. After that, she said, Balgord relies on her and Sage's reputation to draw in referrals from other clients.

Balgord said she chose Accpac ERP -- which Sage acquired in 2004 -- because it is well known in the greater Toronto area and fits the price range that many of her clients, some of whom are as small as 20 employees.

"We have had on occasion prospects and clients who have thought they wanted to explore one of the so-called tier one products, and they come back and say, 'there's no way we're going to pay that much for a solution,'" she said.

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