Xero unruffled by unlikely challenger SAP
In a most unlikely software market face-off, New Zealand cloud accounting software maker Xero is facing a new competitor: German giant SAP.
Better known for powering the systems of Fortune 500 companies with its high-end enterprise resource planning (ERP) suite, SAP has progressively moved downmarket, targeting ever smaller companies.
Last week, with the launch of its cloud software offering in New Zealand, SAP moved firmly into the small business market to rub shoulders with Xero.
Cloud-based software is generally hosted in a datacentre, rather than on the business's premises, and accessed by subscribers through a web browser.
SAP's local partners have been building their sales pipeline ahead of the launch and report strong interest from organisations either outgrowing their accounting packages (most commonly Xero's), and looking for more functionality, or companies looking for "point solutions" such as customer relationship management systems.
Nick Mulcahy, director of local SAP partner Soltius, said he hasn't yet come across any users of software from Xero's arch-rival, MYOB, but is receiving some interest from users of Exonet, now owned by MYOB and rebranded MYOB EXO, and also users of Greentree software.
Like NZX-listed Xero, both MYOB EXO and Greentree were developed in New Zealand.
Mulcahy said the Xero users he is talking to are generally happy, but outgrowing the platform and looking for something more. Because they are already familiar with cloud-based software, the sale of SAP's new cloud products is easier, he added.
In addition to companies using software from other providers, Mulcahy said Soltius is also getting interest from quite a few organisations not using any accounting or ERP software, relying on spreadsheets instead.
Last week, SAP launched its cloud products, including a localised version of its Business ByDesign suite. Other cloud modules include SAP Cloud for Customer, Cloud for Sales, Cloud for Service, Cloud for Social Engagement, and social media analytics by Netbase.
Xero founder Rod Drury said he doesn't see SAP in the market, but concedes Xero might lose a few customers "around the edges".
"They've tried to come down even to the midmarket for 20 years and never got there."
As companies grow, it is inevitable some will shift off the platform. Xero itself has grown too large for its own software and now uses cloud-based software from Netsuite.
He said what he was seeing more commonly was customers using systems such as SAP at the core and deploying Xero into the supply chain to take cost out. Plunkett, he said, uses Microsoft's Navision software at the core and Xero around the edge.
Other customers use Xero at the core and add modules from Xero or other cloud providers. Xero's website offers CRM, point-of-sale, workflow payroll, reporting and other modules.
Drury said such add-ons are getting better and better and new features, such as adding security to individual subsets of the chart of accounts, could be added to the core software over time.
Meanwhile, MYOB EXO is being marketed as the "next step" in MYOB's product range with modules supporting finance, job costing, point of sale, fixed assets, customer management, reporting and inventory control. It can also be delivered as a cloud suite.
Auckland-based Enprise sells and services both SAP systems and MYOB EXO. Chief executive Mark Loveys said all the major accounting firms are pushing clients towards cloud solutions, but there is still demand for on-premise systems.
"It's quite a mixed market at the moment," he said. "It's become quite common to have that discussion about what is the best structure."
Loveys said the difference between Netsuite and Xero on one hand, and MYOB EXO and SAP's cloud software on the other, is that the latter offer "single tenancy" as opposed to multi-tenancy in their cloud deployments. Loveys compared multi tenancy to riding a bus, where you take service changes on the chin.
For some companies, with complex processes, better control over change timetables is required and that comes with single tenancy.
Greg Harbor, SAP's regional cloud vice-president, said last week's launch was part of a "cloud-first" strategy that would unleash innovation opportunities that can't be addressed with on-premise software. However, on-premise customers can still gain access to cloud modules and create hybrid deployments.
Some of those modules are also "ERP agnostic" so could sit alongside core financial and other software from other vendors.
He said such software can deliver process standardisation and compliance to firms and allow them to redeploy resources into core activities.
SAP's cloud systems are delivered from datacentres in Europe, the US and Australia.