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Dot coza boom revisited

Tuesday, 30 September 2003 00:00
Tipsters are predicting that of the surviving listed Internet companies in the US around a half will be profitable by the end of this year. B2C (business-to-consumer) revenues are rising and many traditional businesses are realising the benefits of B2B (business-to-business) e-commerce. All very encouraging, but does it hold water for South Africa?

Long-time local IT commentator Duarte da Silva of the J&J Group is cautious, pointing out that many of the inhibitors that stifled Internet commercial success, particularly in the B2C space, in South Africa are still present – most importantly a lack of volume and access.

He has a point. Accurate figures on Internet users in this country are hard to come by, but it would not be unreasonable to suggest they stand at around the three million mark – hardly enough to get pulses racing.

“The successful examples have been retailers like Woolworths and Pick `n Pay and the banks that have identified the Internet as just another business channel,” Da Silva says. Companies transacting through the Internet in isolation, he believes, have little chance of success.

Reversal of fortune

M-Web, South Africa`s largest Internet service provider (ISP) and dot com company, would probably disagree. As a listed entity, the company achieved headlines more for the amount of cash it burned each month than the services it offered. However, since it delisted from the JSE Securities Exchange in July 2001 and dived under the substantial cover of the Naspers Group, its fortunes appear to have turned.

In its latest financial results (year-end March 2003), Naspers cites the Internet as its fastest growing business area, with revenues up 63 percent, and operating losses before amortisation almost halved to R244 million.

Also, last month M-Web reported record traffic to its new portal in the month of July: 814 834 unique users. According to Russel Yeo, general manager of M-Web Studios, the record is a firm indication that the company`s new focus on providing a wide range of exclusive services, tools, products and “premium” content to members is successful. The Internet, and the M-Web brand in particular, Yeo says, are becoming “an integral part of South African people`s everyday lives”. The company has also made what appear to be successful inroads into the Far East.

But Da Silva, for one, remains sceptical. “The main reason that M-Web is still around is because of ‘Big Daddy` [Naspers]. The company has yet to prove whether it is viable or not,” he says.

It`s arguable whether ISPs qualify as pure dot coms or should rather be categorised as an offshoot of the telecoms industry. But Naspers` Internet offerings run far deeper than ISP services.

On the retail side, subsidiary Nasboek`s e-commerce platform Kalahari.net doubled its revenues to R32 million this year. The company is confident it will continue this trend going forward and says it is following a strict roadmap to profitability. Kalahari.net benefited from the collapse of rival e-tailer The Shopping Matrix earlier this year; but, even if it reaches profitability, it is hard to see it ever becoming a significant earner for the media giant.

A tale of small earners

More about M-Web and Naspers later, but it appears the real story of stand-alone South African B2C e-commerce is a tale of small earners. Pick of the bunch could very well be NetFlorist, the sole dot com survivor within contact centre outsourcing company CCN Holdings (formerly the ISP NetActive).

MD Ryan Bacher says the online flower retailer turns over around R10 million, with profits in the region of five percent of that princely sum. He believes the key reason NetFlorist has remained afloat is that it exists in a market that has no dominant player.

“Secondly, there are a number of recognised consumer brands out there selling flowers and what we have succeeded in is building partnerships with them. These relationships give us access to our partners` customers and account for nearly half of our business,” he says.

This partner programme has enabled NetFlorist to eliminate marketing and stock holding costs that have rung the death knell for so many dot coms, and reach profitability after just three years.

“It`s not about above-the-line marketing: the returns are still too small. If we had relied on above-the-line, we wouldn`t have survived,” Bacher says. “Partnerships do not drain the income statement, although the challenge is you`re always going to be the smaller company. We play a role in our partners` businesses, but we`re a blip on their radar screens.

“We`ve been building partnerships for around four years and while there`s often a bit of scepticism at first, our reputation is good and we`ve established a name for reliability. Currently 80 percent of our orders are made online and the balance through our call centre,” he says

NetFlorist is probably as close to a true e-tailer as you`re going to find in South Africa. It holds no stock, relying on florists throughout the country and, importantly, does not look to differentiate itself on pricing.

“Our product lends itself to the `Net. Customers were accustomed to using the phone to order flowers and the shift to the Internet has been easy. If you`re looking to sell a big screen TV online, for instance, your only selling point is that it is cheaper. That`s a business model that just can`t work,” Bacher says.

He estimates the current “flower sending” market at around R200 million a year and has no reason to assume NetFlorist cannot continue to achieve growth rates of between 60 and 100 percent in the medium term.

Another success story is the online flight-booking agent kulula.com. While kulula.com is not independent – it falls under the Comair Group – it`s worth looking at as it`s something of an anomaly: a dot com that claims to have been profitable from day one.

At least that`s according to executive IT director Carl Scholtz, who was unable to give exact financial figures as JSE-listed Comair was in a closed period at the time of writing.

Kulula.com follows a mixed business model in that it does not rely on the Internet alone for distribution. Comments Scholtz: “We understand that transacting on the Internet is not everyone`s cup of tea so we have catered for a number of options.

“While around 60 percent of our clients book and pay online, others make use of the option of paying for their flights at First National Bank branches around the country, while those who are not Internet-active can make use of our call centre.”

Keep it simple – and cheap

Kulula.com is also active in B2B e-commerce in that it interacts with travel agents online. Agents can make use of a separate travel agent website that allows them to make bookings and keep tabs on their travel spend and commission earned.

There`s no doubt that air travel lends itself to the online business – it is, according to Scholtz, the second largest market wordwide in terms of transactions. This said, the main reason for kulula.com`s success is, unlike NetFlorist, probably its price competitiveness – flights can be up to 42 percent cheaper and the company recently added a further R50 discount on return tickets booked online.

“We learnt quickly that customers disappear if they encounter any problems online, you simply have to offer the simplest and quickest deal around,” adds Scholtz.

The learning process must have been intensified by the server-crashing response to a recent special offer, in which R400 return tickets between Johannesburg and Cape Town left the website unavailable for nearly a day.

Kulula.com, Scholtz says, is working towards providing an “integrated travel experience”. The company currently offers both flight and car rental services and is investigating the possibilities of adding accommodation to its bundle of services.

Da Silva has pinpointed Woolworths and Pick ‘n Pay as traditional retailers that have successfully employed the Internet as an extension of their existing business channels. However, according to Alison Vorster of Internet infrastructure provider Internet Solutions (IS), clothing retailer and consumer credit pioneer Edcon is a far more interesting example.

Edcon, she says, was one of the original customers and first casualties of the dot com craze. The company invested a considerable amount in its online venture edgars.co.za (almost R3 million in software alone) and severely burnt its fingers.

How this situation has been turned around is, according to Vorster, an e-commerce success story that spans both the B2B and B2C spaces.

“Edcon changed its strategy to one which identified areas within the organisation that could realise significant value from an e-commerce initiative and where success could be measured,” she says. The new model at Edcon focuses on operating expenditure and capital expenditure, ensuring investment in technology is both justified and yields a return.

“Edcon immediately saw the economies of scale and value it could realise through the IS infrastructure model and migrated from its existing B2C vendor`s software to ours, hoping to be in time for last year`s Christmas rush.

Delivering real value

“We went live on time and, within the first week, significantly increased the ratio of customers returning to the site. This was a major turnaround. The company moved from a situation where neither it nor its customers were seeing any value to implementing a fully interactive, continuously enhancing site that`s delivering real value to customers,” Vorster says.

Edcon, she adds, is now in the process of adapting its B2B processes to the IS model.

“The way our infrastructure model is structured means the more functionality you add, the more cost effective it becomes. The total cost of ownership for the B2C solution stood at around 50 percent of revenue, but once B2B was added this dropped to around a quarter.”

The secret, according to Vorster, is to focus on the actual business processes and areas that add value. “At Edcon, in B2C the company has focused on improving the status of statements and payment procedures, the things that really affect the bottom line. The B2B side is very process driven – streamlining internal processes with suppliers for instance – and that`s where Edcon is seeing its return on investment,” she says.

Victoria Vaksman, MD of software solutions company Tilos, agrees that a focus on business processes is the route to follow.

“The take-up of e-business will be accelerated through the deployment by companies of three basic components that fulfil the base requirements of any organisation wishing to e-enable its existing processes. They are the corporate portal, integrated workflow and document management,” she says.

“Together, these three components, along with a shared knowledge base, provide a solid foundation for e-business, allowing companies of any size to e-enable their processes and gain the clear benefits to be had from the new paradigm.

“But,” Vaksman cautions, “their implementation must be accompanied by a holistic review of the business and change in core processes, or you`re simply putting lipstick on the pig.”

One of the most hyped phenomena of B2B e-commerce has been e-marketplaces. Unfortunately they`ve also accounted for some of the most spectacular failures, both globally and in South Africa.

Commerce One South Africa – Distributor Operations` MarketSite is perhaps the most well known locally due to its high profile customer and partner Sasol, which has, by all accounts, benefited greatly from taking the e-procurement route.

More recently, M-Web launched CommerceZone and claims transaction volumes totalling over R9 billion in its two-year existence. CE Andreij Horn ascribes its success to the fact that customers on the buy and supply side are seeing real bottom-line returns each day.

“Deriving value from procurement is not rocket science – it is not even new. But, integrating all the elements for a successful e-business exchange is much more complicated than could be imagined. By enabling even the most complex of our customers to feel the benefits of e-procurement within 12 weeks of implementation, they see a real return on investment in the same year of moving to a new system,” he says.

Maturation process

At present, M-Web CommerceZone claims to process transactions worth more than R450 million per month (although it must be pointed out that many of its clients fall, like M-Web itself, within the Naspers stable).

Horn believes the nature of B2B e-procurement has changed substantially during the last two years, maturing into an accepted practice used by leading organisations worldwide.

A recent international poll indicated that almost 80 percent of respondent companies were using e-procurement to some extent – an increase of more than 50 percent over the previous year. However, 70 percent of the companies using e-procurement use it for less than 10 percent of their purchases, pointing to the fact that a large number of companies have failed to see real benefits.

Horn, however, sees the biggest obstacles to e-procurement growth not as being IT-related, but as the result of flawed business cases associated with these projects. “M-Web CommerceZone combined our e-procurement offering with a strategic sourcing project for each client.

“By adding a new client`s indirect procurement volumes to the billions we already manage on behalf of our existing clients, we can offer our clients an immediate reduction in procurement costs and a contract management service that ensures that the requirements of the new client are met,” he says.

Tjaart Kruger, executive consultant for Strategic Solutions at Comparex Africa, adds that while the Marketsite solution has been a reasonable success, it must be remembered that, like most other marketplaces in South Africa, it is a horizontal marketplace serving indirect goods procurement.

“Furnex has a hosted catalogue environment that allows independent [small] retailers to purchase household goods from larger suppliers, and Collaborative Exchange and Gateway Communications provide electronic forms management services to the automotive and FMCG markets. These are, however, very basic forms of managed environments and do not yet fulfil the dot com promise,” he says.

“Technology is certainly improving, but business models will have to change if we are to see sustained business improvement based on a real value proposition in this space.”

Beyond technology

Kruger says despite the negativity of the past, the benefit of online business is mainly that it can enable a new level of value chain management that was never possible before.

“Just as ERP enables the internal functional integration of a business, electronic business can integrate value chains across company borders and enable real value chain management.

“The technology on its own, however, will not bring about the improvements. The business practices and processes have to be changed to exploit the power of the technology and this is the challenge for local companies,“ he says.

One of the most disappointing Internet performers has been online publishing, which has suffered locally and globally from the unwillingness of users to pay for content and slow take-up by advertisers.

Here, the major media houses like Independent Newspapers, Johncom and Naspers have enjoyed limited success by using the Internet as a medium to disseminate repackaged content from their existing traditional publications.

Two small companies that do stand out, however, are MoneyWeb and (Brainstorm publisher) ITWeb. Both have survived torrid market conditions and negative sentiment and have firmly established themselves as the dominant players in their respective niches.

MoneyWeb, the brainchild of financial journalist Alec Hogg, is listed, though not heavily traded, on the JSE. The site provides high quality, up-to-date financial and business news and commentary and is given further impetus by Hogg`s radio show on Classic FM (also a MoneyWeb project).

While MoneyWeb reported a minor loss on revenues of around R15 million for the past financial year, this can credibly be explained by the tough conditions experienced by the media industry in general. The company has been proactive in identifying additional revenue streams, in print and television, and is ambitiously eyeing expansion into the rest of Africa.

Not into temptation

MoneyWeb has taken a mature approach to its top-level management structure, appointing a number of non-executive, independent directors and an operations specialist as CEO. (One wonders how many of the dot bombs would still be around today if they had had the sense to follow a similar route?)

Specialist IT portal ITWeb was launched in 1996, apparently as the first online news service in the country, and has, so far, fended off feeble challenges to its dominant position in its chosen market.

CEO Jovan Regasek, who, quite wisely as it turns out, resisted the lure of going public, says the company has been nominally profitable since inception and enjoyed revenue growth of 36 percent to more than R20 million last year. ITWeb earns the majority of its revenues through its so-called company “press offices” which are utilised by a large percentage of local IT companies to disseminate their news releases.

Regasek believes the main reason for success has been ITWeb`s basic business premise, which differs from many of the failed content providers.

“Their main thrust has been that ‘content is king` where, in reality, the amount of free information available on the `Net has turned content into a commodity. ITWeb, on the other hand, works at creating communities of interest, drawing readers in and then transacting with them.”

The paucity of online advertising revenue has also, however, forced Regasek to explore other revenue possibilities, most notably through Brainstorm magazine.

Both Regasek and Hogg have hailed the recent formation of the Online Publishers Association (OPA), an organisation whose main aims are to standardise online advertising metrics and educate advertisers about the advantages of Internet advertising.

Don`t get too excited

“All the major online players have joined,” says Regasek. “We hope it will serve as a vehicle to raise the profile of online publishing and restore trust in our industry.”

The probability of a South African dot com renaissance rivalling that which is now being detected in the US remains slim.

There will, no doubt, be a measurable increase in B2B activities – especially with adoption of standards such as web services. However, small volumes will probably continue to relegate B2C to its position as an add-on to the banks and the traditional retailers, and as the domain of a few, small independent niche players.

But, never mind, there`s always the mobile telephone – and people are used to paying for that!

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Die another day

Tuesday, 02 September 2003 00:00
In 1993, Richard Beytagh and his credit card started Novell South Africa in an office in Rivonia. On the eve of its tenth South African anniversary, the company is, contrary to expectations, still around, and, contrary to expectations, still going strong.
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Life in the old dog yet

Tuesday, 02 September 2003 00:00
Much like Mark Twain when he said that rumours of his death had been greatly exaggerated, enterprise resource planning (ERP) vendors are indignant that anyone would imagine that demand for their solutions has died.

Much of the large corporate market is saturated, and the multi-million dollar deals that characterised the ERP market in the nineties have fallen off. In response, the emphasis of most major players has shifted away from selling expensive core applications (such as financials, HR, manufacturing, or distribution) to add-on modules such as supply chain management and enterprise portals.

“There are many doomsayers who would advise that ERP is dead. Nothing could be further from the truth, as our sales pipeline and order book shows,” says Mike Evans, MD of JD Edwards SA.

Banking on new markets

While AMR Research says the core ERP market will show only modest growth from a projected $20.6 billion in 2003 to $21.6 billion in 2004, the market researcher projects healthier growth in complementary applications that the likes of SAP, PeopleSoft and Oracle also sell. And new opportunities for ERP abound in untapped vertical markets such as government and financial services, as well as in the burgeoning mid-market.

“A remarkable trend over the last few years has been for organisations which typically fall outside the scope of ERP systems to implement discrete modules of ERP suites, in order to gain some of their benefits,” explains Evans. “For example, many banks, which are in themselves not ERP candidates, have chosen to implement the financial modules of ERP suites so as to gain overall control of their financial operations.

“Such an approach can lead to rapid processing, tight integration with their core systems, ease and speed of reporting, an enhanced view of the business, and risk containment. This approach is not possible with older ERP products which have an all-or-nothing philosophy, typified by hard-wired best practices and rigid implementation rules,” he says.

Wynand Wolmarans of Atos KPMG Consulting, says that there are strong growth opportunities in the public sector for ERP vendors. Recent SAP deals at SARS and Cape Town Unicity (together worth around R500 million in services, software licences and hardware) have given the local ERP market a major shot in the arm, and provide only a small inkling of the potential the major integrators and software suppliers see in the public sector.

“If the public sector goes for ERP, it could be an even bigger market than the private sector,” says Wolmarans, who believes that government could find strong uses for ERP in handling some of its challenges such as the management of its huge workforce or combating shrinkage of medical supplies and pharmaceuticals at hospitals.

Gunning for the middle tier

Much of the real action is in the mid-market, however. Definitions of small to medium businesses vary between ERP vendors and between countries (a South African “top 100” company may be a medium-sized business by US standards), but it`s not unusual to look at companies with up to 1 000 potential ERP users as the mid-market.

Paul Whalley, MD of IFS South Africa, says that this segment is the fast-growing part of the ERP market. He cites research from the ARC Group that shows that the second tier market accounted for 41 percent of the total ERP market in 2002 and will continue to grow its share of the market by a compound annual growth rate of 6.3 percent.

It`s little wonder that most of the top tier players badly want a piece of the action. Oracle and PeopleSoft are both interested in this market, but 800-pound gorillas SAP and Microsoft (see separate story) are the ones to watch.

“The mid-market is of interest to us. It`s an area where we feel there is a perception that our products are unaffordable that we need to address,” says Michelle Beetar, director for services and commercial industries at Oracle SA. “However, it will never be the low-end of the SME market for Oracle – it`s an area where no one vendor dominates.”

Meanwhile, PeopleSoft`s desire to move into the mid-market is one of the reasons why it considers JD Edwards, which is a strong player in the middle tier of the manufacturing market, a good match.

SAP`s latest foray into the mid-market is its Business One product, which is meant to be faster to implement and less hardware intensive than its enterprise suite.

Explains SAP Africa`s GM for cross-industry solutions, Simon Carpenter: “It`s a ‘what-you-see-is-what-you-get` environment that addresses the pricing needs of a small business. The product is a good fit for companies with up to 250 users, with an entry point of somewhere between five and 50 users. We`re looking at the sophisticated middle market with this product.”

This isn`t the first time SAP has tried to crack the mid-market. Its previous attempts have been only moderately successful, and sceptics doubt its ability to scale its applications down to the price range of smaller companies and put together a suitable go-to-market and services model to reach such customers.

Says Whalley: “Yes, the larger tier one ERP suppliers are responding by re-architecting their solutions for this segment, but they are still coming in at a cost premium. When ROI is king, that`s a tremendous differential to recoup, bearing in mind that ‘light` tier one solutions offer essentially the same functionality, or even less, than second-tier solutions.”

Picking up the pace

But SAP has come a long way in the past few years, says Dave Vink, an executive director at systems integrator CS Holdings. “It doesn`t cost multiples of five or six times the price of the software to implement SAP any more.”

In addition, notes Leon Tromp, alliances manager at the local office of EDS, the use of an application service provision model to serve up plain-vanilla applications could help the major ERP vendors to reach mid-market customers.

Consolidation in the mid-market has accelerated in recent years, and is likely to pick up pace as players band together to stave off the threat posed by Microsoft and SAP. Some analysts say they wouldn`t be too surprised to see Microsoft following its Great Plains and Navision deals with yet another acquisition.

While this process will leave customers with less choice, that may not be a bad thing in the congested mid-market where dozens of specialised players cater to the needs of a highly niched and price-sensitive customer-base.

Ashley Ellington, the divisional manager for Africa at Sage Enterprise Solutions, takes a sanguine view of consolidation: “Rather than alienating potential customers by forcing them to deal with large conglomerates, it adds an element of flexibility to the solutions that can be implemented.

“Good discounts, high service levels and closer relationships with the systems integrators that implement the solutions are just some of the benefits.”

UK-based Sage Enterprise, the leader in the mid-market by most estimates, is one of the key players driving consolidation in its sphere. Its growth-by-acquisition strategy has seen the company acquire the Concert Group in France in January, Timberline in the US in July, and it also has an offer on the table to buy South African vendor Softline.

Even as consolidation of the market continues, a handful of companies are carving out niches for themselves in vertical markets where customers have specialised needs.

Aiming at SAP

Recent news that Baan was sold for $135 million to an investment group consisting of Cerberus Capital Management and General Atlantic Partners was overshadowed by the acquisition of JD Edwards by PeopleSoft and Oracle`s subsequent hostile bid for PeopleSoft. But the Baan transaction positioned it as the fourth biggest ERP player and a force to be reckoned with in the middle tier of the manufacturing vertical market.

“Baan/SSA will go back to being a niche player, but it will be a significant niche,” says Jane Thomson, MD of EOH subsidiary Softworx. Similarly, Sweden-based IFS has grown into one of the top ten ERP vendors in the world while keeping a close focus on three major vertical markets: engineering, telecoms and manufacturing.

Nonetheless, PeopleSoft/JD Edwards, Oracle and SAP between them control around 70 percent of the ERP market, according to the Yankee Group. With a 36 percent share of the market, SAP is the runaway leader.

Challenging SAP is the underlying reason for PeopleSoft`s acquisition of JD Edwards and Oracle`s bid for PeopleSoft. For its part, SAP is viewing the activity among the other vendors with glee.

“There`s a window of opportunity for us since companies usually become inwardly focused after a merger. It offers us an opportunity to consolidate our leadership position,” says SAP`s Carpenter. It remains to be seen whether the middle class can hold its own against the multi-billion dollar titans of enterprise software.

Microsoft muscles in

It prefers to play down the possibility that its strategy could bring it into conflict with the likes of Siebel, SAP and Oracle, but a collision between Redmond and the giants of enterprise software is inevitable.

By Microsoft`s standards, its Business Solutions division, with a few hundred million dollars in annual sales, is a fledgling business. But the software giant has identified it, along with initiatives such as the XBox gaming console, as one of the engines of its growth for the next decade.

In just over two years, Microsoft has combined some of its own products with those of Great Plains and Navision (acquired for a combined value of around $2.5 billion) to create an imposing portfolio in the Business Solutions division that covers the ERP, CRM and supply chain management markets.

From Great Plains, Microsoft added the GPS Dynamics and eEnterprise ERM suites, as well as the Solomon ERM suite and FRx financial analytic applications, to its product range.

Navision, meanwhile, bolstered the arsenal by contributing the Navision Attain and Financials suites, as well as the Axapta product range, which it inherited from a prior acquisition of Damgaard.

Also in the mix are the bCentral small business portal and Microsoft CRM, products that the software giant built from scratch.

The products are broadly complementary since Great Plains offerings are designed to be used off-the-shelf in a non-international operating context, while Navision`s products are better suited to rich customisation and multi-national operating environments.

Slow integration

Nonetheless, Microsoft`s move into the business applications space has been dogged by market confusion about the positioning of the major product lines it inherited with its acquisitions.

But the products will not be merged into a single stream until 2012 to ensure that users can buy any product in the family with peace of mind, says Stephen Green, group manager of Microsoft Business Solutions SA.

In the interim, Microsoft is working on a common XML and EDI-based web services layer, the Microsoft Business Network, for the major Business Solutions product. This will in time replace some of the unique middleware in each of the products and thus allow them to behave more like members of the same product family.

Microsoft Business Solution is also working on integrating the products more tightly with other Microsoft assets including the SharePoint portal, BizTalk process orchestration engine, Office productivity suite and Microsoft Commerce Server. The solutions already use the Microsoft operating system and SQL Server database.

Graham van Zijl, MD of Microsoft Gold Partner nVisionIT, says that Microsoft can be expected to make further inroads into the local ERP market now that it is finally focusing its resources on its Business Solutions division and creating the necessary integration between its core back-end solutions and the Business Solutions portfolio.

Another priority, at least in South Africa, is to train and certify the company`s network of business partners in the applications space, says Green. Many of Microsoft`s partners are not up to speed with all the Business Solutions offerings, and some resellers fear the market could be flooded with under-skilled competitors.

“Microsoft needs to ensure it appoints partners who are sustainable. The solutions your partners install is a reflection of how good your products are,” says Rob Hawley, CEO of Microsoft business partner SIS, who welcomes Microsoft`s drive to certify and train local business partners.

Worthy adversaries?

Apart from the strong revenue potential Microsoft sees in the business applications arena, sales of the Business Solutions products will help to drive sales of other Microsoft products including its e-mail and web server software, operating systems, office suites, databases, portal products and development tools. Bundling these products into a solution where the parts all work well together will make Microsoft an attractive supplier to mid-range customers.

Microsoft`s move into the enterprise applications arena can be expected to catalyse a huge shakeout of the market. In line with its traditional strategy, Microsoft is competing aggressively on cost, which could start a price war and erode the margins of smaller mid-range companies as well as those of the top-tier suppliers such as Oracle, PeopleSoft and SAP.

The first to be affected will be low-end and mid-range players such as Accpac and Sage. The fragmented and segmented mid-market has been ripe for consolidation for some time, and Microsoft`s entry will no doubt spur defensive mergers and acquisitions among many of the players.

Green insists that Microsoft will not position itself to compete with SAP and Oracle in the high-end market where deals are typically worth millions of dollars and involve complex software customisations.

Simon Carpenter, GM of SAP Africa`s cross-industry solutions, agrees: “Microsoft is still an extremely strategic business partner of ours. I don`t foresee we will bump heads too much.”

How big is big?

Nonetheless, Redmond does have an ominously broad definition of a mid-market organisation: any business with up to $1 billion in revenues or up to 1 000 ERP users.

The upper end of that market is SAP territory, especially in a small economy such as South Africa, and the German giant also hopes to push into the middle tier of global market to make up for falling sales in the saturated Global 2000 market. Given Microsoft`s strengths as a supplier of software to SMEs, it is likely to give SAP the fight of its life in the mid-market.

But the potential for conflict doesn`t end there. Says Green: “There`s been huge acceptance of our products among top tier organisations. For example, large companies with SAP at the corporate level are deploying Navision or Axapta at the branch office.”

Of course, we`ve seen this story play out before and, like last time, it will probably unfold over five years or more. Remember, Microsoft started its infiltration of the enterprise data centre with its operating systems and databases by taking over the departmental servers...

Give us a foot in the door!

To have local roots is a liability rather than advantage in the South African enterprise resource planning market, complain the country`s software development firms.

South African developers of enterprise software, evidently feeling the pinch of a slowdown in IT spending, have lashed out at the government and private sector for giving the bulk of their business to international software vendors while paying lip service to the Proudly South African campaign.

Their complaint is not that their products lose out in fair competition with alternatives from SAP, Microsoft or Oracle, but that South African developers are often passed over in the first place.

The slowing of the market for enterprise applications, together with a concerted push into the mid-market by the international top-tier vendors, has given companies such as Emsoft and ACS even more reason to resent the global giants.

“The corporate market is getting saturated, and now [SAP and the others] want to play in our space,” says Gilbert Parsons, MD of Emsoft. “But people in the top end of the market will not buy South African products.”

“We`ve become a Proudly South African company, and we would like to believe that would get us a foot in the door. However, many local companies don`t seem to feel that South African products are good enough,” agrees Mike Stefanski, MD of ACS, the developer of the ACS-Embrace applications suite.

Rands across the ocean

Parsons is particularly incensed that government bodies such as the Cape Town Unicity have rejected locally developed products in favour of expensive international software.

Cape Town`s budget for its project is more R300 million for hardware, software licensing and consulting and other services, although some sources say it is running way over budget. “Is there really that much value sitting in SAP for the Unicity?” asks Parsons, and repeats the oft-heard complaint that contracts awarded to the likes of Accenture and SAP simply result in outflow of money from the domestic economy.

The Cape Town Unicity did its homework before it committed itself to SAP as its product of choice, including extensive consultation with analysts such as Gartner as it whittled down the list of potential services and software vendors.

It has publicised details, but Parsons remains unconvinced. “In a typical SAP implementation, the customer`s IT staff triple and quadruple, and those that benefit the most are the consultants hired to put the software in place,” he says.

Local developers claim that their products cost up three or four times less to licence and implement than offerings from the likes of Oracle, SAP and PeopleSoft. Many give their customers access to the source code of their products and are able to tailor their software to meet the needs of South African customers at a low cost because the product developers reside in the country.

Besides these business reasons, they`re also hoping to capitalise on the sort of patriotic feelings the Proudly South African campaign is meant to stir. So why are they battling to sell to software locally?

The more cynical observers suggest that they`re unable to offer technology buyers trips overseas on reference site visits, or the opportunity to sex up their CVs with experience in implementing an internationally known ERP system.

But the truth is more mundane than that. As John Olsson, sales and marketing director at Ability Solutions, points out, it isn`t just South African application developers that are battling to win new business - it`s everyone in the enterprise applications market.

Betting on the big guys

In addition, software companies that developed in the years that South Africa was isolated from the rest of the world have needed to adjust to the changes in the market since the multinationals established formal presence in the country.

“Do you bet on company X with 20 developers in South Africa, or on Microsoft with 1 700 developers?” asks Stephen Green of Microsoft Business Solutions. Green`s words, as biased as they may be, resonate with many CIOs.

“We were previously a privately owned company, and in the event of unforeseen circumstances, we`ll be able to support and run our business as an independent entity again. Besides, we supply our source code to all our customers,” counters Stefanski, whose company forms part of the beleaguered Global Technology group.

“American companies are going through more turmoil than anyone else,” says Parsons, referring to the ongoing PeopleSoft, JD Edwards and Oracle saga. “Many South African products are as feature-rich as offerings from PeopleSoft, but they don`t have the American dream behind them.”

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The soft business

Friday, 01 August 2003 00:00
Microsoft`s local operations outperform equivalent markets, says local MD Gordon Frazer; while moving intellectual capital makes the geographical remoteness and economic instability almost bearable.
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