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If I heard SAP (NYSE:SAP) correctly at Wednesday morning's conference call, it said it will divide sales and marketing activity between installed and new base in the process of implementing its "new" vs."established" customer strategy. "New" is defined as midmarket users who are non-buyers (not even Quicken or Money?).

Basing organization on this arbitrary distinction of purchase history is one of the biggest mistakes an IT company can make. The better approach is to be like IBM (NYSE:IBM) which thinks--probably rightly so--that everyone is a customer, not a prospect; the only question is "When was the last time you purchased from us?" Such organization, if that is SAP's intent, sets up a caste system within sales and among users.

A possible better way for SAP to divide their organization--by channel--was announced in November and implemented January 1. What's the hierarchy now?

  • New and established by channel
  • Channel by new and established.
  • I still don't see an SAP Supervisory Board member with channel stamped on his forehead (the way they designate technology, finance, and so forth to board members as explained in their 20-F) so I assume it's "purchase history of customer first, buying pattern preference second."

    If that's the case SAP runs the risk of all market leaders - being caught in past (in this case, emphasizing a product/technology focus while the IT world goes to a services mentality). SAP said it had thought about this issue, and considered choices, including:

  • Evolve the way they did when SAP transitioned from R/2 to R/3.
  • Go a complete subscription route with full trial systems, embedded services, etc.
  • SAP says it is choosing the latter for SME, which is consistent with how I think the entire market is evolving (and the way Intuit (NASDAQ:INTU) and Microsoft (NASDAQ:MSFT) already work), but that it is keeping the former for its "established" base. This bifurcated approach is a major risk. Ask yourself: when does a "new" customer become an "established" customer?

    Disclosure: Author has no position in SAP.

    Source: SAP's Bifurcated Strategy: Isn't Everyone a Customer?