INTERVIEW:
Question 1
The Baan Group is focused on software for small and medium-sized enterprises. How can
these businesses be competitive and how can you help them?
Answer
We were very successful in the high end of the market and now we would like to bring the
good news to the small and medium-sized enterprises. But itís very important that you
bring the right value proposition.
In the high end of the market they have almost unlimited budgets, a lot of resources,
their own EDP departments. But in the middle-range market you have to be much more
competitive to make sure you are a really strong player. We know we have to bring the
right value in terms of services, for in the middle-range market we sell a solution, not
only IT, not only software. The company in the middle-range market is interested in only
one thing: a life solution, the hardware and the software, including all the services. In
Baan we developed what we call the DEM approach: dynamic enterprise modelling. It is
branch models in services. If you look at the high-end, itís a ratio of 1:5, one dollar
of software and five of services. In the middle-range market, you have to do it another
way. We now have a ratio of 1:1, one dollar software and one dollar services. Itís
because weíve developed what we call the "desk port". We halve the complexity.
Customers in the middle-range market are not interested in a lot of complexity. If you
look at an ERP (enterprise resource planning) solution, it is a very comprehensive
solution with a lot of flexibility and usually that creates a lot of complexity. What we
did with DEM and the branch models was halve the complexity, and itís a real success
story. So we feel very strong not only in the high end of the market but also in the
middle-range market. World-wide there are approximately 4,000 players in the middle-range
market today. But weíre expecting a big shake-out, because the middle-range market is
normally local, small system houses working for local companies. But local companies are
also part of the global growth and they want a global solution, a very smart solution. So
we expect a big shake-out and we want to make sure the Baan is number one in the market.
So we go for leadership in that market and therefore we develop what we call the triple
breakthrough strategy, not only a breakthrough in terms of the products. Microsoft is easy
to use and cheap, so our product is 100 percent embedded in the Microsoft world. Then,
with DEM we were able to kill the complexity, so there was also a clear differentiation in
the market over the competition. Last but not least, we started BBS (Baan Business
Systems) as a sales arm, a channel, within the Baan Group but with our own name.
Generally, the high-end software providers like Peopleís Software and Oracle go to the
middle-range market via indirect channels but not with their own name. We see that as
discrimination. If you really want to be number one in the middle-range market, you have
to go with your own name and with your own money and put your money where you promise that
you are number one. So itís also the Baan name on top of the building.
Question 2
But whatís your market share in the general software market now?
Answer
We are number two in the high end of the market and in Europe we are already number one in
the middle-range market. This year the budget for BBS in Europe is approximately US$100
million revenue; if you compare that with other companies like Symex, for example, in the
United States, we are already twice the size of Symex. We are very dominant in the
middle-range market in Europe with the BBS concept. Itís like a gold mine. In the last
couple of years the EMP market was especially in the high end of the market. Now youíll
see that EMP market will penetrate the middle-range market very fast, and in that market
Baan is ahead of the competition and that market is growing very fast - by at least 50-60
percent a year.
Question 3
23 percent of small and medium-sized enterprises now operate internationally. Your
forecast is that by the year 2001 it will be over 50 percent. But where are these small
and medium-sized enterprises?
Answer
A few countries have real middle-range companies like Italy, Turkey, Spain, the
Netherlands. If you compare the industry in the United States with Europe, in the United
States we have really big heroes: 70 percent of all the Fortune 500 companies are located
in the United States, a huge high-end market. But Europe is much more dominated by
middle-range companies. You see them in Germany as well, but especially in Italy. There
are only a couple of really big companies like FIAT, but the majority of the industry -
especially the industry that is making money - is the middle-range market. The
middle-range market in Italy, for example, is a very attractive market for us.
Question 4
And do you think that in Italy these small and middle-sized companies are changing their
culture fast in order to use information technology better?
Answer
They have to in order to be competitive. They are also forced to by the big companies. For
example, if you are a T2 or a T3 supplier of the automotive industry to FIAT, then FIAT
will force you to be more competitive, and you have to invest in these kinds of solutions.
On the other hand we see also that small companies and middle-range companies are more and
more going international. Last week when I was in Italy I met a couple of our customers.
We already have a subsidiary in Germany, in Spain, in the Netherlands, etc., so itís a
misunderstanding that middle-range companies are only local. More and more we see that the
middle-range companies are going international, for they are a part of the global village.
So on the one hand they go more global, on the other they are also forced by the big
companies to invest in this type of products. And it brings them more competitive edge and
also a return on investment. So itís a triple win.
The best solution is act local think global, for itís all about the local community:
you always have to serve the local people, but you have to think global. If you are only
acting local, then you are missing the boat. If you are acting global and thinking local,
I think itís the wrong perception.
Question 5
And in your opinion, is the gap between the United States and Europe in the use of the
Internet and the development of web-based enterprises still wide?
Answer
In the United States they are ahead with the Internet, etc. But it's also probable that in
the United States they like a lot of entertainment. Not all the Internet stuff brings real
value for the business, but, you know, the Americans like to jump on new waves. On the
other hand, I really believe that the Internet is bringing a lot of good news to
companies. For example, if you look at the supply chain, you have to communicate between
companies, and the Internet is a very cheap public network to communicate between local
companies. So we are very focused on using the power of the Internet in order to improve
the competitive edge of our solutions. To be honest, we see more Internet stuff in the
United States today than in Europe, but I think the Europeans are always a bit shy. But if
they do it, they do it right. So we will definitely team up also with the Americans.
Question 6
What are the main obstacles for a more wide-spread use of the Internet?
Answer
A telephone call was always cheaper in the United States than in Europe. So the cost of
communication was more attractive in the United States. Second, it's about language. It is
much easier to communicate in the same language with the huge market in the United States
than in Europe which is multilingual and where every country has its own specific ideas.
So it's a little more difficult to become popular in Europe than in the United States. On
the other hand, if you have shown that you can do it in Europe, it's much easier to
transfer it into the Asia-Pacific than from the United States, because the Asia-Pacific is
really multicultural. So I think Europe is in a good position. There are software
companies that are successful in the United States but 80 percent of their revenue is
coming from the United States, and they are not so successful in Europe and they are
really not successful in the Asia-Pacific. A couple of European companies like SAP, as
well as Baan, went after their success in the United States and were also very successful
in the Asia-Pacific.
I think in software Europe is a good place, for if you are successful in Europe with
software, you really can export it to the United States. Europe is a critical point: if
you have proven that you are successful in Europe, then you can go global. For example,
Oracle is a very dominant player in the United States, not only with their database
technology but also with their application technology. But they have struggled to be
successful in Europe. We don't see them often in Italy and Germany. And we don't see them
so often in countries like the Philippines, Singapore, or Japan. They are successful in
the English-speaking countries, but there are a lot of non-English-speaking countries all
over the world.
Question 7
What are your alliances?
Answer
We really believe that you are not able to win this competition if you think that you can
do everything yourself. Like IBM in the past: IBM was very successful and thought they
could do everything alone. On the one hand you have to grow very fast, on the other you
have to innovate very fast. It looks like a paradox. That's like driving on the Italian
highway at 200 kph -that's allowed, though not officially, and people drive very, very
fast here - while at the same time changing your engine. That's not easy. In the software
business we have to do that. On the one hand, we have to grow at least eight or nine
percent a year in order to gain market share, on the other hand we have to move to the
Internet, to object-oriented technology, to the SME. The only way to do that is by having
a lot of business friends around you. Our strategy is not only to build a big company but
to build an industry, a Baan Web. For example, last year the revenue of the Baan Company
was US$400 million, but the revenue of our British Baan was US$800 million, so that's a
ratio of 1:2; the Baan Company earned US$400 million and the total revenue of the Baan Web
was US$1.2 billion, so a ratio of 1:3. Around the year 2000 we think the revenue of the
Baan Company should be US$2 billion, but the revenue of all our partners should be US$8
billion, so that means a ration of 1:5, so we'll have to bring more business to our
partners. We team up with global companies in the Hague, of course with HP, and companies
like Sun, like IBM; we team up with database vendors like Oracle, Informix, Symex, and we
also team up with service providers. Sometimes they are global players. But it's not a
problem to have local partners as well.
Question 8
And do you also work with Microsoft?
Answer
Yes, we like to work with them in a partnership. We are not their slaves. Microsoft is so
dominant and they have a lot of slaves, but we like to be a co-marketer of Microsoft. That
means co-operating with Microsoft at one end but we are also friends with Sun at the other
end. Sun and Microsoft are real competitors. But we like to show the market that we are
open, so we work with both. Especially in the middle-range market it's a big help to work
with Microsoft, for they have real dominance in the desktop but they also have the NT
operating system and they already have the single server as a database. Although the
database today is not so powerful, our expectation is that in a couple of months the
performance of the single server will team up with the performance of Informix, etc. They
bring much more value for money to the market and also more user friendliness to the
market.
Question 9
You are not worried about the monopolistic attitude of Bill Gates?
Answer
No. In the desktop market they are probably dictators. If you look at the Windows
platform, then they are really the dictators in the desktop. But the applications market
is a different story. We have SEP, we have Baan and we have a couple of other players and
they are really competitive against each other. I do not expect that Microsoft can take
over our market. It's too complicated for them. Microsoft goes after the mass market, the
easy stuff. You can sell a database to everybody, but implementing an EMP system has a lot
of rules; for an EMP every customer is different, so although we have one product, we have
to implement that in a unique, customer-specific way. That's not attractive enough for
Microsoft. Microsoft goes for high volumes. They go for the products. So we think it's not
easy for Microsoft to take over, but on the other hand they have a lot of good products
and with the combination of Microsoft and Baan, we have a much better value proposition
for the low end, so Microsoft helps us to develop the SME market.
Question 10
Can you describe how information technology has changed the manufacturing process and how
small and medium-sized enterprises can benefit from this change?
Answer
In the last couple of years companies have moved to a customer-oriented model. In the past
companies made products and were product-oriented. Today, the only way to survive and to
be competitive is to have a customer-oriented approach. That means you need what we call
an end-to-end package, a basic solution, which supports an end-to-end business process
from sales and marketing till services. This means there is a huge need for EMP. But in
the coming couple of years we'll see companies working together in the supply chain. A
couple of companies are clustering together in the supply chain to help the end users. The
Internet will play a tremendous role there. If you look, for example, at the automotive
industry, we have developed a package whereby an end user or customer can configure cars
via the Internet. Normally, you go to a dealer and you buy a car. But with the help of the
Internet, you can configure your own car and order it via the Internet. The technology is
there. That means there is a repositioning in the supplier chain, for you can bypass the
dealer network. So the Internet will reshuffle the competitive landscape in the supply
chain. I think that the smart companies will understand that in the future they're looking
for the added value in the supply chain and they need the material we provide.
Question 11
And what are your forecasts for the development of electronic commerce in Europe? How long
will it take?
Answer
It's like the fax. It takes a while before you have the critical mass and then suddenly it
takes off. We saw the same with e-mail. E-mail has been on the market for many years. But
then suddenly everyone was putting their e-mail address on their business cards. It is a
window. We are investing a lot of money in business-to-business e-commerce applications
because we really believe that in a couple of years we will see a breakthrough in the
market. The Internet is already there; it creates a lot of competitive edge for the
market. When the snowball starts rolling, it will be a big snowball. Within a couple of
years everyone will be working with business-to-business e-commerce, otherwise you'll be
like an illiterate and you'll be out of business. Just as you need a telephone and a
computer, you now need the Internet - it's a fact of life.
Question 12
In that case, the change for the consumer will be fast. Usually adoption on the mass
market takes about ten years, as with the VCR and fax, for example.
Answer
The performance of the Internet and the bandwidth, etc. are technical issues which could
be solved in a couple of months. Cisco, the Internet providers and the PTTs are investing
a lot of money in solving the technical problems. That means all the conditions are there.
We've seen also that if we implement functionality in a firm way, we are really creating a
lot of edge over the competition. My expectation is that within five years everyone will
be using business-to-business e-commerce like we use the tape recorder today.
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