PAC Q&A. Yunano: a unique company for a changing world. Yunano was established in 2012 to market ERP and Social CRM softwareas-a-service

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1 Yunano: a unique company for a changing world Yunano was established in 2012 to market ERP and Social CRM softwareas-a-service (SaaS) to companies across Europe and beyond. French-headquartered Yunano is a joint venture between Atos, one of the world s largest IT services companies, and Yonyou, China s market-leading business applications software vendor. The software in the offering is newly developed by Yunano and Yonyou to meet the current and emerging needs of large companies with mid-size organizations (Hub & Spoke) across Europe, Africa and Asia. Philip Carnelley, PAC Research Director, spoke to Yunano's President, Marc Alinat, to understand why Atos and Yonyou decided to create this unique venture, and to find out its current status and direction.

2 Philip Carnelley, PAC Research Director for Enterprise Applications and Services, in conversation with Please can you tell me the background to the decision to set up Yunano? Marc Alinat: Two of Atos strategic initiatives led to its formation. The first imperative was to strengthen and grow its Cloud services offer. Second was that China was high on our radar screen for its growth potential Atos already has over 2,300 staff working there. Combining those thoughts led us to identify Yonyou (known at the time as UFIDA) as a very attractive potential partner. Yonyou has a huge market share in China and therefore in Asia it s ranked number one in ERP, in financial and other management software, with a market share double that of its nearest rivals, with over 600,000 business customers. For Yonyou, the attraction was to grow its business outside Greater China and indeed outside Asia in Europe, Africa and so on. Its ambition is to become a global vendor. With such a large domestic market share it has to look elsewhere to maintain strong growth. We proposed to Yonyou that if it developed SaaS versions of its solutions, Atos had the resources to provide the hosting and also to become the marketing and distribution partner it needed outside China. Despite its scale around 200 offices and over 12,000 staff in Greater China it was almost unknown in the western world. And so it was clear it would benefit from a Western partner, especially one with the technical/delivery skills Atos could offer. We combine our strengths: Atos in Cloud Services with Yonyou s knowledge of software for CRM and ERP for large and midmarket clients in many different vertical sectors, to create a great SaaS solution. We combine our strengths: Atos in Cloud Services with Yonyou s in ERP and CRM, to create great SaaS solutions. Yunano combines the Chinese characters for cloud and safe we aim to provide a risk-free business applications environment in the cloud. How did you become involved with the project? Marc Alinat: I have worked in ERP for ages, with SAP, where I was GM for France and North Africa, and before that with PeopleSoft where I was GM for EMEA; I was in charge of Oracle s Applications business back in the 1990s. I joined Atos at the beginning of 2009 when Thierry Marc Alinat is President of Yunano and SVP for Cloud Enterprise Applications at Atos, responsible for the strategic direction and operations of Yunano. His focus is to deliver a strong service portfolio that leverages the Yonyou solutions in order to offer organisations a secure SaaS environment for CRM and ERP. Prior to his current role, Marc Alinat managed the Enterprise Solutions organisation and the Portfolio Offerings for Atos in France, and played a key role in defining and leading the strategic alliance with Yonyou. He joined Atos from SAP, where he was CEO for France and prior to that he was President for PeopleSoft in France. Breton was driving a lot of change. So when the idea of the Yunano joint venture came along, it was natural that I was asked to take charge. Yunano is backed by Atos, the well-known IT services provider, rather than private equity or the stock markets how is that working? Also, a stand-out feature of Yunano is that its other joint owner is Yonyou, whose business and operations are almost entirely in China. How do you find working with a Chinese company, there must be pros and cons to this relationship? Marc Alinat: Yes, it s a joint venture: Atos owns 70% of Yunano, and Yonyou has 30%. We have close ties to our parents: Atos has four board members, including Thierry Breton, Atos CEO, and Yonyou has three, its founder, Mr Wang, its CEO, and its head of global development. So we re very visible to the parent organizations and can work with them to develop business. Yunano is very much structured as software business, with sales, pre-sales, support and so on, the usual software organizational set-up rather than a services company. We provide a single SLA for our customers across the stack, applications, middleware, database and Marc Alinat, Yunano President and Atos SVP 2

3 so on. Atos provides infrastructure as a service, we at Yunano specify the functional application requirements for Yonyou to deliver. This has been my first experience of working with a Chinese company and I have been impressed by their focus on reliability and quality. But culturally we have had to get used to their mentality. Coming from a Western company I tried to write everything down: milestones, deliverables and so on. I was projectoriented. I have been impressed by their focus on reliability and quality. The Chinese way is to document the main points but to leave things flexible. I would summarise their approach as vaguely right is still better than precisely wrong. They say that they are opening doors for things to be different tomorrow. I have come to see that they are right; things are changing so fast in this area that being too rigorous in specifying requirements would be counter-productive. Yunano offers ERP & CRM software, primarily through the SaaS model, to mid-size and larger enterprises. While CRM on SaaS has really taken off, companies have been more reluctant to move to the SaaS model for their ERP. How do you see the market developing? Marc Alinat: We see a number of trends that we aim to capitalise upon. Firstly, in CRM there is a strong interest in Social CRM. We have integrated Atos BlueKiwi social software into the Yunano CRM (we call it ZEM CRM) to give a strong social CRM solution. Other CRM providers have yet to develop good social software. In ERP, there have been various issues, such as data residency and privacy. We are able to offer a number of configurations: the first is full multi-tenancy where all the applications and data are in one system (but with full security, of course). The second is where the application code is shared, but the client gets their own completely separate database system, hosted by Atos in the location of their choosing. Or we offer a third option, which is singletenancy for code and data a virtual private cloud, if you will, again run by Atos. The key thing for many customers is the pay-per-use model, which we offer in all cases. Our larger customers are showing increasing interest in the hub-and-spoke deployment model. Another trend, one that our larger customers are showing increasing interest in, is the hub-and-spoke deployment model. In this they run a central ERP, typically SAP, but want to run a simpler yet compatible solution in their divisions or subsidiaries around the world, for ERP and CRM. Cloud deployment is ideal for this and we re developing our solution to be very compatible with SAP. We have spoken with a number of wellknown companies who are interested to use our solutions for this purpose. By the way, this approach is particularly relevant in an M&A scenario they can merge and demerge their financial operations much more simply. We have the advantage that Atos runs and hosts a lot of SAP systems for large organisations already and so can present a combined offer to those organisations for their headquarters and their subsidiaries, all managed by one company, Atos. Thus we can offer an end-to-end service from one trusted supplier. Clearly it s early days for Yunano, but can you tell me something about a successful customer implementation of the Yunano software? Obviously Yonyou has hundreds of thousands of customers for its software already in Asia. We will be announcing our first reference customers shortly as they re due to go live soon. However we ve also been drinking our own champagne : Yunano itself, Atos other cloud solutions provider, Canopy, and Atos Consulting and Technical Services are all now up and running on the Yunano social CRM solution, Zen CRM (which we re rolling out to the general market during Q2 of this year). Our sales people are very happy with the solution. I believe you're looking for additional partners to help you sell and deliver/implement the Yunano solutions. What are you looking for in a potential partner skills, geographical reach...? Marc Alinat: Obviously our parents are the crucial partners at this early stage. We are leveraging Atos, particularly to approach named customers who could be interested in the hub-and-spoke approach. And Yonyou has many customers who are interested in going global, so that, too, is a good source. In particular, Chinese companies are doing a lot of work in Africa and we see that as a fertile area for us. We can surf on China s general investment strategy. To that end, we have signed a partner in South Africa and more African partners would be welcome. We re also looking at the Middle East, Turkey and the Nordics where we think we ll do well, and so sales and implementation partners there will be very interesting. Monsieur Alinat, thank you very much for your time and good luck with developing Yunano in the future. We at PAC will be watching your progress with great interest. 3

4 Analyst View Philip Carnelley, Research Director, Enterprise Applications and Services, PAC UK T: E: Despite several years of strong growth, the market for SaaS business applications solutions (and especially for the "tier-2" mid-market of uppermid-sized companies and divisions/departments of large organizations) is still under-served by the industry at present, in PAC s view. There is still a lot of growth and change in prospect. In CRM, we see one gorilla in the market (Salesforce), but most of the larger players solutions are still generally deployed on-premise. In SaaS ERP, we have yet to see anyone create a billion dollar business. The significant players in on-premise ERP (for the mid- and large enterprise markets) do have SaaS offerings, but penetration is still low. The SaaS CRM market is well established, but is still growing strongly, and it is also changing, as vendors rush to incorporate social features into their offerings to better support collaborative processes. Yunano s combining of its CRM software with the well-known BlueKiwi, also from the Atos stable, could be a major plus point for its solution. There is a lot to play for. Many companies are still using on-premise CRM solutions, or even none at all. Currently we estimate that the European mid-market CRM market for SaaS solutions is growing at about 24% per annum. The UK is currently the highest adopter of SaaS CRM in Europe but other countries are much less heavily penetrated. We calculate that companies in EMEA will spend billions of euros on SaaS CRM solutions over the next five years. However as there are now solutions from well-known names, a new entrant needs to create a competitive edge stressing capability to link to core ERP, or new function such as collaboration, delivery capability, support for less-developed countries, etc. Me-too CRM functionality would be a hard sell. The market for SaaS ERP solutions to mid-sized companies is somewhat different, much less mature. Compared to CRM, SaaS ERP sales are relatively small, but growing, and with a fair degree of churn. For many buyers, the SaaS concept is only just now becoming accepted as applicable to ERP and even then, only to certain processes. But as acceptance grows, and companies see ways to SaaSenable appropriate processes, then a growing number of companies will move at least parts of their existing on-premise ERP (e.g., HR or procurement) to an in-cloud solution. Notably, PAC sees increasing evidence of enthusiasm for the 2-tier, hub and spoke model that Yunano is espousing, so addressing this looks like a sensible course at this time in the market s development. It appears that the large enterprise market (50% of all IT sales) is opening up to companies like Yunano who offer appropriate solutions for large companies divisions, subsidiaries and department-level implementations, compatible with their corporate/hq systems. PAC forecasts strong growth in the SaaS ERP market in the coming years. The highest growth rates will be seen in Africa and Asia, although the highest sales volumes in Europe will be in the UK, France and Germany. We forecast that European companies will spend over a billion euros over the next five years on SaaS ERP. 4

5 About Yunano Yunano is a joint venture between Atos and Yonyou. Atos is the leading European IT services company with 74,000 business technologists and Yonyou is the leading provider of business management software in China with over employees. Why Yunano? Well we didn t choose our name by accident. A concern for data security is the number one blocker to cloud adoption. That s why we ve made safety the foundation of our exciting new company. The name of our new company brings together two Chinese characters. 'Yun' means cloud and 'An' means safe. We offer companies doing business overseas the opportunity to use Yonyou s market leading ERP and CRM products from the cloud for the first time. Our solution is near-zero cost of adoption available on a pay as you go basis. Yunano delivers an integrated application suite via your web browser. All you need to provide is internet access. For more information see About Pierre Audoin Consultants (PAC) From strategy to execution, PAC delivers focused and objective responses to the growth challenges of Information and Communication Technology (ICT) players. Founded in 1976, PAC is a privately held research & consulting firm for the software and ICT services market. PAC helps ICT vendors to optimize their strategies by providing quantitative and qualitative market analysis as well as operational and strategic consulting. We advise CIOs and financial investors in evaluating ICT vendors and solutions and support their investment decisions. Public institutions and organizations also rely on our key analyses to develop and shape their ICT policies. For more information, please visit 5