SAP Clings To A Dated Cloud Apps Strategy

Back in the early days of cloud-based applications, they were seen exclusively as an alternative for small and midsized companies. But the cloud ceiling has been broken, and now even SAP admits that the cloud appeals to even the largest companies in the world.

Has SAP truly seen the light and will it now lead the cloud revolution? Unfortunately there are signs it's still clinging to the belief that core ERP will forever remain on premises.

SAP co-CEO Bill McDermott was in New York last week to lead an "SME Summit" at its office in the city to explore the challenges of starting and growing small and midsize businesses.

He was there to tout SAP's cloud applications as an ideal technology foundation for businesses that all too often "fail to scale," as he put it, but the event was a contrast with a broader industry trend that is seeing cloud apps moving up into the largest companies.

[ Want more on an up-and-coming cloud rival? Read Workday Posts Strong Start As Public Firm. ]

There's no doubt that small businesses are hugely important to the economy. They're the source of two out of three net new jobs -- a point that was constantly highlighted during the recent elections. Some of these businesses will become the giants of tomorrow. Apple, Google and Microsoft were all once small, entrepreneurial businesses. SAP itself was launched 40 years ago by five former IBM employees, and today it employs 65,000 people.

Small and midsized businesses are the base of the customer pyramid for the IT industry, but about a decade ago SAP realized it was too focused on the top of the pyramid. So in 2002 it purchased TopManage Financial Systems and rebranded its product SAP BusinessOne. The server-based app suite included financials, purchasing, production, HR, inventory, and sales, and SAP later added CRM functionality and added embedded analytics supporting all of the apps.

Aimed at small businesses, BusinessOne is still available as a server-based product, starting at around 1,000 Euros ($1,300), but the latest wrinkle is that the suite is now available in the cloud running on SAP's Hana in-memory database. Cloud delivery makes it faster, easier deployment than the on-premises approach at low initial cost of $42 to $86 per user, per month. Running on Hana ensures fast, real-time performance, according to SAP.

SAP's next, cloud-based step up is Business ByDesign, which is ostensibly aimed at midsize enterprises, but here's where "cloud is for SMBs" argument has started breaking down. We've all heard about how cloud-based applications are leveling the playing field. Cloud makes the latest, greatest technology affordable and accessible to small firms on tight budgets and with meager IT staffs, and it also makes it far easier than the on-premises approach to quickly scale up.

All that is still true, but the real story over the past two years has been breaking of the cloud ceiling, with companies like Salesforce.com, NetSuite and Workday landing some of the largest businesses in the world as customers.

Take Workday, for example, which now has a pot of money to expand sales, marketing and R&D after a highly successful October IPO that raised $685 million. During an earnings call with financial analysts on Wednesday, Workday co-founder and CEO Aneel Bhusri said Workday's Human Capital Management apps are already capable of handling the largest companies in the world, like Hewlett-Packard and DuPont, both of which recently signed enterprisewide deals with the company.

Workday's financial apps are currently suitable for use by midsized companies, Bhusri said, but by the end of next year -- after investments in cloud capacity and app resiliency to sustain high-scale transaction processing -- they'll be ready for Fortune 1,000- or even Fortune 500-sized companies, he said.