SAP Readies Comprehensive Cloud Strategy - InformationWeek
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Doug Henschen
Doug Henschen
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SAP Readies Comprehensive Cloud Strategy

Co-CEO Bill McDermott says SAP is ready to "unleash the tiger" in the cloud computing market in 2012.

For the better part of two years, SAP has been talking up an innovation strategy based on in-memory, mobile, and on-demand computing, but it gave the first two categories most of the attention. In an exclusive interview with InformationWeek last week, co-CEO Bill McDermott said SAP is now preparing a "comprehensive, strategic direction" that will step up its cloud computing initiatives considerably.

"We're ready to unleash the tiger and go for the SAP Cloud in a big way," McDermott said. "You'll see that the SAP cloud will be an important focus for us, and it will be a broad, comprehensive cloud strategy."

McDermott stopped short of quoting revenue targets for cloud computing, saying the broader plan is "still in the early stages" -- expect announcements early next year. That's a marked contrast with SAP statements about its in-memory and mobile computing initiatives.

Discussing SAP's third-quarter financial results last week -- highlighted by record revenue, a seventh consecutive quarter of double-digit growth, and a claimed double-digit gain in enterprise apps market share against arch-rival Oracle --McDermott went out of his way to point out that the Hana in-memory appliance has a 600 million Euro ($822 million) pipeline and that its mobile computing products, including Sybase Unwired infrastructure, have a 400 million Euro ($548 million) pipeline.

[ Want more on enterprise apps wars? Read SAP And Oracle Battle, Customers Avoid Choosing Sides. ]

SAP's co-CEO also stopped short of offering any specifics on the bolder, broader cloud strategy. He did say SAP's September acquisition of Crossgate will be part of the story, providing the basis for business-to-business data connectivity. That bit of detail hints that SAP's cloud strategy will have a supply chain twist.

In the wake of Oracle's OpenWorld announcement several weeks ago of an Oracle Cloud, it's easy to guess that an SAP public cloud is on its way. The big questions would then be: How does that cloud coexist with SAP's hosting partnerships, and how does it compare and compete with what Amazon, IBM, Microsoft, Oracle, and others have to offer?

Oracle's recent $1.5 billion deal to acquire customer service SaaS vendor RightNow offers yet another reason McDermott might want to let it be known that SAP has bigger cloud plans. But I wouldn't expect SAP to acquire any SaaS players, as that would stray from the company's vaunted "consistent core" strategy. (Oracle, by contrast, can't seem to say no to overlaps and redundancies. It already had Oracle CRM OnDemand and its cloud-ready Fusion Apps, touted by Oracle president Mark Hurd just a few weeks ago as offering "the most modern code in the CRM world today." So why does Oracle need RightNow other than to buy customers and get in rival's face?)

No, I'm guessing SAP will stay consistent on the apps front, even if, as McDermott's comments suggest, competition with Oracle is a big motivator. "We will completely and unequivocally assert our will [in cloud computing], especially against companies that have made bold statements about all the bad things they're going to do to our company," McDermott said. "We're going to fight back with everything we have."

I, for one, have been critical of SAP's baby steps into the cloud, mainly its promise to have just 1,000 customers on its Business ByDesign midmarket software-as-a-service enterprise apps suite by the end of this year. To be fair, SAP's cloud strategy doesn't rest entirely on Business ByDesign, launched in July 2010 after a two-year delay. SAP also has BusinessObjects BI OnDemand and the StreamWork OnDemand collaborative environment. In recent months it has also added on-demand salesforce automation and carbon reporting apps, and it's planning one for talent management.

But even when throwing in SAP's subscription-based hosting of conventional application software, the company's cloud business in the last quarter added up to 93 million Euros ($127 million) in revenue. (Citing that figure, McDermott said: "That's a rounding error compared to where we expect to be.")

Meantime, expects to grow its cloud business -- mostly CRM SaaS but also platform as a service -- from $1.3 billion in revenue in the fiscal year that ended January 31, 2011 to over $2 billion in its current fiscal year.

Microsoft, too, has stepped up its SaaS efforts, launching Microsoft Dynamics CRM Online early this year. Microsoft says two thirds of the 7,000 CRM customers it gained thus far in 2011 chose the online version, so that works out to more than 4,000 customers within nine months.

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D. Henschen
D. Henschen,
User Rank: Author
11/4/2011 | 3:38:56 PM
re: SAP Readies Comprehensive Cloud Strategy
Several of SAP's on-demand applications are based on the ByDesign platform and are considered to be "extention" applications that fit the hybrid model. Talent Management, Sales OnDemand, Carbon Impact, and a subsidiary financial close framework are all exmaples of ByDesigned platform-based on-demand apps that aren't being offered as on-premises software. They support and integrate with SAP on-premise apps, and SAP has said this list of extension apps will grow.

On another topic, in our interview with SAP's co-CEO Bill McDermott, he said subscription revenue is "somewhere on the order of 100 million Euros this year -- a little less." I originally quoted this figure directly as annual revenue, but an astute reader pointed out that SAP's Q3 subscription revenue was 93 million Euros. Further research reveals that subscription revenue for all of fiscal 2010 was 394 million Euros ($539 million). The subscription revenue data reported above was corrected accordingly. -- Doug Henschen
User Rank: Apprentice
11/4/2011 | 7:38:00 AM
re: SAP Readies Comprehensive Cloud Strategy
I doubt the SAP user base is clamoring for any "cloud" (aka SaaS) solutions. It is unlikely that anyone is going to want their financial data in a multi-tenancy environment, unless they like to live dangerously, so the cost savings are not that impressive.
Sam Bayer
Sam Bayer,
User Rank: Apprentice
11/4/2011 | 2:21:24 AM
re: SAP Readies Comprehensive Cloud Strategy
I always felt as if SAP's best bet was to deploy "hybrid" applications in the cloud. Those that take advantage of the fact that all of their customers have huge investments in their core SAP platform and would prefer to leverage opposed to move them in their entirety to the cloud. However, you don't see those applications getting a lot of attention in the press...or from SAP for that matter. It's always about ByDesign. We think that companies like ours...the small Agile providers of cloud based hybrid applications for the SAP market...have a greater chance to help SAP transition to the cloud than developing/buying standalone cloud apps.

Sam Bayer
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