SAP Sees Cloud Growth Accelerating

SAP reported Thursday that its cloud app and Hana in-memory platform business is up and its traditional on-premises software business is down. The results had financial analysts and the press asking what's next for SAP's "core" Business Suite applications.

SAP's software revenue for the second quarter ended in June was 982 million euros ($1.28 billion), down 7% year-over-year and 3% in constant currencies. Cloud subscription and support revenue, by contrast, was up 171% to 159 million euros ($208 million), with most of that growth attributable to the SuccessFactors and Ariba businesses acquired last year.

Cloud adoption is strongest in U.S., where 25% of new software and cloud revenue was driven by cloud subscriptions, noted co-CEO Jim Hagemann Snabe. On-premises deployments remain the norm in the Asia Pacific and Japan region, where results have been depressed for many IT vendors.

The company reported a 10% year-over-year increase in software and software-related service (SSRS) revenues to 3.34 billion euros ($4.36 billion) in non-IFRS constant currencies. By international financial reporting standards, total revenues were up 4% to 4.06 billion euros ($5.31 billion).

[ Want more details on the Hana Enterprise Cloud? Read SAP Cloud Push Starts With Hana. ]

Co-CEO Bill McDermott noted that SAP has been reporting double-digit SSRS growth for three straight years, but the questions focused on what one reporter described as the company's first decline in software sales since McDermott and Hagemann Snabe were named co-CEOs.

"It's clear the market is transforming and this is the moment we've been working so hard to prepare for," responded Hagemann-Snabe. "We're growing with cloud, in-memory and mobile, and we've brought our core applications into that world, so we think the traditional way of looking at SAP is now irrelevant."

The move of SAP's core Business Suite applications into the cloud will happen on the Hana Enterprise Cloud, which was announced in May and detailed at SAP's Sapphire conference. "We think taking our suite and moving it into the Hana Enterprise Cloud, whether it's ours, our partners' or a private-cloud environment for our customers, is a major way to get things really going," McDermott said. "Let's not fight the cloud; let's feed the cloud and lead the cloud."

Where the Hana Enterprise Cloud is concerned, the question is whether it's the style of cloud that customers are looking for, with quickly deployable applications and all software updates and patches handled by the cloud provider.

SAP spokesperson Jim Dever told InformationWeek that the Hana Enterprise Cloud is a managed cloud environment, which is what some call a virtual private cloud. "We maintain the software [patches and upgrades] for the customer. It's neither a hosted environment [nor] a multi-tenant, public cloud environment."

SAP is in good company in blending cloud deployment styles, as Oracle, Microsoft (Dynamics), Infor, Epicor and others blur the boundaries of what is and what isn't cloud. Workday and NetSuite are the leading purveyors of the multi-tenant approach to ERP. Both are small companies, but they're seeing dramatic growth.

The Hana Enterprise Cloud is entirely new, so its impact and growth prospects are unknown. SAP watchers will be paying close attention to see how effectively the company can move its core business into the cloud.