SAP Cloud Plan On Track, Says McDermott

SAP profits are down -- temporarily the company insists -- but cloud revenues are up and are set for growth through the Concur acquisition.

Doug Henschen, Executive Editor, Enterprise Apps

October 21, 2014

4 Min Read
SAP CEO Bill McDermott.

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SAP kicked off Monday by reporting mixed quarterly financial results on Wall Street and it ended the day detailing its emerging Hana Cloud Platform at its TechEd event in Las Vegas.

The news on the financial front included a 41% year-over-year increase in cloud subscription and support revenue to €277 million ($353 million) for the third quarter ended September 30. With cloud revenue growing and expected to increase even more with the Concur acquisition, SAP raised its cloud revenue outlook for full-year 2014 to €1.04 billion to €1.07 billion ($1.32 billion to $1.36 billion), up from €1.00 billion to €1.05 billion previously.

"Our cloud-revenue run rate has ramped up to $1.7 billion, and the order entry of new cloud business signed in Q3 exceeded one third of [conventional software] license revenue," said SAP CEO Bill McDermott in a conference call with financial analysts.

[Want more on SAP's latest cloud acquisition? Read SAP $8.3 Billion Concur Buy Caps Pricey Cloud Push.]

The bad news was that conventional software sales dropped 3% from the year-earlier quarter to €951 million ($1.21 billion) and the company cut its profit forecast for the full year due to cloud-investment impacts. The company now expects full-year operating profit to be in a range of €5.6 billion to €5.8 billion ($7.1 billion to $7.4 billion), down from €5.8 to €6.0 billion previously.

The profit setbacks will be temporary, McDermott insisted.

"While less up-front revenue pressures margins in the short term, we expect higher profitability in the long term due to the greater efficiency and recurring nature of the cloud model," he said.

SAP is investing even more in the cloud through its planned $8.3 billion acquisition of Concur, a cloud-based travel-expense-reporting company. In a phone interview with InformationWeek on Monday, McDermott deflected recent comments by Oracle CEO Safra Catz that suggested the Concur deal will bring about as much synergy as would an acquisition of Dairy Queen.

Concur will complement the SAP Business Network, McDermott explained, by adding another piece to the corporate cost-assessment and planning puzzle. Just as SAP's Ariba tracks indirect purchasing, SuccessFactors tracks employee costs, and FieldGlass tracks contract-employee and temporary-worker spending, Concur adds tracking of travel and entertainment costs, McDermott explained.

"If you look at the ground-transit, airline, hotel, food, and entertainment expenses of all the front-office workers in an enterprise, it's nearly 10% of company budgets," he said.

Distinguishing Hana Cloud Platform from the Hana Enterprise Cloud, McDermott explained that the former is a platform-as-a service offering for extending and customizing SAP apps in the cloud whereas the latter is for hosting conventional on-premises software as a managed service.

"We have a cloud and applications business, and customers can choose to run some of those apps on the Hana Enterprise Cloud, which is a private-cloud environment, some on-premises in their own data centers, and some on our public, multi-tenant-cloud environment where they can run Simple ERP apps on Hana," he explained.

SAP introduced the first of its planned Simple cloud apps, Simple Finance, at Sapphire in June. Next to join the simple portfolio will be materials-management and inventory-management

McDermott also highlighted SAP's multi-channel customer-engagement and e-commerce capabilities on Monday, telling financial analysts that SAP is "having a field" day against with those offerings, which are centered around SAP's 2013 acquisition of Hybris.

"Only SAP Hybris has the omni-channel capability to know the customer in every channel, close an e-commerce transaction, and fulfill in the supply chain," McDermott told InformationWeek. "This is the combination of front office and back office, and we also have cloud capabilities to deal with all the [data] hygiene matters with the sales department, such as contacts and marketing automation."

At last week's Dreamforce event in San Francisco, demonstrated a mobile app created for CocaCola Germany that integrated its Salesforce front end with its SAP back-end capabilities to support distributor-to-retailer inventory management, order management, and fulfillment. Clearly the race is on to demonstrate comprehensive capabilities via the cloud.

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About the Author(s)

Doug Henschen

Executive Editor, Enterprise Apps

Doug Henschen is Executive Editor of InformationWeek, where he covers the intersection of enterprise applications with information management, business intelligence, big data and analytics. He previously served as editor in chief of Intelligent Enterprise, editor in chief of Transform Magazine, and Executive Editor at DM News. He has covered IT and data-driven marketing for more than 15 years.

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