SAP Doubles Down On Cloud Computing - InformationWeek

InformationWeek is part of the Informa Tech Division of Informa PLC

This site is operated by a business or businesses owned by Informa PLC and all copyright resides with them.Informa PLC's registered office is 5 Howick Place, London SW1P 1WG. Registered in England and Wales. Number 8860726.

Software // Enterprise Applications
12:50 PM
Connect Directly

SAP Doubles Down On Cloud Computing

SAP accelerates its transition to cloud services, raising subscription revenue forecasts and rolling back profit expectations as it invests in cloud growth.

SAP's strategy over the last four years focused on mobile, in-memory, and cloud. Over the next four years SAP's focus will be on cloud, cloud, cloud.

The shift was clear Tuesday as soon-to-be sole CEO Bill McDermott said the company would "make the courageous move to transition the company to the cloud."

"We're moving our core business to the cloud with the Hana Cloud Platform, and SAP will take full ownership to help customers simplify their landscape and execute their business plans," McDermott said, envisioning customers moving their SAP Business Suite deployments to SAP's Hana Enterprise Cloud managed services.

Where competitors such as, Workday, and NetSuite are pure-play cloud vendors, SAP made clear its cloud will combine software-as-a-service offerings like SuccessFactors and Ariba with private-cloud delivery of the SAP Business Suite -- the so-called "core" company applications.

[What about SAP's recent cloud shakeup? Read SAP Reports Gains, Loses Cloud Chief.]

Setting an ambitious new goal for cloud growth, McDermott said SAP will reach €3 billion to €3.5 billion ($4.1 billion to $4.7 billion) in cloud subscription and support revenues by 2017. That's up from €758 billion ($1.0 billion, non-IRFS) in cloud subscription and support revenue reported in 2013 and a forecast of €2 billion ($2.7 billion) by 2015.

Reaching this goal will come at a cost. Acknowledging that cloud investment will affect the bottom line, McDermott moved back SAP's forecast of reaching a 35% profit margin by 2015. Instead that goal will be reached in 2017.

"We're moving the 35% target down the road two years so we get the market share we deserve," McDermott said.

Of course pure-play cloud vendors will stand in SAP's way, but co-CEO Jim Hagemann-Snabe asserted SAP is outgrowing these competitors. "In line-of-business, HR, sales, procurement, and finance, we are growing faster than pure-play cloud players like and NetSuite," Snabe said.

Reaching or exceeding €3 billion in cloud revenue by 2017 will be no small task and will undoubtedly require additional acquisitions. But McDermott said future cloud growth would be "primarily" organic while possible deals would be "tuck-in" acquisitions.

"We have been opportunistic where we see we can move the company forward with a solution that would be better bought than built," he said.

SAP Co-CEO Bill McDermott
SAP Co-CEO Bill McDermott

SAP's strong cloud growth over the past year was achieved for the most part through the acquisitions of SuccessFactors and Ariba for $7.7 billion. In 2013 SAP spent an estimated $1 billion to add Hybris, an e-commerce vendor that realizes at least part of its $150 million in annual revenue from the cloud.

With Tuesday's announcements, SAP seemed to push the Hana in-memory platform to the background by emphasizing that everything the company does will run on the technology. It will be the engine running everything SAP offers in the cloud and it will continue to be an alternative to traditional databases like Oracle, DB2, and Microsoft SQL Server for customers running the SAP Business Suite on-premises. But SAP is no longer offering separate growth projections for Hana because "as an integral part of SAP solutions it becomes more complicated to allocate a separate revenue number for Hana," said SAP spokesperson Jim Dever.

It's an artful move away from the Hana hype just as Microsoft and Oracle are gearing up to introduce in-memory options for their flagship databases in 2014. McDermott spun the change in emphasis as a mark of success: "Hana is now a serious brand that we're not having to push as hard as we used to."

So get set for McDermott's simplified SAP. Of course it will be mobile first, he promised, and it will offer "beautiful" new Fiori user interfaces. We'll also be reminded that Hana is there running behind the scenes and available as an option for on-premises deployments. But the big emphasis for the next four years will be everything cloud.

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.

Interop Las Vegas, March 31 - April 4, 2014, brings together thousands of technology professionals to discover the most current and cutting–edge technology innovations and strategies to drive their organizations' success, including BYOD security, the latest cloud and virtualization technologies, SDN, the Internet of things, Apple in the enterprise, and more. Attend educational sessions in eight tracks, hear inspirational and industry-centric keynotes, and visit an Expo Floor that brings over 350 top vendors together. Register for Interop Las Vegas with Discount Code MPIWK for $200 off Total Access and Conference Passes.

We welcome your comments on this topic on our social media channels, or [contact us directly] with questions about the site.
Comment  | 
Print  | 
More Insights
Newest First  |  Oldest First  |  Threaded View
User Rank: Author
1/21/2014 | 1:53:22 PM
Re: Changes At The Top?
I interviewed Oracle co-president Mark Hurd on Thursday, and he had a similar message about the cloud: We're all-in. It's absolutely the future of Oracle applications. No hedging. I'll be writing about that interview with Hurd later in the week.
D. Henschen
D. Henschen,
User Rank: Author
1/21/2014 | 1:40:22 PM
Changes At The Top?
There's a new guy in charge at SAP, but you might recognize him as Bill McDermott. Tuesday's conference call seemed like a send-off for co-CEO Jim Hagemann-Snabe as McDermott congratulated him on 20 years of service and gave him a big hug. JHS won't be joining the company's Supervisory Board until May, but McDermott's well wishes seemed like a goodbye. Snabe will still be co-CEO, technically, during the next quarterly conference call in April, but company sources couldn't say whether he will be on that call.

Then there's the matter of McDermott himself. Is it me, or did he look different? Was it the hair? It's usually perfect, but it looked a little tousled on today's call. Maybe it's the weight of responsiblity now that he's soon to be the sole CEO.
InformationWeek Is Getting an Upgrade!

Find out more about our plans to improve the look, functionality, and performance of the InformationWeek site in the coming months.

Becoming a Self-Taught Cybersecurity Pro
Jessica Davis, Senior Editor, Enterprise Apps,  6/9/2021
Ancestry's DevOps Strategy to Control Its CI/CD Pipeline
Joao-Pierre S. Ruth, Senior Writer,  6/4/2021
IT Leadership: 10 Ways to Unleash Enterprise Innovation
Lisa Morgan, Freelance Writer,  6/8/2021
White Papers
Register for InformationWeek Newsletters
Current Issue
Planning Your Digital Transformation Roadmap
Download this report to learn about the latest technologies and best practices or ensuring a successful transition from outdated business transformation tactics.
Flash Poll