Still carefully balancing its existing product set, SAP is now pushing a bit harder to build its cloud business. Addressing primarily larger enterprise level organizations, the European software giant is increasingly building partnerships to deploy private cloud based versions of its software.
Enterprise buyers seem to be signalling a strong preference for private cloud deployments over public, particularly for key or sensitive workloads. Some are mixing in public aspects to their cloud only for less “mission-critical” applications like web apps, websites, collaboration, and content management platforms. Still they like clouds for the reduction in total cost of ownership (TCO), infrastructure flexibility and the shorter provisioning time-frames.
With Oracle, IBM and Microsoft already deeply engaged in providing enterprise level cloud systems and with cloud revenues growing rapidly, SAP certainly could not ignore the cloud. SAP has , according an analysis by Larry Dignan in ZDNet, got “big ambitions and what are likely to be a few challenges ahead. SAP is projecting €22 billion ($30 billion) in revenue in 2017 with €3.5 billion ($.7 billion) in cloud revenue in the same time frame. SAP won’t hit its 2015 35 percent profit margin goal and pushed it out until 2017.”
On January 21st SAP announced its plans to speed up its shift to providing cloud-based software services and reduce the emphasis on on-premise deployments. It has set its sights on growing the $4 billion it had in cloud business last year to roughly $4.7 billion over the next three years. So far its core licensing and maintenance business has suffered little thanks in large part to growth driven by its in-memory database HANA and still expects to see on-premise growth of 6%-8% in 2014.
SAP also is seeking to reach downward towards small to mid-sized enterprise customer (SMEs) and has entered into a partnership with NEC Corporation that allows NEC to provide SMEs in primarily the South East Asian markets with SAP’s Business ByDesign ERP product. This is their way of showing SMEs that SAP’s cloud solutions are not just for big enterprise.
For its part NEC intends to work closely with the software giant to provide unique localization capabilities to SAP’s cloud ERP solution.
“NEC has been providing SAP-based packaged solutions to a wide range of customers that are expanding their business presence globally,” said Yutaka Noguchi, general manager, enterprise solutions development division, NEC Corporation. “However, we also expect strong demand for solutions that are easy to implement for small to midsize businesses when they are seeking to expand into emerging markets. To tap into the growing business opportunities, NEC will work closely with SAP to integrate its cloud business expertise and assets with SAP Business ByDesign,”
The German software giant’s interest in the Asian market, particularly China, is clear. China alone, according to Forrester Research, is expected to spend $124.5 billion on IT in 2014. And with the rough equivalent of the entire U.S. population China’s mobile user base is perhaps the largest in the world. All underscoring the revenue opportunities for SAP. Yet the U.S. user base is still strong and eventually SMEs here will also begin to consider the value of SAP, or similar systems, in the cloud.
Making the decision on what to do will be hard enough for some SMEs and larger existing customers will also have much to wade through if they are to move towards the flexibility of the cloud. Particularly SMEs will be wise to consider consulting with SAP experts and services designed to sort through business needs and make clear recommendations on best practices for moving from an op-premise model to a cloud.
For existing deployments still happy with the “on-premise” approach but wanting to gain some of the mobile device or collaborative features, these same firms are capable of developing application specific solutions to provide you with those capabilities while maintaining your existing systems.
SAP’s move to the cloud should make this space even more competitive and could, long term, signal some significant growth in the size of the audience for these sophisticated ERP systems.