SAP is becoming more open, embracing software-as-a-service (SaaS) business models and the public cloud, but can the 45 year old German software maker change the way it works, and the way customers see it, enough to thrive in the new market?
SAP has been shifting its business towards more SaaS applications for a while now, both through acquisitions of line-of-business vendors like SuccessFactors (HR), Concur (travel and expenses) and Hybris (ecommerce), and by re-architecting its own line of business applications to be consumed "as-a-service."
SAP's lifeblood is enterprise resource planning (ERP), so when it announced its next generation ERP, S/4HANA, which is built on top of its in-memory HANA database, cloud seemed the natural place to host it.
That didn't stop customers deploying S/4HANA on-premise, or in a private cloud instance with SAP's Enterprise Cloud though.
Now, SAP offers its core S/4HANA product on the big three public cloud vendors: Google Cloud, Microsoft Azure and Amazon Web Services.
Public cloud ERP
Last week, during its annual Sapphire conference in Orlando, Florida, at least four top level SAP executives claimed that public cloud is the future for the company.
Franck Cohen, SAP president for Europe, Middle East and Africa told Computerworld UK: "I am a firm believer that the future is public cloud. It is not public cloud for some companies, it is public cloud for everybody, and it is a matter of time."
When it comes to ERP specifically, Cohen said that the "move to public cloud is already happening" through competitors like Netsuite, Microsoft Dynamics and British vendor Sage.
However, he admitted that SAP is "maybe a bit behind, but I think there are some advantages to come a bit behind, because you come with the very latest technology.
"For instance, the first product at SAP which will benefit from all of our machine learning and AI capabilities is going to be our public cloud ERP," he said.
Cohen is an advocate for SAP's cloud momentum, saying: "I have no doubt that the cloud will surpass the on-prem revenue very soon.
"If you look at the growth rate and the curve for the cloud revenue vs the on-prem you can already predict when it is going to happen, it is very simple. It is clear for me that the cloud will surpass the on-prem in the next few years."
The numbers bear this out. Although its classic on-premise software licences still account for the lion's share of its sizeable revenues - classic software licenses accounted for 15.4 billion, to cloud's 2.9 billion, in 2016 - moving customers to the cloud is where the market is going.
This momentum was on show again in SAP's Q1 2017 results, where total cloud subscriptions and support revenue grew 34 percent year-over-year to 905 million.
Criticism
This is all despite criticism from arch-rival vendor Oracle, whose co-CEO Mark Hurd sneered back in December that "their cloud strategy, which is most often referred to by the term S4/HANA, is fundamentally a hosting strategy.
It's really taking their core ERP on-prem app and hosting it in a data centre. It's really the physical movement of a computer from here to there.
"That's not cloud. That's not SaaS. So I'm not sure that we really think of them as a core SaaS competitor," Hurd said, as reported by Diginomica.
SAP's co-founder and chairman of the supervisory board Dr Hasso Plattner responded in typically bullish terms last week, reiterating that "in the cloud is the version to aim for" when it comes to S/4HANA.
He also recognised that the company was changing from the days when he was in charge. "For 45 years the customer has operated the system, large systems," he said.
"We do it now together with the customers and SAP is learning how to operate and we are getting better and better and we are getting profitable now," he said.
In other words: SAP is learning how to be a SaaS vendor.
Changing the sales culture
This shift towards public cloud deployments and more subscription-based software can be seen across the business at SAP.
From how it has acquired SaaS businesses like Hybris, Fieldglass and Concur, to how it aggressively markets its cloud-based products, pushes its cloud momentum to the top of financial filings and most importantly, how it sells its software.
Moving customers to the cloud requires not only a change in mindset from the clients themselves, who may be wary of data security or ownership issues, but also an internal shift from a company that has always operated in a world where customers conduct lengthy RFP processes and lock themselves into long-term agreements. The sort of customer that wants one hand to shake.
