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Inside SAP: As Cloud Surpasses License Revenue In 2018, 10 Strategic Insights

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Inside SAP

Inside SAP

Helping global corporations like Emirates Group undergo massive digital transformations even as it remakes itself for the digital world, SAP is confidently predicting that its cloud revenue will overtake its license revenue this year on the strength of having “the most complete cloud in the enterprise,” according to CEO Bill McDermott.

“We believe this is not a time for measured ambitions–in a world filled with anxiety about automation, SAP will lead a new economy where intelligent machines enable augmented humanity,” McDermott said on SAP’s recent Q4 earnings call.

If that type of aspirational vision seems hard to square with images of R3 workscreens, bear in mind that McDermott’s been in the CEO chair for 9 years and has pretty much completed his end-to-end transformation of the company: its move into databases, its move to the cloud, the many acquisitions that have accelerated that journey, an aggressive embrace of powerful new technologies, and a grand new sense of the role SAP can play—and should play—in a world rapidly moving to digital lifestyles and digital business.

Like every tech megavendor competing in the Cloud Wars, SAP has its challenges:

  • savage competition for SaaS deals from cloud natives Salesforce.com and Workday as well as from longtime nemesis Oracle;
  • a huge product lineup that can at times be difficult to orchestrate elegantly;
  • a rapidly evolving competitive landscape in the cloud where IaaS superpower Amazon along with resurgent IBM and fast-growing Google will inevitably want to expand into the SaaS and PaaS segments where SAP does well; and
  • a strategic partnership with Microsoft that offers tremendous promise but also potentially distorts the clarity of SAP’s own cloud and digital-business aspirations.

So let’s dig into 10 strategic insights revealed during SAP’s recent earnings call  with financial analysts and see where this extraordinary company—whose applications power huge portions of the global economy—is headed (hat tip to SeekingAlpha.com for the transcript).

  1. Cloud Revenue Becomes King Inside SAP.“Cloud revenue is expected to overtake license revenue for the first time,” McDermott said in his prepared remarks. Looking a bit further ahead, he added, “We expect cloud to grow at again 30% compounded annual growth rate and more than double by 2020.”

With SAP’s cloud revenue for calendar 2017 coming in $4.71 billion, that means SAP expects to come very close to $10 billion in cloud revenue for 2020. Meanwhile, SAP’s traditional on-premises business continues to grow in single digits even as the cloud business surges—and for an excellent analysis on how and why companies are balancing their cloud and on-premises strategies, I heartily recommend this insightful analysis from the always-excellent Holger Mueller of Constellation Research. (Warning—don’t be scared by Holger’s headline—it’s a must-read overview!)

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Article Credit: Forbes

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