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SAP bets big on cloud as more clients sign up

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German enterprise IT giant SAP may have been slow to the cloud game but it’s catching up fast, with big businesses signing up at a rate of knots.

The faster than anticipated sign-up and renewal rate during 2015 is a welcome feature for SAP. The company’s Asia- Pacific and Japan president, Adaire Fox-Martin, told The Australian that with more companies striving to do more with less, the appeal of the cloud was stronger than ever.

Harnessing that appeal into something positive has so far been a difficult proposition for the likes of SAP and Oracle, which have seen their traditional business model come under threat. But Ms Fox-Martin said that while the enterprise resource planning was undergoing a fundamental shift, SAP had the tools required to reimagine ERP in a whole new way.

The crown jewel for SAP is S/4 HANA, the core software platform, that’s driving growth for the moment.

“We have 2700 customers on it at the moment and a large proportion of them are in Asia and we are doubling that number quarter over quarter,” Ms Fox-Martin said. “HANA is very much a result of in-house innovation and we have had to remove some shackles of the past during the course of this journey.”

In the cloud world, where the development process and the speed to market is crucial, Ms Fox-Martin said SAP had made a conscious effort to buy the best from the market and, more importantly, integrate it as quickly and efficiently into the core.

“What’s pleasing for us is that not only is there growth in the cloud, we are doing it at profit. A lot of the pure-play cloud players are not doing it on profit,” Ms Fox-Martin said.

With new cloud bookings up 103 per cent in the full year to €883 million ($1.35 billion), the cloud is finally starting to make a tangible impact on SAP’s overall bottom line. Cloud subscriptions and support backlog, a lead indicator growth, increased 45 per cent for SAP in the full year, reaching €3.7 billion. Full-year cloud subscription and support revenue was up 109 per cent to €2.30 billion.

All of this is good news for SAP, which is working to increase its cloud revenue as it looks to keep traditional software competitors such as Oracle and cloud-based digital natives such as Workday and Salesforce at bay.

Cloud is not as profitable as on-premise software licence sales, but the latest results hint at where the future lies in the long-term. As yields from the licensing cash cow start to dwindle, Ms Fox-Martin says that the next phase of the transition will see the primacy of the hybrid model.

“Customers can see the value of consuming software as a service, especially in a dynamic world where demands ebbs and flows, but there are some elements that are absolutely core to them and they are unlikely to let go off while the cloud continues to evolve,” she said.

By 2020, SAP expects 70 per cent of its predictable revenue to come from the hybrid model and a lot of that money is going to come from the emerging Asian markets.

But that doesn’t mean Australia isn’t important, with Ms Fox-Martin saying that Australia may be a mature cloud market but there’s still room to grow.

“Australia had an extremely strong year and it contributes the largest proportion of cloud revenue in the Asia-Pacific market and it speaks to the capacity of the infrastructure that’s available here for organisations to make the most of the cloud and the software as a service trend,” she said.

While the emerging Asian markets are bound to catch-up in time SAP is hoping to use the Australian market to refine its products and its commercial approach.

“The Australian market gives us an opportunity to test some of our commercial constructs and our approach and to really deliver a value-based proposition that can be replicated globally,” Ms Fox-Martin said.

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