SAP is striving to generate a three-fold increase in cloud revenue by 2025 that in no small part is dependent on the loyalty of partners to achieve.
The software giant currently expects cloud revenue for 2021 to be in the range of €9.2-9.4 billion, which it has committed to increase to €22 billion by 2025. The SAP cloud portfolio is made up of a range of software-as-a-service (SaaS) applications. However, to achieve its goal, many more organizations that currently employ SAP enterprise resource planning (ERP) software in an on-premises IT environment will need to migrate those applications one way or another to the cloud.
SAP will make it more attractive for partners to encourage customers to adopt SAP cloud offerings starting in the third quarter with the SAP PartnerEdge Cloud Choice, flex model, a new revenue share and go-to-market model for partners that splits the customer life cycle into two stages. The goal is to provide partners with upfront commissions for sales activities in addition to increasing commission rates on renewals, says John Scola, global vice president for cloud channels and strategy lead at SAP. “We’re trying to strike a balance,” he said.
Partner commitment to be rewarded
SAP is also committing to defining the “white space” where partners can add value without having to one day worry about whether SAP will launch a similar set of services, added Scola.
Most organizations since the start of the pandemic have increased consumption of cloud services with some notable exceptions such as the SAP Concur travel expense management platform. Despite that drag on cloud revenue, SAP in its most recent quarter reported cloud revenues of €2.15 billion, a 7% year-over-year growth rate. Overall, however, SAP’s revenue for the quarter reached €6.35 billion, a 3% decline.
To accelerate customer transitions to the cloud, SAP has launched RISE with SAP, a set of managed services through which it works directly with end customers to deploy and manage SAP software in the cloud to accelerate digital business transformation initiatives. Partners are eligible to become sub-contractors to SAP within the context of a program that SAP continues to expand. It’s not clear yet how many partners are participating in this program versus simply opting to continue to engage end customers directly themselves.
At the same time, SAP continues to extend its portfolio by, for example, acquiring Signavio, a provider of process mining software, and making it simpler to consume multiple cloud services by launching an SAP Business Network that unifies the Ariba Network for procurement, the SAP Logistics Business Network for logistics and supply chain management, and the SAP Asset Intelligence Network for asset performance management and equipment tracking services around a common data model.
Changes at SAP
There, of course, has been a lot of management turnover since Christian Klein became sole CEO of SAP last April. While not wholly unexpected, SAP has since downgraded a preferred cloud partner agreement it had with Microsoft to effectively level the playing field among all the major cloud service providers at a time when it’s clear most customers will be employing multiple clouds for different classes of workloads. Those changes in personnel and strategy at a minimum tend to often distract partners from the core mission at hand.
Expectations are that over the coming months more organizations will shift ERP applications in the cloud to enable digital business transformation. The rate at which that transition is occurring is unpredictable. At the same time, more organizations are relying more on open source software they can customize to drive those transitions in a way they view as being less risky than committing to multi-year application services contracts.
The challenge SAP and its partners face is convincing as many organizations as possible that the surest path to digital business transformation still lies through proprietary commercial software.