SAP Pursues New Channel Paths to the Cloud

As part of an effort to significantly expand its reach into small and midsize enterprises (SMEs), SAP plans to explore alternative channels that will rely more on telecommunications and cloud service providers.

As the way software is acquired in the age of the cloud continues to fundamentally change, solution providers in the channel will need to increasingly form partnerships with providers of telecommunications and cloud services to maintain a sustainable business, said John Graham, head of ecosystems and channels for SAP Americas.

“We’re going to be looking to some alternative channels in 2014 to extend our reach into the SME space,” Graham said. “We’ve had a lot of success with that approach in markets such as South America, and we want to replicate that in North America.

As such, Graham advises traditional resellers that want to take advantage of what is shaping up to be a mass migration to the cloud to partner either directly with SAP to sell applications running on the SAP cloud or on clouds owned by telecommunications service or cloud service providers.

Unfortunately for many traditional resellers, moving into the cloud also means making fundamental alterations to business models that could take multiple years to actually execute at a time when adoption of cloud applications is already widely occurring.

Most resellers don’t have the capital to build their own cloud; so, on that level, partnering with companies that have already made that investment will make sense. But many traditional resellers will have a hard time making that transition because they don’t have the financial wherewithal to shift to a cloud model where they get paid over an extended period. Ultimately, the cloud may prove more profitable, but in the short term, not getting paid up front could adversely affect solution provider balance sheets.

It’s clear that customers are already opting for the cloud; so in reality there’s no choice but to go to the cloud, Graham said. Half the leads that SAP is generating in the SME space, which accounts for 80 percent of SAP’s revenues, call for cloud implementations, he said.

What’s ironic is that when solution providers start selling cloud services, they typically wind up-selling even more on-premise software, said Kevin Gilroy, senior vice president of global indirect channels. That is occurring because once customers get introduced to Ariba or SuccessFactors software delivered as a service they typically also start buying other SAP offerings, Gilroy said.

SAP is also looking at letting its partners resell third-party software in the cloud in much the same way the company allows certain of its software vendor partners to sell on-premise software through its channel.

Of course, the challenge going forward in the era of the cloud is that the line between applications will keep getting blurrier over time. How that affects how applications are sold over time is yet to be seen. But it’s clear that, in the age of the cloud, not only do users prefer to pay only for what they actually use, but they are increasingly going to ask vendors to bundle more cloud services to lower their total costs.

Michael Vizard has been covering IT issues in the enterprise for 25 years as an editor and columnist for publications such as InfoWorld, eWEEK, Baseline, CRN, ComputerWorld and Digital Review.