SAP is seeking to get closer to channel partners that are making the transition to the cloud sooner rather than later.
While SAP still values partners that resell traditional software and hardware, the rate at which customers are moving to the cloud has the company looking for partners that can push adoption of everything from software-as-a-service (SaaS) applications such as SuccessFactors to the deployment of HANA in-memory computing platforms hosted in the cloud.
Rather than cannibalizing on-premise sales, SAP’s cloud offerings are giving partners an opportunity to sell additional products and services, according to Kevin Gilroy, senior vice president of global indirect channels at SAP. Though cloud applications sales through the channel have been substantially higher, SAP is also seeing growth in on-premise sales that are often pulled along by the initial cloud deployment, he said.
“We see more partners quoting both offerings,” said Gilroy. “We don’t see the cloud cannibalizing on-premise business.”
At the recent SAP Americas Partner Leadership 2013 conference, SAP looked to further accelerate the rate at which applications and services delivered via the cloud are being sold through the channel. The company rolled out an SAP PartnerEdge Program for Application Development that gives partners access to the full range of SAP products and services under one global contract, including the ability to market their offerings through the SAP Store and the SAP partner directory.
In addition, Gilroy said that SAP is also generating leads in parallel to its partner-recruitment activities, which produces sales opportunities for new SAP channel partners within weeks of joining the SAP program.
At the same time, however, he said that SAP is being selective about the partners it recruits. In addition to looking for strong balance sheets, SAP is also seeking partners with expertise in vertical industry segments that it hasn’t penetrated very deeply.
Of course, the primary challenge that solution providers face regarding the cloud has more to do with business models than the technology involved. In general, solution providers are compensated for cloud sales over the life of the contract, which is usually more profitable for them. However, that model is having an impact on the operations of solution providers that previously were compensated when an on-premise solution was sold or deployed.
Customers are clearly moving a large percentage of their applications to the cloud, but partners such as HCL Technologies are still working out their compensation plans. “It will definitely be a hybrid mix,” said Tom Schwab, head of global alliances and business development for HCL, “but it’s still a work in progress in terms of our specific compensation plans.”
Whether it’s running applications in the cloud or managing on-premise applications via the cloud, SAP clearly wants to shift a higher percentage of IT spending into the cloud.
“Given the OPEX versus CAPEX nature of the cloud, small-to-medium enterprise customers are moving quickly to the cloud,” said SAP’s Gilroy. “If channel partners move too slowly to the cloud, they risk being outflanked by competitors.”
But there’s not a lot of clarity concerning how making that shift specifically benefits channel partners. “Vendors need to explain more about how moving to the cloud benefits the partners,” said Cindy Jutras, president of Mint Jutras, an independent consulting firm.
The one upside, said HCL’s Schwab, is that the cloud makes it easier for solution providers to expand the markets on which they concentrate. “We used to focus solely on Tier 1 clients,” said Schwab, “but now we see significant revenue opportunities in the midmarket.”
SAP’s Gilroy also noted that once solution providers achieve critical mass in the cloud, they are generally more profitable. “A partner should want to get to positive cash flow on their cloud investments as quickly as possible,” said Gilroy. “They should also want to be seen as being ahead of the curve by their vendors.”
Even so, the degree to which applications will be moved to the cloud is unclear. For example, a recent survey conducted by Oxford Economics on behalf of SAP found that while small and midsize enterprises are clearly more interested in sophisticated IT solutions, cloud computing for the sake of the cloud was not the highest priority.
Much of the spending in the cloud is being driven by line-of-business executives trying to solve specific business issues, rather than the internal IT department. That situation creates a potential conflict that channel partners will have to navigate within any given customer account.
“We wind up providing a lot of therapy between IT and the business,” said Elliott Garofalo, executive vice president of Optimal Solutions Integration, a solution provider that specializes in SAP products and services. “The IT organization has lost a lot of power, and, in a lot of cases, was viewed as holding functional business areas hostage.”
As a result, rather than focusing on specific IT delivery models or individual applications, solution providers may be better off focusing on business transformation strategies that are enabled by next-generation information technologies.
“For most customers, it’s all about the business processes,” added Laurie McCabe, a partner with IT consulting firm SMB Group. “All the customer really cares about is the benefit to the business.”
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.