Some random thoughts on SAP’s cloud strategy


As I am flying to Bangalore, I have been thinking of SAP’s cloud strategy – or at least what I understood as their strategy – a fair bit. In general, they did not blow me away. However, I do think they have a lot of things done right. So here are some random thoughts for what it is worth.

SAP is targetting 4 groups – Customers, Employees/People, Money and Vendors. I like that – that covers a lot of the enterprise.But if being everything to everyone was a successful strategy, Business By Design would have scaled greater heights by now, which obviously has not happened. So somethings need to be prioritized over others. The big players in cloud – like SFDC, targeted specific segments and did not try to be everything to everyone. And in general – including SFSF – they have attracted more customers and users than SAP ever did.

I have often raised the opinion that SAP should run cloud as a separate business so that they are not burdened financially or bureaucratically by the larger legacy organization. So I was thrilled to see that SAP allowed Lars to operate cloud as an independent business. And he brings tremendous energy and passion to the table, which is also something SAP could do well with. So organizationally РI think SAP is well set.  If there is one question in my mind on this front Рit is whether there will be consistency of engineering across SAP anymore if cloud is a separate organization. But given Lars and Vishal seem to be best buddies, I guess it will work out just fine.

SAP will also¬† offer parts of BByD as loosely coupled apps – like finance for example. This might work out ok – except, I think Finance in itself is more of a necessary evil, than a true innovation. Without financial postings – the rest of SAP won’t work very well . I am not sure how many will buy the finance solution just to run their GL. A few will for sure – but I don’t see it as a growth engine yet.

SAP derives most of its money from the on-premises world. This poses two challenges. One – if SAP takes a suite approach on cloud, they will have to cannibalize some parts of on-premises solutions. And two – they have to integrate cloud with on-premises world. Neither is an easy challenge to overcome.

First about trying to reinvent the business suite on the cloud. Don’t get me wrong – I do think eventually suite needs to run on cloud. What I am not convinced is the need to do it now, since that is not a path of least resistance within or outside SAP. I think SAP would find it much easier to create apps that solve specific problems that on-prem cannot solve easily. For example – on-prem does Accounts Receivables very well, but not Collections and Disputes management because those users typically are not on-premises. So, instead of moving AR to cloud – why not just move collections and disputes management to cloud? And once that is successful – there will be very little reasons for resistance to move rest of AR, and eventually all of GL to cloud, even for big companies.

And about the loosely coupled thing – I am not exactly buying into the idea of “out of the box” integration of cloud to on-premises systems. One – SAP is not considered a leader when it comes to integration technology. And two – on premises world is heavily customized, so nothing really works out of the box there. I made a living as a programmer primarily because nothing integrates in standard. For SAP to have a credible integration story – they should probably buy TIBCO or something ( ok, sorry to my friends who have heard me say this a million times). But given the high valuation, it might not be feasible.

On the social aspects of cloud, I like what they are doing. Combining Jam and Streamwork makes total sense for customers. And I applaud SAP for their stance that “Business” is the better part of “Social business”.

HANA is a perfect DB/platform for cloud. It will be a safe bet for customers and SAP since HANA can evolve and mature much faster in an environment that SAP has full control over.

One last thought before I have to shut my PC off. What is SAP’s data center story? Cloud needs significant data center efficiency. I think I heard SFSF has its own data centers. If SAP is serious about cloud in a big way – I think it is in their best interests to tell the world more about their strategy on data centers. And to extend that thought – they might even have to buy a hardware company at some point.

I am out of here before the flight attendant of this AI flight will shut my laptop down for me herself. Let me know what you think.

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8 thoughts on “Some random thoughts on SAP’s cloud strategy

  1. I somewhat agree, Vijay. There are a number of areas where SAP could innovate in cloud applications, though they’ll also need to deliver “me too” solutions just to continue to capture business in the SME space for basic CRM, Financial, and HR processes. Two areas that seem very interesting to me for SAP to grow in the cloud are PLM and “connected applications”.

    Thus far, no company has really delivered true “product lifecycle management” across the spectrum of the entire life of a manufactured good. Largely, this is because it touches a large number of value chain participants from design to sourcing to manufacturing to distribution to sales to service to disposal (whew). A cloud-based clearing house for this type of functionality and related data would be extremely high value, and few companies have the necessary IP to make it real. I think SAP does.

    The second area (and one which I am directly involved in) that has massive upside is bridging the physical world into business processes. SAP has significant opportunities here in everything from energy/utilities, public safety/security, manufacturing/mining, healthcare, transportation, and on and on. In some ways, it would be the enterprise analog to the Smarter-* vision of IBM.

    These two areas, in my view, are ripe for innovation. That said, there’s certainly no reason SFDC or Oracle or IBM could not also move aggressively into these areas, and I fully expect they will to varying degrees.

    • Excellent point, Rick – I do agree that PLM will be an area for someone to grab market share in the cloud. However, it is also a complex area that needs significant investment in time and $$, even with an acquisition bringing in some part of the required IP. But even with that there will be a first mover advantage

  2. “The second area (and one which I am directly involved in) that has massive upside is bridging the physical world into business processes.” – This is a one of the key area where IBM started picking it’s innovations using Watson. Similar like this SAP with HANA as a rapid DB instance should start working on this seriously.

    When comes to Successfactors and it’s cloud strategy- SAP almost killed it’s cloud product that it now says super important.

    http://www.businessinsider.com/oops-looks-like-successfactors-embarassed-its-new-owner-sap-today-2012-5

    With it’s limited number of customers for BByD, SAP & Successfactors should start or develop it’s own apps and not using net suite to make this more successful. Two smart buddies Vishal & Lars can make this better.

    • developing an app from scratch is a VERY hard thing to do – but with SalesOD etc SAP has shown it has a nice way of doing it. With Lars bringing in some fresh GTM ideas, I hope SAP can leapfrog

  3. Vijay

    Yet another excellent post. Thanks for sharing your expertise and viewpoints on all things SAP and beyond. I agree with your take on integration. When Lars hit that point in the keynote, I almost choked on my coffee. Right now the integration “platform” situation is a mess. At the same time, it may keep we #sapadmins around a little longer :)
    The second thing is a worry. How does this separate cloud organization interface with the existing SAP sales org? Will my current SAP account rep talking cloud and on-premise or will there be another group to go through? This may be a more difficult integration than the products.

  4. Challenging

    The cannibilisation is obvious, and inescapable. However…
    Think primary processes, secondary, and tertiary. Whatever specific processes you name here, what’s tertiary to me might be primary to you – that all depends on the business you’re in

    Yet, the farther you get from primary, the lesser the need for exceptions, and the greater the need for a 100% match solely on rules.
    For a big company, think of housing, leasing, payroll and catering in the 3rd, maybe even invoicing. SaaS all of that if you can, especially given the relatively low amount of users

    2nd? Maybe HR, order to invoice matching, education and training, personnel management. SaaS some, combine with local or on-premise. In short: you’ll surely want to go hybrid here

    1st? Your very best primary processes, the full exceptions that allow you make a mockery of the compewtition. SaaS? Hell no. On-premise? Hell neither – unless you own and master the code for the full 100%

    So Lars running the SAP cloud division? Not a great idea, but might do for now

    Integration out of the box for SAP cloud? I would laugh if it weren’t so sad. SAP has many ways to integrate, but they’re all disparate workarounds to the general challenge, and clumsy at best when compared to the finest, e.g. TIBCO, AXWAY and Pervasive. Buy any of those? No. Most certainly not. SAP has for decades portrayed a myopic vision towards integration and will not change. For true integration, you need an outside-in view

    I was especially disappointed when I heard of the 5,000 people let onto SFSF – where are the few brave 300 that will uplift SAP’s cloud integration strategy from afterthought to rockhard architecture?

  5. Vijay – first of all really appreciate spending time with me yesterday and discussing pretty much most of the points covered in this and last four (SAPPHIRE series) blogs.
    I think moving pure Supply Chain Planning functions to cloud will be a tall order especially when the users for these are mostly “on-premise”. But there are pockets of opportunity – like a Demand Planner / Brand Manager can tap on cloud-based solution from a customer site to do an availability check or carry out an allocation for a possible big order. But the same does not hold true for Supply Chain Planner who is focused more on S&OP process (ok SAP has S&OP as an xApps and now HANA based offering) which is typically “on-premise”.
    Also I could not agree more with Rick Bullotta’s two points – first one on PLM which is where most of my SAP clients have stayed away from. The second one on “Internet of Things” where I believe SAP can use synergies from its different acquisitions like Sybase CEP, ASE coupled with HANA as processing engine and delivering to user as Mobile Apps using BO all of it based on a cloud-based offering. Would like to hear your thoughts on that.
    Any thoughts on yesterday’s ARIBA acquisition – looks like SAP is

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