SAP is putting its entire business applications suite online and selling the lot through subscription.
The on-premise giant last week announced SAP Business Suite via the SAP Hana Enterprise Cloud service.
Underpinning the service is Hana, SAP’s in-memory database technology.
Subscriptions are a huge deal for SAP. The world's largest maker of business software became a multi-billion dollar business by charging customers hefty licence fees to buy its software and then to receive ongoing maintenance and periodic updates. These licensing fee schedules are notoriously intricate, depend on a number of varying pricing structures, and can be difficult to break down and or understand.
The new breed of cloud subscriptions – as typified by the Salesforce model – completely undermine SAP's original business model and income streams. They charge relatively small amounts using a clear, per-seat basis for a set monthly or annual fee. It's the subscription services of vendors like Salesforce that have been growing faster than on-prem licences of companies such as SAP.
SAP has kept cloud subscriptions at arms' length from the core of its on-prem licensing business. Just seven months ago, SAP was holding out the offer of cloud-based versions of its software to customers with certain qualifications.
In July 2013, SAP offered to let you "re-allocate elements" of its software that had been installed on prem in the cloud.
That meant if you were running SAP'S Human Resource Management software (HR) on premises, for example, you could switch to SAP's SuccessFactors, but you couldn't jump to SuccessFactors if you didn't have SAP HR.
Also, you had to commit to spending even more money with SAP in the future.
Now, SAP is removing those qualifications. “There are no major restrictions,” Steve Lucas, president of SAP’s platform solutions group, told The Reg.
The only “restriction” is that you must host in one of SAP’s 17 data centres. This is significant because until now, SAP’s erstwhile cloud partner has been Amazon.
Certified versions of SAP's Business Suite, HANA, Business Objects and other apps have been available in "hosted mode" via AWS for some time.
SAP was relatively successful on Amazon, claiming 950 customers on Hana One on AWS. SAP also put its bets on Amazon when it killed its Business ByDesign hosted enterprise resource planning service in favour of services running on its HANA systems.
Let's move to the cloud now, worry about the money later
SAP anticipates its biggest growth will be coming from the cloud, but its existing on-prem business still accounts for the bulk of its revenues.
The giant in January was forced to push back its corporate growth targets by two years, saying the goal is now not for €2.0bn ($2.7bn) from cloud by 2015 but for between €3.0bn ($4bn) and €3.5bn ($4.7bn) and €22bn ($29.7bn) total revenue by 2017.
SAP isn’t the only one struggling: Oracle has seen slowing growth in its on-prem business. Meanwhile, IBM this year revealed the majority of its “cloud” business comes not from hosting its own services but from selling parts to other people.
If cloud is the future of business apps, it looks like SAP has decided to get serious.
To help encourage growth, there are no data limits on the new SAP service. On AWS, you were limited to 256GB per server, which made it expensive to scale up.
With SAP, customers are being encouraged to run “full” ERP by subscription.
Selling its bread-and-butter suite through subscription is meant to further encourage sign-ups, as subscription means – in theory, at least – paying less up-front. SAP switches from a bulky capital (the licence) to a smaller but ongoing operating expense for the customer. For SAP, this means predictable and smooth revenue flow, less subject to peaks and troughs of sign-ups to mega licence-and-support contracts.
That said, SAP’s not yet announced what the pricing of its new subscriptions will be.
By putting the service in its own data centres and diverting traffic from Amazon, SAP seems to be saying the Amazon cloud and ERP experiment is over. It worked, but the giant is now taking control of SAP customers and their data.
To become a permanent player in cloud, SAP must take ownership of the customers currently pumping their data into other people’s data centres.
The hope is once the data is there, the subscription fees accrue because – frankly – who moves their data out? Nobody. You add more as the service gets used.
Taking on Amazon
Amazon the partner and test lab has now become Amazon the competitor.
Accordingly, SAP says its new service gives serious customers the beef they need to run full business apps in the cloud: domain experience, security and regulatory cover, with data centres in more jurisdictions than those of Amazon.
Lucas told The Reg: “There are a lot of enterprise customers who are very hesitant about putting their core business operations on a data centre like [that of] Amazon – not because Amazon doesn’t have competence but there’s a big difference between running smaller apps and running the core if the application goes down and you can’t take credit cards details.”
But there’s another reason for SAP to embrace the horror of a pricing and hosting model that threatens the on-prem business upon which it has come to rely.
By making its business suite a subscription service, SAP is throwing the kitchen sink at Salesforce and Workday, which have been encroaching on enterprise territory, nibbling away at portions of the business apps' cake.
Salesforce has been coming up against SAP's CRM offering while Workday has been doing the same with human resource management. SAP, on the other hand, is offering both of these plus the full ERP buffet.
The one thing SAP Business Suite via the SAP Hana Enterprise Cloud service is not is a multi-tenant service, something popularised by Salesforce.
Lucas argues this doesn’t matter: along with subscription pricing, multi-tenant was one of the last "attack vectors" Salesforce had on SAP. Now that SAP is selling through subscriptions, it leaves the two firms arguing over the technical definition of "cloud" – something Lucas believes is of little interest to customers.
“Our competitors have relied on the fact we don’t offer that as an option as their main stand-off,” Lucas claimed. “They have been living in a bubble of the last decade; that is SAP won’t encroach in our territory. We will encroach in a big way."
To an extent Lucas is right: customers do not really care about the nuts and bolts of how a service is built, just that it works securely and reliably.
That leaves you with price and features.
In the short term, it’ll now be a race for SAP to hit its revised growth targets and to gain as many customers in the cloud as it can. Long term, it'll be a question of when the subs business will hit the kind of critical mass needed for it to overtake SAP's current, core business. ®