SAP seeks best route to the cloud

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Aaron Ricadela Frankfurt

SAP’S software chief may have one of the toughest jobs in the industry: dragging the information technology (IT) operations of 45 000 businesses into the era of cloud computing.

Bernd Leukert, a 20-year company veteran, was promoted to the executive board after the sudden departure of chief technology officer Vishal Sikka in May. Now Leukert is breaking with his predecessor’s focus on fighting Oracle in the database market, and is responding to customers of its market-leading enterprise software who want a clear path for moving their applications to cloud-based systems.

“There is confusion,” Leukert said at SAP’s headquarters in Walldorf, Germany. “There’s no debate anymore in the IT industry that the cloud will be the preferred consumption model,” he said, referring to the shift toward delivering software via the internet instead of installed on clients’ servers. “A road map is something we owe the market.”

SAP, projected to report e17.4 billion (R250bn) in sales this year, supplies a sophisticated palette of software – some 400 million lines of code – that lets companies such as BMW, Coca-Cola and Exxon Mobil manage everything from sales and marketing to manufacturing and finance.

Dubbed the Business Suite, the product is entrenched in global companies’ everyday operations and supplies more than 60 percent of SAP’s operating profit, estimated at e5.7bn this year, according to Wells Fargo Securities. SAP has 24.3 percent of the $25.4bn (R273bn) market for so-called enterprise resource planning software, against Oracle’s 12.3 percent, according to research firm Gartner.

Yet its growth has slowed. Last quarter, SAP’s software and support revenue – a measure that excludes acquired cloud computing tools – grew just 2 percent.

Excluding recurring revenue from support contracts, sales of on-premises software are actually falling as customers build fewer new applications that run on company-owned computers. Instead they are giving more business to cloud computing providers such as Salesforce.com and Workday, which deliver software as a service via the web, freeing users of the need to buy and maintain hardware.

Customers and analysts are eager for Leukert to explain how SAP is addressing the trend.

“What’s the timetable for moving core applications to the cloud?” Jason Maynard at Wells Fargo, said. “I don’t think they totally know what they’re doing.”

The confusion stems from multiple areas of focus within SAP. Former technology chief Sikka concentrated on promoting the Hana database as an alternative to Oracle for storing the reams of data used by SAP applications.

Meanwhile, chief executive Bill McDermott and former co-chief executive Jim Hagemann Snabe have spent more than $15bn since 2010 buying suppliers of web-delivered applications in areas including human resources and purchasing, as well as technologies such as database maker Sybase.

The promotion of Hana has left some customers unclear about how it fits with the company’s plans for the Business Suite product and the inevitable shift to web-based applications.

“In principle, Hana and cloud computing don’t have anything to do with each other,” Marco Lenck, the chairman of the German-Speaking SAP User Group, said.

SAP co-founder Hasso Plattner, who Leukert sometimes speaks with three times a day, acknowledges the tension. “We have to move this franchise forward,” he told software developers this year. – Bloomberg


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