SAP Reports on Cloud Growth and Momentum from RISE with SAP and SAP S/4HANA Sales
by Rizal Ahmed, Chief Research Officer, SAPinsider
Cloud growth continues to drive SAP sales but has not yet completely offset the decline in traditional on-premise license revenue. This was among the key story lines from this past week’s Q2 Earnings Call with SAP executives.
SAP’s cloud portfolio is taking center stage as the foundation of current and future business. SAP is seeing double-digit cloud growth in most of its regions when it comes to cloud sales. A major KPI that SAP is now spending a significant time discussing is its cloud backlog. Cloud backlog is defined as 12-month forward-looking recognizable cloud revenue based on current contracts.
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Currently, SAP’s cloud backlog increased 20% year over year to 7.8 billion euros. General Software-as-a-Service (SaaS) revenue jumped 25% year over year, excluding intelligent spend. This growth was not enough to offset SAP’s traditional on-premise software business, as overall software license and support revenue declined 5% for the quarter.
Still, SAP CEO Christian Klein was bullish about the growing momentum in cloud sales, and acknowledges that SAP’s transition from on-premise to a cloud business is still underway but accelerating its progress. “Our customers are partnering with us as they transform their business while modernizing the IT landscape with a move to cloud,” said Klein on the call.
The RISE with SAP offering is starting to become a key driver for both SAP S/4HANA and overall cloud sales, reported Klein. He said the total number of RISE customers has more than doubled from 100 customers in Q1 to 250 customers in Q2.
RISE with SAP is their “Transformation-as-a-Service” offering. It is positioned as a catalyst to help customers quickly build business cases and migrations to SAP S/4HANA in the cloud. Among the recent wins RISE with SAP wins include AMD and Co-op.
SAP S/4HANA sales have also climbed since Q1. SAP reported that the number of SAP S/4HANA licenses grew to 17,000 customers. Klein commented that SAP S/4HANA has now reached a billion-euro run rate in revenue. One of the interesting details around this growth is that 50% of these customers are net new.
This still leaves considerable work converting the existing installed base. But momentum is building there, finds our latest SAPinsider research on SAP S/4HANA deployment. Our June report showed that 38% of SAPinsiders have already deployed or are in the process of implementing SAP S/4HANA. While this leaves well over 50% percent to make the move, many of these companies have already entered the evaluation stage.
“Our strategy is working. Our teams are executing excellently, and we are delivering incredible value to our customers,” asserted Klein.
The Business Technology Platform (BTP) Is the Third Leg of the Stool
Klein made sure to spend some time discussing the state of the Business Technology Platform sales. The Business Technology Platform packages key solutions and services together to support development, integration, data management, analytics, and more. For those of you who have been in the market for a while, think back to SAP NetWeaver. BTP is basically the new cloud-based incarnation of that suite.
Klein reported that there are 8,000 customers and 4,000 business partners using BTP for integrating, developing, and extending SAP applications. SAP is making it clear that BTP serves as the underlying foundation to support the SAP S/4HANA digital core and its portfolio of SaaS solutions. RISE with SAP is the catalyst to build your business case and organize your implementation strategy across all these offerings. “With the move of our RISE customers to our next-generation business technology platform, we enable them to run end-to-end business processes based on our LOB and industry applications. This opens up cross-sell opportunities across our entire cloud portfolio,” said Klein.
SAP Gets Aggressive on Competitive Replacements in Cloud Software
SAP emphasized how it is gaining market share at the expense of key competitors. “This quarter alone, we have again proven SAP’s unique position, winning in over 350 competitive deals, the majority of which were against Oracle,” reported Klein.
SAP saw competitive wins in many areas of the cloud portfolio, including Human Experience Management (HXM), where customers chose SAP’s SuccessFactors solutions over Oracle and Workday. Klein also described how Dyson and De’Longhi have both bought SAP’s Customer Experience solutions.
Executives are Bullish on Growth: Raise Guidance for 2021
As a result of the positive momentum, SAP announced that it is raising its guidance for the year. SAP believes that its addressable market is expanding rapidly and will embrace sustainability to continue differentiating its software and services.
“We are optimistic about the future, and we have raised our guidance today to reflect the momentum we are seeing in the market. In addition to the progress in our core business, we are investing into new markets. This will expand our total addressable market by $150 billion to a total addressable market of $600 billion by 2025,” reported Klein. He also sees its business network as a key catalyst for growth. According to Klein, more than 350K trading partners have joined SAP’s network in this quarter alone.
Klein said that SAP will capitalize on the opportunity to be the most comprehensive supplier of business solutions to support sustainability. SAP is partnering with more than 100 large enterprises to provide solutions that incorporate sustainability from product inception and the design process, all the way through manufacturing and delivery.
What This Means for SAPinsider Executives
Think in bundles. SAP will be aggressively cross-selling solutions particularly into its installed base. This holds opportunities for customers to derive discounts where applicable, but also to benefit from integration and common data and security models. As you plan your investments in the coming year, look to aggregate some of your spend and take advantage of opportunities to benefit from administrative and cost benefits.
Leverage potential competitive replacements for bigger deals. SAP will continue to capitalize on opportunities to replace its competitors and publicize any big wins. If you are already taking stock of your current application portfolio, evaluate existing SAP SaaS and BTP solutions as alternatives. You may be able to earn greater discounts, especially if you offer to be a public reference.
Use your voice. It matters even more today. As SAP transitions to the SaaS model, renewals and customer satisfaction become even more significant. SAP is responding accordingly by dedicating more leadership and resources to customer care and success. Leverage these eyes and ears to voice and gain influence on the evolution and performance of solutions and services that are important to you.
Do not dismiss RISE with SAP and the SAP Business Technology Platform (BTP). SAP is pouring more resources and energy into these two offerings. For anyone struggling at the business case stage, these services and solutions may be useful to you. Those who are beyond the business case should still examine RISE with SAP for future projects and initiatives, especially if they are related to SAP S/4HANA and the cloud.