Main content

SAP User Group Conference: rumours of death greatly exaggerated

Stuart Lauchlan Profile picture for user slauchlan November 25, 2013
Rumours of death around Business ByDesign, but is poor communication to be blamed as SAP continues the transition to the cloud?

Big week for anniversaries, what with the half century commemoration of JFK’s assassination and the more upbeat celebrations for Doctor Who’s 50th birthday.

Meanwhile up in Birmingham, the UK and Ireland SAP User Group is a comparatively spritely 25 years old, a milestone commemorated by SAP co-CEO Jim Hagemann-Snabe turning down a meeting at Downing Street - and I’m intrigued what that was to be about! - in favour of addressing the company faithful at this year’s annual conference.

His keynote address ticked most of the usual boxes such presentations do these days - it’s about mobile, it’s about cloud, it’s about HANA and it’s about not neglecting ‘the core’.

No reference was made to the comments he made last week at a Morgan Stanley investor conference in Barcelona which caused a bit of a stir when he raised the prospect of accelerating the firm’s push towards the cloud even though it would have a short term negative impact on revenues.

In the first nine months of this year, SAP generated 547 million euros in cloud subscriptions and support revenues.

It has a target for revenue of 750 million euros from this field for this year, while aiming for 2 billion euros by 2015.

Hagemann-Snabe said:

“We have a situation now where we see the move to the cloud particularly in certain markets like North America happening even faster, and this is a great opportunity for us to revisit whether we should accelerate the move to the cloud.

"This would have impact on the 2015 level, I don't expect enormous impact but it would have some impact because you are delaying some revenues.

“However in a 2017 time frame you would have more than that back, so I think it would be the right thing for the company if we had the opportunity."

Hagemann-Snabe's’ comments came in a a short statement which was part of a much wider conversation, but of course any mention of negative impact on financials catches the eye of a twitchy investor community.

Barclay’s analysts Raimo Lenschow and Gerardus Vos had previously struck some cautious notes in an otherwise relatively upbeat note to clients when they warned of a bumpy transition:

During this transition to the cloud, license will see greater volatility as SAP moves away from large license deals, also resulting in a declining core business. As new growth is likely dilutive, we expect the 35% margin target to be revised.

Techmarketview’s Angela Eager picked up on this:

Two immediate thoughts occur: that SAP cannot afford not to make the change – suggesting this is an unofficial statement of direction; and (assuming the market buys into SAP cloud solutions) it could be understating the potential financial impact.

Two consecutive quarters of lower licence revenue  and questions around Business ByDesign indicate SAP needs to be proactive.

Communicating cloud

Earlier today I sat down with Sven Denecken, SAP VP of Cloud solutions, where the subject of communication around the firm’s cloud strategy came up as a result of Hagemann-Snabe’s comments.

Denecken was pretty upfront about the need for SAP to pitch its message to customers and the market correctly with the tacit admission that perhaps this hasn’t always been the case, particularly in relation of the status of Business ByDesign.

I suggested to him that there had been a degree of miscommunication around the decision to roll ByD under a wider platform initiative which left the door open to rivals such as NetSuite to call time on the SAP offering.

Denecken conceded:

“The move to a single platform sometimes causes rumours.

“What we did with ByD leaked out and there was an issue with communication.”

He emphasised that there was no move to ditch ByD or to lose the brand even if it hasn’t achieved the success with customers that had once been predicted for it:

“There has been no decision to kill the brand. That would be weird to give out that communication.”

As for falling short of the number of subscribers at this stage, Denecken shrugged:

“We have around 1000 customers. Of course that’s not in relation to the numbers we said there would be a few years back.

“We over-estimated what was going to happen in the mid-market. You won’t hear us talking about numbers in that way.”

He added that the hybrid approach to the cloud taken by SAP leads inevitably to a more complicated set of messaging than cloud pure-plays have to manage, alluding to’s famous mantra:

“I think there’s a simple message if you’re going to say ‘forget everything you did so far and go to the cloud’. But I don’t buy that. We don’t want to go back to that sort of ‘no software’ message.”

More from Denecken on SAP’s cloud push tomorrow.

Disclosure: at time of writing, SAP is a premium partner of diginomica. 

A grey colored placeholder image