While Ariba and Successfactors — soon to be joined by Concur — represent around 95 percent of SAP's global cloud revenues, it's a different position in Europe, the company's EMEA president Franck Cohen told diginomica in an exclusive interview last week.
More than half of SAP's European cloud revenues come from other products, he confirmed. The hosted business suite product HANA Enterprise Cloud is the largest contributor, while the remainder of SAP's homegrown cloud stable — its CRM, travel expense and Business ByDesign products — make up the rest. They are all starting from a low base, Cohen admits, but he emphasizes the upside opportunity:
Our cloud business is growing triple digits here in Europe. I think one of the reasons is that those solutions — Ariba and Successfactors — were not so present in Europe prior to the acquisition. They now have access to a very large customer base which I think is quite easy to penetrate, because these guys are SAP loyal customers.
The growth has yet to show through in terms of significant customer wins — existing big names in Ariba's European customer base such as Rentokil Initial predate acquisition by SAP — but there's news to come on that front, he told me.
I think that, starting from very low numbers, it's a great success story. We have been growing much, much faster than the market every single quarter since acquisition.
We signed very interesting companies just in the last three months — very well known names.
SAP is now investing in European sales resources to accelerate growth, he added:
We have decided to double down our effort on this. We're going to double the size of our cloud organisation for Ariba into next year. Because we believe there is a lot more potential and we don't have enough people on the ground.
The key to this growth is unlocking the business potential of the emerging networked economy, Cohen told me.
This networked economy, big data, is not only something that is going to connect machines and offer you, when your fridge is out of milk, to order it. That is not even the tip of the iceberg, this is nothing.
The real networked economy is really how to connect the dots between the different companies in the supply chain. To really change the way you do a lot of this.
One thing is to say, OK, every device is going to get connected. The machines, all your commodity equipment, are going to be online. But the question is, what do you do about this? What kind of value proposition do you get out of that?
We believe that the ones who are going to exploit this data — to understand better what the customer wants, what they don't want, and will be able to personalise the approach and the solution and services they will offer to their customers — will make the difference. That's the whole concept of the networked economy.
SAP is well placed to do well out of this by ensuring that its supplier and spend management networks act as intermediaries to enable these networked transactions. He cited Fieldglass, the contingent workforce management application that SAP acquired earlier this year, as an example.
Fieldglass is nothing else than the networking between the agencies that have profiles available on the bench and the companies that are looking for those profiles. All they do is the intermediation.
It's a beautiful model because it's a win-win for everybody. The agencies love the model, they don't have to spend time to visit, it's online. They can immediately connect that with their own profile. The companies love that because they reduce their costs at the end of the day. And we are very happy to get our small fee in between. That's the networked economy.
Having all the pieces in a single portfolio will be a significant market advantage, he claimed.
We will be the only company in the world that could provide to a chief procurement officer a 360 degrees of his business online. Today, one piece is done on Excel sheets, no matter where you go. You can do direct material with SAP, indirect material with Ariba, contingency labour with Fieldglass, and travel expenses with Concur. You have everything you spend in one single system.
The HANA angle
Inevitably in any conversation with SAP, HANA features as the enabling technology that makes it all work — even though many of the acquired companies are still in the process of moving off their existing database platforms to HANA, a journey that will take some years to complete across the entire portfolio.
Thus the focus of the networked economy conversation when discussing HANA is more on the relationship with customers than on supply networks. Cohen spoke of retailers using HANA to move from batch calculation of promotional offers to real-time processing when customers are in the store or buying from a website.
This kind of operation used to be the preserve of specialist data warehouse systems but is now being piloted on HANA. Cohen told me that food retailer Casino is piloting a system that has improved the uptake of promotions sevenfold by using real-time personalization.
If you enter with your mobile, they will recognize you because you are a frequent shopper, you have a loyalty card, they will know what you bought last time you were in the shop, what you like, what you dislike, through your profile online, and they will give you personalized offerings while you are in the store that are only for you.
It looks very simple, but to do that you have to cross-reference half a million SKUs — items that you have in this large grocery store — with 26 million customers — that's what they have in their customer base — with all the offers that you have from the suppliers at any point of time, with the perishability of the goods that you have that you have to push forwards when you are in the store — and all of that has to be done online, on the mobile, while the guy is still in the store.
You'd better have a good database to do these kinds of things! And that's exactly what we are doing with HANA.
The system uses self-learning algorithms to improve accuracy, he said.
Accuracy is very important. The moment you get that on your mobile and it's not accurate, believe me you're not even going to look at your mobile again when you come to this store. So it has to be accurate, you have no choice.
A European cloud?
I ended by asking Cohen for his take on the European Commission's cloud strategy, where SAP has been one of the companies developing a policy position known as Trusted Cloud Europe. He told me Europe should promote a distinctive cloud proposition.
We do have a different culture where we value data privacy, we value data intimacy, and data protection in general. That's why the cloud solution that will be provided in Europe should respond to a certain level of quality standard.
These cloud businesses today are popping up everywhere not always with the right level of quality and guarantee for data privacy. I think that what Europe should do is, like we have standards for other things, have a minimum level of certification and guarantee that cloud service companies should provide in order to be certified for the European market.
With that I think we would be able to attract more companies that will be less reluctant to move to the cloud. We will give them the right protection and well be able to create a number of jobs that will stay in Europe. If we don't pay attention to that I think the cloud data centers are going to be elsewhere and will offer no protection to the customers.
I see a lot more awareness from the European customers to get the right level of protection before they move to the cloud. I think that will force the European Commission to be much more prominent in developing those solutions and delivering those standards.
The networked economy is a strong narrative to encourage customers to look carefully at what SAP has to offer. But the implied figures tell the real story: SAP's cloud offerings in Europe are still at start-up adoption levels. The vendor has a lot more to do if it wants to see Ariba, Fieldglass and, in due course, Concur taking off in Europe.
Disclosure: SAP is a diginomica premier partner.
Image credit: Courtesy of SAP.