Always with the cloud computing! With “Cloud First” and “Cloud Only”, Bill McDermott put all of his eggs into one basket – now he can only hope that they didn’t break. At first, SAP’s quarterly figures seem to back McDermott’s cloud strategy up, as the cloud-related key figures are growing substantially more than the market average.
SAP seems to be doing something right with cloud computing. However, there is one tiny flaw: Although all cloud-related figures are reaching record highs, SAP’s contribution margin is decreasing. Meaning that SAP is earning less and less money.
For anyone worrying about our dear SAP: The decreasing margin is no real reason for concern, as there is still enough money to increase the annual dividend of shareholders.
However, the decreasing margin is responsible for lower stock prices. Not that great for Bill McDermott who promised to triple it. Furthermore, the salary of SAP’s CEO depends on the stock price, which means that this new development is painful for him to watch as well.
What happened? SAP is tampering with its figures! Tampering with licenses, users and installations is a tradition in Walldorf, SAP’s headquarters.
One example would be Hana. The genius but still immature data base had a very bumpy start as well, seeing as there were many different, already established offers from IBM, Microsoft and Oracle. Vishal Sikka, then SAP CTO, came up with the Hana Adoption Program.
The Hana Adoption Program
With a couple of million dollars, SAP created Hana installations and artficially kept them alive – and for every Hana project, it cashed in on a licensing fee according to the price list. On paper, SAP therefore had a massive revenue growth with its new data base.
What does this actually mean? Let’s suppose a SAP customer was interested in Hana, but did not want to pay for licenses. A SAP partner would then come, install Hana for the customer and pay the licensing fee to SAP – but would later be refunded for it. Hana was therefore installed, up and running and contributed to the Hana revenue account – an obvious win for everyone involved!
The Hana Adoption Program was worth more than a hundred million euros, and the SAP press team was praising the fastest growing data base on the market – a pyrrhic victory over Oracle, IBM and Microsoft.
Cloud computing adoption program?
It is therefore reasonable to wonder if something similar is happening with SAP’s figures regarding cloud computing – maybe even at the expense of on-premise systems.
Undoubtedly, SAP is contributing everything to the cloud revenue account that is even just reminiscent of on-demand computing. SAP customers just have to say cloud computing and SAP will bestow unearthly riches in the form of discounts and service credits upon them.
SAP has a lot of star money in its cloud. Whoever wants to remain grounded in their own data base does not get any of it. The 2018 edition of the fairy tale The Star Money is titled multi-cloud. SAP can only hope that it did not back the wrong horse with this approach, as the global IT trend at the moment is going towards hybrid cloud.