What would Dear Darwin say to SAP?

MUMBAI, INDIA: There are two kinds of changes that confront a well-endowed species. First, wherein you squat for some air and coffee on the highway, wear work gloves and change a tyre. Second, where you are ready to wear a scary scrub and lie down for a heart transplant.

Mutations sadly, never allow any anesthesia to cushion the blow of evolution. Changing a visceral organ without the luxury of dozing off is both painful and a butt of collective wonder-mixed-with-generous-cynicism.

Despite the tug-of-war between naysayers and cliff-pushers; SAP has taken the Cloud gauntlet well and inked the writing on the wall boldly instead of walking leisurely up to some dead-end. It has tried its best to sniff the unrelenting need for a new Cloud DNA amidst all contradictions, confusion and mirage of opportunities that this force presents.

‘Survival of the Cloudiest’ echoes across when we see SAP’s fascinating balancing act with extending maintenance of Business Suite to 2025 or continuing existing roadmaps even as it continuously restructures internally towards Cloud, works on on-premise to cloud integration pieces, acquires quintessentially-cloud companies and shakes up its portfolio to a new level altogether with organic stars like HANA Cloud platform completing the helix of a new era.

Yes, its cloud subscription and support revenue and cloud revenue outlook as per the latest report-card has considerably grown, but profit forecasts seem to have taken a temporary retreat and industry watchers have filled opinion-mills with doubts of how someone used to conventional-software-high-margins would adjust to low-margins-but-recurring-revenue mathematics of the Cloud era.

In a chat with Rajamani Srinivasan, Head of Clouds, SAP India, we try to understand the many strands of on-premise market, Simplicity-wired portfolio, acquisitions like Concur, handshakes like IBM, R&D implications, its India Data Centre investment plan, and the play of margins etc that are coiling up around this new Cloud genome for SAP.

More importantly, how is this transition to a new species playing out without the risk of turning into an unrecognizable alien of sorts?

Why did a company like SAP take the Cloud route and how has the new strategy transpired so far, especially when one differentiates the two models based on the ‘margins’ game?

SAP has always delivered strong performance and our portfolio is rich. With the Cloud trend, everybody is thinking in terms of costs, efficiency and business visibility. For SAP it is an interesting mix of existing solutions plus new forces. The global picture on Cloud shows that the momentum is unstoppable. We have been achieving very strong growth globally and the same is happening in India. In the last two years we have seen triple-digit growth in Cloud and we have a range of customers across multiple industries and from small to large enterprises that have seriously adopted Cloud. Interestingly, we are also selling to non-SAP installed base and winning a lot of deals in that segment.

But if everybody is waking up to Cloud, what makes SAP’s proposition different? Also, where and how well do deals with Hybris, Fieldglass, Concur etc fit in your basket?

Other players may have a transactional focus while ours is more long-term, builds up on our lineage and depth of the market for 42 years and also captures the essence of commercial networks. So if you see, Hybris covers omni-channel networks, Concur covers travel expense network, Fieldglass would entail contract labour network and so on. Our portfolio offers touch points around both internal and external interfaces for an enterprise. It is well-rounded and is based on three significant areas – a broad range o applications straddling across almost every business function, platforms like HANA and a strong community and network presence.

What’s happening with associations like that with IBM?

IBM is a partnership that offers IaaS (Infrastructure as a Service) in the cloud and is at a global level. IBM is also planning a data centre in India so that will expand out scope.

Indian enterprises are sometimes slotted in the ‘wait-and-watch’ stereotype. Has Cloud adoption curve shown the same hesitation?

Cloud is not going to be about size or complexity. Some customers here are taking the hybrid model. The current trend is no more a ‘wait-and-watch’ one but a ‘when’ one as I reckon. In fact, many organizations see cloud as not just some on-premise replacement but as additional-capability deployment. People are going to cloud for reasons like better collaboration, better user interface, more number of users etc.

Has Cloud started catching the desirable ink on numbers in this side of the region? What next would you put on the drawing board?

Well, SAP APJ’s strong performance in Q3 was driven by cloud subscription and support revenue. Non-IFRS cloud subscriptions and support revenue grew by 57 per cent (56 per cent at constant currencies) on a year-on-year basis across APJ. We have 5600 customers in India so far as a mark of our journey all these years. When you look at a few hundred customers in a matter of two years, you cannot stop marveling at the impact Cloud has shown, and next we want to grow at 2x the rate of the market. We can achieve twice the CAGR that this market can offer. We have the most comprehensive solution and the largest installed base in this space so we are confidently aspiring for a lot ahead.

Do you face customer criticisms around the kind of R&D that is going into Cloud, specially the AMC or existing-on-premise upgrade money?

We are spending on new products out of our own cash, and we have never stopped spending on on-premise roadmaps and innovation. Our own customers want to innovate on cloud as well and offer better solutions.

Tell us something about your Run-Simple drive?

Our portfolio is gearing up well on that front, like Simple Finance. This is a very relevant move and promises immediate uptick in ERP market. In India too, the SME segment is very exciting that way, more so with the genre of applications that are required, which are relevant to the market.

What next can we expect?

We have demonstrated significant relevance in private space and are keen to expand in government space. A clear policy is yet to come along but we are gearing up nonetheless. We can also offer hosted-side answers and HANA and are contemplating a data centre in India so that applications can be delivered to government enterprises. All these plans are nascent and under discussions but with the huge base that this segment has and with the vast number of employees and scale it encompasses, we want to be ready to be able to scale to those needs with the data centre.