Cloud and on-premises are equally important for SAP to meet revenue and margin goals, as is tailoring its business model to better address SMBs, said Kelsey Mason, analyst at TBR.
SAP delivered strong third quarter results, growing cloud subscription revenue nearly 29 percent year-to-year and achieving single-digit license and maintenance growth. As a result SAP increased its full-year revenue and margin outlook, indicating that while cloud will make up an increasing portion of revenue mix, now up to 14 percent from 12 percent one year ago, driving addressable market expansion of on-premises offerings such as SAP HANA and SAP Business Suite 4 SAP HANA (S/4HANA) will remain a priority. In particular, SAP will address the SMB segment with a business model conducive to these customers’ needs.
With cloud and on-premises products equally important to achieving revenue and margin goals, SAP will rely on its partners to help convey the business value of its comprehensive and increasingly integrated portfolio spanning cloud line-of-business (LOB) apps, SAP HANA, business network solutions and S/4HANA.
SAP moves outside its core market, expanding SAP HANA into the SMB space using a ‘freemium’ model to increase share of wallet in the long term.
SAP HANA is the core of many of SAP’s corporate initiatives, including S/4HANA and analytics. As such, SAP is creating new avenues to market for its flagship solution to expand its addressable market. In particular, SAP is exploring how to translate the value proposition of SAP HANA to smaller businesses. Given the size of the SMB market compared to the large enterprise space, there is significant opportunity to capture new customers; however, SAP HANA is out of the price range for many SMBs. To help reduce this barrier, SAP launched SAP HANA Express Edition, a free, more streamlined version of SAP HANA.
SAP is executing on a freemium strategy with HANA in the SMB market where, once it gets SMBs on the solution and demonstrates the business benefits of an in-memory database, it can cross-sell its applications and broader portfolio. In addition, since SAP HANA Express Edition only allows developers to build applications that use up to 32GB of memory, there is opportunity for SMB customers to pay for more memory or, in the long term, to upgrade to the enterprise edition of SAP HANA.
SAP creates a multipronged big data strategy with the acquisition of Altiscale, combined with SAP HANA Vora
SAP aims to help enterprises harness and create insights from the massive amount of data created from increasingly integrated IT environments. In September SAP acquired Altiscale, a cloud-based version of Hadoop and Spark for storing, processing and analyzing data. Rather than embedding these services directly into business applications, SAP is taking a platform-centric approach to big data “as a Service,” similar to Oracle’s Big Data Cloud Service. Altiscale will complement SAP HANA Vora, an on-premises solution for processing large amounts of data in Hadoop with other internal business data.
SAP’s multipronged big data approach will enable customers to process and analyze Hadoop data with Altiscale in the cloud, or to do the same on premises with SAP HANA Vora. In the future, SAP will combine the two, allowing customers to take advantage of SAP HANA Vora’s ability to process both internal and third-party Hadoop data, taking advantage of the scalability of the Altiscale Data Cloud. The combination of SAP HANA Vora and Altiscale makes SAP an enticing option, particularly for large enterprises in industries with large amounts of data such as healthcare or financial services.