What follows represents my interpretation of a conversation I had today with Jim Snabe, co-CEO SAP, a brief discussion with Hasso Plattner, co-founder and VIshal Sikka, executive board member plus assorted snippets of conversation with senior SAP policy makers over the last couple of days.
176,000 customers on business applications means SAP does not have to move the sales needle that much in order for an uptick to show in top line revenue.
HANA, which is a big ticket software and services item is moving from hype to reality much more quickly than many of us thought. The introduction of modest (by SAP standards) solutions like COPA accelerator (financial reporting) on HANA will speed up (sic) sales to customers for whom HANA has been out of reach. The new revenue guidance suggests SAP is accelerating conversion, moving rapidly from 1:4/5 to more like 1:3.
Despite continuing grumbles around the cost of maintenance, SAP has done a solid execution job in persuading customers that 22% is a price worth paying through incremental but perceived valuable add ons. That becomes less defensible absent fresh solutions past 2012-13. Even so, when you work the numbers, it becomes apparent SAP's maintenance stream represents a very long tail: like 10-11 years. It's a heck of a soft, fluffy cushion when seen as a 90-95% margin line item.
Its ponderous foot slog towards mobile has turned out to be fortuitous. WithApple recording insanely good numbers, SAP's reach should mean it benefits hugely via the halo effect. I have never seen so many Apple devices being toted in enterprise. There are lots of question marks around execution and SAPs ability to get partners onboarded but SAP is not having too many problems developing a healthy pipeline. It will need to push hard in this areawith developersduring 2012 to make that pipeline as fat as possible.
The real shock is that some SIs are reporting heavy demand for new SAP implementations. That is as in major upgrades coming in at eye watering numbers - think $100 million. This is a short lived benefit for SAP because regardless of what the overall top line looks like, the core Business Suite trendline over time is down, not up. Not a problem in 2012 and 2013 but beyond?
SAP is cautious about the impact of the SuccessFactors acquisition which is currently delayed for unspecified reasons but not connected to regulatory concerns. Flat in 2012 based upon SFSF 2011 numbers? That depends on when the deal is finally closed. We had expected the deal to close by now but the best they can say is 'Q1.' That has to blow SAP's cloud plans off course a wee bit but they have factored in for that very heavily. Downside yes, but tempered by conservative planning and forecasting.
SAP has done a good job rebuilding goodwill with customers and, to a certain extent, developers although that last constituent could do with a good bit of love if SAP is to capitalise on its mobility and HANA potential.
What's not to like?
SAP's concentration on aggregated top line growth masks fundamental problems with keeping sales of the core apps moving along. Everyone knows that outside of the odd opportunistic deal or possible Oracle refugee, those deals are done. However, SAP also knows that if it is to have a credible future it needs to radically rethink business applications. That inevitably means cloud but how does it transition without giving the Street one heck of a fright? Here are two scenarios: