Expand +



SAP's upgrade strategy and solution revenue growth are intertwined

by Scott Priest, Editorial Director

October 14, 2011

On Tuesday, SAP announced that it was extending support on SAP ECC 6.0 and SAP Business Suite 7.0 to 2020, and would only be introducing new features through quarterly enhancement packages, rather than rip-and-replace upgrades.

"Over the past few years, SAP has improved its ability to deliver enhancements to core SAP systems without forcing customers to embark on a complete upgrade," says insiderRESEARCH senior analyst Davin Wilfrid. "However, customers I have spoken with have all agreed that the best approach to implementing enhancements -- no matter how small -- is to treat them the same as a major upgrade, with all the planning, blueprinting and testing that entails."

The move gathered little buzz -- other than SAP's pronouncement about how innovative a strategy is -- though I found the move to be a little curious.

Obviously, system upgrades equal revenue for SAP, so my first inclination was to think that 1) SAP is putting a lot of pressure on HANA (and Sybase) to deliver financial results and 2) maybe their talk of HANA's pipeline being so exorbitant isn't as exaggerated as many of us thought it was.

Of course, sticking with ECC 6.0 as the main system doesn't mean SAP wouldn't gather any solution revenue. SAP Professional Journal technical advisor Manish Agarwal notes that there is benefit to SAP in this strategy, "The benefit is that the c ustomers would adopt newer functionalities since EHPs are minor upgrades. Through this strategy, SAP is able to gently nudge its customers to adopt newer functionalities and have a more modern SAP system." SAP also provides a free service to help you assess whether certain functionality in an enhancement package is right for you.

Further, outside of its core functionality, SAP has been pushing some solutions that have taken some time to attract the market's attention. Perhaps with a major upgrade completely off their radar, companies will be more inclined to look at, say, the GRC and EPM solutions SAP has developed -- and be more receptive to their benefits.

Another area of opportunity, according to this SAPinsider article, is the original equipment manufacturer (OEM) partnership market. By allowing OEMs access to its software platform, SAP is able to use the resources and thoughts of other companies that can develop applications that better integrate with the core SAP products.

But then today's story came out: SAP pre-announced Q3 software revenue growth of 32%. ZDNet's Dennis Howlett notes that this is unusual, though the market doesn't seem to mind, as SAP was up nearly 3% in Europe as of this writing.

What do these two stories have in common? Surely the idea of maintaining ECC 6.0 until 2020 was decided a while ago, but announcing it right around these financial results seems to connect them. Even without major upgrades, SAP is showing it has reason not to worry about its software revenue. That's only a piece of the puzzle, and Howlett mentions in his article that we should learn more about SAP's individual HANA, Sybase, and BusinessObjects sales in an October 26 investor call. SAP has been a little inconsistent with these numbers to date, but it will be interesting to hear what they have to say. 

An email has been sent to:

More from SAPinsider


Please log in to post a comment.

No comments have been submitted on this article. Be the first to comment!