Q: What is managed cloud as a service?
A: Managed cloud as a service provides customers with subscription-based delivery of proven, on-premise SAP solutions through a partner’s private cloud in the form of packaged and managed services.1 This model makes solutions such as SAP Business Suite applications, business intelligence solutions, as well as SAP HANA and its associated extensions available to customers who want access to SAP software but are unable to acquire those products from SAP, whether for financial, infrastructural, or other reasons.
Along with access to innovation, customers gain scalability, flexibility, and speed. Instead of a big, upfront investment, and time spent during the implementation when the solution isn’t providing value, customers can gain value right away. The customer also has the opportunity to leverage the expertise and scale that an experienced SAP partner can provide.
Q: What is driving the demand for managed cloud as a service?
A: Managed cloud as a service is a natural outcome of the evolution in how end customers want to purchase
“Some customers don’t have the structure or the resources to set up and maintain IT systems, even if they have the money.” — Luis Diaz, CEO, GBT-LAT Capital Solutions
and maintain software. SAP’s offering essentially emerged from the business process outsourcing scenario, where customers would outsource certain business functions, such as payroll, to partners to improve efficiency and reduce costs. Cloud technology allows customers to take the advantages of this approach to the next level. With managed cloud as a service, customers retain the benefits of partner support, lower costs, and increased efficiency, and gain the flexibility of direct access to solutions, along with the ability to look at that software as an operational expenditure rather than a capital expenditure.
The reality is that customers are looking to save money while getting up and running quickly with the technology they need to maintain a competitive edge. Managed cloud as a service reduces the potential complexity, cost, effort, and risk for customers when adopting a state-of-the-art SAP system like SAP ERP, and paves the way to smooth adoption of SAP software.
Q: How does the model work?
A: An SAP partner certified in hosting, cloud services, and application management acquires the solutions from SAP, and via a term license with SAP, the partner then gains the ability to offer the software to its end customers through a private cloud on a subscription basis (see Figure 1). This is a significantly simplified model for customers — from the customer’s perspective, there is one package, one contract, and one vendor. And the partner is more than just a hosting partner in this model. Partners provide customers with substantial services around the SAP offerings, such as customized solutions that are tailored to individual customer needs and application migration, implementation, management, and support services based on industry best practices.
Managed cloud as a service is also not just a generic “let’s offer subscriptions to end customers via SAP partners” model — it’s intentionally designed for scenarios in which a customer wants this kind of delivery mechanism with the industry flavor that a partner might provide. Partners have specialized, high-competency areas in particular industries, and managed cloud as a service allows customers to take advantage of that experience. The ability to leverage partner experience to provide industry-specific expertise for customers is where this model really shines.
Q: What does this mean for customers?
A: Most organizations are looking for the bottom-line benefit, which managed cloud as a service delivers. A VMS study found that, during a five-year total cost of ownership (TCO) life cycle, an average SAP ERP deployment via managed cloud as a service would save 30% over an on-premise deployment, with more than 50% of the savings achieved in the first year.2 Another financial benefit often mentioned by customers is the improved cash flow. The subscription model frees up cash for customers by spreading out payments, making the impact on the balance sheet more flexible. With software as an operational expenditure rather than a capital expenditure, customers have more financial agility to invest in top-line impact projects, such as creating new markets, versus managing the bottom line by investing in IT infrastructure.
“Even in this difficult economy, customers are willing to spend money on business applications, but they are paying very close attention to how those expenditures impact their operating margins.” — Diane Wright Mahoney, Global Head of SAP Alliances, HCL
But the benefits aren’t just financial. Customers receive the implementation services, the hosting and infrastructure services, and the software license all through the same partner, and often that partner has particular expertise in the customer’s industry and competitive profile. A partner can quickly implement and customize SAP ERP for a customer in the mining industry, for example, because that partner has a blueprint for this type of implementation based on its own specialized experience with mining industry best practices. The partner can prebuild the majority of the implementation required for customers in that industry, and then using this blueprint, tailor the rest to each customer. This not only reduces the amount of time it takes for a customer to go live with a system like SAP ERP, but also allows the customer to avoid paying a subscription for software that is not yet up and running, and therefore realize the value of the subscription more quickly.
Q: Where do you see the opportunity for partners with managed cloud as a service?
A: Managed cloud as a service enables SAP partners to take advantage of the massive growth in the private cloud market, which, according to IDC, is set to grow annually at 76% for dedicated private clouds and 49% for virtual private clouds through 2016.3 Partners have a tremendous opportunity to grow their business not only by delivering new solutions and value-added licensing, migration, and deployment services, but also by:
- Creating differentiated solutions based on best-of-breed SAP software
- Providing cloud alternatives to on-premise deployments with operational expenditure versus capital expenditure funding models
- More broadly commercializing their reusable assets and intellectual property
- Creating new high-value service offerings to provide competitive differentiation for their customers
- Becoming a more strategic partner to their customers and building ongoing relationships
In the future, we hope to offer partners even more flexibility and opportunity for business growth. As SAP offers more flexible licensing terms and financing options to the general market, we hope to extend the same benefit to managed cloud providers, and to give them more power over how they deploy the term licenses obtained from SAP. This will allow partners to adapt new models themselves to adjust to new cloud service paradigms and provide their customers more choice in how they consume SAP technology across complex environments.
Q: Are these solutions available on SAP HANA?
“Many clients want the ability to spread the payment terms out over the project life cycle, so they can better manage the cost.” — Steve Shambach, SAP Alliances, North America, Capgemini
A: Yes, today managed cloud partners are taking advantage of the breakthrough power of the SAP HANA platform combined with the simplicity of the cloud solutions. Combining the partners’ domain expertise with an SAP HANA-based business solution designed to meet the needs of the complexity of that industry is the best of all worlds.
Q: How can partners and customers get started?
A: Partners and customers can contact their SAP sales representative directly, or can visit www.sap.com/mcaas, which provides information on how managed cloud as a service helps customers and how partners can get involved.
The SAP direct field, ecosystem, and channels organizations work together not only to identify partners suited for participating in the program, but also to find end customers who would benefit from managed cloud as a service. Sometimes we will connect a customer with an existing partner that is already part of the program, and often we will approach a customer’s preferred partner.
The end result in this model is a tight integration of what the partner provides and what the customer needs — and SAP’s goal is to ensure a successful relationship between the two. SAP will work with the partner to provide industry-standard certification based on high-quality data-center best practices, and will work with the customer to secure an appropriate partner based on that customer’s unique needs. Participation in the program is a very collaborative process in which the priority is to deliver the maximum advantage to the end customer.
1 For more details, see “Managed Cloud as a Service: SAP’s On-Premise Applications Delivered as Cloud Solutions by Trusted Partners” by Mitchell Kick in the October-December 2013 issue of SAPinsider. [back]
2 VMS AG, “SAP Managed Cloud as a Service (MCaaS): The Impact of MCaaS on the Total Cost of Ownership (TCO) of Running SAP” (July 2013; http://bit.ly/1lk80Z6). [back]
3 IDC, “Worldwide Hosted Private Cloud Services 2012–2016 Forecast: New Models for Delivering Infrastructure Services” (December 2012). [back]