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Cloud Continues to Lead SAP Growth: SAP Sets Aggressive 5-Year Outlook

by Rizal Ahmed, Chief Research Officer, SAPinsider

January 29, 2019

On January 29, 2019, SAP officially announced its financial results for Q4 2018 and the full year of 2018. Cloud revenues continue to power SAP’s overall revenue growth — SAP reported that cloud revenue for the year reached €4.9 billion and overall revenue edged up 5% to €24.71 billion. Overall cloud and software revenue fell 1%, however, as even the strong cloud growth couldn’t make up completely for a fall in on-premise software demand.

“In 2018, SAP hit or exceeded all guidance metrics, even after multiple raises,” reported SAP CEO Bill McDermott in SAP’s quarterly statement. SAP is riding a wave of momentum on its cloud software solutions and is seeing accelerated movement toward its flagship ERP offering, SAP S/4HANA.

Interest is also on the rise when it comes to the SAP Leonardo, SAP Digital Platform, and SAP C/4HANA product portfolios. Customer Experience revenue grew 52% year over year, and with the recent closure of its Qualtrics acquisition, SAP is setting its sights on bringing its long-standing hold on operational processes together with customer and experiential data.

Other highlights of the announcement include:

  • New SAP S/4HANA licenses: SAP announced that the number of SAP S/4HANA licenses has grown to approximately 10,500, and that in Q4 2018, over 40% of new SAP S/4HANA licenses were net new. It will be interesting to dig in a bit further to see if these net new customers represent enterprises or small and mid-sized businesses. Look for SAPinsider to shed more light on where our audience is with SAP S/4HANA in our upcoming state-of-the-market report on SAP S/4HANA migration, due out in March 2019.

  • Increased SAP SuccessFactors Employee Central adoption: SAP revealed that it now has more than 3,000 SAP SuccessFactors Employee Central customers. Adoption of this cloud-based solution is critical to SAP’s protection of its installed base. SAPinsider is in the process of talking to our HR audience about their own move to the cloud and will be able to report our insights in March 2019 as well.

  • A cloud-based five-year outlook: SAP expects a significant acceleration of cloud growth over the next five years. SAP is now forecasting that it will triple cloud revenue to €15 billion by 2023 and expects total SAP revenue to be at €35 billion by then. This means that in a few short years, SAP expects cloud to be 43% of total revenue.

  • A restructuring within SAP: SAP is offering early retirement to groups of employees and will also be moving people around as it updates its skillsets to support the growing emphasis on cloud, big data, and SAP Leonardo. Expect the restructuring activity to be heavy in the first quarter. Despite the restructuring, SAP says that it still plans to hire aggressively in 2019.

So, what does all of this mean for our SAPinsider audience? Here are some things to think about as you create your own plans for this year:

  • Make sure you understand cloud at a deeper level: As we learned from our recent survey, most enterprise companies are already supporting a hybrid environment. Expect cloud applications and other offerings to become a lot more attractive and essential in the immediate future. This means you and your teams need to understand how to work with cloud vendors, negotiate cloud licensing, prepare for integration, and secure and manage data, to name just a few key areas. Our upcoming state-of-the-market report on cloud adoption will share more about the skills, benefits, and challenges you can expect to encounter.

  • Learn enough about SAP S/4HANA to make informed decisions: Even if you have no immediate plans for SAP S/4HANA, you’ll need to be informed enough to make decisions about it in the coming year. SAP is prioritizing all new features, functionality, and business benefits for SAP S/4HANA, and the end of support for SAP Business Suite is still slated for 2025. That may seem like a long time from now, but this migration project can be complex, especially if you have a lot of custom configurations and code. Understand now what you’re up against so at least you’ll be able to make an informed decision.

  • Look at your team’s skillsets: To prepare for these new technologies and to support the SAP solutions of the future, you and your colleagues are going to have to face some steep learning curves and also hire for new skillsets. In addition to the cloud challenges I mentioned above, data management, analytics, data science, integration, machine learning, and blockchain are among the new types of skills that will be in strong demand in the coming years. SAPinsider will be drilling into this more in a few months as we tackle the topic of balancing operations and innovation in today’s IT organization.

Bottom line: SAP expects significant growth going forward, and SAP customers will need to be prepared for change. SAPinsider is ready to guide your journey.


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