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An analysis of SAP's cloud figures
With its latest half-year figures, SAP has once again underlined its own success story in transforming the company into a cloud-based enterprise: cloud revenues increased by 34%, to more than EUR3bn; more than €470m were generated from SAP S/4HANA alone, according to SAP’s cloud definition. Presenting the quarterly and half-year figures, CEO Christian Klein said: “In Q2, we reached the major milestone of cloud revenues becoming our largest revenue stream for the first time”.
The central ERP product is SAP S/4HANA, and it is certainly no overstatement to say that the success or failure of the entire company depends to a large extent on the acceptance of SAP S/4HANA. According to Christian Klein, there are currently around 20,000 SAP S/4HANA customers, with 6,000 using SAP S/4HANA in the cloud. The growth rates for the number of customers are well in the double digits. All in all, a success story!
However, especially with a view to SAP S/4HANA, it is worth doing a detailed analysis of the cloud figures, because SAP uses the term cloud in a certain way to be able to write its own cloud success story. This clashes with PAC’s cloud definition, which means that we reach a different conclusion in terms of cloud revenues and cloud success.
According to PAC’s definition, cloud revenues can be generated in the segments IaaS, PaaS, and SaaS in relation to the SAP solution portfolio (there are of course other sources of revenue in the services business, but these will not be analyzed here, since SAP is first and foremost a solution company). In terms of the SAP portfolio, this means:
- IaaS revenues are generated, for example, by the SAP HANA Enterprise Cloud.
- PaaS revenues are generated, for example, by the Business Transformation Platform (BTP).
- SaaS revenues are generated by SAP S/4HANA Cloud edition as well as by native SaaS solutions such as SuccessFactors, Fieldglass, Concur, SAP Commerce Cloud, etc.
The preferred cloud-related deployment model for SAP S/4HANA is currently not its SaaS solution (version name: SAP S/4HANA Cloud, see above) but the SAP S/4HANA extended edition (former Private Cloud), which is often hosted as a customer-licensed application on a public cloud infrastructure (e.g. from MS Azure, AWS, or GCP). The latter deployment model is not recognized by PAC as cloud revenue as far as the application part of the deployment model is concerned. We split this delivery model into a service part, which mainly generates cloud-related revenue (Public Cloud Hosted Services, IaaS), and an application part. The latter is assigned to the Application Software Products segment, which actually has nothing to do with the cloud because SAP sells software licenses or software subscriptions (but not E2E SaaS solutions in this case).
RISE with SAP does not change this either, because most RISE contracts signed between SAP and customers are based on the very scenario described above, meaning licensed SAP S/4HANA, hosted on a public cloud infrastructure. RISE only changes the governance structure, shifting it from the customer to SAP. RISE contracts give SAP access to SAP S/4HANA solutions for quarterly upgrades and to keep the core clean. Customization of the core is not possible under RISE contracts.
SAP also includes in its Cloud segment software revenues generated from SAP S/4HANA extended edition licenses which are hosted in a public cloud environment; this also includes, for example, all RISE contracts. PAC does not do this (except for native SaaS RISE contracts). Therefore, the cloud revenues reported by SAP are higher than the revenues assigned by PAC to the IaaS, PaaS, and SaaS segments.
For the 2021 annual results, for example, PAC allocates around 28% of SAP’s total revenues to the IaaS, PaaS, and SaaS segments (i.e., cloud), while SAP reports 33% cloud revenues (for the full fiscal year). The discrepancy is likely to widen in the coming years, as the deployment of licensed SAP S/4HANA software hosted on public cloud infrastructure is expected to increase strongly, while demand for the native SaaS edition of SAP S/4HANA will most likely remain low – and the latter is the only revenue we include in SaaS revenue.
So from PAC’s point of view, SAP’s cloud success story is not as shining as the company likes to present – especially when it comes to its core product, SAP S/4HANA.
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