SAP cloud migration effort enters new, accelerated phase

This could be a watershed year in the long history of SAP cloud migration.

After promising to transform SAP into a "cloud first" vendor in 2021, even at the cost of short-term financial pain, company executives put their money where their mouth is. On January 27, the company launched an ambitious subscription service, Rise with SAP, designed to entice customers to S/4HANA Cloud, the SaaS version of SAP's latest ERP platform.

With its new subscription service, SAP said it will serve as a single point of contact for the customer, coordinating the cloud infrastructure, partner relationships, consulting services and integration work needed to effect digital transformation by moving on-premises SAP ERP to S/4HANA Cloud.

With migration made easy -- or easier than it was -- the question remains how many customers are finally ready to "rise" to the occasion and move to S/4HANA?  In this podcast, Brian McKenna, business applications editor at ComputerWeekly, Jim O'Donnell, news editor of SearchERP, and I assessed the current state of SAP cloud migration, including SAP's unveiling of Rise and a revealing 2020 earnings report.

SAP cloud migration ramps up

SAP has been crystal clear that its priority is moving more customers to its cloud properties, including services like Concur travel and expense and Ariba procurement. The 2020 figures showed SAP made good progress despite the depressing effects of the COVID-19 pandemic, with cloud revenue rising 17%. Cloud now represents nearly 30% of SAP's total revenue, a substantial rise from the low teens of just a few years ago.

Despite the rosy figures for S/4HANA adoption that SAP touts in its quarterly earnings releases -- a figure that reached 25,000 by the end of last year -- it is widely recognized that far fewer have actually implemented S/4HANA, and of those, most have gone for the on-premises version.

That's of concern because nearly every ERP vendor and industry analyst deems SaaS to be the future: It is easier to maintain and upgrade with the latest technology than on-premises software, not to mention more profitable to vendors over the long haul.

In the earnings call, SAP CFO Luka Mucic said S/4HANA Cloud adoption now totaled 3,300 customers, 2,000 of which are running the software. That's still a small number compared to the tens of thousands that own SAP on-premises ERP, but one that Mucic predicted will grow even faster with Rise.

Getting a rise out of SAP

Despite SAP's pitch about Rise helping customers speed up digital transformation and build an "intelligent enterprise," S/4HANA Cloud is the only ERP vehicle being offered. So, isn't Rise, in a sense, just another attempt to get customers to move to S/4HANA Cloud?

I asked SAP CEO Christian Klein that question in a Q&A the day of Rise's launch. He responded with a sweeping statement about the ongoing "transformation journey" of SAP customers.

"This new offering is just making sure that once you are doing the migration, you also keep the end user in mind," Klein said. "For me, it's just about making sure the customers see the value out of it."

In an interview for the podcast, Holger Mueller, principal analyst and vice president at Constellation Research, called Rise a good offering overall. He said it differs from past SAP cloud migration programs by emphasizing what the vendor calls "business transformation as a service" and by allowing customers to transfer part of their on-premises license to Rise.

But Mueller questioned SAP's decision to launch Rise during the pandemic, which he said has either sharply depressed companies' revenues or boosted their business -- both bad times for an ERP implementation.

"Even if SAP had the most attractive, no-brainer offer -- which they certainly don't have right now -- they wouldn't see a lot of adoption, unfortunately, at least in the first half of 2021," he said. Lingering doubts about the completeness of S/4HANA Cloud also hold some companies back.

Dogfight in the clouds

Rise's name echoes the Oracle Soar program that SAP's archrival introduced in 2018. Likening Rise to Soar is "fair enough," Mueller said, but there is a fundamental difference. Oracle maintains a program called Applications Unlimited that gives customers a continuous roadmap for staying on their current products and puts Oracle under less pressure to move them to the cloud. In contrast, SAP has established a "hard cutover" for moving to S/4HANA, though it extended the original deadline by two years to 2027.

Certainly the vendor can count on its nemesis to rain on its cloud. From the debut of S/4HANA Cloud in February 2017, Oracle executives have derided it as not a true cloud -- read, SaaS -- offering. CTO Larry Ellison repeated the claim this month during an Oracle virtual summit touting the superiority of Oracle Cloud ERP.

"SAP doesn't really have a cloud ERP system," Ellison said. "They really have not rewritten their ERP system for the cloud."

Is that accusation fair? Mueller said it's true that SAP has not rewritten its ERP starting with line 1 of the program code, the way Oracle did with its Fusion Applications. And ABAP, SAP's longtime programming language for S/4HANA and other applications, "is not itself the language of the cloud," he said, and lacks the cloud's scalability.

But both vendors are correct to run their multitenant SaaS applications on top of a single-tenant database, according to Mueller.

The multitenant SaaS approach first popularized by Salesforce two decades ago is no longer the correct approach, he said, because it didn't allow the customer to change databases and wasn't accessible to business intelligence tools.

Mueller credited SAP for being honest with its customers about the challenges of SAP cloud migration and with investors about the likely revenue hit as on-premises licenses give way to SaaS subscriptions. SAP has a history of doing these major "resets," he said.

In retrospect, those leaps of faith have apparently paid off. SAP is today Europe's biggest tech company, with 27 billion euros (approximately $33 billion) in annual revenue.

To hear the editors' discussion and Mueller interview, click on the podcast link above.