Despite push, SAP landscapes likely to lean hybrid cloud

As SAP customers contemplate their cloud strategy, there is often a perception that a cloud migration will mean no longer operating on premises.

That, however, is largely a misconception, according to John Appleby, CEO of Avantra, which offers an AIOps platform to monitor and manage SAP. He believes many, if not most, SAP S/4HANA deployments will be a mixture of on premises and cloud and that cloud migrations are more convoluted than straightforward for SAP customers as they try to assess what workloads should go where.

In this Q&A, Appleby discusses the cloud decisions that SAP customers face today; the costs that factor into those decisions; and why SAP's push to get customers to the cloud may not be driven primarily by a company's desire to implement new capabilities, such as AI.

Editor's note: The following was edited for length and clarity.

How does the current state of cloud options look for SAP customers, particularly since Rise With SAP has been available for two years?

John Appleby

John Appleby: SAP is forcing a bit of an inflection point for customers with Rise. While Rise affects business processes, more than anything, it affects your tech stack and how you run your environment. It's making customers think about how they want to run that for the next five or 10 years. They're digging deep in terms of their decisions, and the outcomes are all over the place.

But this is making people think about how they operate their businesses rather than just what's their priority for customer experience or cost reduction. They're thinking more holistically about the landscape and the environment.

Will this SAP environment be cloud centered?

Appleby: The one certainty that I see in the world is hybrid. SaaS is one thing, PaaS is another, private clouds are another and on premises another. Customers are thinking about what the workloads are and where they're going to run them. But there are a lot of customers who are thinking that they've got these big, monolithic and stable business applications, where the load profile is fixed and it's cheaper to run them on premises.

We've got a cohort of customers -- big blue-chip customers -- who are moving their systems back on premises but others who are doing other things. When you layer onto that the 2027 deadline [to end support for legacy SAP systems], which is shaping how customers are making decisions, it's putting pressure on them.

What it isn't necessarily doing is driving a specific outcome. We've got customers who are saying, 'We're going onto Rise; we'll hop on that bandwagon,' but others who are also deliberately saying that they don't have the space to do all this business transformation by 2027. They're going to focus on getting a stable platform now. They are going to sweat that out and make their next decision a little bit later. There's a little bit of everything.

That's interesting that some big blue-chip customers are staying on premises. Is that practical or affordable for small to midmarket companies?

The one certainty that I see in the world is hybrid.

Appleby: I don't think the midmarket is that hybrid. It might be multi-cloud, but I don't think it's hybrid. But once you get past a couple of billion dollars of revenue, you must think carefully about what the cost profile is and what's the benefit of having something in the cloud. There will be legacy stuff that stays on premises forever, and there will be monolithic applications that may well move back to a hosted cloud environment because it's cheaper to lease or to buy equipment from HP than it is to put it in the cloud.

Look at Amazon's model where they're making 30% margins in the cloud, despite the amount they're spending on growth and data centers. Think about all the money that's on the table from a customer perspective. If you have a $10 million a year cloud bill, and you could reduce that to $1 million and pay another $1 million in hosting fees and another $1 million a year on hardware, you're potentially looking at big savings. Customers are going to become increasingly deliberate and nuanced about what loads they run where.

What about SAP's recent statement that AI capabilities and sustainability features will be offered as cloud only?

Appleby: That may be true in theory. The answer in practice is nuanced. You can run your cloud on premises, and you can run Rise on premises. Both worlds can exist in parallel. … What SAP really wants is to move away from customers that are running on many different releases … because the cost of maintenance is phenomenal. As long as they can achieve [reducing the number of versions to support and getting subscription revenue], whether it's on premises, private cloud, public cloud or SAP hosted cloud, it doesn't really matter to them … because they're able to stream the updates now and they can get subscription revenue.

SAP's push to get customers to S/4HANA Cloud is more about simplifying version support?

Appleby: If you take the top 50 SAP customers, there isn't even a cloud system that can run their workload. The biggest SAP R/3 databases -- and the biggest customer still runs Business Suite; they don't run HANA -- the biggest one is over 100 terabytes. That would require a HANA system that's bigger than anything that anyone provides. Practically speaking, they must be flexible, and that's OK.

Jim O'Donnell is a senior news writer who covers ERP and other enterprise applications for TechTarget Editorial.