SAP has great 2011, but cloud is tiny

Jan 25, 2012 | Hot Topics

SAP today announced Q4 and full-year 2011 results that confirm its news release on January 13. In a nutshell, total revenue in 2011 was €14.2 billion, up 14%, while software revenue was just under €4 billion, up 22% from a year earlier (helped by the Sybase acquisition). Revenue in the fourth quarter was €4.5 billion, up from €4.06 billion a year earlier. The company gave guidance for 2012, which we can use as yardsticks for the coming PLM/engineering software earnings announcements. SAP anticipates that software/new license and software-related service/maintenance revenue will rise by 10% to 12% in 2012. In its earnings press conference earlier today, the company said that it won “significant” market share in 2011 (presumably mostly from Oracle) and that its pipeline of potential contracts even stronger than a year ago. The interesting part of its presentation (since PLM wasn’t mentioned) is that SAP is “accelerating” its cloud efforts, in part via its proposed acquisition of SuccessFactors, Inc. for $3.4 billion. To give added visibility to its progress in selling cloud-based apps, SAP is redoing its income statement to separate out cloud subscriptions and support. Until today, cloud subscriptions and support were buried in a “subscriptions” line item. Here is SAP’s slide showing the revamp:
(Image from http://www.sap.com/corporate-en/investors/reports/quarterlyreport/2011/pdf/2011_Q4E_Presentation.pdf) The interesting thing to take from this slide is how tiny SAP’s total cloud revenue is right now. SAP offering is well-suited to the cloud (lots of access, not much real-time computing) and sells to customers with huge, global workforces — one would think these perfect targets for cloud offerings. Yet SAP only saw $18 million in revenue from cloud offerings, a measly 0.15% of total revenue. Yes, this revenue slice did grow 1.5 times as fast as its traditional software line, but that’s hardly the rocket-style growth that many have been positing for cloud-based offerings. SAP believes its total cloud revenue will be €2 billion by 2015. To get from near zero to $2 billion in 4 years is going to require massive adoption, some real product innovation, sales channels … But the company clearly believes that “the cloud is a core of SAP’s future growth, and the combination of SuccessFactors’ leadership team and technology with SAP will create a cloud powerhouse. The acquisition will help us address the top priority for CEOs globally – managing people and talent,” said Bill McDermott, Co-CEO of SAP, when the SuccessFactors acquisition was announced last month. SuccessFactors had around $300 million in revenue for the 12 months ended September 30, 2011, so it alone cannot get SAP to that $2 billion level. It’s quite brave of SAP to post such tiny numbers in an earnings release, and I hope other vendors follow suit now that we know cloud is not quite the rocket-scale market we’ve been told it is/will be/might be. It’s going to be fascinating to watch SAP’s cloud revenue develop and to measure other vendors’ success against it.

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