German enterprise software development company SAP has mentioned that it plans on selling more SaaS based software than traditional software by the year 2020. The announcement by SAP’s CFO highlighted SAP’s commitment to offering its innovative enterprise solutions using the cloud.
SAP CFO Luka Mucic mentioned, “By the end of the decade, latest, we will drive more revenue from new cloud business than software licenses.” Mucic also noted the long term contracts already in place will stake make up much of SAP’s revenue. Mucic also noted that profits for SAP “Will shift very quickly in favor of the cloud business model.”
SAP’s directly competes with SalesForce in the enterprise SaaS market. SAP has bolstered its product lineup by spending over $13 billion USD in acquisitions. With these acquisitions, SAP has been able to offer more products to businesses. In recent years, SAP has offered cloud products for human resources and purchasing departments. SAPs solutions help increase workflow and streamline day-to-day processes giving businesses an edge when they adopt the popular enterprise application platform.
Mucic recently posed a stark question, “You may ask why, if the cloud is such a compelling business model, why is no one making money with it?” According to a revenues analyst at HSBC, “Cloud appears break-even today in terms of profitability for SAP.” CFO Mucic’s comments indicate that this should all change by 2020. SAP believes that is more organizations feel the pressure to move into the cloud, they will renew contracts with SAP which will give enterprises access to SAP’s line up of cloud offerings.
Joshua Greenbaum, an analyst at Enterprise Applications Consulting, was quoted by Bloomberg as saying, “Broadly, the problem for SAP is, name the pioneering cloud company that’s profitable. The main companies they have in their sights, Salesforce and Workday, are definitely not. SAP’s goal is to be a major if not dominant player in the cloud and this means they have to beat Workday.”