The Opinion of the SAP Community, MAG 18-12, Satire: The Last

Star Valley Fairy Tale 2018

The number-crunching began at SAP with the corporate acquisitions. Even before that, SAP was not a transparent company, but cloud computing is a crystallization point.

January 31, 2019

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This text has been automatically translated from German to English.

Cloud computing again and again! With "cloud first" and "cloud only", SAP CEO Bill McDermott has put all his eggs in one basket - now he has to deliver: At first glance, the quarterly figures seem to prove McDermott's cloud strategy right.

Almost all cloud-relevant key figures show growth that is well above the market average. Clearly, Bill McDermott and his colleagues on the Executive Board are doing many things better and more successfully than SAP's competitors.

Cloud computing at SAP seems to be working. But there is a significant flaw: While all cloud metrics keep reaching new record levels, SAP's contribution margin is falling - SAP is earning less and less money.

The "shrinking" revenues are not yet a cause for concern because, in total, there is still enough money to increase the annual dividend for shareholders.

But the falling margin is already having an impact on the SAP share price: The share price is falling and is thus well away from the target set by SAP CEO McDermott, who promised at this year's Annual General Meeting of Shareholders to triple the share price. Because a large part of his salary also depends on the share price, the current development is likely to hurt him particularly.

Sterntalermaerchen-Platzgummer — The cartoon by Robert Platzgummer (1975 to 2016) was first published in the E-3 July/August 2012 issue. At the time, SAP Chief Technology Officer Vishal Sikka was struggling to make the in-memory computing database Hana a success, and he invented a Hana adoption program.

What happened?

SAP tricks in an ingenious way! And tricking with license numbers, users and installations has a tradition in Walldorf. Hana as an ingenious but immature database has a difficult start among the established offerings from Microsoft, IBM and Oracle.

The bumpy start was fueled by then SAP Chief Technology Officer Vishal Sikka with a specially invented "Hana Adoption Program."

With many millions, Hana installations were created, invented and artificially kept alive - and quite officially, the license list price was booked for each Hana project. Thus, SAP had - at least on paper - a huge revenue growth with its new database.

In detail: An existing SAP customer showed interest in Hana - but naturally did not have to and did not want to pay any license fees; an SAP partner installed the in-memory computing database at the customer's site and paid SAP the Hana license list price (but was later refunded this amount as a service credit).

Hana is installed, up and running, and the Hana revenue account posted the list price - an obvious win-win for everyone! The Vishal Sikka's Hana adoption program was worth hundreds of millions of euros and the SAP press department was jubilant about the fastest growing database on the market - a Pyrrhic victory for SAP over Oracle, IBM and Microsoft.

It seems reasonable to assume that similar tricks are now being used in SAP's cloud computing - at the expense of the on-premise world?

The fact is that at the moment everything at SAP is being booked to the cloud account that even remotely resembles on-demand computing. As an existing SAP customer, anyone who utters the magic word "cloud computing" will be richly rewarded with price discounts and service credits.

SAP has plenty of star talers in the cloud. But those who eke out an existence on earth in their own data center go away empty-handed. The 2018 fairy tale is called Multicloud and SAP hopes that it has not made a mistake, because the IT megatrend is called "Hybrid Cloud".