SAP Eyes Accelerated Cloud ERP Software Sales Through The Channel

SAP is stepping up its efforts to sell its cloud-based ERP applications -- SAP S/4HANA Cloud and SAP Business ByDesign -- through the channel.

And one SAP executive, speaking Monday at the SAP Partner Summit that precedes this week's Sapphire Now conference in Orlando, said the cloud ERP opportunity could exceed the pre-Y2K surge in ERP application sales that was a boon to SAP and other ERP software vendors in the late 1990s.

"Why is ERP cloud important? First and foremost because we are the leaders in ERP," said Rodolpho Cardenuto, who as SAP's President, Global Channels & General Business, is the company's channel chief. "We entered this business 45 years ago and now it's time for us to move our installed base to the cloud from an ERP perspective."

[Related: SAP Reports 34 Percent Cloud Sales Growth In Q1, Continued S/4HANA Momentum]

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Enterprise Resource Planning applications, used to manage a company's core financials and business processes, are generally seen as being among the last categories of applications that businesses are shifting to the cloud. That's because of their business-critical nature, their use of sensitive data, and their highly integrated nature – in contrast to more stand-alone applications such as CRM.

S/4HANA Cloud, a cloud version of the company's flagship ERP application suite, launched in February, and Business ByDesign, SAP's original software-as-a-service ERP application set, debuted in 2007. (The company also offers a cloud version of its Business One software for small businesses.)

SAP is generally targeting S/4HANA Cloud for businesses with 1,500 or more employees while Business ByDesign aims for those with fewer than 1,500.

Other vendors that compete with SAP, especially in the midmarket, are NetSuite, the cloud ERP application vendor acquired by Oracle last year, and Microsoft, which launched its Dynamics 365 cloud ERP application line last July.

Just a few years ago, SAP created some confusion in the market when it gave indications it might discontinue Business ByDesign. But now, the company is positioning it as a replacement for SAP Business All-in-One, a legacy on-premise suite of ERP applications for small-to-midsize businesses.

Channel partners that resell Business ByDesign say they have seen SAP devoting more sales and marketing resources to it. Grant Fraser, CEO of Navigator Business Solutions, a Salt Lake City-based SAP partner and Business ByDesign reseller, said SAP has added more inside sales staff and tripled some marketing resources for the product.

"They are very much focused on Business By Design," he said. While Business ByDesign at times seemed to be an orphaned product, Fraser was confident SAP would realize it needed a cloud product the fill the gap between Business One and S/4HANA. He also speculated that Oracle's acquisition of NetSuite was "a wakeup call" for the vendor.

Nearly all of Navigator Business Solutions' new business is cloud – Business ByDesign and the cloud version of Business One, Fraser said.

While ERP migration to the cloud has lagged, ultimately those migration efforts could exceed in scope the rush of ERP application installations in the late 1990s that preceded anticipated Y2K problems, predicted Sean Thompson, head of business development and global ecosystems for SAP's SMB operations, addressing the 1,500 partners at the summit.

"Since the Y2K days, as we all know, it's mostly been an on-prem game in ERP, " he said. "Cloud is now transforming and the market is really on the move." He said Business ByDesign now has 3,000 customers in 120 countries with 40 percent annual sales growth.

Several solution providers that work with the cloud ERP sets backed that up.

"We see a growing demand for Business ByDesign and S/4HANA Cloud," said Uwe Bohnhorst, chief operating officer at iTelligence, one of SAP's biggest reseller partners.

Thompson touted the services opportunities for partners in helping customers migrate to the cloud, as well as focusing on building intellectual property around cloud solutions. Customers will also need business process change management and digital transformation services that partners can provide, SAP executives said.

Melissa Di Donato, hired in November as chief revenue officer of SAP S/4HANA Cloud, also hammered home SAP's partner-first approach to cloud sales.

"As we build the S/4HANA Cloud business, it's a new end-to-end business here at SAP ... we are requiring that every single one of our opportunities are aligned 100 percent with our partners," she said. As the company reviews S/4HANA Cloud deals, opportunities and forecasts, "the question[s] that we give to all of our sales representatives and all of our leaders is: Which partners engaged; which partners are involved, and whom are we leading with? So we are 100-percent focused on partners leading first."

Di Donato also noted that SAP won't be building solutions around S/4HANA Cloud anytime soon, a task the company will count on partners to do. "So we're going to rely on all of you to partner with us as development partners in [vertical] industries. We're going to rely on you to really create that core message in that white space in our strategic roadmap."

She also said SAP is not creating a services business around S/4HANA Cloud. "We will never compete with you; we're going to go to market with you 100 percent."

In related news, SAP channel executives, speaking at the SAP Partner Summit, said they expect that by the end of this year, 75 percent of the company's cloud software channel sales will come through PartnerEdge Cloud Choice, the cloud partner program the vendor launched last year.

"This is the business model of choice for the cloud business," Cardenuto said.

Cloud Choice Profit offers solution providers that sell SAP cloud software a 20 percent commission for the first-year value of a contract and 15 percent for renewals. SAP also launched Cloud Choice Referral, a separate program that awards solution providers a one-time 10 percent finder's fee when they refer a sales prospect to SAP.

Several channel partner executives, including Fraser at Navigator Business Solutions, and iTelligence President and CEO Steve Niesman, told CRN that under Cloud Choice Profit, sales deals are still on "SAP's paper." They said companies like theirs that have long resold SAP applications would continue to follow that model with cloud applications, taking full ownership of deals.

But Fraser, noting that Cloud Choice Profit helps reduce risk, said his company could leverage that program in some cases, such as when entering a new market.

Many of the partners that are expected to take advantage of the Cloud Choice program are new "born in the cloud" partners that don't follow a traditional reseller model.

SAP plans to recruit as many as 500 such cloud channel partners by the end of 2020, said Karl Fahrbach, SAP's global head of channels.

But Fahrbach emphasized that the Cloud Choice programs in no way signal a shift from SAP's long-time VAR partners. "The biggest competitive advantage we have is the loyalty of our long-time VARs," he said, pointing to their deep market expertise and experience with SAP products.