Pros And Cons Of SAP's Managed-Cloud-As-A-Service

SAP's Managed-Cloud-as-a-Service (MCaaS) strategy gives solution providers complete control of customer relationships for cloud delivery of SAP, but at a price: SAP sells the enterprise software licenses directly to the partner, who then turns the software into a cloud service for its clients.

The pros are obvious: a solution provider can deliver SAP products as Software-as-a-Service or cloud applications without any interference or reliance from the vendor, and with little worry that SAP could somehow swoop in a take those clients direct -- under the MCaaS model, the partner is the name on the licensing contract so SAP has no information about the end-user client.

[Related: SAP's Gilroy On Recruitment: We Want Partners With Working Capital ]

The major con, however, is a big one: Partners must have considerable cash on hand to buy the enterprise licenses themselves. And as SAP partners already know, SAP software isn't cheap.

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But SAP believes the pros will ultimately outweigh the cons. Kevin Chew, group vice president of Managed Cloud as a Service & Technology Alliances for SAP, said a growing number of partners already are exploring the MCaaS model.

"It's growing meteorically because there are a lot of tailwinds pushing MCaaS," Chew said. "Clients like the model because they get SAP software through 'opex' [operational expenditures] and not 'capex' [capital expenditures]. And partners like it because it gets them into the cloud with a recurring revenue stream."

Chew said another big advantage of the MCaaS approach is that partners can provide more services around the software rather than just hosting the SaaS offering. "There's very low margin and low value in just hosting the software," Chew said. "But when the partner owns the software license, they can provide all of the service and support around it, too."

SAP heavily promoted the MCaaS model during the SAP Partner Leadership Summit last week in Hollywood, Fla., and the company is hoping to recruit more cloud-focused solution providers and systems integrators for the strategy.

But virtually all of the partners adopting the MCaaS model are managed service providers and cloud solution providers, Chew said, rather than traditional software resellers. "It's not the software VARs that are moving to MCaaS," he said. "It's the guys that are already doing hosting and off-premise services. Even if a software reseller knows SAP software really well, hosting isn't their core competency."

Arvind Singh, president and CEO of Utopia, a top SAP partner based in Mundelein, Ill., said he finds the MCaaS model compelling. Utopia already has fully embraced SAP's Hana platform for big data cloud solutions but Arvind sees challenges for putting SAP applications in the cloud with MCaaS.

"It's an interesting approach," Singh said. "On one hand, it's nice to have to have total ownership of the customer from the cloud perspective. But on the other hand, enterprise software licenses are expensive."

To that end, SAP is exploring more financing options for partners to help them secure the enterprise software licenses. SAP channel chief Kevin Gilroy told CRN that his company wants to work with distribution partners to bring more "creative, flexible financing" to channel partners.

"I think in the cloud, and in fast-growth partnerships like with SAP, we need to figure out with partners and potentially with distribution what the playbook is today for capitalizing the channel," Gilroy said. "The traditional way of capitalizing the channel would be getting credit lines through distributors. But with complex software that's a little bit more complicated."