On January 24, 2017 SAP released its results of their fiscal year 2016 – and the fourth quarter thereof. In a nutshell SAP:

• Delivered to its increased 2020 guidance
• Had an increase of 31 per cent in cloud subscription and support revenue, while still being able to increase the software license and support revenue. Cloud revenue increased especially in Q4 and promises to stay at a high level with a very healthy backlog
• Increased its full year operating profit by 20 per cent to 5.12 Billion Euro (IFRS)
• Has a strong backlog of cloud bookings

This success has a slightly negative effect on the company profitability while it negotiates the shift from license revenue to subscription revenue while being in an investment mode. It, however, seems to be driven by an increasing adoption of S/4HANA, a strong increase of the Hybris set of CEC solutions, including e-commerce and increasing traction in the HCM space. So it is broad. Based upon the strong delivery of 2016 SAP expects the cloud business to increase by up to 34 per cent in 2017 (all numbers of course at constant currencies) and increases its guidance of revenue and profit for 2017. In line with this the company is also bullish in its mid term outlook to 2020, which it increases, too.

My Take

Of course the big increase in revenues, expressed as a percentage, is partly owed to the fairly low number. In comparison Salesforce reported 2.14 Billion dollar for their third quarter alone, as opposed to 2.99 Billion Euro for SAP’s fiscal year. Oracle reported 798 million dollars in their FY Q1 report, so should be roughly on par with SAP. Unluckily it is hard to compare Microsoft numbers as they mix their cloud and business software numbers differently and they did not give numbers other than a 13 per cent increase for the Dynamics range of products. Still it seems that SAP has finally found a strategy that the company is able to express convincingly and execute upon. I think the below diagram taken from the release slides shows it pretty succinctly. Based upon a strong platform – the SAP Cloud Platform – SAP helps its customers to use insights to fuel transactions to gain more insight. Customer experience is only one piece of this picture, which correlates with my observations over the past 15 or so years. It also correlates with what then board member to be Bernd Leukert told the attendants of the Wispubs SAP CRM event in Orlando: “SAP is a Supply Chain Company”. Very much to the dismay of the attending CRM people, I must say. The focus of SAP clearly lies within the company and its supply chain. Add security, and industry orientation then one sees a company that is all about business processes and their effective and efficient execution. Published APIs are key for a thriving ecosystem, machine learning and blockchain represent technologies that open further avenues down the road. SAP Digital Business Framework - Source: SAP Sensors and the (Industrial) Internet of things are playing a major role here. SAP acknowledges and embraces this with its massive investment into what has become Leonardo. There is a notable topic absent on this diagram. Artificial Intelligence. This is a strong statement, as I cannot imagine that this is by accident. It is also straightforward. For SAP the intelligence lies within the applications. What is important is the input – loads of data – and the ability to provide and deliver models that can be trained to support specific business processes – machine learning. In any case this absence turns the minds away from a hyped technology to being outcome driven. AI is a means to an end. Simple as that. Friend Paul Greenberg recently searched for Optimus Prime. I think SAP now has established itself as a very strong contender – although I would still be very wary of Microsoft. The company shows a vision for its customers that embraces the whole value chain, with a focus on internal processes and the supply chain, but not neglecting customer facing processes. Combining the technologies that it created (and acquired) over the past three to five years to business applications that enable a real time ‘control’ and intelligent forecasting abilities, combined with efficiency gains is a very compelling vision for business leaders. I am looking forward to observing SAP in the coming years.

On January 10, 2017, SAP announced a bundling of their IoT portfolio of initiatives to focus on business outcomes instead of technology while combining the set of emerging products and solutions under the brand name Leonardo – as in Leonardo Da Vinci, one of the most forward looking artists and innovators ever. This announcement substantiates SAPs commitment to invest two billion Euro in IoT over the next 5 years. The new portfolio will combine adaptive applications, big data and connectivity as packaged line-of-business solutions, covering a range of topics. It bases upon a rebranded – and repackaged(?) HANA Cloud Platform, enhanced by the micro services for machine learning that were announced earlier and which I covered here. This enhanced platform is now called SAP Cloud Platform. As per a blog post accompanying the Leonardo announcement, the high level architecture of SAPs new offering looks like below and covers, besides a set of existing applications

• an IoT adapter – SAP Leonardo for Edge Computing – which serves as a device independent data input layer, essentially a kind of middleware, probably built on or using HCI.
• a foundational layer – SAP Leonardo Foundation – which includes the IoT business services that are to be exposed, enabling rapid development of applications. This makes up the functional core.
• and a ‘bus’ layer – SAP Leonardo Bridge – which enables the combination of real time data with applications and processes

Leonardo High Level Architecture - Source: SAP Leonardo is accompanied by a jump-start enablement program to accompany this initiative. This program includes introductory pricing and is intended to help organizations identify and validate IoT pilots and use cases, including expert staffing and using design thinking methodologies, thus easing the first IoT steps. Of course there will be a launch event to bring together customers, partners, and experts, showcasing innovations and strategies. According to Tanja Rueckert, EVP Digital Assets and IoT SAP with Leonardo connects “things with business processes and with people”.

My Take

This was long overdue. Overdue not only from SAP, but from any and every vendor. IoT is a means, not an end! As Brent Leary very recently said in a podcast with SearchCRM, IoT is still trying to make its way to provide value for businesses. This is imho due to the IoT market being vendor- and technology driven. SAP now takes the lead in tightly integrating technology into business process, and to show a clear path to business value. This fits neatly into the core of SAPs overall value proposition as an enterprise software company and it nicely combines numerous technologies and services that have been developed by SAP in the past years into a holistic piece that can deliver business value. I see this mainly as a rebranding instead of something net new, although there are some new pieces to this solution portfolio. This is also a bit of a concern. SAP now needs to keep up the momentum and deliver new intelligent, IoT based business solutions. What is interesting is the (important) combination of IoT and machine learning, which is mentioned only in the blog post, and which has the potential to make a real difference, e.g., when it comes to distributed intelligence. As a final word of caution, SAP only announced introductory promotional pricing. This means that there are still important open questions about pricing overall, which should be a worry for customers. However, overall this is good news for customers, as with this portfolio of services and technology every IoT investment can be tied to a business case and then business value. I expect that other big vendors SAP clearly takes a thought leadership position here, if not a technology leadership position.

In my yesterday’s analysis of SAP’s HANA announcement, I wondered why SAP stays silent on the AI and MachineLearning frontiers. Well, today I know. They saved this announcement for today. And the announcement is a bang. SAP will deliver what they call ‘intelligent business applications’ that are based upon SAP’s new machine learning platform. The platform itself shall be made available with SAPPHIRE NOW 2017. The first significant intelligent application by SAP that is mentioned, is a brand intelligence application that leverages deep learning to analyze brand exposure in video and images to provide ‘accurate, real-time insights into sponsoring and advertising ROI”. You may remember that SAP earlier showcased an application to reduce recruiting bias, which is based on the machine learning platform, too. According to Juergen Mueller, Chief Innovation Officer at SAP, the new machine learning platform is intended to serve SAP’s and their ecosystem’s applications with the goal of creating more business value. Consequently, there are two more aspects to the announcement.

1. SAP launched a partner program dedicated to SAP Application Intelligence.
2. SAP invests into education offerings, starting with a ‘massive open online course’ on Enterprise Machine Learning on their OpenSAP platform.

MyPoV

This announcement clearly shows that SAP is as serious about machine learning as the company is about leveraging the power of its ecosystem. As I, and many other people, have often said, SAP is a formidable organization if and when it chooses to drive a topic. This is shown here again. And SAP is absolutely on the right track by pursuing this three-pronged approach of delivering a platform with first solutions, encouraging partners, and offering education around their platform. However, there are three concerns. The first one is obvious. As per yet there is nothing really tangible beyond the announcement and a marketing oriented page on their site, which refers to four intelligent applications. Having no doubt about willingness and ability to deliver it appears that SAP is playing catch up with Microsoft and Salesforce here. Second, and more importantly, there is no statement about how the new machine learning platform relates to SAP HANA nor how it is delivered. I can only speculate that this platform is made available via SAP’s cloud services and is not built on or directly using SAP HANA, although I expect interoperability. Lastly, some words about the licensing model and cost would do.