SAP has released its preliminary fourth-quarter and full-year 2015 numbers, reporting a strong rise in cloud revenue and strong sales for the new S/4HANA suite, while setting high expectations for its transition to a subscription revenue model. For those interested, all of the gritty details are available in SAP's announcement. What follows are some of the key takeaways from the numbers, as well as SAP's earnings conference call on the results.
S/4HANA: Momentum, Go-Lives and the Roadmap
As SAP reported earlier this month, it now has more than 2,700 customers for its S/4HANA ERP suite, which was launched roughly one year ago. It was revealed on the conference call that 100 of those customers have gone live so far. Opinions may vary on whether that number is impressive, but SAP global product chief Bernd Leukert believes it is. "It's a testimonial that [S/4HANA is] not just a success in sales, but that the product is robust and mature," he said on the call. The go-lives are spread across companies in nearly every industry SAP covers, he added.
The growth in S/4HANA was decidedly hockey-stick shaped, doubling quarter-to-quarter. While SAP typically closes most of its business in Q4, some of those S/4HANA sales undoubtedly were enticed by a pricing promotion SAP extended through its fiscal year-end.
CEO Bill McDermott downplayed the impact of the promotion. "First of all a promotion isn't going to sell the central nervous system of a company's strategy," he said. "I think we did some reasonably good marketing to entice people to look more carefully at S/4HANA and create a sense of urgency. But the heuristics of that promotion have been embodied in the pricing strategy we took forward."
More than a third of S/4HANA customers are net-new to SAP, replacing products from "legacy players," McDermott added. Lacking in detail on the call was the average size of S/4HANA deals.
SAP shipped a major new version of S/4HANA in the fourth quarter, adding capabilities for logistics and other key areas. During a discussion on the S/4HANA road map for 2016 and beyond, Leukert interestingly sought to dispel the idea that S/4HANA is a direct successor to the Business Suite.
"There is a lot of functionality in Business Suite which is outdated or never got the adoption we expected," Leukert said. "We do not have the ambition to offer each feature and function. Rather we want to extend the digital core and make it ready for the requirements of the future, which are different than in the past."
"There are features we will definitely deliver and there are features nobody's asking for these days," he added. "S/4HANA will be a significantly smarter product, with much more decision support, reflecting the automation capabilities modern software must have." Speech recognition will be incorporated into the product, Leukert added, although he didn't provide more details.
POV: Half of the 2,700 S/4HANA deals came through in the fourth quarter. Therefore, the ink is barely dry on those contracts and it will take some time for customers in this group to ramp up their implementation projects during 2016.
Still, if 2015 was about strong initial sales for S/4HANA, 2016 will be about how easily customers can adopt it and go live, compared to past products. Migrating from S/4HANA from the Business Suite has some foundational requirements for customers to meet, including a move over to HANA as the underlying database.
Time will tell, but SAP has promised a different implementation experience for customers with S/4HANA, thanks to factors such as guided configuration, the ability to drop old customizations, and the availability of a cloud deployment option.
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