It wasn’t part of a fancy multimedia announcement. No press release mentioned it. And there was no globally choreographed rollout.
But the recent remarkable agreement that allows Microsoft to begin selling SAP’s enterprise cloud applications will have a massive impact across the entire technology industry by opening the way for innovative go-to-market strategies that might defy industry conventions but will certainly generate more business value for customers.
Let’s take a look at what this move means for each company.
For SAP, Closer Partnership with the World’s #1 Cloud Company
The breakthrough agreement came about as part of larger discussions around SAP’s desire to work more closely with its hyperscaler partners (AWS, Microsoft and Google Cloud) to make cloud-migration projects simpler, faster and better for customers. Here’s why that’s so vital for SAP:
- While Amazon’s AWS unit continues to be described as king of the cloud, it is in fact Microsoft that is the world’s #1 enterprise-cloud company. Microsoft’s annual cloud revenue is about 6x as large as SAP’s (and about 25% larger than AWS’s, btw). So the partnership gives SAP additional exposure to high-growth cloud opportunities that it could not have accessed on its own.
- Toward that end, Microsoft is “staffing up hundreds of dedicated SAP practitioners inside Microsoft to sell those [SAP] solutions,” said Judson Althoff, Microsoft’s executive vice-president of worldwide commercial business, during a small meeting at SAP’s Sapphire event last week.
- The two companies bring unique and complementary technologies and capabilities to the marketplace in their version of the Embrace program: Microsoft offers its high-growth Azure infrastructure, data-management, security, IoT and other cloud services, while SAP offers what Microsoft lacks: world-class enterprise-strength applications across all LOBs and industries. And SAP might very well have the fastest-growing apps business in the Cloud Wars Top 10.
- In addition, at a mega-scale, the two companies offer solutions spanning what Microsoft CEO Satya Nadella calls the “entire digital estate” that customers are operating: from Office 365 Commercial and Microsoft 365 all the way out to the SAP ERP applications that run huge chunks of the global economy. And while some analysts pooh-pooh those offerings from Microsoft as somehow being something other than cloud, business customers see and are embracing the enormous value of these connected cloud solutions.
For Microsoft, Tighter Collaboration with the World’s #1 Enterprise-Applications Company
- The Embrace program builds on a 25-year relationship between SAP and Microsoft. And it gives Microsoft even greater access to and context with the world’s largest businesses across every industry.
- As more and more of those companies accelerate and expand their cloud journeys, they could well find great comfort in knowing that SAP and Microsoft are not just working loosely together but are developing highly optimized plans for guiding those journeys in terms of reference architectures, cybersecurity priorities, digital-transformation preparedness, industry requirements, legacy-technology status, and more.
- And the very fact that SAP has given Microsoft the permission to not just work with or support SAP’s cloud applications but to actually sell them—as deep an expression of trust as this business can offer—will surely give customers a great measure of confidence as they evaluate the SAP-Microsoft partnership as one of their cloud options.
For the Cloud Industry: New Opportunities to Pursue
- Microsoft’s already shown itself to be well out ahead of other tech companies in its highly innovative and customer-centric go-to-market capabilities. Two primary examples: corporate customers that have created solutions around Azure can approach Microsoft about having Microsoft’s sales organization sell those solutions to other businesses. And, Microsoft’s vast partner network has the same opportunity for enlisting Microsoft’s sales organization in selling innovative Azure-based solutions partners have developed.
- Keep putting the customer at the center of everything: had SAP not chosen to pursue tighter collaboration with its hyperscaler partners in order to create better, faster and more-secure outcomes for customers, the idea of actually letting Microsoft sell SAP cloud applications would never have surfaced.
- The competitive balance of the industry will shift with these new and tighter relationships SAP has created. It will be fascinating to see how the other major cloud-applications vendors such as Salesforce, Oracle and Workday respond. One outcome is certain: customers will benefit from the broader and deeper alternatives that vendors are offering, and from shouldering less of the integrate-everything burden they have had to carry in the early years of the cloud.
Finally, it’s important to note that while Microsoft has certainly been the most assertive and aggressive of the hyperscalers in endorsing SAP’s Embrace program, it is not exclusive to Microsoft: Amazon and Google Cloud can both work out their own terms of engagement with SAP.
No doubt, those excellent companies will come up with some intriguing new wrinkles of their own.
We’ll be sure to keep an eye on this highly disruptive front in the Cloud Wars.
Disclosure: at the time of this writing, SAP and Microsoft were clients of Evans Strategic Communications LLC.
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