In a recent interview with diginomica.com’s Den Howlett, SAP CEO Christian Klein predicted increasing tension with hyperscalers Microsoft and Google as they move more deeply into applications and gain more control over customer transformations.
The pivotal issue is the radically different technology stack in the cloud versus in traditional on-premises IT. In the old world, one set of companies made the hardware and another set, led by SAP, made the applications. And because the applications ran the business processes that powered the operations of global corporations, the applications companies led the customer relationships.
But in the new world of the enterprise cloud, those boundaries have been erased. Two of the three top cloud-infrastructure players—Microsoft and Google—also offer growing portfolios of enterprise applications. The third major hyperscaler—Amazon’s AWS unit—does not currently offer enterprise applications.
For SAP, that means that two of the top IaaS providers (Microsoft and Google) that SAP depends on to meet the infrastructure needs of its large and mid-size customers are each looking to gain greater control of how customers use technology to transform, evolve and prosper.
Klein: “We try our best to make sure that we are in the lead when it comes to business-model transformation.”
I urge you to read Howlett’s piece to get the full story. It includes not only extensive comments from Klein, but also Howlett’s always-astute analyses.
From the diginomica.com article posted on May 8, here are a few key comments made by Klein in his phone conversation with Howlett:
- “I’m fully convinced that the hyperscalers will also go up the stack. In the partnerships, we are closing, we have to own the business platform, we have to own the application layer. I want to be more prescriptive on that because when you are losing more and more of the control of the customer transformation when you’re not sitting on the table anymore, when they’re making the decision how to transform the business model, then it gets difficult.”
- “I just want to make sure that now in these partnerships, we try our best to make sure that we are in the lead when it comes to business-model transformation, when it comes to talks about how to move the system landscape, the application layer in the cloud.”
- “So, this is something where I would like to to draw a much clearer line going forward. Because in the past, I feel we were not clear enough in some of these partnerships.”
More on the growing SAP vs. Microsoft and Google tension
That “clearer line” could be essential. Microsoft already has a full suite of enterprise applications with its Dynamics 365 portfolio, which is growing at almost 50% and is close to a $2-billion annualized run rate.
And Google’s new line of industry-specific solutions has opened up a huge new category for AI-driven cloud apps. (I analyzed this in Google Launches New Era in Cloud with AI-Powered Industry Solutions.)
Two other related articles offer insights into this impending tension between SAP—which wants to own the SaaS and much of the PaaS layers in these customer relationships—and Microsoft and Google, which Klein would like to see solely focused on the IaaS layer.
Here are the opening two sentences from this article, which explores the concerns that Klein raises in his interview with diginomica.com’s Howlett: “While SAP and Google Cloud currently enjoy an excellent relationship as strategic partners in the cloud, their shared desire to lead the emerging market for industry-specific solutions could cast them as competitors in the near future. Both companies have expressed strong intentions to create for their customers a new type of data-driven application powered by AI and ML and that delivers unprecedented levels of vertical-industry capability.”
In my April 6 article outlining my own conversation with Klein, he spoke of the increasingly strategic role that ERP applications are playing in today’s turbulent world. Klein also said that CEOs across multiple industries are beginning to see how ERP systems can be the cornerstones of not only digital transformation but also ongoing digital innovation. In that context, he said that more and more of those customers are choosing to go with SAP ERP and related applications in the cloud, giving SAP a huge advantage over archrival Oracle in cloud-ERP customers.
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