What’s behind SAP’s record results?

Software Asset Management Evangelist David Foxen, and Snow Software SAP Expert Brian Skiba look at the recent news from SAP; “license renewals has contributed towards ‘record operating profits.’” On Tuesday January 12, SAP announced record breaking operating profits that have been hugely impacted by an increase in license renewals and cloud technology.

News agency Reuters state that: “Contract renewals came on the back of sales promotions late last year to convince existing customers to upgrade to S/4 HANA, the core software platform on which SAP is betting its future”.

SAP commented, “The results were helped by renewals from existing customers of higher-margin, licensed software plus faster-growing, albeit less profitable, Internet-based software and the positive sales impact of a weaker Euro against other currencies”. Snow Software’s resident SAP Expert, Brian Skiba was quick to point out the fact that the ‘record breaking’ operating profits are enhanced somewhat by the global conversion rate, “The USD/EUR rate certainly benefited the company overall, as they report in Euros, which is strong against the dollar at the moment.”

Analysis

Brian Skiba, a SAP expert at Snow who also happens to be a former Wall Street analyst, reviewed the news and thinks that while it is a solid set of numbers, it was not a ‘blowout’ result for the large software company. The strength the company first showed in Q3 carried through to Q4, reflecting the 25% rise in the stock since October.  It is clear that the Cloud business for SAP grew quickly during 2015, but Brian points out all may not be as it seems: “The growth rate of SAP’s business actually decelerated. It went from 100% in Q3 to 75% in Q4. While these results are still good, it does suggest that the trend might not continue into 2016”.

Brian continues to analyze that while the reported HANA numbers are technically correct, they should not be used as an indicator of demand for HANA technologies. He believes that the growth rate of HANA is starting to decline and the HANA numbers are based in part on SAP bargaining hard and aggressively with customers for HANA revenue.

Brian concludes by stating that the results are positive for SAP, but the marketing and public relations department are doing a good job of highlighting the positive aspects.

License Renewals or Audits?

It would be interesting to see if the ‘license renewals’ are actual license renewals or license renewals forced by audits. SAP announced results in 2015 that pointed towards the fact that they actually made more money out of software audits than they did through new business. Audits are a big money-maker for the likes of SAP, a trend that our experts are expecting to continue in 2016.

So while SAP may be saying that the revenue increase is down to ‘license renewals’, all may not be quite as it seems. What it does highlight however is the increase in audit activity by SAP and an increase in the amount of money they are making off the back of such an audit.

This further emphasizes the need and importance of software asset management and SAP license management. It is common place for the management of SAP licenses or assets to be managed outside of the SAM function as it is deemed ‘too complex’ or that ‘SAP admins know more about it than us’. While that may be the case, it is vital that SAM is part of any contact with SAP and any contract or license agreements.

The User-base is SAP’s biggest asset

SAP customers have a long-standing investment in SAP technologies, and that makes it difficult to move away from SAP once it is implemented within the organization. SAP are more than aware of this fact, and actively look to ‘squeeze’ as much money out of these customers as possible. The same could be said for IBM technology: once it is in, it is hard to get it out!

SAP have also been one of the more aggressive vendors in terms of auditing –- performing around 70,000 audits annually – and with a vast number of customers they are regularly making extra revenue through audit streams. This further emphasizes our previous point about whether or not the ‘license renewals’ are actually renewals, or whether customers’ hands have been forced by the dreaded auditors.

Spending too much on SAP licenses

Hand-in-hand with SAP generating a lot of money through software audits, it is clear that SAP licenses should be more effectively managed. Can organizations safely say that when they renewed licenses or license agreements with SAP that they had all of the data and technologies available to drive the best deal for the organization, and not SAP’s bottom line? The likelihood is that customers do not have the resources to stand up to SAP, so they renew ‘as is’ or by what SAP recommend.

One way in which SAM managers or SAP basis administrators can gain control of the SAP estate is through Snow Optimizer for SAP Software. The solution provides organizations the data and tools required to manage the SAP estate effectively and to be on the ‘front foot’ of any negotiations with SAP. Snow Optimizer for SAP Software helps identify what license types are required for users, based on what systems they access and the levels of visibility they need in certain systems. It also identifies duplicate and obsolete users, something the majority of SAP customers are clearly not doing based on SAP’s financial results.  

Are you struggling with your SAP licenses and feel as though you need a helping hand? Get in touch with one of our SAP License Experts today to understand best practices and the technologies available to you to effectively manage your organizations SAP estate.