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SAP S/4HANA Cloud interest increasing

In this Q&A, Jan Gilg, president of SAP S/4HANA, discusses the current state of S/4HANA Cloud and how interest in the SaaS version of SAP's ERP has grown during the pandemic.

S/4HANA Cloud is SAP's SaaS version of its next-generation ERP platform.

The nature of SaaS software enables it to be updated regularly, and S/4HANA Cloud follows a quarterly release schedule, with new features added in each release.

SAP does not provide specific numbers on how many customers subscribe to S/4HANA Cloud, but it claims that the number of users is growing. The latest version -- SAP S/4HANA Cloud 2008 -- went live at the beginning of August, with new features for project-based revenue recognition, supply chain demand inventory management and billing for professional services.

In this Q&A, Jan Gilg, SAP president of S/4HANA, discusses the current state of S/4HANA Cloud adoption. The COVID-19 disruption was a factor in the latest release, as development teams had to negotiate the new reality of remote or home work. This did not affect the release roadmap, Gilg said, and all the updates that were promised were included in the release of S/4HANA Cloud 2008.

What's the current status of S/4HANA Cloud adoption? Have there been significant new customer wins?

Jan Gilg: After Q2, we are now at more than 14,600 S/4HANA licensed customers and 7,400 are live. That's a mix between on premises and cloud. We do not split out the numbers, but we see significant increase in the number of cloud customers, and I believe also during COVID now, there's a clear shift toward private cloud, but also public cloud is growing.

Is there greater interest in the SaaS S/4HANA Cloud because of COVID-19?

Jan Gilg, president of SAP S/4HANAJan Gilg

Gilg: One interesting thing that we've seen is that usage actually went up for existing customers in the cloud during COVID. We're not sure why that was, but people are working from home and logging in to the system more than ever. We're seeing a lot of inquiries in cloud in general. First, from a commercial perspective, customers are understandably shying away from large upfront commitments right now and they're looking more for a subscription model. So that's definitely the dominant model at the moment that we're seeing.

On the technical side, the promise of fast implementation and standardization is definitely appealing. It's especially appealing for net-new customers that are starting from scratch and want to look into a SaaS solution. For the installed base, it's still on the fence because of customizations that they have. Often, they don't want to start the full transformation yet, but they want to standardize [on the cloud] at some point in time. There's also a little bit of a divide here where installed customers are choosing private cloud whereas net-new are going public cloud.

How are installed customers deploying S/4HANA? Are they fully replacing on-premises systems or maybe using S/4HANA Cloud in hybrid environments?

Gilg: We see all different scenarios, frankly. We see a lot of our larger customers like Colgate and others look into those kind of subsidiary or hybrid scenarios, where you run either a subsidiary or maybe a specific M&A [acquired company] on the cloud. We see that quite a bit, but we also see that primarily upper midmarket companies go with the entire system into SaaS. If you talk about the Fortune 500 or Fortune 1000 companies, most of them are still looking into private cloud and on-premises set ups.

What's the breakdown of deployments that are public cloud versus private cloud?

Gilg: Primarily, the installed base is focusing on private clouds, and we don't see as much net-new going into private cloud. That actually matches what we see from analysts that the market is clearly going into the SaaS cloud and that's what we see when we talk to new customers and some of the fast growth companies. They're all looking into fully SaaS ERP solutions. In our installed base, there's quite some interest in the private cloud, but they often also think about doing this maybe for a part of their business and take the opportunity to keep a portion public but keep the core in a private cloud. At the end of the day, it's all about the business value. The pure technical conversion is often something that's not enough and then companies are looking for the low-hanging fruit and where they can leverage and capture value right away by doing this move, even though it might not be a full move into SaaS.

How is S/4HANA Cloud comparing with the competition, like Oracle Cloud and others?

Gilg: From my perspective, Oracle Cloud is really the main competitor in terms of the breadth of what it offers. We just saw the IDC MarketScape come out and we've been pretty much head-to-head with them in the leader quadrant from a capability perspective. It's very close from my point of view. I don't know Oracle in detail, but from what I hear talking to customers and so on, I think it's very comparable. Then you have companies like Workday that are very strong in HR. They're getting into finance, which is really more like what we call the admin ERP or financially driven ERP space. But I believe we have superior functionality in finance, and through the integration into SAP SuccessFactors, I believe we have a really strong proposition now in combining those. It's still technically -- and probably commercially -- two different solutions, but they have been integrated end to end from the user experience all the way down to the technical level. We continue to work on that, and in the cloud, I can see that this could be offered as one solution at some point in time, specifically combining HR with SuccessFactors and S/4HANA Cloud.

The last version of S/4HANA Cloud included the integration of Qualtrics. Will this continue now that SAP has decided to spin Qualtrics off?

Gilg: Yes, it's definitely going to continue and specifically for what it did in terms of product experience for S/4HANA itself. We are collecting feedback for S/4HANA Cloud from what our customers and the implementation partners send us. What we have done internally is to combine that with usage data, which we are collecting anyway from our cloud systems, and created some pretty interesting correlations there. For example, we can see the correlation between feedback that was sent in and integrate certain events in the lifecycle, whether it's an upgrade or whether it's a number of issues like a higher volume of tickets. We've started to build some correlation here and product management is actively looking into that. So, we are really using [Qualtrics] as a tool and it's certainly something we want to also make available to customers. On top of that, we've created a whole series of use cases that we want to embed in the product itself and ship to the customer, not only for them to give feedback on S/4HANA Cloud, but also for them to leverage it in their business. That will continue despite the announcement. We've pretty much aligned our roadmaps with Qualtrics together, and we're going to continue marching down this path, which is pretty promising.

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