SAP recently reported its numbers, and it's not good news. First-quarter sales and earnings missed analysts' estimates, causing the company's stock to fall 1.2 percent. The culprit: the shift to SaaS by IT.
SAP's sad story is consistent with that of other traditional enterprise software companies. Salesforce.com and Workday -- both SaaS products -- are challenging Germany's SAP and its U.S. rival, Oracle.
As Bloomberg reported, "By contrast [to SAP's difficulties], Salesforce in February reported fiscal fourth-quarter sales that grew 37 percent, and more than 200 deals worth more than $1 million as it moves upmarket. In a recent speech at an investor conference, Salesforce Vice Chairman Keith Block said the company is targeting SAP installations at customers as candidates for replacement."
This displacement is not isolated to SaaS. IaaS powerhouses, such as Amazon Web Services, have also set their sights on traditional infrastructure and platform providers. For IaaS, the shift is not yet at the rate of SaaS, but its impact continues to accelerate. Forecasts place global spending on IaaS at almost $16.5 billion in 2015, an increase of 32.8 percent from 2014, with an annual growth rate from 2014 to 2019 forecast at 29.1 percent, according to Gartner's latest forecast.
Look at the growth of traditional enterprise technology, then look at the growth of cloud. It's readily apparent that public cloud services will continue to garner larger shares of enterprise IT's storage, applications, and compute services.
Although traditional enterprise providers have long denied the impact of cloud-based systems, many are now looking to play catch-up, including SAP. As Bloomberg reported, "That has prompted SAP to spend on developing and acquiring so-called cloud-computing services, pushing back a key profitability goal."
In my view, there's no saving these guys. Like many others, I had given them clear advice years ago that this wave was coming. Many paid lip service to the cloud, but they did not make any real efforts to change their technology, selling processes, or culture around the use of cloud computing. Of course, you could argue that none of that would have worked anyway.
I don't I feel sorry for the traditional enterprise providers that have been in business for decades. They missed the obvious signs that, had they acted smartly, might have saved them.