Large Enterprise Adoption Of SAP HANA Could See Expansion Only In The Long Term

German-based SAP SE (NYSE:SAP) is the largest European enterprise software developer globally, with annual revenues crossing $22 billion and a market capitalization of nearly $92 billion.The company is most well-known for its flagship Enterprise Resource Planning (ERP) software offerings, which generate over a fourth of total annual revenues. Apart from ERP software suites, SAP also develops software for Supply Chain Management (SCM), Business Intelligence & Data Warehousing (BI/DW) and Customer Relationship Management (CRM) markets.

In addition to these application software offerings, SAP has ventured into the relational database management software (RDBMS) market with the launch of SAP HANA in 2011. HANA, which is short for High-Performance Analytic Appliance, is an RDBMS offering from SAP that combines database, data processing, and application platform capabilities in-memory. In other words, the entire data base is loaded from storage into server memory for real time analysis, rather than being processed in increments through repeated read-write activity with storage.  Last fiscal year, the company derived approximately €633 million in revenues from the sale of SAP HANA software.

So far in FY2014, SAP hasn’t provided a quarterly breakdown of HANA sales with a comparable base from FY2013. However, the recent quarterly report from SAP suggested an improvement in HANA adoption rates from customers through its bundled offering strategy. Below, we take a look at the HANA offering and its uptake from customers.

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Bundled Offerings Boost Customer Adoption

During the Q2FY14 earnings conference call, SAP reported having more than 1,200 customers on Business Suite powered by SAP HANA with large customer wins such as eBay, Siemens, Bosch, Carlsberg and Giorgio Armani. ^[1] Additionally, SAP noted that the number of HANA implementation deals exceeding €5 million have increased by 7% on a comparable basis for the quarter. ^[1]

Throughout FY2013, SAP focused exclusively on improving HANA adoption rates by bootstrapping the platform with SAP Business Suite. The bundled offering combines CRM, ERP, HCM, PLM and SCM software packages in the Business Suite and provides businesses with an all-in-one package to capture and analyze data points from various departments powered by the in-memory HANA platform. The company also diversified deployment options for these bundled offerings with an on-premise HANA Appliance version and four different cloud-based deployment versions.

Despite these advances with the HANA platform from SAP, a recent survey report from the Americas’ SAP Users’ Group (ASUG) noted that customers could not identify business cases that justified the implementation cost of SAP HANA. ^[2] The survey finds that the lack of business cases has resulted in suppressed adoption of the HANA platform for big upgrades in comparison to the cost of implementation of other new IT technologies. In other words,  conventional data base systems are sufficient for many data base, eliminating a need to HANA and the higher cost of the associated hardware.

One other reason that has impacted adoption of the new in-memory platform is the fact that SAP continues to support customers on their existing environments, whether on-premise or cloud. ^[1] This reduces the short term incentive of voluntarily moving to a higher cost platform for companies because of the costs involved in the overhaul of existing systems and training employees with the new system. This is where the bundled offering strategy for SAP helps. Regular customers of SAP Business Suite get to compare the performance of the Business Suite on HANA offering against historical deployments to assess SAP HANA from a return on investment (ROI) perspective.

Going forward, SAP expects to attract bigger deals as the Suite on HANA offering matures. On a longer term, in-memory platforms such as SAP HANA along with on-demand application deployments provide much greater ROI than traditional on-premise application deployments and gain the advantage of increased processing and application handling without a reduction in security.

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1. SAP AG’s (SAP) Management Discusses Q2 2014 Results – Earnings Call Transcript, Seeking Alpha, July 2014 [↩] [↩] [↩]
2. Many SAP Customers Can’t Make a Business Case for HANA, The Wall Street Journal, August 2014 [↩]