Has SAP Bet The House With The Biggest Update to its ERP in Two Decades?

by Trefis Team
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SAP SE (NYSE: SAP) recently released the biggest update to its Enterprise Resource Planning (ERP) platform in over two decades. SAP claims that its latest release, named SAP S/4HANA, redefines the way its ERP works by introducing in-memory simplifications that will drastically improve speed and performance. [1] The new platform will be offered in on-premise, as well as  software-as-a-service (i.e., Cloud) and hybrid variants. The company has also decided to continue simultaneous support and updates for the original SAP HANA Business Suite through 2025. [2]

The most notable update in SAP S/4HANA is that while the existing SAP HANA Business Suite runs on third-party databases like those offered by Oracle (NYSE: ORCL) and Microsoft (NYSE: MSFT), the new app suite and platform will run on HANA itself, an In-Memory technology where the entire data set is loaded and searchable in Random Access Memory. This will eliminate all interim steps like aggregates, indexes and other data redundancies that take up significant storage space and processing cycles in conventional database computing, thereby leading to much faster processing. The notoriously outdated SAP HANA user interface has also been revamped with the new ‘Fiori’ interface, which is designed to run seamlessly on mobile devices.

In this report, we take a look at SAP’s latest product and why this is a crucial turning point for the company.

We have a price estimate of $78 for SAP, which is around 10% higher than its current market price.

See our complete analysis of SAP SE here

Doing Away With Third Party Databases

As mentioned earlier, the functionalities offered by SAP’s current ERP systems currently work on third-party databases like those offered by Oracle and Microsoft. SAP S/4HANA represents a massive change, because ERP systems based on the new platform will function on HANA alone. This removes the need to store interim steps like aggregates, indexes and materialized views on synced spinning disk drives, thus speeding processing. Now, thanks to in-memory calculation of virtual views, users will be able to preview what-if scenarios for major strategic, organizational and reporting changes almost in real time. [3] SAP claims the magnitude of improvement in transaction performance from this update may be as much as 3x to 7x; the data storage footprint of an ERP-system may improve by a factor of 10. [2]

Unanswered Questions, Unclear Roadmap

The immediate aftermath of the release announcement raised numerous questions regarding the transition from SAP HANA to SAP S/4HANA. For instance, SAP has clarified that its public cloud apps like SuccessFactors and Ariba will be integrated with and expanded in S/4HANA. However, it is unclear how the integration will take place in private-cloud or on-premises deployments. [4]

Perhaps more importantly, the company has remained vague regarding the roadmap and timeline for making the new offering production ready. Further, the S/4HANA Public Cloud offering for a number of functions will be released later this month. [4] However, while the Public Cloud is configurable, it remains unclear how and when support for company-specific customizations and legacy interfaces in the Private Cloud will take place.

Lastly, SAP has not yet provided detailed pricing information for the S/4HANA platform, and subscription cost for the cloud model has not been released at all. [5] Further, SAP has a tendency to not provide itemized bills, which frequently holds back customers from upgrades. This factor will become all the more important if the company choses to provide separate add-ons for industry-specific functions, for which price clarity will be essential. Thus, we believe that pricing, especially in industry-specific private cloud models, will be a crucial factor if SAP is to successfully convince potential customers to switch from the comfort of familiar databases to SAP’s insofar untested offering.

Has SAP Bet The House on S/4HANA?

We believe that the success or failure of SAP S/4HANA rests not on the performance improvements, but on the quality and depth of industry-specific functionalities that the company will need to offer to support its latest product. It is pertinent to note here that SAP has previously stated that it does not have any major acquisitions planned in the near future. [6] Therefore, its in-house development team faces an uphill battle in developing suitable replacements for the functionalities offered by Oracle and Microsoft.

SAP S/4HANA has already spent two years under development and its release is touted as “the biggest update in 23 years, possibly in SAP’s history”. [7] Given the level of resources that the company has dedicated to S/4HANA and the long way it still has to go before it becomes fully functional, it would seem that SAP is betting the house on SAP S/4HANA. SAP founder Hasso Plattner has gone so far as to admit that “If it doesn’t work, we’re dead. Flat out dead.” [8]

However, we believe that its decision to continue the SAP HANA Business Suite alongside the new version suggests that the company is hedging its bets. After all, full support and updates for the older suite for another decade doesn’t exactly spell “phasing out”, let alone “full transition”. If anything, it indicates SAP’s cognizance of the hurdles that it is going to face in getting users to move on from familiar, traditional databases like Oracle. Instead of pursuing a single, unified vision for the entire company, SAP has now forked its foreseeable future into two paths – the older SAP HANA and the new SAP S/4HANA. In other words, SAP may have a lot riding on S/4HANA, but it has not put all its eggs in one basket – yet.

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Notes:
  1. SAP Press Release, February 3, 2015 []
  2. SAP S/4Hana: Big Bet On ‘Simplified’ ERP, Information Week, February 4, 2015 [] []
  3. SAP’s Plattner: How S/4Hana Simplifies ERP, Information Week, February 4, 2015 []
  4. SAP Clarifies S/4Hana Release Dates, Licensing Terms, Information Week, February 5, 2015 [] []
  5. SAP Unveils SAP S/4HANA: Digging Deeper Into the Details, ASUG News, February 3, 2015 []
  6. SAP CEO: No more big acquisitions for next few years, Computer World, November 19, 2014 []
  7. SAP revamps Business Suite with new UI, HANA analytics, ZDNet, February 3, 2015 []
  8. SAP founder Hasso Plattner: ‘If this doesn’t work, we’re dead. Flat-out dead.’, Business Insider, February 5, 2015 []
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