How many cloud users does SAP have and does it really matter

[richard_hirsch]

At the recent Q1 2013 earnings call, Co-CEO Jim Hagemann Snabe commented about the increasing success of SAP’s cloud efforts.

Let's talk about cloud. We continue to see strong momentum in the cloud. In only 12 months, we have become a major player in the cloud, with the most comprehensive portfolio of cloud applications, over 24 million cloud users, over 1 million companies connected in the Ariba business network and almost EUR900 million revenue run rate today, and growing very fast.

Although most analysts focused on SAP’s cloud-related financial successes, I was irritated by the user count.   24 million was a big number. What exactly did it tell us about SAP’s cloud success?

A look back

I first wanted to look at past earnings calls to see what sort of progress SAP was making regarding their cloud user count.

The first mention in earnings calls of the cloud user count as a metric was in the Q2 2012 earnings call where Hagemann Snabe made this statement

Finally, Cloud. The acquisition of SuccessFactors combined with SAPs own cloud assets now make us a major player in the cloud business. With more than 16 million users we have the largest install base in their business cloud.  (My emphasis)

In the Q3 2012 earnings call, Hagemann Snabe made this statement:

We now have more than 17 million users in the cloud, that’s 4 times more than number 2. So we’re big in the cloud, and we are growing very fast. (My emphasis)

Note: I assume that this count for Q3 2012 doesn’t include Ariba which had just been acquired.

In the Q4 2012 earnings call, Hagemann Snabe made this statement:

We are a major player in the Cloud, we have the most users, we have the broadest portfolio, the most consistent portfolio and with Ariba the largest Cloud-based business network in the world.  (My emphasis)

Breaking down the metric

A quick analysis of the figures of the user count shows that there has been steady increase over time. Where exactly did these millions of users come from?  I’d never seen any details about the user counts for particular cloud offerings – so I decided to do some quick research and try and get some figures.

SuccessFactors has 20 million “subscribers”.

In December 2012, it appeared that Ariba had 5 million users.

Thus, based on the figures from these two offerings (Ariba + SuccessFactors), SAP had over 25 million users / subscribers.  However, in the Q1 2013 earning call, Hagemann Snabe said that SAP had 24 million cloud users.

If SAP’s two biggest cloud acquisitions together have more users then the total number of cloud users associated with all SAP’s cloud offerings, then there are various possible conclusions:

1. The number of users of “less important” SAP cloud offerings (not SuccessFactors or Ariba) is very small and these applications aren’t being used at all.
2. SAP has problems with addition and / or reporting
3. The metric is flawed and has little relevance

What is a cloud user?

The bulk of SAP’s cloud usage originates from SuccessFactors. Therefore, I found SuccessFactors’ use of the word “subscriber” instead of “user” in its marketing material very interesting. This distinction demonstrates that there is a difference between actual usage of a cloud application and the number of users who have the potential to use this application but might not exactly have used the application.  It is the distinction between users who have used the application and the number of users who could use the application.

Yet, he use of the world “subscriber” by SuccessFactors is intentional and reflects how SuccessFactors makes its money.  For example, the subscription fees for its “Workforce analytics and / or Workforce Planning” products are based “on the number of Employees in Customer’s and its participating Customer Affiliates’ organization” rather than the number of users that actually use the system.

Conclusion

With its two cloud acquisitions, SAP now has by far the largest cloud user base in the market.  As a marketing tool, the “biggest cloud player” card might sound good but actually it hides the evolving diversity of SAP’s cloud efforts. When these activities were nascent, then there was little else that SAP could use to prove its cloud prowess.   Yet, at this point in time, the use of cloud user counts really doesn’t help us understand SAP’s cloud strategy or its level of achievement of this strategy.  

More useful might be metrics that reflect how each individual cloud offering determines its subscription fees (As I’ve reported earlier, there is actually more diversity in such metrics than you might expect).  Faced with the difficulty of comparing the success of such different metrics, the common denominator of subscription revenue is used.  This can be seen in the latest earnings call:

We see continued very strong growth in the cloud, with a 385% year-over-year increase in cloud subscription and support revenue and a 95% increase in deferred cloud subscription and support revenue. [SOURCE]

However,  we then have a similar problem in that the cloud offerings are bulked together and we have no idea about subscription revenue of individual offerings. This merging of the subscription revenues of individual offerings provides very broad indications of success but I’d be curious as to how much of this success is based on SuccessFactors and Ariba activities compared to the other SAP cloud offerings.