There’s a buzzword floating around for how some enterprise software vendors are hyping their cloud capabilities to customers, IT analysts and Wall Street. “Cloud washing” is when you reposition an existing software product as cloud software without transitioning it to native cloud architectures and business models.
This practice often takes the form of rebranding older products or services by putting “cloud” somewhere in the name or description. For example, SAP talks almost exclusively about cloud strategy and cloud products these days, even though much of its business comes from selling and supporting its traditional, noncloud-based enterprise resource planning (ERP) systems.
In particular, SAP is attempting to brand its HANA database and S/4HANA ERP as cloud products. In fact, HANA and S/4HANA can be either used in the cloud or internally deployed.
Why Cloud Wash?
Why do vendors characterize products and services as cloud-based if those offerings do not fit within the general understanding of cloud services or products? Well, doing so can alleviate pressure from the investor community and Wall Street, who may see cloud-based products and services as the key to higher valuations. They often covet the continual revenue streams from software subscriptions. To make their cloud focus appear as real as possible, some vendors put pressure on customers to migrate to the cloud, even when neither their cloud offerings nor many customers are quite ready.
It certainly doesn’t help that we’ve been presented with such a hazy picture of the costs and capabilities of SAP’s cloud offerings. Even with this lack of clarity and even though they may not be ready, some SAP customers are finding themselves pushed to make a decision on the cloud now. This is partly due to cloud-washing (with various vendors overselling the advantages of a cloud move) and partly due to the fact that SAP has said it will wrap up its support for ECC 6, the last pre-HANA generation of its ERP.1
If this sounds like your current situation, you’re probably looking at two options:
- Rip and replace: Getting rid of all or part of your proven ERP system to reap the benefits of a nascent S/4HANA or S/4HANA Cloud offering.
- Stay and pay with SAP: Maintain your current SAP ERP system and make the necessary fixes and upgrades until SAP discontinues ECC 6 support – or until you have an actual business case for adopting S/4 HANA or S/4HANA Cloud.
It’s a tough decision for many enterprises. For those considering S/4HANA, but not the cloud version, migrating applications to the S/4HANA data center version, in our experience, can be painfully complex and expensive. Based on Rimini Street research for a calculator we share with clients and prospective clients, the average you can expect to spend on S/4HANA and ongoing operations over seven years is $35 million USD (based on a migration that includes the core finance, plan to product and order to cash modules).
The fact that the data center version can be so challenging and expensive to implement could help to explain why SAP is making so much marketing noise about S/4HANA as a cloud product.
However, S/4HANA Cloud capabilities don’t yet match the software you would get for your own data center implementation. As a Gartner report from May 2018 stated, “Many early adopters in particular consider SAP S/4HANA Cloud incomplete, and they and others want SAP to plug its functional gaps quickly.”2
Deployment of the cloud version is faster and easier, but from what we’ve seen, what SAP is calling its cloud version isn’t an ERP designed for a cloud but an incomplete repackaging of the same software for cloud distribution. Born-in-the-cloud companies such as Salesforce have expertise in multitenant architectures that allow many customers to coexist on the same application instance and database, while still keeping each account secure and private and delivering a high-performance and highly usable experience to all. SAP must retrofit those qualities onto its software.
Understand that even with its SaaS product, SAP is also not in charge of the complete application experience. Rather than building its own worldwide cloud data center infrastructure, SAP has largely chosen to bring its cloud products to market in partnership with cloud vendors such as Amazon Web Services, Google Cloud and Microsoft Azure.
While there is one school of thought that sees this as a positive – SAP partnering with strong cloud infrastructure players rather than trying to reinvent the wheel – it also means the engineers working on S/4HANA aren’t necessarily learning the same lessons about DevOps discipline as those responsible for a full stack of cloud technology.
Because of this compromise, S/4HANA Cloud may not offer you the efficiencies and advantages you expect from SaaS. To the extent that hosting on Amazon Web Services, Google Cloud and Microsoft Azure is beneficial, you could get many of the same benefits by using these infrastructures-as-a-service (IaaS) approaches to redeploy your existing SAP ERP. In other words, you can take advantage of them without going to S/4HANA.
Wait and See
Most SAP customers have decided to take a “wait and see” approach. In a recent Rimini Street survey of 208 SAP licensees worldwide, 89 percent said they planned to stick with their proven ERP releases for a while. Nearly half couldn’t find a compelling business case for migrating to S/4HANA data center or S/4HANA Cloud.
“S/4HANA does not make sense for us now,” says an executive from top Brazilian retailer Lojas Riachuelo. The company saw no reason to change its heavily customized and stable ECC platform and wasn’t planning to even consider a change for another four or five years.
It makes sense that many enterprises aren’t ready to jump on the cloud bandwagon for their ERP systems until the fog clears.
For a fuller discussion of SAP’s plan for the cloud, read the white paper: “Examining SAP’s Cloud Strategy.”
1 Strategy page on SAP’s support website, accessed Dec. 28, 2018 – https://support.sap.com/en/offerings-programs/strategy.html
2 Source: Gartner, Magic Quadrant for Cloud Core Financial Management Suites for Midsize, Large and Global Enterprises, May 29, 2018