German business software maker SAP expects its revenue from cloud subscriptions and support to be higher than its revenue from software licenses in 2018, reflecting an industry trend.
This would be a dramatic shift for a company, which earlier had licenses and support of its business software as its mainstay business. There was considerable skepticism whether it would be able to quickly make the transition to the cloud with a new revenue model based on subscriptions rather than one-time payments.
The market has moved significantly for SAP and its rivals like Oracle from on-premise software and services to applications delivered through the cloud on a subscription model.
In the fiscal year ended Dec. 31, 2015, the company’s cloud subscriptions and support revenue was €2.3 billion (US$2.5 billion), up 110 percent from the previous year. Revenue from software licenses and support was still the key component of its business at €14.9 billion but at 13 percent year-on-year growth did not increase as fast as the cloud business. New cloud bookings, a key measure of SAP’s sales performance in the cloud, increased 103 percent in the full year to €883 million.
By 2017, SAP expects its cloud subscriptions and support revenue to be close to its software license revenue, and to exceed software license revenue in the next year, the company said Friday while announcing its financial results for 2015.
The growing cloud and services focus shift of the company is expected to have an impact in 2017 itself when cloud subscriptions and support revenue and software support revenue are expected to account for up to 65 percent of revenue in 2017.
The company has also raised its forecast for 2017 to reflect both the current exchange rate environment and business momentum. It now expects revenue in 2017 to increase to up to €23.5 billion, as against a guidance of up to €22 billion of revenue last year. It did not change the upper end of its guidance for operating profit.
The company has also not revised its revenue target of up to €28 billion of revenue in 2020. In the quarter ended Dec. 31, the company reported profit of €1.2 billion on revenue of €6.3 billion.