SAP Clings To A Dated Cloud Apps StrategySAP Clings To A Dated Cloud Apps Strategy

The interest in cloud apps among large companies hasn't gone unnoticed by SAP. That's why it acquired SuccessFactors late last year and put that company's CEO, Lars Dalgaard, in charge of all SAP cloud initiatives. SuccessFactors has some 5,000 human-capital management apps customers, versus Workday's current customer count of 356.

As for scale, SuccessFactors' largest namable customer, Siemens, has more than 400,000 customers, versus about 320,000 at HP (before its recent layoff announcements). Though SAP doesn't have permission to use its name, Walmart, a company with 2.2 million employees, is also known to be a customer.

SAP also recently introduced SAP Financials OnDemand, a stand-alone financial management app based on functionality from the Business ByDesign suite.

"Workday, in the beginning, didn't have real competition, but we're beating them everywhere now," McDermott told information in an interview at the SME event. "These DuPont and HP sales cycles started long ago before SAP had a truly hardened and mature HCM system, so it won't be so easy for companies like Workday and others anymore."

[ Want more on an up-and-coming cloud rival? Read Workday Posts Strong Start As Public Firm. ]

McDermott cited Timken as a case in point. The Toledo-based auto parts manufacturer is an SAP customer, and it recently chose SuccessFactors over Workday for HCM. McDermott said the simplicity and appeal of sticking with a single vendor and SAP's analytical capabilities won over Timken.

SAP has repeatedly been slow to react to the threat of cloud taking customers at the top of the pyramid. In another example, Business ByDesign was originally billed as something exclusively for midsized companies, but last year SAP added an option to make it easier for customers to integrate subsidiaries running on ByDesign with headquarters operations running SAP on-premises software. That was clearly a response to so-called two-tier ERP deployments being touted by the likes of cloud rival NetSuite.

More recently we've seen SAP bundling various CRM and CRM-related applications including cloud-based Sales OnDemand into the SAP 360 Customer Solution, a package clearly aimed at competing with Salesforce.com and its appeal to large companies through the chief marketing officer.

SAP is clearly making headway with small and midsized customers. Back in 2005 SAP set a goal to reach 100,000 such customers. Today about two thirds of the company's 193,000 customers (or about 125,000) are said to be small or midsized companies. And with BusinessOne now in the cloud along with ByDesign, Financials OnDemand and other new cloud apps, SAP expects to continue to gain SMB market share.

But given the trends in the market, it would seem the risk is that two years from now, SAP will be sitting pretty in the SMB market while starting to lose upgrades of large-scale on-premises deployments to cloud-based rivals.

McDermott last week acknowledged that "edge applications" -- code for non-ERP apps like CRM and HCM -- are moving into the cloud at large companies. But he repeated SAP's line that "the core" will continue to stay on premises.

SAP doesn't really specify what is "core," but now we're seeing financial management apps moving into the cloud, and that's about as close to the core as you can get. Workday is talking about scaling its financial apps up to serve Fortune 500s, but SAP says its Financials OnDemand app is something for SMBs or subsidiaries of large companies.

So does the core mean ERP manufacturing production control, asset management and product lifecycle management apps? These, too, are moving into the cloud. SAP's on-premises competitors, like Oracle, Microsoft and Infor, have stopped making distinctions about what does and doesn't belong in the cloud. NetSuite and Workday, meanwhile, are pursuing ever-larger customers.

It's true that we have yet to see truly high-scale, enterprise-class ERP running in the cloud. But it would behoove SAP to stop following and become the first company to deliver on that promise.