B2B Payments

Analysts Skeptical of SAP’s Cloud Transition

Germany’s software giant SAP isn’t shy about going after what it predicts will be a $75 billion industry, cloud procurement service. With the launch of the firm’s Business Network, SAP has become a driving force behind the growth of B2B Software-as-a-Service.

This week, analysts at Trefis released new insight into its plans of investing in the SaaS market aimed at facilitating digital procurement practices within companies. According to the company, SAP has acquired nearly $20 billion in assets to expand its cloud technology service capabilities in recent years. Its most recent service, the ERP platform SAP S/4HANA, is the result of that focus on the cloud.

That platform is part of SAP’s Business Network, which reportedly has already generated more than $1 billion in revenues.

Looking ahead, analysts said SAP will likely aim to cross-sell its B2B procurement services to its existing customers and establish a network of B2B suppliers ideal for those customers. In doing so, the software firm said it is anticipating a significant spike in competition in the coming years from the likes of Microsoft, Salesforce and Oracle, as well as eCommerce players that have begun to facilitate B2B digital procurement, like Alibaba.

Analysts reported SAP to have a gross margin of about 80 percent for its SaaS offerings since 2008. But as B2B SaaS expands, cloud computing will lead to stronger competition, and experts warn that because service does not always yield the same margins as software products, “it is widely feared that SAP may not be able to retain its high margins for much longer.” The company’s Business Network, however, may provide a crucial buffer to protect SAP from the less lucrative cloud computing service space.

Still, it is unclear whether profits will improve for cloud service firms like SAP. Industry experts tout the market as one that saves businesses money, streamlines and accelerates business operations, and offers clearer insight into cash flow and product needs.

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