SAP Takes On Oracle and Salesforce.com In The Cloud

According to the Gartner report Market Share Analysis: ERP Software, Worldwide, 2011, SAP was the global leader in enterprise resource planning (ERP) providers, with a 26% market share and reporting 13% growth over the previous year. Overall, the ERP market reported low double-digit growth last year as weak economic conditions curtailed IT budgets. SAP remains focused on gathering a bigger market share and is now competing with Oracle and Salesforce.com within cloud computing, big data analytics, and enterprise social software.

SAP’s Financials
SAP’s (NYSE:SAP) Q3 revenues grew 16% over the year to €3.97 billion (~$5.24 billion) ahead of the Street’s targeted €3.87 billion (~$5.10 billion). EPS of  €0.70 (~$0.92) was short of the Street’s targeted EPS of €0.74 (~$0.98).

By segment, software and software-related services revenues grew 19% over the year to €3.21 billion (~$4.23 billion), ahead of the Street’s forecast of €3.13 billion (~$4.13 billion). The quarter also saw triple-digit growth in the company’s key innovation areas of cloud computing, SAP HANA, and mobile technologies.

Despite the weak economy in the U.S., SAP saw strong revenue growth in the North American market. Analysts believe that SAP’s focus on the SMB segment has helped it take market share away from Oracle and report a stellar 37% increase over the year in North America revenues. Emerging markets also saw strong growth for the quarter, with sales from Brazil reporting growth of 59% and China reporting a 40% increase.

For the current fiscal, SAP increased its revenue guidance to growth between 10.5% and 12.5% over the year for software and software-related services. It aims for revenues of €20 billion (~$26.4 billion) by 2015, with 35% operating margins.

SAP’s Cloud Focus
SAP remains focused on the cloud segment and earlier this year announced the $4.3 billion acquisition of Ariba, a Silicon Valley–based company. Ariba is the world’s second-largest cloud vendor by revenue and the leader in cloud-based collaborative commerce applications. Its technology helps customers connect with more than 730,000 suppliers worldwide. The acquisition was another successful attempt to compete with Oracle, which was also trying to acquire Ariba. Through the acquisition, SAP plans to deliver new models for business-to-business collaboration in the cloud.

It is not just Oracle that SAP is challenging. Recently it also introduced new social tools for salespeople and call-center workers to challenge Salesforce.com. SAP launched new add-on products as part of its cloud-based enterprise social software, SAP Jam and SAP Social OnDemand. SAP Jam, earlier known as CubeTree, was part of its acquisition of SuccessFactors last year. SAP Jam will enable customers to create an environment where users will be able to connect with colleagues and collaborate around data, content, and processes to solve problems more effectively. SAP Jam is being offered both on-premises and in the cloud, and it is also available in mobile versions through an iPad app.

SAP Social OnDemand aims to transform social media conversations into business insights and help marketing and customer service organizations to engage with end customers to improve brand loyalty and brand-related opportunities.

According to IDC, the enterprise social software market is projected to grow 40% annually. Last year, the segment saw revenues of $767.4 million. This high-growth segment is also luring vendors like SAP into the space as they attempt to take market share from existing players.

SAP’s HANA Offering
SAP is also counting on its big data offering, HANA. HANA will help make databases and the front end faster to enable organizations run complex queries on billions of records. In addition, with applications that process in real time, SAP helps organizations with critical decision making. HANA was launched in June 2011 and is estimated to report annual revenues of €320 million (~$421.97 million) this year. Although it contributes just a small portion of SAP’s annual revenues, it is among the fastest-growing products in SAP’s history and is one of the more hyped products that SAP has released. SAP is counting on HANA to be its billion-dollar opportunity. HANA is also being used by several startups to build their own apps. Analysts believe that the next year will be critical for HANA as the market will wait to see customer success stories and for SAP to demonstrate the presence of a strong developer and independent software vendor (ISV) ecosystem around HANA.

SAP’s stock is trading at $80.03 with a market capitalization of $95.42 billion. It touched a 52-week high of $81.56 last week.