Jan 21 - German business software maker SAP has pushed back its profit target as it makes further investments in its cloud business to keep up with a fast-growing market. Hayley Platt reports on SAP's plans for the future.
Sales of cloud subscriptions to its business customers have been going well. And German software maker SAP wants to up its investment to keep up with growing demand. But that means pushing back its profit goal of 35 percent by two years to 2017. SAP's CEO, Bill McDermott. SOUNDBITE: Bill McDermott, CEO, SAP, saying (English): "Companies like SAP need to continuously invest R&D and innovation. The big move here is the change in the business model. When you have a cloud based business model, the revenue is rateable versus upfront so for the first few years it flattens out the margin but after the first few years pass the margin kicks up again and the accelerated annuity stream kicks in as well which is why we simply move the 2015 margin ambition to 2017 so we can capture the share in the market for the cloud." The global cloud market is thought to be worth $131 billion. Businesses like it because they can replace costly local servers with network-based software and remote data centres. It also offers a more predictable revenue stream. But Edward Hadas from Reuters Breakingviews says while its the right direction - SAP's rivals are all doing the same. SOUNDBITE: Edward Hadas, Economics Editor, Reuters Breakingviews, saying, (English): "A lot of companies are basically on the same track so you're competing against Oracle and to some sense against Google and it's going to be tough for them to get there." In recent years SAP has spent $7.7 billion on two internet-based computing companies - Ariba and SuccessFactors. It's not ruling out further acquisitions. SOUNDBITE: Bill McDermott, CEO, SAP, saying (English): "If we do acquisitions, they're likely to be tuck-ins to advance our cause faster or help the company that we serve grow faster. We don't need any big ones at this particular time because things are rolling well for SAP." But for now its forecasting clouds. By 2017 that side of the business should make up a 7th of its total 22 billion euro revenue.