Subscription services suit modern businesses: SAP

Modern businesses are gravitating more toward an elastic subscription-based model for IT, according to SAP president of global customer operations, and executive board member Robert Enslin.

Enslin told ZDNet that whilst hesitation for businesses to move to the cloud is still occurring, a subscription-based cloud adoption is proving an effective model for users.

"A significant part of our business now is based on the cloud, and we've seen that shift to subscription growing very dramatically. If you look at our software as an on-premise solution, that part is basically flat, if not slightly negative," he said.

"In the dynamic world which we live in today, companies are growing rapidly, or shrinking, or moving into different markets. Businesses are changing -- subscription is a vehicle which suits the kind of business model we see in the business world today."

As the man responsible for understanding the needs of SAPs cloud users -- all 92 million of them -- Enslin told ZDNet he believes companies are adopting a subscription-based cloud solution as it does not require a long term commitment, and sees the user pay only for what is required, with the client spreading its costs out.

"Users are buying the outcome -- the implementation and the whole process -- versus buying the software," Enslin said. "I think outcome and consumption based models are where the industry has moved, and it has already moved dramatically fast. I think that's what customers are looking for.

"A deployment model that exists in the cloud and it's paid for on a subscription-as-a-service model works for them from a financial view point ... so the lock in period is not as long."

In its Q2 earnings, SAP saw cloud revenue grow to the tune of 129 percent from the same quarter last year, with non-IFRS cloud subscriptions and support revenue tipping the €555 million mark. The German software maker also reported an overall operating profit of €701 million for the quarter.

Although clearly profitable, Enslin said it is no longer a financial decision for companies.

"Customers want the service, they want the flexibility, and they want the ease of use that comes with a cloud based environment."

With an external company charged with cloud maintenance and security, businesses no longer need to have an onsite software engineer, data analyst, or cloud specialist, as Enslin said companies like SAP essentially provide that service.

"When you look at the level of complexity businesses have to deal with today; on the one hand they have to handle ERP systems, or transaction-based systems, analytic systems; then everybody's mobiles connected all the time; they have to deal with a wall where a digital millennial does not want to read a manual, and they want instant access," Enslin said.

"Today you want to consume immediately, and anything you can't consume or understand immediately, you push aside, so companies have to deal with that, but that doesn't mean that the complexity has disappeared, somebody has to take on that complexity, and make it simple. That's what we do really well."

Enslin said that providers are able to use and leverage the resources and skills they posses, which external companies are not able to keep pace with.

Microsoft's Office 365 Home and Personal subscriptions added three million more subscribers in its fourth quarter, for a total of 15.2 million subscriptions. In its third quarter results, Oracle reported software-, platform- and infrastructure-as-a-service revenue of $527 million, a figure which includes both software and cloud subscriptions.

The open source software company Red Hat's first quarter results posted in June showed subscription revenue grew 14 percent year-over-year to $425 million; and for the fiscal year ending January 31, California-based Salesforce reported $5 billion in subscription and support revenue, all of which attributed to cloud, whilst professional services tacked on $359.8 million in revenue to the annual total.

In its half year results, Australian-listed cloud accounting and legal software firm Reckon, attributed its AU$20.2 million net operating cash flow to its move to a subscription model. With its three divisions -- Business, Accountant, and International -- forming Reckon Group, the company saw subscriptions account for over 70 percent of each division's total revenue this half, with the company attributing a total AU$31.4 million to subscriptions, growth of 21 percent from the same time last year.