Modern Cloud – SAP Cloud ERP, Customer Data Center CDC with HPE GreenLake SAP

This is the third section. And, and so with me today, my name is Jim Lana with HPE, Kelly Smith from SAP, and Randall Grogan on the line from Energy Transfer. Um, a valuable customer of, of both Kelly and mine in the us.

And, um, we wanna talk right now about modern hybrid cloud and why that's important and why choices are important to businesses. And if you look at the Americas user group and this thing, this same graph holds true in the other user groups, the ones in in Europe and and so on. You see that on-premise landscapes are still the most popular, but they're declining.

And if you look at the third column or the fourth column, the second from the right, you see that public cloud deployments are also declining. And so what is growing is hybrid private cloud. And the reason for that, we believe, is that people have complicated landscapes that need choices, and they will not just pick what is right for SAP at that point in time.

They're gonna pick what's right for SAP at any point in time, and that might change over time. So people are changing. I don't believe in holistic repatriation.

I don't believe in holistic single cloud, and I don't, I've never thought there was one cloud. There's multiple clouds because it's evident when you try to move data between them. There's a charge.

So there is definitely no single cloud. So anyway, the point on this is that people need choices. And, and so when you look at how SAP gives deployment options on the right hand side in the black box, those are perpetual licenses.

That includes the S four ERP product. But that is not SAP's direction. SAP strategic direction is to sell cloud ERP.

And that is on the left. There's the public edition that is the more restrictive option where you get automatic feature sets, but you don't control your patching. And then there's the private edition sold in the two ways that we talked about before.

Hyperscale cloud or the customer data center option. And I put the same arrows on there. You see they're increasing in popularity.

And so in some ways is private cloud on perpetual license, but I don't wanna highlight that. Um, but the important thing here is that you have choices. And as you have choices, you think about complexity in comparing them.

And if you looked at this, it's a very complicated slide, so I won't go through all of it, but if it starts with infrastructure as a service on the rows below the purple line, that purple line extends across because the infrastructure as a service, whether you buy it in a hyperscale cloud or you buy it in infrastructure as a service in place, doesn't change. You're still consuming infrastructure as a service. In our case, it's the HPE GreenLake Cloud infrastructure as a service.

And, and then above it, nothing changes from SAP, not, not one bit. And then from an IT perspective, if you think about what's dedicated versus shared, the model is a little bit more unique on the CDC customer data center side because it does provide dedicated network paths, a dedicated firewall. If you think about a customer service, uh, uh, a cloud service provider, you've got to provide your own unique backup paths, your own unique, you're not just sharing VLANs and things.

This is dedicated, it's dedicated compute typically in a hyperscale, but you're not sharing storage either in the CDC where you are in a hyperscale cloud. And, and so all of those things provide better, uh, isolation and certainly better predictable performance. So that's really the difference.

And then if you talk about how this works, I think we talked about, could You go back Real quick? Yeah, sure. You talked about these differences and, and you know, what's different between dedicated and shared, and it's kind of clear like you know, what the differences are, but the, I guess what where I'm struggling with is like the why that's beneficial to a customer.

Is it specific around performance needs, regulatory compliance? Like what, what is the main driver for choosing, you know, the dedicated CDC over a hyper cloud Performance over a certain level is always important. And we've noticed with cloud early on, when you move to cloud, typically you have less predictable performance, but it's satisfactory and it, and it, it performance isn't the top concern.

So it isn't either in SAP, typically if you're losing a, a second or two in performance, people don't care that much. Now, where you do care is predictable latency because of that integration chain that we talked about with other dependent apps, that latency is very, very important because when you're setting time out settings and it's starting to build on, its if, if you're doing a thousand different integration points and they build upon each other and I set a remote function call or time out at a certain level, I have to set it to achieve a hundred percent of my integration. I can't do it for 25% and have 75 break.

I can't do it for 99% and have 1% break. If an integration breaks one out of a hundred times, what is it called? Broken.

So the predictable latency, that's the issue. And the roundtrip latency is so important to dependent applications. That's why the dedicated part is important.

It's not about performance, it's about predictable latency that you, so you can integrate things that require synchronous two-way communication with an acknowledgement from one application to the other. And if you don't have that, very, very difficult to do the integration down the line. But I, I, I just wanna play a little fun and we'll get into some discussion.

This is, this is a, a, a company very similar to mine. Well, it is essentially my company in our internal it. And we, we use all the hyperscale public cloud providers.

And in the green we have all of these self-developed applications. And so what's really important for us is the way we do business. And in the blue you see the S-A-P-E-R-P and the big blue box inside our current data center location, and then all of the SaaS applications from SAP and blue outside the circle.

So as we do business with SaaS applications outside the circle and our three prized public cloud providers, hyperscale, public cloud providers, if we opted to just move SAP into public cloud, number two, oop, wrong way that would conceptually look like this and everything would be fine, but that's not the way it works because of the predictable latency that we talked about, that predictable latency starts to pull all of the other ones out there and it starts to unbalance our hybrid cloud and then we're beholden to that particular cloud provider because we don't really have much of a choice. 'cause the integrations don't work very well unless they're at a predictable latency. So that's kind of the issue with what we do.

And, and then I, I kind of play a game on, if you have to do all of these changes, the functional it changes and then you have to talk about moving data centers. Everything below the line is what happens when you move data centers. And so I kind of poke fun at it and just say, if you don't need to do it, don't include it.

You can move data centers anytime you want, but if you co-mingle it with a move to S four, that could be very dangerous. So what I play with is, it's like kicking a beehive. If you start upsetting the apple cart and it's not necessary as part of this project, you probably would think about maybe separating those two decisions.

And, and that's, that's kind of the point of that section. So, um, my, my belief is if you're going to consider things as big as this, you have to consider modern hybrid cloud and that that is to give choices. And, uh, so the, the tagline for all of this is no data center migration is required for cloud ERP, what's easiest for you?

Let's steal a lot of customers needs to move from, um, S four to cloud ERP, right? That's the point that they are sitting in the wrong product. Yeah.

Ultimately they, yeah. So ultimately they, they need to get to S four. Yeah.

And the reason that Rise or cloud ERP was created as a methodology period was to make it easier for people to do that because patching a brand new software application like S four and maintaining it was new for everyone. They didn't have the resources, they didn't have the time. They're still focused on their own business.

So that's why Rise was invented originally. And we're just saying that that same premise holds true. But right now with the tailored options from SAP for the first time, we can stand in front of our user group and have people say, you're asking for too much change, disruption at risk all at once.

And for the first time, we can come back and say, we give you all these flexible options, which path is easiest for you? But still re moving from one EP that your organization like one stack technological stack to another, even if it's the same vendor, it's massive project. It is.

So you're saying that 30, 39% of the customers, right, they they start to think about it or they're in the process, but the rest they, they, they start to do it, or, Well, they haven't bought licenses yet. So that's the whole goal is to try to make, is to change the perception that there's, there's flexible ways to get there. There'll never be a hundred percent adoption.

'cause there'll be some attrition. Of course, SAP's acquiring brand new customers like crazy. It's whether stock prices is doing so well, they've done a great job.

It's the legacy ERP customers that have been difficult and, and this is a philosophy for trying to help them and uh, and trying to find out what the objections are that are unique to each and every customer and try to address them. Yeah, I mean I work with all of our current SAP customer base, right? So, um, and every customer's different and their approach is different.

So that's why there's options of moving Brownfield, Bluefield, purple field Greenfield, right? I mean, you can pick kind of any color in which you would wanna operate. And then we have customers that say, okay, I wanna understand the ri the cloud ERP operational model.

First I wanna see how my organization changes from a run state. So that's where we take certain customers and take them at their current existing ECC and lift and shift that into ECC on cloud ERP, we have a lot of customers do that in what we call a two-step approach to say, I need to get comfortable. And a lot of time it allows the cost reduction to be seen across the organization because of all of the third party and, and people that you have in that space being reduced by coming onto cloud ERP and, and that model.

And then oftentimes the business case comes in to say, okay, where are the value areas of why I would invest and why I would commit to that, um, you know, massive amount of change across my organization. So there are those, you know, that are able to do that. I mean, do transfer was already on S four on-prem, so it's a different scenario scenario where we go s four cloud lift and shift, right?

Certain customers say, okay, I wanna take my ECC and I wanna pick and choose what I wanna transform, um, based on the business case and the persona identified receiving that value. So that helps them be able to take bite-sized chunks so it's not just this massive green field explosion to say, okay, I'm transforming my whole organization at one time. Now, are there customers that are doing that?

Absolutely. Because they've spent probably six to 12 months doing a huge business case in partnership with SAP, uh, implementation partner in the organization to say, okay, we have 50,000 customizations. We can reduce applications immensely and take an SAP first approach.

Um, and then we can reduce the cus amount of, you know, by going standard, we'll be able to capitalize on what that green field and that true transformation will be. Um, so I am supporting customers on that. Is it a heavy lift?

Absolutely. But at least it allows a different optionality That that tailored that. I'm sorry, let me say the one thing to add on to what Kelly said.

The, the tailored option allows you to take, if you're on EC and that's the, the interface you've been using for close to 20 years, you can literally just pick up the database and put it in memory and nothing changes from a functional user perspective. The interface doesn't change it, it basically means you're accommodating SAP halfway, and that's part of the tailored option. So that's really simple to, to just get rid of the Oracle database.

The, it could be a side based database, it could be, it could be Microsoft DB two, whatever it is. You just have to move there. You meet 'em halfway and they'll give you more time to get to the new functional stuff.

So, so between the data center move and, and the other things, it's, um, sorry. It's, uh, it's, it's very useful to be able to have a tailored option to go, it's your timeline for what makes most sense for your unique business. But there is a, beside the technological change, there is a procurement change as well, because you move this customers and the customers love purpose a licensing, right?

You move them from something that they own, and maybe it's not the most fancy solution to potentially fancy solution, but in subscription model. Mm-hmm. Yeah.

So maybe this is a, let's say party stopper a little bit for most of them because they right now own something could be, and they're, when they move to the subscription model, they start to feel about it. Like, Hey, we didn't pay every month for that, or every year, and right now we're paying Apex opex models. You know, in that coming into consideration was one of those at Energy Transfer.

Absolutely. Um, Randall, did you wanna comment on that? No, I mean, I, I think you're spot on.

No, I can't speak for all customers, but I think the, the vast bulk of us are not really happy about moving from a perpetual to a subscription model. I mean, that is the direction that most software organizations, Microsoft, everybody has gone to. Mm-hmm.

Uh, but you know, I mean ultimately, you know, we, we, we, we see that we have to make that transition. Um, and, uh, you know, it, it kind of, to some extent it is kind of the cost of doing business. So, so Randall did, did was, was a choice to go S four hana, did you even think about doing that versus the, uh, private cloud ERP?

Well, so we, we are a private cloud, ERP on S four hana, and, you know, with the CDC model, so we, we transitioned from, just for terminology, we transitioned from S-A-P-E-C-C about six years ago. So, and we've already done one upgrade or in the process doing an upgrade. So really for us, um, this model is a truly a lift and shift.

You know, we're, we're taking our 2023 S four HANA implementation that's in our customer data center and moving it on to SAP hardware, HP hardware that's in our customer data center. So, I mean, that's it for us. It's truly a lift and shift.

Let, let's, in fact, we're gonna, let's just talk to Randall on this next section, so we'll move forward. But before we close outta this section, one more, uh, comment was, before Rise was invented, the option was to move from 2015 when S four HANA came out until 20, when did RISE come out? Or 2021?

2021. There was six years of customers able to move to S four without any option for perpetual licensing. Uh, yes and no.

So s is not a perpetual license. S four HANA is a perpetual license. I'm just saying that there was six years before you had to move to the latest that was on perpetual.

There was, there wasn't really that offering. And so that wasn't, in that period of time, people were moving perpetual to S four HANA only. And, and it still didn't create that much buzz and adoption.

So it could be either part of the reason, but it's not the entire reason. Right. So I, I think black and white, it we're, you know, we're, we're a cloud company and every cloud customer is a software as a service through subscription.

And we're that too, I can gotta go with the, The, I'm, I'm an accountant by education. If it's, if, if it's monthly recurring revenue, it helps your stock price. Every company that every company wants predictable revenue, straight line.

'cause it helps your stock price. And if we change accounting rules, maybe all that changes, but it hasn't. And, and so that's where we are.

And, and everybody, everybody who's a software company or hardware company wants predictable recurring revenue.