IDC Infobrief- Unleash the opportunities in the Cloud with SAP Partner Managed Cloud

Partner Managed Cloud
Opportunities and Best Practices for SAP Partners
An IDC InfoBrief, Sponsored by SAP

Sponsored by SAP
Partner Managed Cloud: Opportunities and Best Practices for SAP Partners
pg 2
In This Study, p3
The Cloud Opportunity, p4
What is Partner Managed Cloud?, p8
Why Solution Providers Like Partner Managed Cloud, p11
Why Partner Managed Cloud is Attractive for SAP Customers, p18
Getting Ready for Partner Managed Cloud, p22
Essential Guidance, p28
Methodology, p29
Contents
IDC BELIEVES THAT BY 2019, 40%
OF ALL SOFTWARE REVENUE WILL
BE ON A SUBSCRIPTION BASIS.

Sponsored by SAP
pg 3
Software as a service is the new normal. IDC believes that by 2019, 40% of all software revenue will
be on a subscription basis. Customers are embracing cloud because they recognize the traditional
technology ownership model is inadequate for agility and because they appreciate financial flexibility.
This IDC study, commissioned by SAP, looks at partner managed cloud, an opportunity for solution
providers to deliver SAP solutions by OpEx consumption model through a private hosted cloud.
Via insights gained through in-depth conversations with partners currently offering managed cloud
solutions, it provides a summary of the key benefits partners have experienced, and the major value
propositions for their customers.
Finally, it concludes with guidance on getting ready for partner managed cloud including actionable
words of advice from partners that have successfully launched managed cloud solutions.
In this study
Via insights gained through in-depth conversations with several partners currently
offering managed cloud solutions, it provides a summary of the key benefits
partners have experienced, and the major value propositions for their customers.

pg 4
Sponsored by SAP
Source: IDC CloudView Survey, 2016; n=11063
Customers plan to devote 30% more of their IT spend to
cloud services in 2016 compared to 2014, and allocation of
funds to private cloud has doubled in the last two years.
The Cloud Opportunity

Sponsored by SAP
pg 5
According to IDC’s most recent CloudView
survey, the vast majority of customers (80%)
have either fully embraced using cloud to power
their business applications and infrastructure or
are in the process of deploying cloud solutions.
Only 8% are not interested at all (down from 21%
in 2014). The fact is that if you aren’t offering
cloud options you are missing out on substantial
opportunity.
The majority of growth in cloud spending over
the next two years will be from organizations
that were previously only light users or who
have not yet adopted cloud. So it certainly isn’t
too late to get into the game.
It’s a fact: customers are
embracing cloud
Not interested
Respondents indicating that they have no interest in, or
plans for, cloud computing at this time.8.0%
Evaluating
Respondents indicating that they are educating themselves
about cloud or the cloud approach for a specific service,
without firm plans to implement.12.5%
Deploying
Respondents indicating that they have firm plans to adopt
cloud within 12 months or are using the public or private
cloud for one or two small applications/workloads.20.3%
Embracing
Respondents indicating that they are currently using
public or private cloud for more than one or two small
applications/workloads.59.3%
Source: IDC CloudView 2016 Survey, 2016, n=11083
IDC CLOUDVIEW: OVERALL CLOUD ADOPTION
(ALL RESPONDENTS)

Sponsored by SAP
pg 6
Source: Worldwide Hosted Private Cloud Services Forecast, 2015–2019 (IDC #259066)
Many customers are already convinced of the value of private
cloud. Almost 70% of companies that are already embracing
cloud prefer using private cloud services. Customers look
to private cloud service providers as the primary guarantors
of Web performance, application acceleration, and secure
connectivity.
Worldwide spending on private cloud services will reach $18.8
billion in 2016 and is expected to grow to $40.5 billion by
2019. That’s a compound annual growth rate of 31.5%. There is
lots of interest and lots of money on the table. Of course the
landscape looks different across the geographic regions, but
even established markets will have healthy two-digit growth
over the next four years.
There is a lot of interest in
private cloud
GROWTH IN PRIVATE
CLOUD SPENDING
2016 to 2019 CAGR
Latin America
Central and Eastern Europe
Asia Pacific ex Japan
U.S.
Western Europe
Middle East
Canada
Japan
45.4
32.9
32.5
31.7
29.6
27.9
24.1
23.2

Sponsored by SAP
pg 7
Hybrid cloud is the dominant operating model today
because IT buyers are shifting to a ‘cloud also’ strategy.
Most companies are not looking at a wholesale
replacement of their legacy applications. Rather, they
are considering cloud options when they have a need
to augment or upgrade their technology. IDC expects
that by 2017, 80% of large organizations will commit to
hybrid cloud architectures that encompass public and
private cloud infrastructure, middleware, software, and
non-cloud IT assets.
The need to integrate traditional systems with modern
cloud infrastructure and applications is a big opportunity
for solution providers. Customers need help with IT
operational challenges and will look to solution providers
to navigate the hybrid world.
Hybrid cloud is the norm
SOFTWARE REVENUE GROWTH
RATE THROUGH 2017
5.5Xhigher cloud SW growth
vs. packaged SW
22%
4%
Cloud SW Packaged SW

pg 8
Sponsored by SAP
“The partner managed cloud solution is essentially a technology lease for a fixed
term. It’s much easier for customers when they don’t have multiple contracts
where one outlives the other. Managed cloud normalizes all of their service terms
to the same period. It’s a win-win.” —SAP Partner, U.S.
What is Partner
Managed Cloud?

Sponsored by SAP
pg 9
Partner managed cloud is a new way for solution providers
to deliver SAP solutions. It is packaged and managed SAP
solutions delivered via OpEx consumption model through
a partner’s private hosted cloud. Partner managed cloud
enables the creation of an integrated solution spanning
hardware, software and services. Partners have complete
flexibility to package, price, and set the customer terms
and conditions for their managed cloud solution, which can
incorporate nearly any SAP product.
Partner Managed Cloud: A new
way to partner with SAP
Partner managed cloud enables the creation
of an integrated solution spanning hardware,
software and services.

Sponsored by SAP
pg 10
Partners can choose to acquire term licenses for SAP software on a deal-by-deal basis or execute
a partner managed cloud master agreement to cover multiple customers. Partners sell the SAP
software license along with their in-house expertise for a fixed term from 2 to 7 years. Partners can
bundle as many additional services with the SAP application as required by the customer. This would
naturally include infrastructure and hosting, but also application life cycle management, security
services, business consulting services, and anything else under the sun.
Partner managed cloud is an opportunity for partners to leverage their intellectual property, move
into the cloud, and expand revenue. To get started, partners identify a market segment that would
benefit from a repeatable cloud solution and develop a go-to-market strategy to address the target
group of customers. Managed cloud solution providers then build, sell, implement and support their
solutions with full autonomy.
PARTNER MANAGED CLOUD IS AN OPPORTUNITY
FOR PARTNERS TO LEVERAGE THEIR
INTELLECTUAL PROPERTY, MOVE INTO THE
CLOUD, AND EXPAND REVENUE.

Sponsored by SAP
pg 11
“Embrace the possibilities presented
by partner managed cloud. Your
clients will only thank you.”
—SAP Partner, Asia
Why Solution Providers Like
Partner Managed Cloud

Sponsored by SAP
pg 12
As much as the success of cloud has created substantial opportunity, it has also opened the gates
for competition among solution providers and the potential to get stuck competing solely on price.
A good way to stand out is to specialize in an industry vertical or microvertical. For example, one
SAP partner has built a healthy revenue stream by focusing on business operations solutions for craft
breweries, while another has decided to go deep into the needs of the automotive industry in Asia.
Partners we spoke to view partner managed cloud as the foundation for greater opportunities to
specialize in and capitalize on a target market. They have found that a managed cloud approach
has enabled them to define new offerings simply, strategically and with a greater flexibility than for
traditional on-premise implementations. That’s because they have been able to leverage existing in-
house assets to create unique, but also standardized, recurring solutions.
An opportunity for specialization
“We’ve had success in the healthcare industry and it’s been very attractive in many
ways. Customers get their solution at a really, really decent price. And they can
focus then on making people better and healthier, rather than worrying about
running IT infrastructure and applications.” —SAP Partner, U.S.

Sponsored by SAP
pg 13
A shorter implementation cycle. Partners that offer industry-specific, templated solutions indicate
that a three-month turnaround from implementation to ‘go live’ was the norm. Of course there is a
downside to a compressed project because it impacts up front professional services fees, but the
upside is being able to acquire and serve many more customers over the course of a year without
increasing delivery resources.
Streamlining sales and marketing. If you have a laser focus on a particular industry or market
segment you can also be very focused in your sales approach and marketing messages. This
requires staff to be knowledgeable about the area of specialization in order to lend credibility and
‘walk the talk’ in customer conversations. Some partners address this challenge by hiring experts
from their target industry to lead sales efforts.
Potential for higher profit. When you have a deep understanding of what makes your target
market tick you increase the value you can add to your customer’s business. This pays off because
it reduces competition and increases the price customers are willing to pay for your expertise.
THE ADVANTAGES OF SPECIALIZATION

Sponsored by SAP
pg 14
Source: IDC Global SMB Survey, 4Q15; n=1889
Partners say the managed cloud approach provides mid-
market companies the opportunity to adopt solutions like the
SAP Hybris or HANA platforms with significantly fewer upfront
costs. It’s an opportunity for organizations that didn’t think they
could afford SAP technology to economically acquire ‘enterprise
class’ functionality. This opens up the potential for a lot more
conversations with customers that were previously not considered
prime prospects.
IDC research shows that the top business goal for small and
medium-sized businesses (SMB) worldwide is to grow revenue,
followed closely by the desire to manage costs by being more
efficient. SMBs have very positive views about technology, with
most strongly agreeing that the Internet has had a positive effect
on their business and that advanced technology is an important
competitive tool. In particular, technology that contributes to the
immediate corporate goals of improving finances or improving
productivity in the next 30 or 60 days will have strong appeal to
the SMB segment.
A new route to the SMB market
TOP 3 SMB ATTITUDES
TOWARDS TECHNOLOGY
The Internet has really transformed
the way we do business.
Advanced technology is an
important competitive tool.
We invest in technology to manage
costs and be more efficient.
“Partner managed cloud really knocks
down the mental block of the customer
that doesn’t want to hear about the
virtues of something they can’t afford.
It’s like you’re walking into a car dealer,
and you see your dream car sitting over
in the corner, and you immediately turn
your head away from it because you
don’t want to be teased by that...
—SAP Partner, Europe

Sponsored by SAP
pg 15
Successful solution providers say the key to a robust recurring revenue stream and
a good profit margin is achieving a critical mass of customers. By definition and
design, a partner managed cloud solution is repeatable within a target market, so it
is relatively seamless to add new customers. Partners are also able to ‘invisibly’ add
users or locations to scale the solution to accommodate customer growth. After
acquiring the first few customers, partners say the implementation, maintenance
and upgrade processes become like a well-oiled machine. As well, one partner
noted that once you have a managed cloud contract in place, you save a lot of time
because you don’t have to negotiate each opportunity individually with SAP.
One caveat is that you need to minimize exceptions to your standard solution and
methods. Partners told us it’s sometimes tempting to take on a new customer
that falls a bit outside your sweet spot because it’s hard to pass on a revenue
opportunity. Partners we spoke to advise taking a very close and objective look at
a possible exception to make sure the extra work to accommodate a deviation in
the solution will be profitable. In some cases, the time and expense might enhance
the solution and make it more attractive to potential customers. In other cases, it
will be an expensive one-off requiring ongoing special attention.
Easy to repeat, repeat, repeat
“Partner managed cloud
enables us to leverage all
application maintenance,
upgrade processes, and
common development
across customers so we
can dramatically reduce
application maintenance
costs and development
costs to localize our
solution. Customers
all share the upgrades,
development, and
everything else that we
do rather than having
to do it for them on an
individual basis.”
—SAP Partner, U.S.

Sponsored by SAP
pg 16
Prior to signing on with partner managed cloud, solution providers may have offered managed services
but not software licenses or provided systems integration services but not a hosted environment. Now,
they can offer customers a full end-to-end service, from software acquisition to ongoing care and feeding
of the solution. Partners we spoke to are really happy with the ability to bundle end-to-end services and
infrastructure into one customer contract and one customer bill. They feel this makes their customer
relationship ‘stickier’ because they become a single provider and ‘one-stop shop’ for a wide variety of
technology needs.
There is lots of room to enhance and extend ongoing services beyond the managed cloud solution,
including consulting, implementation, content provisioning, and managed or other general business
services that are layered on the SAP software.
One hand to shake
Partners we spoke to are really happy with the ability to bundle end-to-end
services and infrastructure into one customer contract and one customer bill.
They feel this makes their customer relationship ‘stickier.’

Sponsored by SAP
pg 17
For example, some partners offer a ‘virtual CIO’ service, while others outsource desktop support
and other core infrastructure services in addition to running and maintaining the SAP technology.
As services can be far more profitable than re-selling software or hardware, there is an overall
expectation of higher margin within the model.
Partners we interviewed generate between 30% and 95% of their revenue from their cloud offerings.
Although we did not conduct a quantitative study, so these numbers cannot be considered iron clad,
here is their typical breakdown of revenue:
SAP software licenses
5% TO 13%
Managed cloud solution
30% TO 45%
Infrastructure
(IT assets and hosting)
30% TO 60%
Consulting services
40% TO 60%

Sponsored by SAP
pg 18
“We did a business case recently for a client that needed to identify what’s more affordable:
having their own data center or outsourcing to the cloud. If you take into account the cost
of a primary data center, a secondary data center, all of the backup cycles, all the software
they require and so forth, the result was that over a seven year term they were 26% better
off by hosting with us in the cloud.”
—SAP Partner, Africa
Why Partner Managed Cloud
is Attractive to Customers

Sponsored by SAP
pg 19
By definition, the managed cloud environment is ready and waiting, avoiding delays associated
with buying and installing hardware and networks. The repeatable platform and solution results in
a streamlined implementation, rather than a traditional extended project timeline to accommodate
extensive customization.
Partners report being able to reduce implementation time significantly compared with a traditional
SAP implementation. Partner managed cloud also makes it easier to start small so the customer can
experiment with the solution, then turn on additional features and functions as requirements become
crystalized. Partners say it helps get customers excited about the potential of the solution and keeps
them interested in achieving the business value of SAP technology.
A faster time to value
“Getting the customer up and running very quickly allows them to see and experiment with the
solution then grow from there. We start working with them at that point to really understand what
the priorities are and continue to iterate and grow them through additional releases and functionality
over the next few months. That way we provide value quickly as opposed to waiting a year and
showing them something that they may or may not like. It also allows the client to buy in along the
way and to shift very quickly when their priorities change over time.” —SAP Partner, U.S.

Sponsored by SAP
pg 20
Partner managed cloud solutions are structured so that
customers can use operating funds instead of capital funds
for their technology purchases. Usually, it is relatively easy
to shift operating money around and of course, it is nice to
spread payment over the life of the solution rather than write a
big check up front. IT purchase decisions are also continuing
to shift beyond the CIO and IT department. IDC believes that
line-of-business buyers are involved in 80% of all technology
purchases and are contributing budget to almost 60% of IT
sales transactions.
Managed cloud solution providers say their customers
appreciate the payment flexibility they can offer. One size
does not have to fit all, making it easier for customers to sign
on the bottom line. Because partners are in complete control
of the customer relationship, they can offer whatever financial
arrangement is mutually beneficial. Keep in mind, though,
offering too many different payment options may complicate
closing a deal.
A flexible procurement process
“We can create a different
financing vehicle for our customers
that allows them to have
standardized monthly payments
that include the hosting, managed
services and the ongoing services
as our customer relationship
grows. We can maneuver that in
a variety of different ways under
partner managed cloud.”
—SAP Partner, Europe

Sponsored by SAP
pg 21
In a traditional implementation, customers end up with several different
contracts and several different parties to negotiate with. It is safe to
say that most would rather not juggle multiple contracts for a single
solution. Partner managed cloud reduces complexity by enabling one
customer contract that covers all aspects of the solution, including
software, infrastructure, maintenance, and ongoing management
services. An added bonus is if there is less time spent executing
agreements, the solution can be implemented sooner.
Being a single source provider also aligns with customer preference
building a relationship with a cloud solution provider. IDC research
shows the majority of buyers (66%) believe the best route for adopting
cloud is to stick with a single major cloud provider. That means once you
have forged a good relationship customers are likely to stick with you.
A single source provider
The majority of buyers (66%) believe the best route for adopting
cloud is to stick with a single major cloud provider.

Sponsored by SAP
pg 22
“You have to be clinical in packaging your solution and understand you will need to deliver
volume business. You may have five or ten deals going at the same time. That’s certainly
what we’re experiencing as we’ve incorporated the managed cloud licensing into our
healthcare package.” —SAP Partner, Europe
Getting Ready for Partner
Managed Cloud

Sponsored by SAP
pg 23
There are always changes and impacts when you do
something new. The degree of change will depend on where
you are starting from. If you have been in managed services
for a while, the learning curve won’t be so steep. If not, you’ll
need to map out your journey to readiness. For sales and
marketing, partners report the following impacts.
The sales cycle turns on its head. When you are selling
subscriptions instead of one-off projects the sales
transaction is just the beginning. Your money will come
in the door over time instead of as large lump sums.
The customer relationship post-sale is an important
focus, in order to make sure they are getting value
out of their managed cloud services and solution and
continue to keep their subscription relationship with
you. This increases the importance of ‘farmers’ who
nurture the customer relationship post-sale.
What will partner managed cloud
mean to sales and marketing?
IDC research reveals that 65%
of B2B buyers have already
researched and made a technology
purchase decision before they
contact a sales rep.

Sponsored by SAP
pg 24
The sales cycle accelerates. There are several aspects of partner managed cloud that contribute
to a faster sales cycle. The solution is already on the shelf and can be easily demonstrated, so
customers have lots of tangible input for their purchase decision. The ability to use operating funds
and flexible procurement terms also grease the wheels. This is good news that also comes with
some potential delivery challenges if your organization isn’t ready for the volume of new customers.
Partners we spoke to all experienced a very positive impact on their revenue stream.
The sales conversation changes. With a repeatable solution, the sales conversation is about
a ‘plug and play’ solution as opposed to exploring an array of customized possibilities. Some
customers will need to be educated about the advantages of this approach and sales staff will need
to be prepared for objections and to resist the temptation to promise deviations from the standard
solution. Another aspect that might be new to some customers is the notion of signing up for a
specific term. You need to have a ready response if the customer wants to know what happens if
they leave before the term is up.
Digital marketing is key. IDC research reveals that 65% of B2B buyers have already researched and
made a technology purchase decision before they contact a sales rep. At a minimum, you need
to get your website content up to snuff, including customer success stories and business-focused
information about your expertise in your chosen niche. It is also a good idea to use search engine
optimization techniques to help customers find out about you. And of course take advantage of
the marketing assets provided through SAP PartnerEdge.

Sponsored by SAP
pg 25
“One of the conversations we always have during the contracting
process is about the worst case scenario. ‘If we’re not happy with you
two years down the line, but we’ve entered into a five-year agreement,
what happens now?’ These are the kind of things you need to have viable
answers to. But if you can backup the service with the appropriate service
levels and the associated credibility, then you won’t have an issue.”
“Partner managed cloud has certainly become
an enabler of additional revenue because it
simplifies the message to the market. It gives us
more flexibility in terms of our approach. I would
put it at about 20-25% potential increase in
revenue compared to previous years.”
—SAP Partner, Africa

Sponsored by SAP
pg 26
Partners we spoke to pointed out several aspects of services delivery and business operations that
are likely to change when you start offering a repeatable packaged solution.
The implementation methodology. The implementation methodology usually needs to be
adapted for partner managed cloud to accommodate the accelerated time frame to get the
solution up and running. One partner noted that project management, in particular, needs to be
very disciplined to keep the implementation tasks on track within a compressed schedule. Staff
accustomed to traditional implementations may need time to adapt to the new methods.
Project team staffing. Because the implementation tasks for a managed cloud solution are
usually less complex than those for a traditional on-premise model, partners say the learning
curve for new staff is faster. There’s an opportunity for more leverage of high-value, high-cost
resources like technical architects because projects are shorter and teams are smaller.
What will partner managed cloud
mean to operations and delivery?
“You need a different type of project manager here. You’ve got to push things
through according to the contract. We can only offer low prices because of the
efficient utilization of our consulting team.” —SAP partner, U.S.

Sponsored by SAP
pg 27
Pricing and contract terms. As mentioned earlier, partner managed cloud gives solution providers
full flexibility to set prices and contract terms. While flexibility is good, it can be a challenge
to consider all the options. You need to determine what to bundle into a recurring revenue
subscription component and what (if anything) you will charge up front and/or on a project basis.
Because the expectation is that most costs will be spread across several customers, pricing needs
to anticipate reaching a critical mass. Partners say this might affect profit in the short term while
you get your pipeline moving.
“We bundle everything. You have the hardware cost, the software
cost, and the implementation cost. We charge upfront for some of
the cost and then it’s split out into a monthly fee.”

Sponsored by SAP
pg 28
“The whole point of any business is
making it easier to buy your services.
And what partner managed cloud does
is make it easier to buy your services.
That’s the bottom line, right?”
Essential Guidance

Sponsored by SAP
pg 29
IDC believes that partner managed cloud hits all the sweet spots in today’s technology market for partners. It
offers the opportunity for specialization and differentiation, recurring revenue, and an entry point to the cloud.
Cloud is not just the way of the future, it is the way of today. We expect a reduction in spending on traditional
client-server technologies of almost 5% over the next five years, while cloud, mobile, big data and social business
solutions will grow by almost 13% over the same period.
Partners that focus on increasing their recurring revenue realize there will likely be some short term pain as they
work to build up a critical mass of customers. But once you get there, it can be very good business indeed,
because it smooths the revenue stream. In other research we have conducted, a healthy amount of recurring
revenue can have a positive effect on business valuation.
SAP is helping their partners go where the market is going. If you take advantage of partner managed cloud and
the resources available through SAP PartnerEdge you will be well positioned to succeed in the new era of IT.
Essential Guidance
IDC believes partners that are not able to add true value, such as a solution tailored to the needs of a particular
industry or market sector, will find their revenue opportunities decline. We have also seen a steady rise in the
importance of services in the revenue mix as a major contributor to gross profit. And the pinnacle source of
margin is intellectual property created internally that is packaged up as an ‘as a service’ solution, like those that
have been created by solution providers delivering partner managed cloud.

Sponsored by SAP
pg 30
IDC interviewed a variety of SAP partners that are delivering repeatable managed cloud solutions
to their customers located in North America, Africa, Europe, and Asia. All of the partners provide
systems integration services including software installation, training, deployment, and ongoing
support. Some had also offered hosting services prior to delivering managed cloud solutions.
Data and other insights have also been drawn from IDC’s wider-ranging research on partner
experience with cloud and managed services, as well as quantitative studies recently conducted on
cloud adoption and SMB buyer behavior.
Methodology
All IDC research is ©2016 by IDC. All rights reserved. All IDC
materials are licensed with IDC’s permission and in no way
does the use or publication of IDC research indicate IDC’s
endorsement of SAP’s products or strategies. Data in this
InfoBrief comes from IDC studies from 2015 and 2016.

IDC Infobrief- Unleash the opportunities in the Cloud with SAP Partner Managed Cloud

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