Microsoft is Going to Help SAP Solve One of its Biggest Problems

SAP is looking to deepen its relationship with Microsoft to sure up one of its biggest service gaps.

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A new three-year deal was announced earlier this week as part of SAP’s third-quarter financials. The partnership, which is being called “Embrace,” is designed to allow clients to easily transition from using SAP enterprise resource planning and its customer experience solution S/4HANA from local, on-premises servers to those at remote locations “through industry specific best practices, reference architectures, and cloud delivered services on Microsoft Azure. Microsoft will also be handling distribution.

“We bundled SAP’s cloud platform services to support customers around the extension, integration, and orchestration of SAP systems,” said CEO Jennifer Morgan. The timing of this announcement gives Morgan and co Christopher Klein a boost. The duo took over from Bill McDermott in October, after he announced his departure from the company after a decade of leadership.

SAP and Microsoft have been teaming up on a number of projects over the past few years. In 2016, the two partnered to bring SAP’s databases to Azure cloud services. Last year, the duo worked with Adobe on the Open Data Initiative, and together collaborated on a project to bring huge amounts of customer data into the cloud.

Despite the long-standing relationship, SAP hasn’t signed an exclusive arrangement. The company says that is exploring other partnerships to ensure customers will be able to use their preferred provider.

“As always, choice will prevail as we recognize that many of our customers also run SAP on AWS and GCP, for example,” Morgan said. “Customers will still have benefits of the best-run SAP in their public cloud of choice.”

This is an instance of outsourcing bolstering a company’s performance. SAP cloud revenue is up 37% to €1.789 billion and cloud gross margins are up 5.4% to 69%. The company has set a 75% gross margin target that it intends to reach by 2023.

Thanks to the new deal, SAP is also reporting that cloud bookings were up 39% in its third quarter. The Microsoft partnership is credited with 18 percentage points of that growth. The company’s financial report also evidenced a 10% increase in revenue and a 15% uptick in operating profit.

Morgan also highlighted SAP’s acquisition of customer experience platform Qualtrics, which took place in 2018 and cost the company $8 billion. Qualtrics has added 300 customers since May in bundles that tend to include SAP’s human resource solution, SuccessFactors.