Author’s note – This blog post series is primarily written for SAP’s channel partners and PE sell partners but might be interesting for any partner considering building an industry cloud solution on SAP BTP.
“The Good, the Bad and the Ugly” is the title of a legendary film in the 1960s, featuring the great movie hero Clint Eastwood.
When explaining the commercial model of SAP BTP and SAP’s industry cloud to a channel partner who was concerned about (and not happy) paying revenue share to SAP for a solution he built, I used the Good, the Bad and the Ugly concept to explain the commercial model of SAP’s Industry Cloud.
The Bad:
Let’s start with the bad. Yes, you have to pay SAP! It might look like bad news that SAP partners have to pay SAP a revenue share when they build a solution on SAP BTP and sell it as a cloud service. Many partners have the perception that this is a “tax” they need to pay SAP on top of all other costs. And of course, most people do not like to pay taxes.
The Good:
The good news is that the revenue share is not a tax. Revenue share pays for the SAP BTP services the partner needs to run their solution for customers. The business model is that a partner resells SAP BTP services via the PE build program. It is fair that the reseller pays the vendor for what is being resold, right? That is the idea of revenue share. For SAP, there are costs associated with delivering the SAP BTP services: virtual servers, electricity of these servers, the security systems, back-up systems, the people doing DevOps, the development and maintenance of the SAP BTP services, the SAP HANA services, etc. etc. SAP uses the revenue share payments from partners to cover the costs and pay the actual bills.
Think of the revenue share as a “cost of goods sold” element and not a tax. Further, listing and selling a solution developed under the PE build framework via the SAP store does not add any more costs.
There is more good news: via the PE build program you have access to a special SAP BTP price list for partners with reduced pricing. For example, compare the pricing of the SAP BTP service “SAP HANA cloud capacity units” on the SAP Discovery Center to the pricing of the same service on the partner PE build price list. You will discover that the PE build price of this service is significantly lower than that on the SAP discovery center. This gives SAP partners a lot of room to do business development, innovate, bundle their SAP BTP code with the SAP BTP services as ONE offering to customers. (Note: the PE build list is only accessible for partner with minimum PE build open ecosystem program status).
And, there is even more good news for 2022: SAP has recently launched an “2022 SAP BTP Sales Performance Incentive” in which partners reselling SAP BTP services in 2022 can get a credit against future SAP store invoices. This initiative is again a proof point of how serious SAP is with its strategy to help partners develop cloud solutions on SAP BTP. I recommend that channel partners use this cost-saving as input into their multiyear business plan of moving their IP to SAP BTP. It will help reduce the overall cost and thus improve time to ROI.
The Ugly:
The ugly part of all of this is the complexity. Gone are the days that a partner just develops code for ONE customer and gave the code to the customer to run it themselves, for the customer to figure out if they needed to upgrade their hardware, train their IT staff on how to manage the solution etc. Now the partner must create a standard solution which fits many customers, need to understand which SAP BTP services are available, the cost drivers of these services and decide which ones to use for their solution. When the solution is coded, the partner needs to allocate resources to monitor the running of the solution The partner needs to understand revenue share and distribution rights under the PE build program and come up with a price structure and price level for your solution which cover all cost elements, and at the same time is simple for prospects to understand.
This complexity is not related specifically to SAP’s industry cloud or SAP BTP, it is a complexity related to offering true SaaS cloud services.
Conclusion
For the channel partners with IP who understand that cloud is the future, there is only one way forward: just deal with “the ugly”.
View it as an opportunity and not a problem! I know, this is a cliché statement, but I really think it valid right now in our industry. Let me explain with an analogy to the car industry. In our business software industry, we love to compare to the car industry….
I remember when I grew up that my dad and I used to be under the hood of our family car on a regular basis to fix stuff. Today, I never get under the hood of my car. For most people today, it is just way too complex to fix their own car with all the innovations. It feels like you must have a PhD degree to even change a head light in a modern car. These days we get the experts involved early by regular maintenance services appointment to prevent failure. Services we must pay for, but it is worth it for most people. For the engineers in the garage where I bring my car, it is extremely more complex to do their job.
Even though cars these days are leveraging more complex technologies than ever before, they have become much easier to own and drive. The car industry with its suppliers and dealers has taken all the new technologies, leveraged them to take cars to the next level, hidden the complexity and turned it all into a simpler and easier experience for car owners. Easier for the customers, but much more complex for the companies operating in the automotive industry.
Channel partners should take the new cloud technologies, platforms, and services etc and hide the complexity from the customers behind great and valuable modern software cloud service offerings.
There is great value in taking something complex and turning it into something simple. And great value can be priced and sold, and thus be a good basis for a business. Make sure you stay competitive and generate new revenue streams for yourself.
What to learn more about SAPs industry cloud in a simple manner? Read my blog post comparing SAP's Industry cloud to LEGO.
Let me know in the comments below if you have any questions to the above, or if you have any additional insight to this topic you think is important, including thoughts of Client Eastwood’s role in the Good, the Bad and the Ugly!
Are you an SAP channel partner and wonder if SAP’s industry cloud could be something for you? Then read my previous blog post: Are You the Ideal Channel Partner for SAP’s Industry Cloud?
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