SAP addresses partner cloud transition issues with new Cloud Choice compensation model

The SAP PartnerEdge Cloud Choice, profit option – with the emphasis on option – has the partner doing most of what they did before, and keeping control of the customer. SAP, however, now handles the contracting, invoicing and collections.

John Scola SAP

John Scola, SAP’s VP, Global Cloud Channels & Transformation

It’s no secret that SAP sees its long-term future in the cloud. To that end, it has been making significant investments to transition as much of its business as possible there, and has been strongly encouraging its partners to do the same. However, it’s also no secret that many SAP partners have found changing their business model while still keeping the lights on a challenge. So to address that, the company is announcing a new option for partners for cloud business – the SAP PartnerEdge Cloud Choice, profit option.

“We have had a resell model in the cloud since 2010, which we launched originally to support SAP Business by Design,” said John Scola, SAP’s VP, Global Cloud Channels & Transformation. “They resell our subscription, get services after the deal, and any consulting services they want to add on top.”

Scola said that the new comp model is designed to remove the financial risk that comes from the cloud transaction, allowing them to focus on just doing more cloud deals, while still retaining control of the customer.

“This is for partners who may just want to test the waters in the cloud, or who don’t want to resell, but who put in a lot of work securing the clients,” Scola said. “This Cloud Choice profit option is a remake of the business model, to enable a lower touch sales approach. That creates the volume to make up for the loss of on-prem licenses.”

The key change from the way the system has worked is that SAP now handles the contracting, invoicing and collections part of the deal.

“The partner does almost all they have been doing, but SAP handles the contract, liability and risk,” Scola said.

Scola emphasized that the partner isn’t surrendering control of the customer to SAP.

“The way this model works is that we pay the partner for every year the customer is engaged. They get paid every year of that term. Then, assuming the customer stays in business and doesn’t decide to change to another vendor, the partner is engaged in the renewal and gets a fee again, and it continues as with the original term. The partner owns the customer. SAP owns the invoicing and the contracts. As long as the partner stays engaged and manages the customer relationship, they have that revenue stream for life.”

Scola also emphasized that this is simply an additional model partners can use if they want, not a new comp policy that is becoming the norm for cloud deals.

“Partners have the choice,” he said. “They can take the deal the way they want. If they want to resell, like they do now, they can do that. If they want to just take the fee and put the liabilities on SAP, they can do that.”

Scola said that he thinks the new option will be popular among two groups – new types of partners for SAP, and transitioning VARs who haven’t gone all the way to a full cloud resell model.

“We are now talking to the line-of-business owner instead of the CIO, so we need a different DNA of partner,” he stated. “This model can bring new partners into the ecosystem without having to make a major investment. They can test this out before committing to a sales model as well.”

Scola also indicated SAP had discussed the new option with existing VARs, who have not fully transitioned to the cloud.

“We see a lot of interest out there among these partners,” he said. “They like the option because they are concerned with taking on the liabilities of the cloud service. SAP is now doing that. The partner can be more of a third party for that part of it, and that’s attractive to them. It also gives a different way to approach a customer.”

Scola also indicated that partners see themselves using both this and the original resale model, depending on the specific customer, and the nature of the sale.

“They will most likely not use the model 100 per cent of the time,” he said.