The Partner Solution Opportunity

For SAP’s Industry Cloud Portfolio

A Total Economic ImpactTM Partner Opportunity Analysis

APRIL 2021

A FORRESTER TOTAL ECONOMIC IMPACT™ STUDY COMMISSIONED BY SAP

Table Of Contents Consulting Team: Mbenoye Diagne
Jonathan Lipsitz
Executive Summary ................................................. 1
SAP’s Industry Cloud: Partners’ Perspectives ..... 8
Integrated Industry Portfolio ................................... 8
SAP Business Technology Platform ...................... 9
SAP Software Partner Solution Progression ........ 11
Industry Cloud Partner Benefits ........................... 13
Revenue Improvements ....................................... 13
Margin Improvements ........................................... 17
Revenue And Margin Improvements By Solution
Progression Level ................................................. 20
Industry Cloud Partner Investments And Best
Practices ................................................................. 24
Financial Summary ................................................ 26
Appendix A: SAP’s Industry Cloud Software
Partner Solution Progression ............................... 27

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THE PARTNER SOLUTOIN OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO

Executive Summary
SAP’s industry cloud accelerates customers’ industry-specific business transformation.
To achieve this, SAP has brought partner-created solutions front and center in terms of
rapid innovation alongside SAP-built solutions, joint go-to-market initiatives, and
discoverability by customers in the SAP Store. This, in turn, helps partners to deliver
more value to existing and new customers, to significantly grow their revenues, and to be
more profitable in terms of solution development and delivery.

SAP commissioned Forrester Consulting to conduct a

Total Economic Impact™ (TEI) study to examine how
partners can benefit from building solutions as part of
SAP’s industry cloud. SAP’s industry cloud is
designed to help customers easily deploy industry-
specific solutions that have been built by both SAP
and its partners to optimize and transform customers’
business. The purpose of this study is to provide both
prospective and existing partners with a framework to
evaluate the potential business opportunity that’s
associated with building, managing, and selling
industry cloud solutions.
From a partner’s perspective, SAP’s industry cloud
accomplishes several things:
• Firstly, the integrated industry portfolio puts
partners’ offerings front and center alongside
SAP-built solutions. These integrated solutions:
help customers transform industry-specific core
business processes; help partners identify
opportunities to create and sell industry-specific
solutions; give customers confidence in the
partner solutions; and create joint go-to-market
opportunities between partners and SAP’s
industry go-to-market teams.
• Secondly, SAP Business Technology Platform
(SAP BTP) is an open innovation platform that
enables partners to build and manage fully
integrated business solutions with less effort and
cost. It provides a framework and technologies
that ensure interoperability with SAP, enabling
KEY STATISTICS
First-year revenue increase: Reduced R&D costs:
2.4x to 4.9x 10% to 20%
the creation of replicable industry-specific
solutions. Additionally, this framework delivers
advanced features such as AI and analytics;
partners can leverage these features in their
solutions and provide a global cloud
infrastructure for the efficient hosting and delivery
of industry cloud solutions.
• Lastly, commercialization through the SAP
software partner solution progression journey
expands the total addressable market to more
than 440,000 existing SAP customers. This
provides a wide range of go-to-market
opportunities through the SAP Store (previously
called SAP AppCenter) and with SAP’s marketing
and field sales organizations.
Overall, creating industry cloud solutions is the logical
next step for existing SAP partners in order to both
deepen their relationships with SAP and to grow their
SAP-related revenues by building and monetizing IP.
For partners who are new to SAP, engaging with the

THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO 1

 EXECUTIVE SUMMARY
industry cloud is a good entry point that can
accelerate time-to-market and total revenue potential.
To better understand the opportunities from
developing industry cloud solutions, Forrester
interviewed eight existing partners with experience
collaborating with SAP to build and bring to market
these solutions. The revenues of current industry
cloud partners varied greatly from $5 million to $40
million, in terms of proportion of overall SAP-related
revenues. And those partners were headquartered in
North America, Europe, and Asia.
To illustrate the financial impact and subsequent
business opportunity for SAP’s industry cloud
partners, Forrester aggregated the characteristics of
these interviewed partners. All findings are presented
as normalized against existing or expected non-
industry cloud solution revenues (with a baseline
equal to 100), so that the reader can easily apply the
aggregate findings to their organization, regardless of
size. The financial model is based on first-year sales
with an average contract duration of up to five years,
depending on the progression level of a solution’s
industry cloud commercial model.
Industry cloud solutions can fall into one of the four
SAP software partner solution progression levels:
Validated, Spotlight, SAP Endorsed Apps, and SAP
Solution Extensions. For this study, the Validated and
Spotlight levels are treated the same, in terms of how
they increase revenues and profitability. Each model
has differences such as benefits, go-to-market
models, and revenue share percentages with SAP
(see Appendix A); however, no one progression level
is inherently better than another. SAP Endorsed Apps
and SAP Solution Extensions designation is by
invitation only. The SAP software partner solution
progression level includes an SAP revenue share
model in which SAP takes 25% of revenues for
Validated and Spotlight solutions, 35% for SAP
Endorsed Apps, and 50% for SAP Solution
Extensions.
THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO
Forrester’s financial analysis first looks at solution
results for low-, medium-, and high-performing
scenarios, regardless of progression level. The
performance of a specific solution depends on the
industry-specific value it delivers to customers, the
level of effort a partner puts into selling the solution,
and how closely the partner aligns to SAP’s industry
cloud. Generally speaking, the more a partner
solution expands SAP’s existing capabilities to solve
a customer’s real-world, industry-specific needs, the
better it sells. Forrester also estimates the
probabilities of a solution in different progression
levels falling into the low, medium, or high scenarios.
These probabilities are used to calculate the
expected outcome by progression level. Partners are
encouraged to define and assign their own
probabilities based on their understanding of the
solution fit and effort they are willing to put into the
SAP partnership.
KEY FINDINGS
Revenue and margin opportunities. Partners can
expect to achieve the following benefits, which are
quantified in this study:
• Close more deals. Partners can close many
more deals due to: a greatly expanded and global
total addressable market (TAM) that consists of
more than 440,000 SAP customers; greater
transacting ease via the SAP Store; and joint go-
to-market sales and marketing initiatives in
partnership with SAP. In the case of SAP
Solution Extensions progression level, SAP can
directly sell and transact as part of contracts they
are writing. Compared to the non-industry cloud
solutions, a partner can expect to close between
50% and 150% more deals in the first year of
analysis, depending on the level of their
solution’s performance.
• Sell bigger deals. Industry cloud solutions that
focus on creating industry-specific value are often
larger in scope and more expensive, especially
when leveraging the advanced technologies
2
 EXECUTIVE SUMMARY

within the SAP BTP. Being more closely aligned scenario, and that the overall impact for high-
with SAP helps partners get into larger enterprise performing solutions is 88%.
accounts, resulting in higher contract values.
• Close deals faster. This is a one-time benefit
Additionally, some partners are wrapping more
that is realized in the year the deal is closed. In a
services around these technologies. Bigger deal
software-as-a-service (SaaS) model, a month of
size applies to the sales that would have taken
lost revenue is never recaptured. Generally,
place in a non-industry cloud world, as well as
partners can leverage SAP BTP to bring industry
the volume of increased deals previously
cloud solutions to market faster. Also, sales
discussed. This delivers an additional 38% to
cycles are compressed due to SAP alignment
125% in first-year revenues, compared to what a
helping to overcome prospects’ potential
partner could expect for their solutions had they
concerns, fast transacting via the SAP Store, and
not joined SAP’s industry cloud.
any existing SAP field sales relationships with C-
• Charge a price premium. Partners can often sell suite executives at partners’ prospects. This one-
a comparable solution, as part of the industry time benefit layers on top of the increased
cloud ecosystem, at a price that is higher than number of deals, the increased deal size, and
what they would have otherwise been able to. price premium benefits. It is worth between 3%
This is achieved by leveraging the SAP brand to and 46% of anticipated non-industry cloud
demonstrate to prospects the increased value solution sales in the first year.
and how SAP marketing and sales organizations
• Improve margins. SaaS gross margins improve
generate leads that close with a price premium.
by leveraging SAP’s BTP; this supports
This premium can vary greatly depending on how
multicloud architectures, reduces the need for
a solution performs; conservatively assuming
user support, and achieves economies of scale.
both that there is no benefit for those in the low

Industry cloud gives us more

credibility in front of CIOs we are selling
to. They see us as a part of SAP, and
nobody gets fired for buying SAP.
Industry cloud helps us get into new
customers and create validation with
existing customers.

— Global VP, ecosystem and partners

THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO 3
 EXECUTIVE SUMMARY
In low-performing scenarios, SaaS gross margins
grow from 70% for non-industry cloud solutions,
to 73% for industry cloud solutions. And for high-
performing scenarios, there is up to 82% growth.
Additionally, gross margins for services increase
due to better efficiencies and automation; in low-
performing scenarios, they improve from a
baseline of 35% to 40% for non-industry cloud
solutions. And for high-performing solutions,
there is up to 55% growth. Industry cloud also
reduces R&D costs that are involved in the
continual innovation of solutions. When
integrating with SAP BTP, partners generally
reduce R&D costs by 10%. And when they build
natively on top of SAP BTP, they see a 20%
reduction. Lastly, some partners report
improvements to operating margins between 5%
and 10%.
• Extend the contract duration. Industry cloud
solutions are more valuable to customers and are
more mission-critical to industry-specific
workflows. For the financial analysis, non-
industry cloud solutions are used for three years
on average. For Validated and Spotlight
solutions, this use increases to four years. And
for SAP Endorsed Apps and SAP Solution
Extensions, there are five years of usage.
Projecting the first-year sales out by the
anticipated duration delivers 3.2x in additional
revenue for Validated and Spotlight progression
levels, 5.3x for SAP Endorsed Apps progression
level, and 7.6x for SAP Solution Extensions
progression level.
Key outcomes. Benefits that are not quantified for
this study include:
• More strategic relationships with customers.
Partners who deliver industry cloud solutions are
viewed as being more strategic by their
customers; this underpins the previously
quantified benefits. These strategic relationships
can also deliver additional benefits such as
THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO
Quantified Benefits
• Closing more deals
• Selling bigger deals
• Charging a price premium
• Closing deals faster
• Improving margins
• Extending contract duration
selling other solutions that are not related to SAP
or the industry cloud. For example, a business
consultancy that also has a software team selling
industry cloud solutions may be able to sell more
unrelated consulting services based on the
relationship built in the industry cloud realm.
• Higher exit valuation. Some partners may be
looking to sell their company in the near future.
Increased recurring revenues and margins are a
main driver of SaaS company valuations, so
industry cloud-related improvements should be
very accretive.
“We are increasing our margins
with industry cloud, which will be
good for any exit valuation.”
CIO
Investments and best practices. Beyond revenue
share with SAP and delivery costs which are
imbedded in the gross margins, partners are also
making various investments and establishing best
practices to be successful. These are discussed but
not quantified because they can vary so greatly
depending on a partner’s size, maturity stage, and
desired level of growth.
• Solution development and delivery. Industry
cloud solutions require upfront investment to
build them. Integrating an existing solution into
4
 EXECUTIVE SUMMARY

SAP’s industry cloud generally costs less than perceived as more valuable by
building a brand new solution. Regardless, the customers, and thus, they are easier to
time and cost to develop these is less than that of sell.
non-industry cloud solutions, as discussed in the
▪ Going all in on SAP. Partners said that
Margin Improvements section of the study. So, if
focusing on SAP and demonstrating their
a partner is building a new solution, this should
level of commitment to the relationship
be viewed as a net savings compared to building
results in this effort being returned by
a non-industry cloud solution. When adapting to
SAP many times over.
an existing solution, the reader should consider
incremental costs. ▪ Leveraging the SAP brand. SAP has
over 440,000 customers who know and
• Sales and marketing. The sales and marketing
value the SAP brand. This adds credibility
budgets of some partners have shifted over from
to partners who either may not be known
other cost buckets. In this case, there are no
by prospects or they are trying to move
additional expenditures. However, some partners
into the enterprise space. Additionally, by
are hiring additional salespeople and/or adding to
aligning your messaging to SAP’s industry
their marketing budgets. In either case, partners
cloud messaging, joint go-to-market
are able to leverage marketing collateral,
activities can be made more effective.
business development funds, and sales support
from SAP, which helps reduce these costs. ▪ Engaging the SAP sales organization.
The most successful partners spend a lot
• Training. Developing solutions for SAP’s industry
of time providing training and support to
cloud requires some training for development
SAP’s field salesforce. This helps to grow
teams so they understand how to build on and/or
the sales pipeline and close deals.
integrate with SAP BTP. There may also be
some training required for those in other roles ▪ Engaging with the SAP industry go-to-
such as sales, marketing, and support. market teams. Partners were quoted as
saying that these go-to-market teams are
• SAP relationship management. Partners also
their best friends: They can help identify
need to build a partner relationship organization.
and define industry cloud solution
This includes overall relationship/practice
opportunities and bring them into SAP-led
management as well as investing in people and
deals. Ultimately, this enables partners to
materials to engage with SAP’s marketing and
excel with their direct sales initiatives.
sales organizations.

• Best practices. Partners shared best practices

that have made them successful. Those include:

▪ Creating complementary solutions.

Partners should look for the “white space”
around SAP’s existing solutions, which
build on or expand the value that SAP is
already delivering. Creating compelling,
industry-specific solutions that
complement SAP’s solutions are

THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO 5

 EXECUTIVE SUMMARY

Industry Cloud Solution's First Year Revenue Range*

(Baseline non-industry cloud solution first year sales = 100)
600

500 46

400 88

17 125
300
34
3 72
200
38 150
93
50
100
100 100 100 100
-
Non-industry cloud Industry cloud solution - Industry cloud solution - Industry cloud solution -
solution low scenario mid scenario high scenario
Baseline revenue More deals Bigger deal size Price premium Faster time to close

THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO 6

 EXECUTIVE SUMMARY

TEI FRAMEWORK AND METHODOLOGY

From the information provided in the interviews,
Forrester constructed a Total Economic Impact™ DUE DILIGENCE
framework for those partners considering building Interviewed SAP stakeholders and Forrester
solutions for SAP’s industry cloud. Forrester took a analysts to gather data relative to the SAP’s
multistep approach to evaluate the impact of creating industry cloud.
these solutions and investing in go-to-market
activities. PARTNER INTERVIEWS
Interviewed 15 decision-makers at eight partner
organizations with existing offerings for SAP’s
DISCLOSURES
industry cloud.
Readers should be aware of the following:

This study is commissioned by Forrester and delivered by

Forrester Consulting. It is not meant to be used as a
FINANCIAL MODEL FRAMEWORK
competitive analysis.
Constructed a financial model representative of
Forrester makes no assumptions as to the potential the interviews using the TEI methodology. It
benefits that other organizations will receive. Forrester
strongly advises that readers use their own estimates
normalizes all results in relation to anticipated
within the framework provided in the report to determine non-industry cloud solution revenues.
the appropriateness of an investment in developing
industry cloud solutions. CASE STUDY
SAP reviewed and provided feedback to Forrester, but Created a case study that tells the story around
Forrester maintains editorial control over the study and its the benefits and investments a partner should
findings and does not accept changes to the study that
expect if building solutions for SAP’s industry
contradict Forrester’s findings or obscure the meaning of
the study. cloud. It also looks at best practices that have

SAP provided the partner names for the interviews but made current industry cloud partners successful.
did not participate in the interviews.

THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO 7

SAP’s Industry Cloud: Partners’ Perspectives
How partners view industry cloud and why it is important to them

Interviewed Partners
Progression
Region Industry Focus Development Interviewee
Level
SAP Solution Headquartered in Consumer products; retail; Built on SAP’s
Founder
Extensions North America wholesale distribution cloud

SAP Endorsed Headquartered in Integrated with

Consumer products; retail SVP, global sales
Apps North America SAP’s cloud

SAP Endorsed Headquartered in Integrated with

Retail Global VP
Apps Europe SAP’s cloud

Headquartered in Engineering, construction, Integrated with

Spotlight Founder and CEO
North America operations SAP’s cloud

Mill products; oil & gas;

Headquartered in Built on SAP’s • Director, global SAP alliances
Validated engineering, construction,
Europe cloud • Head of development
operations

Headquartered in Engineering, construction, Built on SAP’s

Validated Solution architect
Asia operations cloud

• General manager (GM) & digital

innovation (DI) head, SAP service line
Headquartered in Engineering, construction, Built on SAP’s • Practice director
Validated
Asia operations cloud • Distinguished member of technical staff
• Head of marketing
• Consulting partner

Headquartered in Built on SAP’s • Chief technology officer (CTO)

Validated Retail
North America cloud • CIO

SAP’s industry cloud, as it relates to partners, has
three pillars: the integrated industry portfolio, the SAP
BTP, and the SAP software partner solution
progression system. Partners have previously shared
their views on how these pillars affect working with
SAP, serving customers, and building/managing
solutions. These responses form the basis for the
quantified discussed in the Industry Cloud Partner
Benefits section.
INTEGRATED INDUSTRY PORTFOLIO
The industry portfolio of applications in the SAP Store
are broader than those included in industry cloud, but
this study focuses on applications with an industry
cloud designation. First and foremost, partners
described that the integrated industry portfolio
positions their industry cloud solutions right alongside
SAP’s ERP and cloud-based solutions such as SAP
S/4HANA and SAP Ariba. Customers see both
partner- and SAP-built solutions as central to SAP
BTP, and they do not distinguish strongly between
them. The portfolio approach creates many
opportunities for partners to create solutions that fill
the “white space” around what SAP has created.
These solutions are viewed by customers and
prospects as being extremely valuable and having
the ability to enable their business transformation
journeys.
“The biggest industry cloud benefit
for us has been that we can outdo
our competitors because our apps
are integrated with SAP’s
solutions.”
Global VP, ecosystem and partners

THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO 8

 SAP INDUSTRY CLOUD: PARTNERS’ PERSPECTIVES

The integrated industry portfolio also strengthens

how partners can work with SAP to define, build, and
go to market with new solutions. Partners said that Integrated Portfolio Key Partner Findings
SAP industry go-to-market teams were critical to their • Some of the most valuable partner
success with industry cloud. An SVP of global sales solutions fill SAP “white space”
said, “The people we work with in the CPG
• Stronger joint go-to-market activities with
[consumer packaged goods] team have been very
SAP
engaged and supportive in building out our
partnership with SAP.” • Customer confidence in full interoperability
with SAP
“We are relatively new to industry
cloud, but we have had apps in the
[SAP Store] for a long time. One of
the main benefits of industry cloud
SAP BUSINESS TECHNOLOGY PLATFORM
is how closely we work with the
industry team. They were very Partners saw value across many dimensions created
helpful as we built our solution and by the SAP Business Technology Platform (BTP),
in getting it in front of the SAP which are explored in this section. The first is that
sales organization.” SAP BTP provides the building blocks, standards,
and connectors that ensure partners’ solutions are
CTO fully interoperable with SAP-built solutions. This
makes the integrated industry portfolio vision a
This integrated approach gives customers confidence
reality. Partners can either build their solutions
that SAP and partner applications are fully
natively on SAP BTP or integrate with it. Additionally,
interoperable. Additionally, SAP’s backing of these
a solution can either be a stand-alone product or an
solutions and partners makes it easier and faster for
extension to something such as SAP S/4HANA.
partners to get into new prospects and close deals. A
Regardless of development approach and whether
founder and CEO said: “Industry cloud increases
the solution is an extension or a stand-alone product,
customers’ trust in partner applications. This
partners are saving time and money in development
marketing strategy makes it clear that everything is
and ongoing delivery.
integrated and removes the risks from buying
disparate solutions. This mimics the integrated
“When it comes to building
approach benefits of an ERP solution, but in a new business applications, SAP’s
way.” platform is the most robust of any
technology vendor. That gives us a
“SAP brand credibility basically huge advantage in how we build
takes away the question of, ‘Who and sell our software solutions.”
are you?’. It overcomes the hurdles
from prospects’ IT organizations Founder
since SAP’s seal of approval
means we will fit into their
technology stack.”

SVP, global sales

THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO 9

 SAP INDUSTRY CLOUD: PARTNERS’ PERSPECTIVES
SAP BTP also helps partners build an industry-
specific solution that can subsequently be replicated
and adapted for other industries. This can greatly
increase a partner’s TAM and reduce the time and
cost to bring additional solutions to market. In one
case, one partner who launched a solution for the
retail industry spoke with seven other industry go-to-
market teams about building and co-selling variations
on the existing solution.
“With industry cloud we can
develop industry-specific flavors
very efficiently. That is a great
strategy from SAP. We could never
build or go to market this quickly
on our own.”
Director, global SAP alliances
SAP’s multicloud approach makes it easier and less
expensive to deliver solutions to customers;
additionally, this approach makes it easier to scale as
new customers are added. SAP’s cloud flexibility
makes it easier for partners to transform their existing
solution offerings and business models into SaaS
models. A head of development said: “Industry cloud
helps us deliver SaaS offerings. We have the
flexibility to let customers choose the length of
contract and pay an annual subscription.”
“We are 100% built in SAP’s cloud
and hosted inside their data
centers. That means we can
support customers anywhere in the
world. For many customers, it is
important that their data remain in
their home country.”
Founder and CEO
SAP BTP includes advanced technologies that
partners can use to build solutions that command a
higher price, and they can do so faster and cheaper.
These solutions include a wide range of analytics
THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO
capabilities, AI, internet-of-things (IoT), machine
learning, robotic process automation (RPA), etc.
“We are building on many of the
data and analytics capabilities such
as SAP S/4HANA cloud services.
We are also innovating with IoT and
machine learning to create
solutions that improve customers’
business processes.”
GM, SAP service line
Working with SAP’s engineers within the context of
SAP BTP also provides a mechanism for partners to
provide feedback into SAP’s product roadmap and
industry cloud strategy. In turn, SAP knows what
partners need within the technology stack in order to
create and deliver more valuable solutions. Partners
can also have a direct route to getting technical
questions answered. Some partners are using SAP
BTP as a way to insert their solutions into SAP’s
reference architecture.
“We are having more
conversations with product and
technical teams at SAP. A natural
next step is to get into their
reference architectures to define
the value proposition for industry
cloud solutions in bigger ways and
help SAP better articulate ROI to
customers.”
Global VP, ecosystems and partners
10
 SAP INDUSTRY CLOUD: PARTNERS’ PERSPECTIVES

mechanism for industry cloud. With this, a partner’s

SAP BTP KEY STATISTICS global reach is as large as SAP’s. In addition to a
partner’s existing sales channels, they have access
to a wide range of co-marketing and co-selling
opportunities. These vary depending on tier, but all of
them are underpinned by the SAP Store where more
than 440,000 existing SAP customers can discover
Increased application gross Reduced R&D costs: and, in many cases, purchase industry cloud
margin: 10% to 20% software solutions. All of this directly results in an
3 to 12 percentage increased deal pipeline. A solution architect with a
points Validated solution said, “Being a part of industry
cloud helps us penetrate areas where we did not
have a presence.”

“Geography is a big part of it. We

recently had an opportunity
SAP BTP Key Partner Findings someplace where we have no
• Ensures full interoperability with SAP-built operations. [SAP Store] gave us
solutions visibility in that area. We can close
a deal anywhere and deliver the
• Replicability of partner-built solutions software and services remotely. It
across industries gives us access to a much larger
• Multi-cloud approach makes it easier to market than our sales reps making
deliver solutions phone calls could.”

• Solutions built using SAP BTP advanced CIO

technologies command premium pricing
• Increases collaboration with SAP
“Using [SAP BTP] avoided growing
our engineering team by 10% to
15% Our overall savings are 20%
compared to past projects.”
CTO
SAP SOFTWARE PARTNER SOLUTION
PROGRESSION
Commercialization through the SAP software partner
solution progression journey is the main go-to-market
SAP software partner solution progression
commercialization is a primary source of leads for
many partners. A partner with an SAP Endorsed
Apps application reported that 50% of their leads
currently come from SAP, and they expect that figure
to grow to 80% in the near future. A part of this lead
generation is working with SAP to refine the
combined value proposition of SAP and partner
applications. SAP’s sales organization can get quota
relief for including partners’ SAP Endorsed Apps and
SAP Solution Extensions applications as part of the
overall solution they are proposing. This creates a
strong incentive for them to promote partners’
industry cloud solutions. SAP Solution Extensions
can be directly included within an SAP proposal and
be sold on SAP’s paper. Across all solution levels,
there are many co-marketing opportunities such as

THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO 11

 SAP INDUSTRY CLOUD: PARTNERS’ PERSPECTIVES

SAP-sponsored webinars, and SAP can provide

business development funds for these activities. One
partner described an SAP-sponsored webinar that
led to 22 “solid leads.”

“We are tied into a couple of

different sales organizations in
SAP. In 2020, we developed a €15
million joint pipeline. We expect it
to grow to €25 million in 2021 and
much more in 2022.”

Global VP, ecosystems and partners

Solution Progression Key Partner Findings

• Global reach as large as SAP’s
• Access to wide range of co-marketing/
co-selling opportunities
• Increased deal pipeline

THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO 12

Industry Cloud Partner Benefits
Quantified revenue and margin data
REVENUE IMPROVEMENTS
There are four ways in which SAP’s industry cloud
increases the first-year revenues, as compared to
what a partner would otherwise expect for a similar
solution, either existing or new, that does not benefit
from being part of SAP’s industry cloud. These are:
closing more deals, increasing deal size,
commanding a price premium, and closing deals
faster. Taken all together, interviewed partners
described substantial growth, in the form of two to
five times year-on-year expansion, for their industry
cloud solutions. Partners said that they expect this
growth to continue for the foreseeable future. Industry
cloud also increases the average customer contract
length; this benefit is discussed in the Five-Year Net
Gross Revenue Improvements section later in the
study.
“Our solution launched three years
ago and was seeing 200% year-on-
year growth. We added it to
industry cloud and saw 600%
growth this year. Our deal size has
multiplied, and we are getting a lot
of leads from the industry team.”
Founder and CEO
Closing More Deals
Partners are closing more deals due to both a greatly
increased TAM and improved win rates. The
increased TAM comes from the audience of 440,000
SAP customers. Customers from anywhere in the
world can see and often transact industry cloud
solutions in the SAP Store. Win rates increase
because IT solutions meet valuable, industry-specific
needs. Win rates are also higher due to the tight
integration of SAP solutions and brand as well as
THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO
having SAP sales organizations recommend a
partner solution.
Partners shared the following examples of how they
were closing more deals:
• A founder with a Solution Extension application
said, “Industry cloud has increased our total
addressable market [by] 10x.”
• A CTO with a Validated application said: “Our
solution addresses something so fundamental to
our industry, that every enterprise SAP customer
needs it. This could quickly become 100
customers at $200,000 per year. That is a lot of
money and why industry cloud is so interesting to
us.”
• A CIO with a Validated application said, “We can
write proposals for opportunities in countries
where we would not have been able to in the
past.”
• A founder and CEO with a Spotlight application
said: “The biggest benefit is alignment with the
SAP sales and marketing teams. Compared to
other partner applications, they trust that industry
cloud solutions will help with account retention
and value delivery. They are bringing us into
more deals.”
“We launched our solution and
signed three contracts in Q4 2020.
Our five-year plan is to acquire 216
more customers. This is out of a
TAM of 2,000 EC&O [engineering,
construction, and operations] SAP
customers, so it is definitely
achievable.”
Director, global SAP alliances
13
 INDUSTRY CLOUD REVENUE AND MARGIN IMPROVEMENTS
Increasing Deal Size
Deal size increases for many reasons, including a
larger solution scope, by tackling important, industry-
specific needs and leveraging the advanced
technologies within SAP BTP to add more features
and value. Additionally, partners reported having
more success selling up to larger accounts because
of the close linkage between SAP and industry cloud.
Partners shared the following examples of how they
were increasing deal size:
• A founder and CEO with a Spotlight application
said: “Our average deal size for medium
customers with 3,000 users has increased from
$30,000 per year to $80,000 since moving to
industry cloud. For larger customers with 10,000
users, it has grown from $50,000 to $160,000.”
• A global VP of ecosystem and partners with an
SAP Endorsed App said: “The real benefit for us,
being a small company, is tying our company to
SAP. It helps us get into larger accounts that we
never would have been able to before.”
• A global VP of ecosystem and partners with an
SAP Endorsed App said: “Industry cloud deals
are two or three times bigger than when going
[at] it alone. This is all driven through the [SAP
Store].”
• A GM of an SAP service line with a Validated
application said: “We are selling larger, integrated
deals that deliver business transformation and
added industry focus powered by SAP’s industry
cloud. This will deliver 90% year-on-year growth.”
“Adding more industry-specific
modules means increased deal
size.”
Founder and CEO
Charging A Price Premium
This price increase is independent from the increased
deal size because of the larger solution scope and
THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO
customer size. Partners reported taking advantage of
the SAP brand price premium to sell industry cloud
solutions at a higher price compared to other
products they sell.
Partners shared the following examples of how they
were charging a price premium:
• A global VP of ecosystem and partners with an
SAP Endorsed App said: “We are able to charge
significantly more when [the product is] sold
through the [SAP Store]. This more than covers
the 35% revenue share SAP takes.”
• A global VP of ecosystem and partners with an
SAP Endorsed App said: “When SAP’s
salesforce is bringing us into a deal, we can get
anywhere from two to four times for our industry
cloud solutions, compared to other channels such
as our direct sales team.”
• A founder with a Solution Extension application
said: “SAP commands a higher price when our
solutions are sold on their paper. That more than
offsets the incremental 15% revenue share.”
“Industry cloud creates a better
quality pipeline, so we don’t get
squeezed on price as much.”
Solution architect
Closing Deals Faster
Industry cloud helps partners close deals faster. This
is due to: 1) customers being able to self-service
transactions in the SAP Store, whereby they avoid
and overcome customer objections because industry
cloud solutions are understood to be tightly integrated
with SAP, or 2) SAP account executives having
relationships that lead to fast-closing deals. In a
SaaS recurring-revenue model, a month of lost
revenue is never recouped, so deal acceleration is
very important for annual recurring revenue (ARR)
calculations. Additionally, bringing a solution to
14
 INDUSTRY CLOUD REVENUE AND MARGIN IMPROVEMENTS
market faster by building on the SAP BTP means it is
available for sale sooner.
Partners shared the following examples of how they
are closing deals faster:
• A global VP of ecosystems and partners with an
SAP Endorsed App said, “When SAP is involved,
we can reduce the sales cycle because of who
they know and the power of them picking up the
phone and calling a CIO.”
• A founder and CEO with a Spotlight application
said: “It used to take us 18 months to close a
deal, and now we are closing them in four
months. The SAP industry teams are very good
at closing deals fast.”
• A CIO with a Validated application said, “We are
selling more and more through the [SAP Store],
which speeds up sales.”
“The time to close deals is so much
faster. SAP’s industry cloud sales
cycle is a lot shorter than for our
other offerings.”
Solution architect
Modeling The First-Year Revenue Improvement
By Performance Scenario
Forrester approached modeling in a way that all
partners, regardless of size and maturity, can apply
to their organizations. All revenue calculations are
normalized against a partner’s existing or anticipated
first-year revenues for a solution that is not a part of
industry cloud.
A range of revenue impacts for low, medium, and
high scenarios were based on partners’ reported
experiences. How a solution performs in terms of
revenue growth, depends on: how good a fit it is with
SAP’s industry cloud and the value it delivers; how
much effort a partner puts into promoting the solution
and building their relationship with SAP; and, for
some benefit categories, a solution’s progression
THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO
level. For example, more deals will be sold for
Validated and Spotlight applications in the SAP
Store; however, for SAP Endorsed Apps and SAP
Solution Extensions applications, co-selling with the
SAP sales organization may be more important.
In the Revenue And Margin Improvement By Solution
Progression Level of the study, each SAP software
partner solution progression level is assigned a
likelihood of being in the low, medium, or high
scenario. These likelihoods are Forrester
assumptions. This is used to build out a
comprehensive view that calculates the revenue and
margin impact. The SAP revenue share for the
different levels is subtracted out to determine the net
result by progression level. This view for first-year
results, and the layering of the extended contract
duration benefit, are presented in the Revenue And
Margin Improvements By Solution Progression Level
section below.
Forrester made the following modeling assumptions:
• Baseline revenues for the non-industry cloud
solution scenario are 100%. Each revenue
benefit is assigned an uplift percentage in relation
to the baseline.
• Bigger deal size and price premium benefit
improvements are applied to the total transaction
base, which includes baseline and more deals.
• The faster time-to-close benefit is calculated by
dividing the total deal value (100%) by 60
months. Each month is worth 1.67% of the total
deal value. The low scenario assumes that a deal
closes one month faster, while the high scenario
assumes six months. The faster time to close
benefit is applied to the baseline revenue (A1),
the closing of more deals (A2), the increased
deal size (A6), and the price premium (A7)
categories.
The first-year revenue improvement ranges from
191% to 509% and is based on the specific
performance scenario the solution is in.
15
 INDUSTRY CLOUD REVENUE AND MARGIN IMPROVEMENTS

First-Year Revenue Improvement By Performance Scenario

Industry Industry
Non- Industry
Cloud Cloud
Industry Cloud
Ref. Metric Calculation Solution – Solution –
Cloud Solution –
Low Medium
Solution High Scenario
Scenario Scenario
A1 Baseline revenue 100% 100% 100% 100%

A2 More deals 50.0% 92.5% 150.0%

A3 Bigger deal size 25.0% 37.5% 50.0%

A4 Price premium 0.0% 17.5% 35.0%

A5 Faster time-to-close 1.7% 5.8% 10.0%

Total impact, bigger deal

A6 (A1+A2)*A3 37.5% 72.2% 125.0%
size

A7 Total impact, price premium (A1+A2)*A4 0.0% 33.7% 87.5%

Total impact, faster time-to-

A8 (A1+A2+A6+A7)*A5 3.1% 17.4% 46.3%
close

A9 Revenue improvement A1+A2+A6+A7+A8 191% 316% 509%

THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO 16

 INDUSTRY CLOUD REVENUE AND MARGIN IMPROVEMENTS
MARGIN IMPROVEMENTS
Industry cloud solutions are more profitable for a
variety of reasons. Gross margins are higher for
SaaS applications and related services, while R&D
costs for initial and ongoing development are lower.
Other business processes are more efficient, and
partners can take advantage of business
development funds from SAP that would otherwise
be an out-of-pocket expense.
Gross Margin
Partners reported that their gross margins were
better for industry cloud SaaS applications and
associated services. Improved SaaS margins were
achieved by: leveraging the capabilities of SAP BTP,
benefiting from the multicloud approach; achieving
economies of scale; and requiring less user support.
Services margins are higher because of greater
automation and efficiencies in delivery deployment
and ongoing management services.
Partners shared the following examples of how their
gross margins are improving:
• A GM of an SAP service line with a Validated
application said, “Being on a single platform for
everything reduces our technology overhead and
delivery costs.”
• A founder with a Solution Extension application
said, “Our services margins on industry cloud
projects are upwards of 55% because of the
specialized nature of the applications we are
selling.”
• One partner increased their software margins
from around 70% to more than 80%.
“Delivering everything on the SAP
cloud is much easier. We are also
more profitable because
integrations with SAP are easier.”
CIO
THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO
R&D Expenditures
All partners said that bringing industry cloud solutions
to market were faster and cheaper than anything
comparable they had done in the past. This is largely
achieved due to leveraging SAP BTP capabilities and
the ease of integration that SAP’s core and cloud
systems provide. Additionally, the support that
partners receive from SAP engineering helps to
reduce effort.
Partners shared the following examples of how they
can create and continually innovate industry cloud
solutions with more efficient R&D spending:
• A founder and CEO with a Spotlight application
said: “Our software development costs are lower,
in part, because of better support from SAP. That
will improve our profitability.”
• A CTO with a Validated application said: “Using
[SAP BTP] avoided growing our engineering
team by 10% to 15%. Our overall savings are
20% compared to past projects.”
• A GM of an SAP service line with a Validated
application said: “Everything is much faster. With
[SAP BTP], I just turn on a new service if I need
it. Development lead times are much shorter.”
“Using SAP’s libraries and data
standards sped up our
development. Without those
capabilities, the development effort
would have been twice as long.”
Head of development
Operating Expenditures
Industry cloud helps reduce operating costs across a
range of activities such as sales, marketing, and the
training of developers. With regards to sales and
marketing, partners can leverage the many resources
that SAP makes available. In some cases, SAP is
17
 INDUSTRY CLOUD REVENUE AND MARGIN IMPROVEMENTS

directly selling partners’ solutions. Partners can also
receive funding from SAP that offsets some sales
and marketing expenditures.
Partners shared the following examples of
operational improvements:
• A CIO with a Validated application said:
“Certification costs are lower because SAP has
done a lot of work upfront. By using their solution
components and platform, we do not have to
redo the work. It will also reduce our selling
costs.”
• A founder and CEO with a Spotlight application
said: “Before industry cloud, we had a hard time
retaining technical resources. Now we get new
hires up and running faster, and [we] are better at
retaining them.”
• A SVP of global sales with an SAP Endorsed App
said, “SAP does not charge us for their
engineering time, which is effectively an
investment in us and saves us money.”
• A founder and CEO with a Spotlight application
said: “Profitability has definitely improved
because of industry cloud. Sales cycles are
shorter and cost less, and our support costs are
lower.”
using SAP BTP, achieving economies of scale,
and having lower support costs. At the highest
end, partners are exceeding a typical SaaS goal
of 80%.
• Baseline professional services margins tied to
non-industry cloud solutions are 35%. These
increase because of the premium placed on
industry-specific solutions, greater efficiencies,
and automating many deployment and
management processes.
• The overall revenue stream from an industry
cloud solution is 80% software and 20% related
services.
• Baseline R&D as a percentage of revenues is
23%. This is based on partner interviews and
SaaS industry standards. This percentage
decreases by leveraging SAP BTP and achieving
economies of scale. The low scenario assumes a
10% improvement (23%*90%=20.7%) from
integrating with SAP BTP. The high scenario
assumes a 20% improvement from building
natively on SAP BTP.
The blended gross margin improves from 63% for a
baseline non-industry cloud solution up to 76.6% for
a higher-performing industry cloud solution.

“Our average operating margins

are 5% to 10% higher for industry
cloud than our average operating
margins.”

GM, SAP service line

Modeling The Margin Improvement By

Performance Scenario

Forrester made the following margin modeling

assumptions:

• Baseline software margins are 70% for prior non-

industry cloud solutions. Margins increase from

THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO 18

 INDUSTRY CLOUD REVENUE AND MARGIN IMPROVEMENTS

Margin Improvements By Performance Scenario

Industry Cloud
Industry Cloud Industry Cloud
Non-Industry Solution –
Ref. Metric Calculation Solution – Low Solution –
Cloud Solution Medium
Scenario High Scenario
Scenario
B1 Software gross margin 70.0% 73.0% 78.0% 82.0%
Percentage or revenues
B2 80.0% 80.0% 80.0% 80.0%
from software
B3 Services gross margin 35.0% 40.0% 45.0% 55.0%
Percentage or revenues
B4 20.0% 20.0% 20.0% 20.0%
from services
Gross margin
B5 (B1*B2)+(B3*B4) 63.0% 66.4% 71.4% 76.6%
improvement
Low scenario:
23%*90%

Medium
R&D as percentage of
B6 scenario: 23.0% 20.7% 19.6% 18.4%
revenues
23%*85%

High scenario:
23%*80%

THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO 19

 INDUSTRY CLOUD REVENUE AND MARGIN IMPROVEMENTS

REVENUE AND MARGIN IMPROVEMENTS BY • Each progression level solution is assigned a

SOLUTION PROGRESSION LEVEL probability of being low-, medium-, or high-
The previous sections comprehensively looked at the performing. This probability is applied to the
benefits achieved by all performance levels, performance scenario’s revenues.
including: Validated, Spotlight, SAP Endorsed Apps, • The same probabilities are applied to the gross
or SAP Solution Extensions. This is meant to aid the margin by performance scenarios.
reader when considering the range of possibilities for
their industry cloud solution(s). Validated and • SAP’s revenue share model has SAP taking 25%
Spotlight solutions can be high performing, as is the of revenues for the Validated and Spotlight
case for one of the interviewed partners. solutions, 35% for SAP Endorsed Apps solutions,
and 50% for SAP Solution Extensions solutions.
First-Year Net Gross Revenue Improvements This is applied to the expected revenues and
The remainder of the study analyzes the expected then subtracted from the expected gross
results that are based on solution progression levels. revenues to calculate the net results.
These results are compared to the same baseline of
non-industry cloud solution revenue as before. To do
this, Forrester has assigned probabilities of a solution
at the various progression levels, with those being
low-, medium-, or high-performing. SAP Endorsed
Apps and SAP Solution Extensions are, by their very
nature, more likely to be in the medium- and high-
performing scenarios because they are by invitation
only. For SAP Solution Extensions, SAP can directly
sell the solutions on their own paper, which
significantly increases the likelihood of them being
high-performing. With that said, there are high-
performing Validated and Spotlight solutions simply
because the solution either solves a very valuable
customer need, complements SAP-built solutions, or
the partner applies the best practices discussed later
in the Investment And Best Practices section of this
study. Therefore, partners should assign their own
probabilities and not rely solely on Forrester’s
assumptions.

Forrester has made the following modeling

assumptions to determine the likely revenue, gross
margins, SAP revenue share, and the net results:

• Revenues are compared to the baseline non-

industry cloud revenues as stated in previous
sections.

THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO 20

 INDUSTRY CLOUD REVENUE AND MARGIN IMPROVEMENTS

First-Year Net Gross Revenue Improvements By Solution Progression Level

Non- Industry Validated SAP SAP
Ref. Metric Calculation Cloud And Endorsed Solution
Solution Spotlight Apps Extensions
Industry cloud
solution – low
C1 N/A 65% 15% 0%
scenario
probability
Industry cloud
solution – medium
C2 N/A 30% 65% 10%
scenario
probability
Industry cloud
solution – high
C3 N/A 5% 20% 90%
scenario
probability
C4 Total mix C1+C2+C3 100% 100% 100% 100%

C5 Revenue (A9(low)*C1)+(A9(med)*C2)+(A9(high)*C3) 100 244 336 489

C6 Gross margin (%) (B5(low)*C1)+(B5(med)*C2)+(B5(high)*E3) 63.0% 68.4% 71.7% 76.1%

Gross margin
C7 C5*C6 63 167 241 372
(revenue)

Validated and Spotlight: C5*25%

C8 Revenue share Endorsed: C5*35% N/A 61 117 245
Solution Extension: C5*50%

First-year net
C9 C7-C8 63 106 123 128
gross revenues

THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO 21

 INDUSTRY CLOUD REVENUE AND MARGIN IMPROVEMENTS

Five-Year Net Gross Revenue Improvements
All of the results discussed to this point show the first-
year revenues. Another benefit that partners
described is how customers are buying industry cloud
solutions for more years than prior, non-industry
cloud solutions. There are several reasons for this,
including: customers signing longer-term initial
contracts, a greater likelihood of contract extensions,
and higher retention rates and less customer churn
due to industry cloud solutions delivering more value
and being are extensively. One partner reported a
98.7% retention rate for industry cloud solutions,
which was much higher than their other solution
offerings.
“Customers used to sign one-to-
three year contracts. Industry cloud
contracts are now signing five-to-
seven year deals.”
• Year 1 revenue is the same as presented in the
first-year model. In subsequent years, the one-
time faster time-to-close benefit is subtracted out.
• The same gross margin and revenue share
percentages from the first-year model are applied
across all years. Lastly, Forrester modeled what
the R&D savings would likely be by solution
progression level for two scenarios — integrating
with SAP BTP or building natively on it. This look
across the five-year range is presented above
and makes the following assumptions:
• Baseline R&D spend is 23% of revenues, this is
based on partner interviews and SaaS industry
standards.
• Integrating with SAP BTP creates efficiencies
that mean the same software can be produced
for 10% less. Building natively on SAP BTP
delivers a 20% savings.

Founder and CEO

This multiyear view is still based solely on first-year

sales, but the contracts are extended out a varying
number of years depending on a solution progression
level’s expected contract length. If a partner is fully
modeling out their opportunity, they would need to
make new sales assumptions for Year 2 and
onwards.

Forrester made the following modeling assumptions

in projecting out the first-year results over the five-
year potential contract duration:

• Non-industry cloud solution average contract

duration is three years. It is on average one year
longer for Validated and Spotlight solutions and
two years longer for SAP Endorsed Apps and
SAP Solution Extensions. (Interviewees shared
some examples of Validated and Spotlight
solutions being longer, but a conservative
assumption is used.)

THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO 22

 INDUSTRY CLOUD REVENUE AND MARGIN IMPROVEMENTS

Five-Year Net Gross Revenue Improvements By Solution Progression Level

Non- Industry Validated SAP SAP
Cloud And Endorsed Solution
Ref. Metric Calculation Solution Spotlight Apps Extensions
D1 Average duration (years) 3 4 5 5

D2 Year 1 revenue C5 100 244 336 489

((A9-A8(low)*C1)+
(A9-A8(med)*C2)+
(A9-A8(high)*C3))*
D3 Years 2 through 5 revenue 200 704 1,258 1,784
(D1-1)

[excluding non-industry cloud]

D4 Total revenue D2+D3 300 948 1,594 2,274

D5 Gross margin D4*C6 189 648 1,143 1,730

Validated/Spotlight: D4*25%
D6 Revenue share Endorsed: D4*35% N/A 237 558 1,137
Solution Extension: D4*50%
Five-year net gross
D7 D5-D6 189 411 585 593
revenues

SAP Business Technology Platform Impact On R&D Expenditures

Non-Industry Validated SAP SAP
Cloud And Endorsed Solution
Ref. Metric Calculation Solution Spotlight Apps Extensions
E1 R&D without using SAP BTP D4*23% 69 218 367 523

E2 R&D savings from integrating with SAP BTP E1*10% N/A 22 37 52

Integrated with R&D benefit as % of net gross
E3 E2/D7 5.3% 6.3% 8.8%
revenues
E4 R&D savings from building on SAP BTP E1*20% N/A 44 73 105

E5 Built-on R&D benefit as % of net gross revenues E4/D7 10.6% 12.5% 17.6%

THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO 23

Industry Cloud Partner Investments And Best Practices
What best-in-class partners are doing to be more successful
The previous section quantified the costs of goods
sold for industry cloud software and related services
as part of the gross margin calculations. It also
discussed solution development costs in terms of the
R&D savings a partner can expect by leveraging SAP
BTP. Partners are also making broader investments
to build and manage their industry cloud practice and
to effectively engage with SAP’s industry go-to-
marketing team, marketing organization, and
salesforce.
Upfront solution development costs vary greatly,
depending both on the scope of the solution and
whether the costs involve adapting a prior solution to
industry cloud or creating a new solution from the
ground up. Interviewed partners’ initial development
effort ranged from one quarter to several years. After
launch, there are ongoing product development costs
to regularly bring out new features and
enhancements as part of a SaaS model as well as
launching additional solutions. These follow-on
solutions can either be different industry flavors of the
original offering or something entirely new.
“The biggest investment any
partner needs to make is to ensure
that their application is easy to use
and can be deployed as fast as
possible. With industry cloud,
customers need to be using the
application ASAP and realizing
value. Otherwise, they will drop it.
That’s the nature of SaaS. So, we
are investing a lot on business user
enablement.”
Founder and CEO
Partners are investing heavily in sales and marketing
to get their solutions noticed and purchased. This
THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO
includes creating marketing collateral and building up
a sales organization. Many partners are transferring
existing marketing budget and headcount from other
parts of the business to industry cloud because it is
the fastest growing and most strategic part of their
business. Some partners are making net-new
investments and making use of SAP business
development funds. Regardless of where the funding
comes from, it’s pertinent that from the outset a
partner seeks to create a compelling presence on the
SAP store.
Partners have stressed the importance of training
employees across a wide range of roles; this includes
technical training on leveraging SAP BTP and other
SAP technologies to build and manage the software
solutions. Partners are also training salespeople on
how to sell the new solutions and how to articulate
the industry cloud value proposition. Similarly,
marketing people need to be trained on the new
value proposition and how to effectively work with
SAP. Lastly, support organizations need to be trained
on the new solutions.
The most strategic investment partners are making is
in SAP relationship management, which is also a
best practice. These investments include an overall
relationship/practice management structure as well
as content and people to engage with SAP’s
marketing and sales organizations. The goal is to
harness the power of SAP global marketing and
sales to close more deals.
Partners identified five best practices for being
successful with their industry cloud solutions. The
most important is creating a solution that solves real-
world, industry-specific needs and delivers clear
value to customers. Some of the most successful
solutions fill the “white space” around SAP’s own
solutions to further transform and streamline
24
 DISCUSSION OF PARTNER INVESTMENTS AND BEST PRACTICES
business processes. In addition to demonstrating
value to customers, this also excites the SAP sales
organization to promote a partner’s industry cloud
solution. One partner described an industry cloud
solution they launched that replaced an SAP-built
module that was end-of-life.
“This will be our best quarter in
history. There are two big reasons
for this: having an offering that fills
SAP’s white space and working
with their demand generation
engine.”
Global VP, ecosystem and partners
Partners also said that it is important to go all in on
SAP and the industry cloud. This helps to focus their
organization as well as to energize SAP’s marketing
and sales organizations to want to work with a
partner. Relatedly, it is pertinent that channel conflict
between SAP and partners is avoided; instead, it
should be made clear that partners are looking out for
SAP’s best interests. An SAP Solution Extensions
partner said: “We do everything we can to avoid
channel conflict. If an SAP customer comes directly
to us, we always bring SAP’s sales organization into
the deal even though it costs us the revenue share.”
Partners said that leveraging the SAP brand is one of
the most important keys to their success. One partner
said that all of their sales and marketing is designed
to, “associate themselves with SAP’s brand.” This
helps to quickly build a pipeline and close more
deals.
Engaging with the SAP sales organization has helped
partners to close more deals and to close them
faster. Even though this is more pronounced at the
SAP Endorsed Apps and SAP Solution Extensions
progression levels where SAP account executives
get quota relief, partners with Validated and Spotlight
solutions also described successes from having the
sales organization open doors for them. Partners
THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO
cautioned that it takes a lot of effort to get attention
from the sales organization because they have a lot
of SAP’s own solutions they need to sell. Partners
also said that they need to be patient in building out
these relationships because SAP is a very large and
matrixed organization.
“You have to get to know the SAP
account executives. They need to
know that if they call you at 9 P.M.
about a deal, you are there to
support them. We also make sure
that our application is in the
solution consultants’ demo kits.”
Founder and CEO (Spotlight solution)
Additionally, working with the SAP industry go-to-
market teams requires a similar approach. Partners
said that these teams are their SAP champion across
the entire lifecycle, from initially defining an industry
cloud solution to sales and delivery. Industry teams
also help partners get roadmap requests and other
feedback into the engineering organization.
“We are very focused on
partnership and alignment with the
industry team. We do a lot of joint
go-to-market work with them as
well as joint innovation of our
industry cloud products.”
GM, SAP service line
Partners who are making the necessary investments
and following these best practices have had
tremendous success with SAP’s industry cloud as
demonstrated in the preceding financial analysis.
Furthermore, partners expect this to accelerate over
the next few years. This will further benefit partners,
their customers, and SAP, creating a virtuous circle
of success.
25
Financial Summary

SAP’s industry cloud positions partners’ solutions alongside SAP’s own solutions as part of the integrated industry
portfolio. This helps partners create and monetize their IP to solve customers’ industry-specific challenges, and it
gives customers confidence that partners solutions work well with SAP’s to help them transform their businesses.
SAP BTP enables partners to build and manage these solutions faster and at a lower cost. It also ensures
interoperability between all industry cloud solutions. Partners can commercialize these solutions through the SAP
software partner solution progression journey and have access to more than 440,000 existing SAP customers.

Taken all together, the three components of SAP’s industry cloud

give partners the tools and opportunities to grow revenues in five Quantified Benefits
ways: 1) selling more deals; 2) increasing deal size; 3)
commanding a price premium; 4) closing deals faster; and 5)
• Closing more deals
increasing the average contract length. Additionally, SAP’s • Selling bigger deals
industry cloud enables partners to increase gross margins and to
• Charging a price premium
reduce their R&D costs. Looking at the partner first-year
opportunity and extrapolating it out to account for extended • Closing deals faster
contract lengths, an industry cloud solution should expect • Improving margins
revenues between 3.1x and 7.5x, as compared to a similar non-
• Extending contract duration
industry cloud solution. Expected gross margins fall between 3.4x
and 9.1x for the non-industry cloud scenario. After accounting for
SAP revenue sharing, the net opportunity ranges from 2.1x to 3.1x, as compared to a non-industry cloud solution.

To achieve these results, Forrester identified five common best practices from interviews with eight partners. They
are as follows: 1) create complementary solutions that fill the white space around what SAP has created; 2) go all in
on SAP to get the most back from SAP; 3) leverage the SAP brand to increase leads; 4) educate and work with the
SAP’s sales organization; and 5) engage with SAP’s industry go-to-market teams to develop and market industry-
specific solutions. By doing these things, new partners to SAP’s industry cloud will increase their likelihood of
creating solutions that are high performing, realizing the first-year benefits quantified in this study, and increasing
them in future years.

THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO 26

Appendix A: SAP’s Industry Cloud Software Partner Solution Progression

THE PARTNER OPPORTUNITY FOR SAP’S INDUSTRY CLOUD PORTFOLIO 27

THE PARTNER OPPORTUNITY FOR <CLIENT> **PRODUCT** 28