uploads/2016/11/SAP-1.png

How SAP Plans to Break Away from the Competition

By

Updated

Profits fell 19%

If competition was responsible for the 19.0% year-over-year (or YoY) fall in net profit that SAP SE (SAP) reported for 3Q16, then the company is now putting competitors on notice. SAP has increased its investments in researching machine learning and other emerging technologies.

Management is is betting that a breakthrough in those areas can help the company create the most intelligent enterprise applications that could drive sales and allow it to steal market share from the competition.

SAP battles for business software revenue with Salesforce.com (CRM), Microsoft (MSFT), Oracle (ORCL), and Workday (WDAY).

Article continues below advertisement

SAP reported a net profit of 730.0 million euros in 3Q16, compared to 898.0 million euros in the same quarter last year. But revenue rose 8.0% year-over-year to 5.4 billion euros in the latest quarter. A strong uptake of the company’s cloud-based products drove the top-line gains. Cloud revenue rose 28.0% YoY to 769.0 million euros.

Boosting cloud operations with artificial intelligence

According to SAP’s CEO (chief executive officer) Bill McDermott, the company now has ~100 engineers working on machine learning, and that team is constantly expanding. He added that data experts and developers are using artificial intelligence to create smarter business applications.

SAP is hoping to leverage machine learning to strengthen its cloud-based human resources suite SuccessFactors. McDermott said that a more intelligent SuccessFactors could be used to eliminate discrimination and prejudice in the employee hiring process. If SAP succeeds in its machine learning efforts, it could reduce competition for its products and pave the way for revenue growth.

However, SAP’s aggressive push into machine learning would also put the company on a collision course with Alphabet (GOOGL), which is also investing heavily in artificial intelligence research.

Besides machine learning, SAP has also stepped up its investments to drive blockchain innovation. Blockchain is the technology that underlies cryptocurrencies such as Bitcoin and Zcash.

Advertisement

More From Market Realist