Why Fortune 500 Companies Are Trusting the Cloud More Than Ever

September 13, 2017, 4:02 PM UTC

Darren Roos is convinced that companies are moving their data and key business software applications into public cloud data centers faster than even the most aggressive predictions indicate.

As president of SAP’s S/4 Hana cloud business, Roos has a unique vantage point given that the majority of SAP (SAP) customers—typically large companies that use its finance and manufacturing management software—still run that software on their own internal servers—meaning not in a public cloud. His overall point is that the status quo is finally changing fast.

In particular, he sees the Fortune 500 type customers that run software from SAP and rivals like Oracle (ORCL), are getting over their fear of public cloud.

“We are seeing a much bigger uptake on core ERP and transactional systems than in the past,” Roos tells Fortune. SAP customers can opt to run its key software on Amazon Web Services, Google (GOOG) Cloud Platform and Microsoft Azure or on SAP’s own public cloud. ERP stands for enterprise resource planning, a geeky term for the software that manages inventory and manufacturing processes for large customers.

Market researcher IDC expects sales of public cloud services—which run in Amazon, Microsoft, and Google (GOOG) clouds—will hit $261 billion in five years up from an estimated $128 billion in 2017.

While that constitutes a healthy 21% compound annual growth rate, Roos says that is quite conservative compared to what he sees in the market. Roos wouldn’t detail SAP’s internal sales breakdown, but he says sales of SAP’s on-premium software are steady with a “low single-digit growth,” while sales of its cloud software is up 30% to 40% year-over-year.

Related: Welcome to the Great Era of Data Center Consolidation

In the past, many customers of SAP (SAP) or Oracle enterprise software did not want to run it in someone else’s data center because they wanted to control their own destiny. The fear was real: If a company’s manufacturing software fails, the bottom line suffers. You can’t sell products you can’t build.

One major reason for what Roos now sees as a growth spurt could be that the value of ERP software for Fortune 500 companies is huge and they’re no longer willing to wait six or nine months for a complicated ERP system to be rolled out internally. By deploying in the cloud, SAP HANA roll-outs are significantly faster: Most take 10 to 12 weeks but sometimes can be accomplished in less time.

One advantage of using a public cloud is that those providers take care of all the hardware and networking updates as well as keeping the base level software up to date, taking those time-consuming but extremely important tasks off a customer’s plate. And that means ERP can be deployed faster in the cloud than in corporate data centers that have to worry about all that racking and stacking of servers and storage gear.

Basically, according to Roos, companies are far more likely now to trust their key core software to a public cloud than at any time in the past.

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Not everyone agrees that there is a one-way on-ramp to public cloud. Dell Technologies CEO Michael Dell recently told an audience at Fortune Brainstorm Tech that he’s seeing many companies move some key applications off of public cloud and back to their own data centers. Dell sells a lot of servers and storage into corporate data centers, so it has a dog in this fight.

But Karl Strohmayer, president of Equinix Americas, the large data center provider that works both sides of the public cloud/private data center divide, backed up that contention.

“We’re starting to see a reverse cloud trend,” Strohmeyer says. CIOs who were once excited to save on the capital expense of building or leasing more of their own data centers are now starting to see the long-term impact of the operating expense costs for things like Box (BOX), Amazon Web Services (AMZN), or Microsoft (MSFT).

“That stuff starts to get really expensive so they’re now looking at which workloads they can host cheaper themselves and which are best suited to the cloud, ” Strohmeyer says.

Gartner (IT) vice president and distinguished analyst Lydia Leong, who follows the public cloud market, said there is no one true way to deploy a company’s technology.

Related: Amazon Retains Public Cloud Crown

“An organization can be cloud-first or cloud-last. Some companies philosophically prefer to be on-premises, or their priorities don’t align well with cloud advantages. Neither of these approaches is evil. But the broader trend is towards greater use of cloud services, allowing companies to get access to new technology capabilities more quickly.”

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