Global Spotlight: Germany

Germany has one of the world’s most robust Software-as-a-Service industries. Its key player, SAP, remains the world’s leading cloud computing firm, offering businesses services that range from accounting and financial planning to warehouse and inventory management.

Businesses are investing more in cloud-based services, too, as they realize the positive financial impact of shifting in-house procedures like payroll and spreadsheet accounting to the cloud, allowing for greater insight into cash flow and spending.

But in Germany, even with such a strong cloud market, the nation is not convinced that the cloud’s benefits outweigh the risks of data breaches. SaaS firms and regulators alike, however, are working to reverse that fear.

A Strong SaaS Market

SAP is undoubtedly Germany’s most prominent cloud computing company. Analysts are expecting big things from the firm ahead of its Q2 2015 earnings report, set for release later this week. According to Zacks, the company’s HANA platform, a software that provides businesses with a single portal to manage their cloud-based applications, is among its most prominent strengths. The company still has a larger network of business clients than any other player, according to analysts, even as competitors work to knock SAP from its first-place position.

“Stiff rivalry in contemporary markets calls for technological superiority over peers, and this, we believe, will keep up the demand momentum for efficient software tools,” Zacks analysts concluded. “SAP, on the other hand, remains well equipped to meet such demand.”

SAP isn’t the only Germany-based cloud service provider. A recent partnership between financial SaaS firm Mambu and small business lender Ferratum, both based in Germany, are gaining new market share to connect small businesses with working capital while simultaneously providing SMEs with Mambu’s cloud-based financial management tools for small businesses.

Even some local players are helping Microsoft compete with SAP. Cloud computing firm Altair, which as a strong presence in Germany, announced a partnership with Microsoft last week that will see the two collaborate on new enterprise solutions for B2B companies.

Tough Crowd

Even as SaaS players like SAP expand their cloud service throughout the globe, at home, these companies may have the toughest time convincing local businesses to use these tools. According to analysts, Germany stands as one of the world’s toughest critics of cloud computing and as one of the most demanding markets when it comes to data privacy.

For example, unlike in other jurisdictions, it is uncommon for German employers to have access to their employees’ email accounts. Google Maps doesn’t offer street view in the nation, either, and both Google and Facebook have faced data privacy crackdowns by privacy regulator Johannes Caspar in recent months.

Only days ago, the nation passed strict rules that require more than 2,000 companies to implement a minimum of certain security standards.

With SMEs around the globe as some of the most fearful users of cloud computing software when it comes to data protection, it is not a stretch to assume that Germany’s small businesses may be some of the world’s toughest critics of SaaS tools.

Changing Minds

Germany’s market could be headed for change, however. German Chancellor Angela Merkel made a statement last month urging Germany to overcome its data privacy concerns in order to strengthen adoption of cloud-computing tools.

“Whoever sees data as a threat, whoever thinks about every piece of data in terms of what bad can be done with it, will not be able to take advantage of the opportunity of digitization,” she said at a conference of corporate leaders held in the nation’s capital on June 8. The speech, reports said, was an effort to assure businesses that embracing cloud computing and Big Data will lead to more sophisticated enterprise, a trend given the title “Industry 4.0” in the nation.

And cloud computing firms aren’t willing to give up on the German market, either. A group of industry players including IBM, Univention and Open-Xchange — the latter two both based in Germany — formed the Open Cloud Alliance last year in an effort to strengthen their reach amid German data privacy concerns. Plus, cloud-based enterprise service providers, including Amazon Web Services, Oracle and Salesforce, are all building up their presence in Germany.

It is a conundrum to think that Germany offers one of the world’s strongest SaaS markets, while at home, fear of the cloud and data theft run rampant. These concerns are unlikely to negatively impact the global growth of players like SAP. But whether cloud computing players and regulators can convince German businesses to trust the cloud will likely take some time to be known.