SAP throws down the gauntlet in database wars

SAP's latest earnings report shows some progress in the software giant's quest to remake itself. Now it wants to become the fastest-growing database company in the world.

Bill McDermott, SAP co- CEO

FORTUNE -- SAP's efforts to become more nimble and innovative appear to be working—to some extent. Revenue from new products like an in-memory database technology called HANA and cloud-based software from recently-acquired SuccessFactors is growing, but it still makes up a small fraction of the company's overall sales. And SAP is still far from reaching some of the ambitious milestones its co-CEOs have set.
The world's largest business software maker announced quarterly results on Wednesday, reporting its ninth consecutive quarter of double-digit growth in software and software-related revenue. HANA brought in 28 million euros, while cloud subscription and support sales came in at 29 million euros (the company's overall revenue, meanwhile, came in at 3.35 billion euros). But SAP says it's serious about becoming a major cloud player. And the company is confident that it's on track to double last year's HANA sales to at least 320 million euros in 2012.
"We intend to be the fastest-growing database company in the world," Bill McDermott, SAP co-CEO, said in a call with Fortune Wednesday morning. To accelerate the adoption of HANA, SAP recently launched a fund to help customers migrate from their existing databases to HANA. The company says it has already started doling out some of the money it has put aside for customers interested in making the switch.
"Most of them are not that happy with their incumbent [database provider]," McDermott said.
Oracle (ORCL), of course, is the number one database provider. And it's not going down without a fight. On a recent call with investors, the company downplayed the threat from HANA. (On Friday Oracle is planning a webcast presentation to investors and press on Exalytics, its HANA competitor).
MORE: Oracle earnings: Some growth, plenty of SAP-bashing
In reality, SAP (SAP) does have a long way to go to prove it can transform itself into major player in database technology, cloud-based software, mobility and analytics--all fast-growing sectors of the enterprise market. But it has put some of the right pieces in place—the CEO of recently-acquired SuccessFactors, Lars Dalgaard, has joined the company's executive board and is now tasked with running all of its cloud efforts. Cloud revenue is small but growing at a much faster rate than traditional software sales: SAP reported that the SuccessFactors business grew bookings by 69% compared to the first quarter of 2011. And the company is pouring marketing muscle and manpower into HANA and other innovative efforts like mobile apps.
Next month, at a conference in Florida, SAP is expected to unveil more details on its cloud strategy. It's sure to talk up HANA, mobile and analytics as well. But what about its core business, enterprise resource planning software? It's long-overdue for a serious overhaul on its less-exciting core product, which accounts for the bulk of current revenue. Of course, redesigning complex software isn't easy and takes time. But it's a necessary step for SAP to truly become the innovation leader in the enterprise.