Good news, not so good news from SAP.
Good - cloud revenue has broken the €1 billion barrier for the first time in the latest quarter.
Not so good - overall revenues dipped, from €5.285 billion for Q1 last year compared to €5.261 billion this year.
It was to that psychologically-important one billion cloud breakthrough that CEO Bill McDermott was quick to point to in the post results announcement analyst con call:
This is the first quarter that the cloud revenue in our company has crossed the €1 billion threshold. Cloud bookings grew by 25% on top of an exceptionally strong prior year growth of almost 50%. This is a robust result and we expect strong bookings growth over the course of the year in-line with our cloud ambition.
But much of the rest of the call was devoted to CRM and grand ambitions in that direction following the acquisitions of Callidus and Gigya. The language made clear the intent:
…the relentless focuses we are putting on CRM…re-identifying that category and calling it our own…we know the world needs a next generation CRM concept around integration to the core from an end-to-end perspective.
There was even a rattle of the sabre in the direction of Salesforce, albeit without actually naming the rival:
Our front office cloud portfolio also grew in triple digits. This is a sign of things to come for SAP’s crystal clear plan to retake the lead position in CRM driven by overall fast adoption of SAP S/4HANA cloud and software grew at a stellar 9%…There was a time when a market leader was dominating in CRM. It was said that they couldn't be disrupted. Well, let's be clear once again, we want CRM.
Parking its tanks more closely to the Salesforce lawn, McDermott added:
Consider this from the customer perspective, every CEO agenda in the world has a similar set of priorities. One, how does the business get a single view of its consumer? Every business is looking for new competitive advantage and its consumer driven growth revolution. Even with so much interest, the technology industry to-date has not delivered the capabilities to reinvent the front office. In fact, the many businesses today so called Cloud CRM is nothing more than overpriced software running on first generation SaaS architecture. This is probably why so many have responded so eagerly to SAP's recent statement about a new vision for CRM. They know, change is coming, we are coming.
Salesforce CEO Marc Benioff has long pitched the mantra that his firm is the customer company, so McDermott’s choice of language here is interesting. He made a pitch that SAP’s primary focus is that end user customer:
Unlike others, SAP's approach actually begins with the end consumer. Look at the headlines around the data and social media, consumers are nervous out there. In the age of GDPR (General Data Protection Regulation), how can businesses give consumers choice about their own data? If permission is given, how can businesses protect the data, engage the consumer however they choose to be engaged, deliver them what they want and keep them happy and loyal at the same time.
Promising a new branding campaign and push kicking off at June’s Sapphire conference, McDermott went on:
As it relates to CRM, what we are seeing here is the customer really needs the entire value chain connected. How do I design a process, how do I build around that single view of the customer to drive economic value, customer satisfaction and loyalty, and how do I deliver? I mean really deliver the right product at the right price at any location where that customer is, taking into account that customer is on the move very often, they are actually connected from an IoT perspective in social media in new and highly innovative ways.
And big companies are having a lot of trouble putting that all together and clearly, legacy CRM platforms aren't going to get there. And that's why you are seeing them develop a strategy around even more M&A, even when the multiples make no sense whatever, because they don't have the ERP and now they have to come up with some methodology to connect all this complexity, which is where we come in, this is what we are really, really good at.
So you'll see us connect the entire value chain from the consumer all the way through to the supply chain in seamless, integrated processes by industry and in the cloud. We also put deep Machine Learning AI, IoT and Block Chain into the application to make it easier for the customer to consumer this innovation out of the box.
He expanded on the point with a customer exemplar:
One of the customer meetings I have had with a CEO and his leadership team recently went something like this - ‘Our price has been raised, we have been nickeled and dying on every little application imaginable and I’m paying 65% more now for my CRM asset than I was 18 months ago and I'm not seeing the value’. So this is not an uncommon situation, because nobody has asserted their will like SAP intends to in the enterprise application software market.
So I think some of it will be upgrading SAP's own base. Some of it will be net new, because it's a whole new idea when you think about the intelligent enterprise and the end-to-end, and clearly some of it will be replacement where customers now will have an alternative that will be marketed properly, invested in properly and the customers will say, ‘Given the choice, if I could do it through end-to-end without all this complexity and I can get more value from it, why wouldn’t I?’ and that's where we going.
In other words, this is a big deal for SAP in the coming months. McDermott made a stark commitment:
We are going to rebrand the whole CRM category.
The billion Euro milestone is clearly important to SAP as it transitions its business model to the cloud, although as Salesforce sets its sights on $20 billion annual run rate ambitions, that’s not likely to be rattling the cages back in San Francisco. On the other hand, the parking of its tanks on the CRM front lawn of Salesforce (and Oracle) promises fun and games ahead, particularly if McDermott follows through on his intent to redefine and ‘own’ the category.
Tom Siebel owned it once and it was taken away from him by Benioff and Salesforce, just as John Cullinane once owned the database world before Larry Ellison and Oracle took it from him. McDermott is correct that disruptors can be disrupted, but Benioff’s a far smarter tech and marketing guy than Siebel ever was. Game on!