SAP relaxed about move to the cloud says co-CEO Snabe
- More on SAP's Q2 earnings on a call with Jim Snabe, co-CEO. No great surprises but confirmation that SAP is on a path to transformation into a cloud based business. Still, there are plenty of unknowns though the company seems comfortable in progress.
Following on from this morning's earnings release, I spoke with Jim Hagemann Snabe, co-CEO SAP, to get more color on the numbers. While I didn't learn anything especially new, a seemingly relaxed Snabe confirmed what many of us have known for some time: SAP is in the middle of a transformation but believes it has enough depth and breadth across its portfolio of solutions to weather the bumpy road ahead. By way of demonstration, Snabe noted the 18 percent growth in the US was 'all cloud.'
On the dip in revenues, Snabe said that while China was not so bad, it is the countries that trade heavily with it where the greatest weakness was seen. Korea and Australia came in for special mention. In discussing the more, non-cloud element, Snabe said: "We believe we can be the answer in a crisis because we can provide the required insight with which to take action."
Moving on to BusinessSuite on HANA, he said that is selling well ahead of expectations, "Of course the deals are smaller but we now have triple digit in customer numbers."
Looking more broadly, he said that Germany maintained high single digit growth and that "If you can sell in Germany then you can sell anywhere."Asked to explain, he added: "In Germany, most companies I know have our ERP so if we are growing then that tells me there is enough upsell to meet our growth targets so new areas like banking and transportation for instance did well and we see Hybris as a great add on for the future."
Asked to discuss the position regarding SuccessFactors following the departure of Lars Dalgaard, Snabe said that he continues to see sales for SuccessFactors growing: "We are a natural choice for our customers" and that "we'll keep the momentum despite his departure." On Ariba, Snabe argued that "the network represents our most undervalued asset so the question comes, how do you move more spend onto the network? It's more a consulting proposition. But we're thinking that if customers can get realtime analytics on spend via HANA then that's a powerful value proposition."
On Hana Enterprise Cloud (HEC) Snabe affirmed that the idea is to offer HEC as a way to get to the cloud faster but without reskilling. "There's a lot of interest but we didn't sign a lot of deals. My hope is to see this as an accelerator." Part of the problem has been pricing which was finally settled in the last few weeks of the quarter.
Concluding, Snabe said: "Transformation is happening, we saw it maybe three years ago so we're happy. We're leading that change. I feel comfortable in our move to the cloud. I think the next four to six quarters will be decisive for many vendors but we are comfortable today."
I've know Jim Snabe since he first became co-CEO. In that time he has grown in stature but then I also know what kinds of thing get him excited and what makes him nervous. On this call I detected nothing that would indicate that things are not going exactly the way SAP has planned. Whether that's a good thing or not is another matter. The good news is that SAP has sufficient of a breadth in portfolio that weakness in one area is often counterbalanced by strength elsewhere. The better news is that in mentioning competition, SAP neither engages in any of the banter one usually sees from CEOs, neither does it under estimate the challenges from that competition.
While SAP is confident in its transition to the cloud, the fact is revenue from that source and HANA related items will only account for some ten percent of total revenues by this year's end. The company will continue to rely upon support and maintenance well into the future. Therefore, in order to avoid falling off a fiscal cliff in the 2015-17 timeframe, SAP must find alternative markets outside the installed base while staving off competition in both CRM (Salesforce.com/Oracle) and HR (Workday.)
This will be a difficult trick to pull off, given that the pressure on pricing is inexorably downwards with no obvious cost upside in sight. The best scenario is that SAP finds a way to optimize cloud operational costs in similar fashion to Amazon and is able to curtail marketing spend except in those areas where there is a need to move the market as a whole.
SAP believes that Ariba represents its best opportunity to gain a foothold in those new accounts. There is merit in this argument since procurement and spend management do not require investments in core technology like ERP in order to deliver value. The idea that you can get near real time spend analytics is certainly an interesting prospect but has yet to be proven either in theory or practice. Will SAP prove sufficiently attractive to get into non-SAP shops? Only time will tell.
Over the last year, many in the HR space have questioned how SAP transitions the whole of its HR offering to the cloud without killing the core HR business. That is now moot. That business will be killed off - with the possible exception of payroll where SAP maintains a strong global business but which has to be kept local. The question then comes around how can SAP commoditise legal and regulatory updates while remaining price competitive and remain profitable in this part of its business.
SAP thinks the cloud does it for them because of the economics of cloud operation. I am sure competitors will have a different take and one that sees them continue to undercut SAP on price. Whether SAP's total HR solution is enough to keep customers from wandering into the hands of competitors is again something we will have to wait and see. Field inquiries suggest that SuccessFactors is enough of a draw for customers to hold off making any wholesale switch. However, those same customers will still talk to competition as it gives them a lever in future negotiations.
On HANA, I don't believe we have seen a fraction of its real potential The company continues to talk about the BusinessSuite on HANA - as it should do to encourage deal flow - but I have consistently said that the greatest opportunity comes in the shape of new business solutions developed by third parties, many of which will be smaller SIs or specialist providers. SAP has to do a far better job executing against that strategy than has been the case to date.
One interesting aside. Neither the formal announcement nor our conversation touched upon mobile. This has been a strong past talking point. Are the major deals there done? Another topic for another day methinks.
In the meantime, I am looking forward to meeting customers in Johannesburg at the end of this month to assess how South Africa, as partial proxy for that continent, is shaping up.
Update: The audio replay of SAP's Q2 Financial Analyst call has been posted as an mp3 file. Seeking Alpha has published a full transcript.
Image credits: SAP