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SAP's Q2 FY2015 - more color on the results, S/4 is a'coming, HANA revived

Den Howlett Profile picture for user gonzodaddy July 21, 2015
SAP's Q2 FY2015 was good on the top line but there were plenty of questions to parse back to the executive team. I spoke with Rob Enslin on this occasion.

Rob Enslin
Rob Enslin - SAP board member

As I summarized earlier in the day, SAP caught a break with favorable currency tailwinds in the last quarter and was able to use that to be more competitive and drive deals, especially in the Americas.  In comments, John Appleby said:

...the explosive revenue growth from HANA continues, even if average deal volume has decreased, because there are plenty of sell-ons to existing customers. Therefore your original projections are probably about right. This means that HANA is supporting core revenue quite significantly by now. But also, every deal is a HANA deal, and deals are bundled.

It's more nuanced than that and it is important for buyers to understand the direction SAP is taking. I spoke with Rob Enslin, president of Global Customer Operations and member of the Executive Board and the Global Managing Board of SAP.

Towards the end of our conversation, I asked why SAP has, for the first time, disclosed the number of HANA related deals. To reiterate from the blurbs:

This quarter, the number of HANA customers surpassed 7,200 compared with 3,600 a year ago.

This is where it gets interesting. Enslin said:

 S/4 definitely simplifies the landscape and sets the stage for us to be a digital framework. We want to be diligent that it maps to the customer needs and that is more than finance or other things that sit in the ERP suite. We know that for customers, speed is not enough on HANA. We are seeing the "Big Data" impact as significant in the market and of course we want to be in there alongside Hadoop and those other technologies. But in customers, HANA can help solve problems that are not ERP related and that's the key point here. I want the sales teams to keep pushing the envelope out so we are part of the conversations on those digital transformation projects.

This is a crucially important point because now, SAP is recognizing the need to be aligned to 'solving the unsolvable' and 'imagining the unimaginable' problems that former board member Vishal Sikka, now CEO Infosys envisioned back in 2010-12 and which he is carrying through in his current company.

The challenge for SAP will be to learn how to play well with the open source providers and SIs who are leading the way in discovering problems and then going out and solving them. That is a huge opportunity for everyone but SAP will have to understand it is not the only game in town.

There is one area where SAP could do more - omni-channel marketing as part of the shift to digital business. This can be positioned with many of SAP's components but again, it will require SAP to hold better relationships with line of business leaders and not rely so much on its excellent account control inside IT departments and with CFOs. That just won't be enough. Here, the word intimacy springs to mind, a term Sikka used in his analyst call earlier today but which also characterizes the kinds of relationship needed by vendors wishing to fully embrace the whole of the business.

Right now, I suspect that while those HANA deals look sparkling on volume, I am betting they are little more than software swaps or software being acquired in a bundled deal for later use. Jam tomorrow? Customers are used to that but I was heartened to hear Enslin talking in terms of projects where go live is in the 3-9 month range - a far cry from multi-year deployments.

Back to the more current topics. It should come as no surprise that Enslin confirmed customers are far more willing to invest in the cloud: was much better than in the on-premise world. The highlight for me was SuccessFactors and Employee Central combined with a very good performance in the US. HANA Enterprise Cloud had huge uptick. It's fair to say that most of the drive on HANA S4 continues to be on premises but the real test is going to come once we've got logistics. That's what people really want.

Enslin claimed that where there are weaknesses, they are across the board and not restricted to on-premises deals. I still see a significant degree of hesitancy in EMEA and Germany but I was heartened to hear Enslin articulate an outline value proposition that should be fed back to the marketers who, in my opinion, have singularly managed to keep analysts, commenters and even those close to the company in a state of fluid confusion.

On partnering for HEC, Enslin says partners account for 20% of the momentum but added that IBM's Softlayer is doing very well at the moment and HP has made significant efforts to get into the game. In a year's time, Enslin would like to see that model move to 50/50 with 30/70 as the long term goal.

I quite like this idea because it plays directly to the psyche of 'control' in the minds of the typical SAP buyer who wants a better landscape cost profile but may be some years away from taking the step into public clouds. I think there is a lot to be gained by customers working through this alongside long held vendor/partner relationships, while they can usefully pressure SAP to build out their own cloud infrastructure for public consumption.

Right now, SAP does not have the resources to achieve that but if it continues to act carefully in the manner in which it invests, then there is nothing to say that in, say five years, we don't see a robust public cloud offering emerging to sit alongside HEC for business critical, broad ERP related workloads.

On SuccessFactors momentum Enslin said:

The largest deployment has 200,000 users that are live. Multiple customers live in the 20-40,000 users group, so we're at scale already. We don't see growth by any specific industry but across the board In Europe I see a leadership role for us and I can say pipeline tells me it is much faster than we anticipated. We have had success in China with customers going live in our joint venture with China Telecom.

Turning back to on-premises and S/4, he said that biggest deals in on premise were, unsurprisingly, in mature markets.

We saw a greater volume in deals larger than €5 million for the first time in a while and we now think there is room for enterprise deals where customers are buying much more than ERP.

One of my frustrations comes in seeing what appear to be great sales deals but few, if any, go lives. Enslin said on S/4:

There's a tale of two things going on. We have roughly double digit customers live on Simple Finance. We see a significant number who are building POCs. Many are waiting for the full impact of logistics. We will see at least 1,000 of the top 2,000 do some sort of project in 2016. What's interesting is that we're seeing 41% as net new customers. Elsewhere for example, Shell had multiple projects. In total, we have 137 running projects and all are on premise at this time.

That places a burden on Bernd Leukert's development teams to get logistics to a point where it can at least be tested among those top buyers. We will no doubt hear more about that at TechEd later in the year.

My take

Rob Enslin is my kind of enterprise sales person. He understands the dynamics of customer engagement better than most and has been around long enough to know how technology shifts work themselves out in the real world. His willingness to provide as much detail as he is permitted and offer insights into what is happening on the ground should serve to give customers confidence that they are making the right bets.

However, the competitive landscape never goes away. Here, SAP has to get much better at explaining and demonstrating the value proposition that continues to keep enough customers signing checks. That's the missing piece of the current SAP puzzle. World class account control is not enough.

Finally, with competitive pressures being what they are, the only question left is whether SAP has successfully constructed the foundations of a moat that's resilient enough to carry it into the 2020's. I expect that picture to unfold in the next 18 months.

Disclosure: SAP is a premier partner at time of writing.

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