SAP’s strategy event for the investment community on Tuesday offered few major surprises to anyone who’s been closely monitoring the software vendor lately, but did serve to cement the company’s future direction for product development, growth and customer retention. Here’s a look at some of the highlights of the event.
Five ways to win: SAP is now centered on five product categories, namely cloud computing, database, mobility, analytics and enterprise applications. Together, they represent a US$350 billion market opportunity by 2020, co-CEO Bill McDermott said during the event.
SAP will lead its sales efforts with cloud computing, according to McDermott, who takes over as sole CEO later this year. “We are a formidable company in every capacity but the cloud is where we’re taking the company,” he said. “It offers instant consumption, instant innovation and it helps companies grow.”
Suite success?: SAP’s roots lie in ERP (enterprise resource planning) suites, and this won’t change. “In the end, the suite always wins,” McDermott said. “Always has, always will.”
The difference moving forward lies in SAP’s plans to converge every one of its products, from the core Business Suite to acquired SaaS applications from SuccessFactors, on top of its HANA in-memory computing platform. HANA started as a database but has since been fleshed out with a variety of development tools and application services. “Now you’re going to be able to unify these applications in a beautiful, easy-to-run, easy-to-consume format,” McDermott said.
The vision includes a unified user experience as well as analytics and business processes that span applications, according to SAP. As SAP transitions to a cloud-heavy business model, customers will also be able to expect a common set of SLAs (service level agreements) and a single way to work with customer support, executives said Tuesday.
Sales with a smile: SAP intends to present “one face to the customer,” whether it’s selling on-premise applications, HANA licenses or SaaS, McDermott said. “When the customer deals with us, it’s a very intimate relationship with shared values and goals.”
SAP’s cloud and on-premises representatives are now “paid the same way” as well, McDermott said, although he didn’t elaborate on the details. On-premises sales representatives have traditionally enjoyed large commissions when they land a big sale, given that customers pay large up-front license fees. With SaaS, the money comes into vendors over a period of years.
HANA heating up?: There are now 3,000 HANA customers and 1,300 implementations of the database, according to SAP. In addition, 1,200 startup companies are building products with it.
SAP announced the availability of the Business Suite on HANA last year. Now more than 800 customers have bought it, including one with more than 100,000 employees. In other respects, however, the option remains in its early days. Only about 50 customers have gone live on the suite on HANA, although there are also currently more than 250 “go-live” projects, according to a slide presented at the meeting.
ConAgra Foods is one of the companies that have adopted the suite on HANA, at least in part. “We have portions of our suite on HANA,” said Mindy Simon, vice president of IT, who appeared at the event. “Where it makes sense, we accelerated those processes.” ConAgra is also a month away from having its entire analytics operation on HANA, Simon said.
Much has been made by SAP of HANA’s tremendous processing speed. But speed in and of itself will become a commodity over time, with a more difficult challenge being the discovery of ways to help the business with the technology, Simon said.
One of the “more revolutionary things” HANA has let ConAgra do is run what-if scenarios to forecast the future price of materials the company uses in its products, and analyze the prices’ potential effect on margins, Simon said.
Executive board member and product chief Vishal Sikka echoed Simon’s sentiments in a sense, saying that while HANA’s “power is unprecedented … the burden is on us to come up with great applications.”
He also cited the hype around “big data,” saying it is “sad” that people get so excited merely about how colossal a given information store can be. “Data on its own is dead,” he said. “You need processes to tie it together.”
Cloud creates cash: SAP wants to give customers the option of subscription pricing for all its products. But even though customers can avoid large one-time payments through this method, over time SAP makes out better with subscription pricing, said Luka Mucic, global managing board member and head of global finance.
Mucic displayed a slide showing two hypothetical deals of roughly similar size, with one for traditional on-premises licenses and the other using subscription pricing. The subscription model garnered SAP less money initially but reached a “break-even” point with the on-premises deal after about four years, according to a graph he showed. Following that period, subscription pricing brings in more money overall.
“This model is extremely attractive in the long run, provided we are successful holding a high rate of renewal,” he said.
That’s the catch for SAP, which has aims of reaching €3.5 billion (US$4.7 billion) in total cloud revenue by 2017. This would represent a 35 percent compound annual growth rate. “We have a plan and it’s clearly achievable,” Mucic said.