Hello and good afternoon and welcome to SAP's Capital Markets Day 2018. It's the first time we host this event at our new location here in New York and Hudson Yards. And if I look here in the room, I can say full house, very strong attendance, more than 100 people registered for attendance here in New York City, and I do believe many more follow this event over the web. So my name is Stephan Gruber. I'm Head of Investor Relations at SAP.
And as usual at the beginning, I want to walk you through the agenda for the day. It's a little bit of more concise program than usual. And you can see it from here. One slide back. It's a little bit too much clicking here.
So look at this, perfect. So the event will be kicked off by our CEO, Bill McDermott, who will give an update on SAP strategy and vision, and Bill will be interviewed on stage by Nick Zitzen, our EVP, Marketing and Communications. Then we move to the innovation side of the house. As you know, as at the heart of the SAP story, there's a strong innovation story, Cohen, the President of Cloud ERP. Thanks for making the trip to New York, Frank.
So that's Franz Ferber, the EVP, Product Innovation Big Data. And Frank Sorry, Frans flew in from Germany yesterday, very much appreciated. We have a short coffee break afterwards and then we move to the customer panel. That's also a classic element our Capital Market Days, I think a huge differentiator for SAP is the strength of our customer relationships. And the customer panel will be hosted by Executive Board Member Jen Morgan, who will start her session with a brief update on our go to market strategy as well as the key trends we see in the marketplace.
And before we move to the final executive Q and A, there's another classical element in our story, the financial framework, This is a financial analyst event. Luka Mutich, our Chief Financial Officer, will talk about growing predictability and profitability in our business. So I have 2 more things on my list here. It's the usual housekeeping items. This event, you can see the cameras, is being webcast live on the SAP Investor Relations website.
That means we also do take questions by e mail later on. Please send your questions to investor.sat.com. And throughout the event, we'll be using slides. And the slides will be made available in PDF format after the event. So as soon it's over, you can download the slides from our website.
And finally, this is My little classical element in my intro, and it's this is a long version of the safe harbor statement. Someone told me I was way too fast in the past, and I should slow down when I read it, so I try my best to be a little bit slower than usual. Please note that except for certain information, matters during today's conference may contain forward looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from our expectations. The factors that could affect the company's future financial results are discussed more fully in the company's most recent filings with the Securities and Exchange Commission. So this was my intro.
I'll try it hard. It's now my pleasure to invite our CEO, Bill McDermott as well as
You did great on that.
Thank you.
Well, good afternoon, ladies and gentlemen. Warm welcome from us. Before we do anything, I think an important tradition, how would you score Stefan's performance on the safe harbor statement.
I'll tell you, I think he America, I think he kind of went through it a little So I think his tempo was good and delivery excellent. So Stephane, way to go, man. You brought it today.
So Bill, I can't help make the observation last year this event took place also in right around the time of a major snow event in New York. Thankfully, this year, it's after Capital Markets Day, but we were in a different facility. This building wasn't ready. So maybe give a little bit of color and insight Hudson Yards and SAP's big play here.
This is yet another dream. If you remember, back in 2012, There was talk of this Hudson Yards project and then Mayor Bloomberg was in office and I had the opportunity to meet a guy by the name of Steve Ross who put together the Time Warner Center. And in his boardroom, he took me through this vision for the most exciting project in New York City in the last 5 decades. And we get to the end of the meeting and he says, there's no financing approved yet. The subway hasn't been approved underneath the ground to get people easily to the building yet.
And we haven't worked out all the details with the union. And I still love to have SAP be a part of this. And I asked him, I said, are you a winner? And he said, I'm a winner. And he said, well, let's shake hands.
We got a deal. We didn't do any contracts, no lawyers, no paperwork, trust. And years later now, people like, wow, what a facility. There's something to be said for getting in early before everyone else did. So that's why we can afford this place, Phil.
So speaking of timing, maybe we could bring up a slide. I'd like to talk to you about the recent history of SAP, maybe to set stage for this conversation. You often say that building and delivering shareholder value is ultimately a matter of trust. When I Joe, you the metrics of the company since 2010 when you became the CEO. What is your explanation of what it took for SAP to be able
to deliver on a strategy successfully to results of this magnitude? Well, I've been with SAP now 17 years. I started in 2,002 and the day that I got hired, it was a $10,000,000,000 market cap company. So we've come a long way. In 2010, by the unanimous consent of the Supervisory Board, I along with my partner became co CEO of the company.
And at that time, we worked very hard on having a vision that would stand the test of time. We said we are here to help the world run better and improve people's lives. We wanted to be a purpose driven company. We also had to have a winning strategy, and that winning strategy was based on HANA as the in memory database platform of the 21st century. We knew we had to take the company to the cloud And we were very aggressive and moved swiftly to get the line of business and the business network cloud in the portfolio of SAP.
And finally, when we really thought about all of that, we said, now we're going to build a great culture. And that was the move in 2010. And we're now in year 9 from that original scenario. And I just like to tell you that we're proud of what we've accomplished either doubling or tripling the revenue, the operating income or the shareholder value of the company, but those are metrics that you can see on the slide. The metric that maybe is less visible is the fact that we have a highly engaged workforce.
Our customers are very happy, And they're investing in their digital future with SAP, and we are still today fighting like underdogs. Like we want it more, even more than we did then. So after 8 years In the 9 year tenure of my CEO platform, I'm hungrier than ever. And I can honestly say the executive board is the same way and you'll get to see them today.
Excellent. Well, let's talk a little bit about The challenges and the opportunities in the present and the future, we'll first talk about the macro and the geopolitical environment facing not only SAP, but our customers and a very warm to Michael, Todd and Jeff will come up with you a little bit later. Thank you for being here. Let's talk politics for a minute. I think Everybody saw you on the front page of The New York Times and The Wall Street Journal from Davos seated to the right of the President of the United States.
It's a difficult time in terms of the intersection between politics and business. Maybe talk a little bit about that conversation, what you're hearing from other CEOs about what's going on in the world and how it's affecting their business?
Well, we want to play big. And we wanted the brand to be a big brand, really influencing not only the commercial discussions, but also the public sector discussions in the world. And we made real progress on that. Just before Davos, we had an opportunity to meet with President Macron, who was in a tax conversation with us around lowering the tax for the high income earners and getting the corporate tax rate equivalent to Germany so they could be more competitive. Prime Minister Modi has a happiness index.
He's got 800,000,000 people between 1636 that he has to get productive and happy. So they have amazing careers in the information technology industry among others. President Trump obviously initiated a very strategic tax cut And he also counts on companies like SAP to help the United States government run better. And that could be in the armed services, it could be in the services that get provided to the citizens, but we're at these tables. And in particular, the one thing that is striking a chord in the commercial and the public sector is basically the idea of data and this idea of a digital boardroom or digital cabinet room.
So when you make promises to your constituents, you can measure your progress against those promises in real time. And that is true in the public sector and it's true for every CEO we talk to who is basically reinventing their business around this digital consumer, this digital growth revolution that we're in. So that was the genesis of the conversation. I was very honored because this is a unique thing. Everybody at that table in Davos was my customer.
So I didn't have to spend a whole lot of time telling them the SAP story because I was honored to be representing all the customers that run SAP and every single one in that group of 15 Industrial CEOs in Europe ran SAP and were very happy customers.
So let's pull back the curtain a little bit more on the CEO discussions because I think everybody here is trying to get of those discussions, what do they need? What are they looking for in order to have a technology partner that enables a business strategy?
They have to get in touch with that consumer. It's no surprise to anyone in this room that the social media revolution is in full force. The likes and the behaviors of people in social then coalesces into a channel management strategy. So In every channel, every CEO needs to know his or her consumer, and they need to make sure that they have the prior history. So they understand the dynamic of what's happened in the past.
They need to put that in the context of what this individual is doing on social, so they understand the patterns and they are in a position to make a real time offer and price it and upsell it and cross sell it, but ultimately to fulfill. Because in the value chain, you could do anything you want on the front end with omnichannel and e commerce. But if you don't have an automated supply chain whereby you deliver the right product at the right price at the right place in the form factor that the consumer is looking for, you don't complete the transaction. Now there's a new development and I'm glad Franz Faribh is here today to talk about the future of HANA and our data hub and our data suite, which is really the idea of data and the control tower and how you manage data. So I think what we're looking at now is a world that understands The greatest resource they have besides their people is the content and the data around what's going on with their customers.
And that data is coming from every location. So instead of spending your time collating that data, how can you harness that data, get that data into a single view, so you're in a better position to satisfy the need of that consumer than anyone in your field. One other big thing, As you think about data, think geospatial. I hope that Frans will take you through along with Bern some scenarios today, where we not only want to know the consumer, but we also want to know the ecosystem that supports our brand around that consumer. So for example, because that consumer is on the run and they're constantly mobile, we need to know where they're at, So we can service their needs and enable our ecosystem or our partners to provide our product to that consumer in the form that that consumer expects.
1 of the boards that I'm on is a sports apparel brand, and we go through these fun scenarios, if you only have 10 miles left in your shoes and you're jogging around San Antonio, Texas, but you live in Baltimore, Maryland, it might be a really good idea for you to get an alert that there's a retailer waiting to serve you with a great offer because your shoes are running low, and we need to now refortify you and treat you really well. So you'll be more beholden to the brand, the retailers partners will be happier and obviously the revenue and the profits increase. That's the idea.
I've never run 10 miles in my life. I just want to put that on the record. So let's talk about our portfolio for a few minutes in terms of the business software market leader that SAP has become in terms of how we're serving those needs. I don't think anybody doubts SAP's engineering prowess. I think that it's known that SAP has made a series of M and A moves.
So talk
a little bit about at a high level the strategy behind how SAP has pursued the M and A agenda in your tenure as CEO.
Keep in mind, we were the number one ERP and analytics company in 2010 and we were participating in US50 $1,000,000,000 addressable market. It's a good market. We had the market leading position, but we knew that the growth was going to be in data and the growth was going to be in the cloud. So we have HANA as our ultimate simplifier for the enterprise And that has scaled now into 20,000 significant companies around the world in a multibillion business. We then said we have to take the ERP and refactor the ERP on HANA.
So now you have an in memory ERP system called S4HANA. And incidentally, we're in the very early days of the upgrade cycle from the installed base that we have to this new modern in memory ERP system that's fundamentally changing the way companies can re craft business models on the fly. Now the cloud, this is interesting. We got the heads up in 2,008 with the financial crisis that customers would buy small, especially on an OpEx budget, especially at a line of business level. That is why we moved swiftly to buy the best cloud assets that were available on the open market at that time.
If you remember, SuccessFactors, market leader in talent management. Ariba market leader in the whole procurement lifecycle and the business network Concur. While people questioned the amount we paid for it in the beginning, I said, it's not what you pay for it, it's what you do with it after you get it, remember? And that has been a runaway growth story. So now with Fieldglass and SuccessFactors, you can manage the total workforce And you can even manage contingent labor, which is the fastest growing labor force in the world in the cloud, in a network.
And it's also true with Ariba that now you have 3,500,000 trading partners moving $1,000,000,000,000 around the economy globally in that network. And incidentally, in case anyone was wondering how SuccessFactors is doing, there's 2,300 central customers, which is more than Workday. And we are now taking all this know how in the cloud back into CRM. We want CRM. We want CRM.
So with Hybris, we got omni channelecommerce, We have our own SFA and marketing that we've developed organically. We tucked in GIGEA, so we would have the customer profile and the GDPR requirements of that customer file and the GDPR requirements of that customer under control in an omnichannelecommerce world, and recently we announced Callidus. Why Callidus? Because we want to own the lead to cash process. So we're deep now into the psyche of the sales professional because we're in their pipeline.
We're now into how they configure price and quote a service or a product, and that also ties to how they get compensated on that sale. So if you think about this acquisition, everybody says great things. We haven't had one negative write up on it yet because we ourselves use it to run SAP, it's a nice tuck in and it's going to present enormous challenges for our competition. Because the thing that our competition cannot do, because they don't have an ERP, okay? We have the ERP.
They don't have the common data model, we do with HANA. And we now have all of our CRM assets in the cloud where we can connect the end to end value chain in 25 industries. And one of the things I love about our position right now is Leonardo. Why do I love Leonardo? Because we build the intelligence into the application.
You don't have So now I can see my consumer on an end to end basis in every industry in every corner of the earth. And I support the whole value chain with a modern ERP on the only in memory data platform that scales the way HANA does, and we can fulfill on the back end, front office to back office seamless.
So let's look at that portfolio on the slide just as I ask you a couple of follow-up questions. First, do we want CRM? We want it. I'm just making sure. I want to make sure I heard you clearly.
Look, the other thing is this. We're happy to talk about everything today. Focus is now big time on CRM. The assets are in the portfolio. The team is geared up.
The leadership is right. We got 4,000 people developing software and CRM. We're coming after a very large addressable market. That tailwind has not even been factored in to the way you're thinking about and modeling SAP. So stay tuned.
That's going to get real interesting.
So criticism and your response. Okay. SAP Cloud Growth is all acquisition. Your response? First of
all, let's be very, very clear here. We made the move for the line of business and the business network through M and A in the early days of our strategy. The game plan was to get these wonderful assets off the board before any competitor who has even deeper pockets than us figured out what we were doing. So that's why we move with great speed. We haven't done a significant M and A move in 3.5 years.
So when I read research reports and they say, oh, SAP is growing in the cloud only through the tuck ins, I think to myself, What are you talking about? We haven't done one in 3.5 years, and we keep all the logos highly visible. We keep all the cultures intact because they've made us better, they've made us stronger, and they've improved our DNA, and they're growing organically, organically faster than the competition. And when I say faster than the competition, yes, I said salesforce.com as one benchmark, okay? And any of the larger companies that might be more Comparative to SAP, we grow faster in the cloud on an organic basis.
We also said that we would grow 30% in the cloud we gave you that consistent 30% number all the way through 2020, and we have not faltered. And when we make promises, we keep them. So that's the expectation, fast growth in the cloud, fast growth in the core. Now, you're going to hear today from Bernd and Frank Cohen, Our big story on S4HANA in the public multi tenant cloud world that will go down market into the mid market realm. It will also be attached in the large enterprises, and that's going to be a very, very large growth story that I don't think people have factored into the models either.
And by the way, so far it's grown faster than any public multi tenant cloud solution in the marketplace, benchmarked any competitor, we're growing faster, Frank will give you the details, and it's growing faster than any product we've ever put into the market in the cloud. So S4HANA in the public multi tenant cloud, huge tailwind. Now We also have the whole suite in the cloud.
So let me ask you about that. Yes. Right. So if you think about the future where the growth is going to come from, it seems like every company in the industry just wants to say Artificial intelligence and blockchain as many times as they possibly can. Right.
So when you look at this image of this portfolio starting with the data layer through intelligence and analytics working its way to an integrated suite. How do you explain where the growth will come from in terms of how SAP consumers will customers will consume our portfolio?
Yes. I think the main thing is this, It's all about the customer. So think about SAP Leonardo as artificial intelligence, deep machine learning, the Internet of everything and blockchain. Think about that composed for every industry in 193 countries in the world as the front end of the thought leadership that we bring through design thinking and innovation to every customer. Think about that.
Think about artificial intelligence being built into the application, not a separate conversation. If you want to match invoices and payments, It might be a nice idea to have that built into the application. We already have proven with that application as one example, a 95% improvement that my dear colleagues will take you through today. So it's not gimmicks, okay? It's not sizzle, It's real.
Now the SAP Cloud Platform is another very interesting nuance that I don't believe people have fully formed an opinion on or really understand. We have 4,000 people building on that platform every day. We have mass scale like 8,000 customers now on the SAP Cloud Platform. They want to manage their legacy When they make the move over to a modern system, they also want to build added innovation and we as a company Let me be very crystal clear here. We as a company will fully integrate All that we innovate, whether it's in the cloud, it's in the network or it's in the core for an integrated suite On the SAP Cloud Platform.
Okay. The amazing cost advantage that SAP will get in building the best software over time will be evident in our margin profile. But more importantly, Customers, more and more will say, integration is the way to go. In the early 2000s, the Suite won against best of breed, and I guarantee you, In 2018 and beyond, the integrated suite will win again. And all the things we can do with HANA, All the things we can do with the SAP Cloud Platform, all the things we can do with S4HANA to unify an enterprise in every industry, take it to the cloud, Take the line of business executive and the business network executive and fully integrate on that common platform will be a massive improvement in productivity and execution in companies all over the world.
And this is the SAP that the marketplace is going to get. This is also the SAP, and I thank you so much for coming today, that I don't think has been fully profiled in the way the company is being written about and the way the company is valued. So look out world, here we come.
So let's talk about the business model. The expectations are clear and the guidance that was issued this year, Glor around 30% in cloud, maintain a stable license and maintenance business and expand margins. Now there are critics who will say, there's no way, how could SAP possibly do that? What would be your response to that criticism?
There were critics who would say, no way can SAP be company, remember them? And this year, the cloud now supersedes the core business and the size of revenue that we deliver to the free world. We have made the business model transformation. We have made the business model transformation. There are no debates.
We're actually more happy to rent the software to a customer. You were also worried about us taking that chance some 8 or 10 years ago, remember? And We not only took that chance, we leaned into it. And here's what we're finding, Nick. We're finding that our core is the ultimate core in the enterprise.
We are the voice of business software in the enterprise. And our customers will very often say, this is a long term decision when I take on S4HANA as an example, And I choose to capitalize that and own that because over time, a rental is going to cost me more than owning it. And this is an asset of their company. So we're happy to give it to them the way they want it. But if they want to rent it, we're all lined up for the rental.
Now on all the other attributes of the line of business cloud and the business network, complemented by our resurgence in CRM and our climb with S4HANA, we're telling you no problem with factoring a 30% consisting bookings growth in the Cloud business of SAP. Could it go higher? Of course. As it relates to the core, We see no decline in the pipelines we look at today compared to what we saw in 2017, meaning the core is ever robust, including the growth rates on new software sales. Now what's amazing about this is the loyalty effect on our maintenance base, which is a double digit billion business have never been higher.
So in that core, it's Fort Knox. We've got unbelievable steadiness in the maintenance, fantastic margins, customers that very often still want to own it, the sales pipeline that looks just like it did last year from a growth perspective, we haven't seen any aging on that pipeline. And the cloud is rocking with lots of new innovation that our dear colleagues will get to hear about today. Now on the operating income side, let's deal with this head on. Okay, we had to put a lot of money into building out cloud operations all over the world, because a lot of our customers said, if I'm in Germany, I want to run my cloud business in Germany, or we had to do joint venture in China and accommodate certain requests, and this goes on and on and on.
We have largely done those investments. We are not going to be increasing the CapEx as a percent of the revenue. It will be steady and over time it will be declining. Luca will give you insight on this. We have a different strategy than one of our key competitors.
We are embracing the hyperscale cloud providers. Why are we doing this? Because it's in the interest of our customers to get the most value at the lowest price. And these hyperscale deep pocket cloud providers are driving themselves to the lowest possible unit cost imaginable. We have no interest in participating in that race.
We have every interest in making sure our customers get the benefit of our software in that infrastructure as a service at the lowest possible cost as long as they abide by our reference architecture and our high security standards, which they are doing. So over time, I think this is going to be a force multiplier for good on the margin as well. And then finally, as it relates to running our company, we have a manifesto that has been signed off by the Executive Board to integrate everything onto the SAP Cloud Platform With HANA as the unifying platform for data management across our entire company, you're going to see legacy things that happened in the past from companies we acquired and elsewhere that will go away in terms of a cost paradigm, because everyone will coalesce on this modern platform. This is going to not only enable us to bend the margin up this year, But in the future years, Luca will take you through how it accelerates and gets even better and better and better. Now, I really love the way the company is going right now, because we're not hitting any cultural resistance to cost, to doing things more professionally, to doing things more efficiently.
Why? Because Our employees are also shareholders of our company. And you see that was a big change too, because now more than 80% of our company is actually holding the shares in the company. And they're treating the SAP spend as if it's their own because they want to see their portfolios grow over time just like we want your portfolios to grow. So we're aligned here.
The other thing I think is interesting is the Executive Board compensation is very tied on the long term incentive plan, which is absolutely majority tied to the development of the share price. So you got everybody in the company thinking like shareholders, very passionate about our customers, including the loyalty effect with our customers, the initiative that we're most proud of this year is Customer for Life. And I think Jen We'll talk about that when she is up here with our customers. We have Christian Klein, Chief Operating Officer. He runs everything in a digital boardroom.
If there's cost we're going out of place, it gets up on the board and we go for it, right? And I think you know Luca's reputation. He's not leaving any money sitting in the corners either. So it's really good.
I'm sensing almost a subtle energy and enthusiasm from you today. It's very calm. It's very you've almost launched these bottles off the table more than twice. Let's pivot on our way to the conclusion of the discussion. I mean, you often talk about purpose.
We just released an integrated annual report in which we take the position that you can't judge the health of the business or the health of the company purely on financial metrics. When you look at the 3 metrics that we could bring up here in terms of SAP being behind purpose before it became pool, Why are these things important when they're trying to size up the overall health and stability of SAP?
You know better than anybody. This is an era of purpose driven innovation. Young people, they want to be a part of something that's a movement. And I think Jen will take you through, we have 1,000 young people right now in our academies that we hire at a university with an average age of 24 years old. We train them to our own culture.
We hold them to incredibly high standards. We're happy to train them for 9 months to a year before they go out on their own. So they're really mentored and built to win. And this is causing them not only to engage with SAP, not only enabling us to hire the best, but our retention rates are better than they've ever been. Our engagement, our retention and our hiring rates are the best they've ever been.
The company gets younger every year even while We have amazing retention on our tenured employees. So purpose driven innovation, give you an example. We have people building applications to do things like saving elephants and rhinoceroses with GPS technology that's tied to a real time in memory database that's connected to humans. So every time an elephant or a rhino gets near a poacher, there's a process to deal with that. We're saving rainforest with Hana.
We're actually doing special things in the supply chain around made in a free world, where we don't have child labor imposing itself incorrectly into a supply chain. There is actual certification standards built into the Ariba network that our customers are really benefiting from, and the list goes on. I believe strongly that SAP is not just showing up in Glassdoor by accident, it's showing up in Glassdoor because we are walking to talk and we're walking the walk. And I think that's the big difference, role model leadership. On the Goal of women and management, the one thing I want to mention on women and management, obviously, we hit a goal of 25%, But last time I looked, it's about half women and half men in the world.
I'll know that we really got there when we don't have to talk about it anymore. And when we made a very strategic hiring decision for the executive board with Jen and Adair to be on the Executive Board and run global customer operations, of course, a benefit of Gen and Adaire may have been their agenda, but clearly they were hired because they're the best person for the job. And that's the attitude that we have in the company. I'm looking at Alicia who runs Global Marketing and her partner, Mika, who runs Global Digital Marketing and the things that we're doing, it's all about meritocracy and Great leadership. On most sustainable software company, I really want to thank the colleagues in engineering, also Stefan and Luca and our people in all functions of the company for renewable energy, 100% renewable data centers.
We really do believe that our station in life is based on not what we take from this world, but what we give it. And if we think about improving financials, economies, societies and environments, we can really make a difference.
So we have a lot of content coming up for the benefit of the audience here to go deep on the topics that you've outlined. In terms of wrapping this up, let me just put you in a visual moment here. I mean, imagine for one second that we had in the front row of this audience a prospective shareholder who was debating investing their capital in the SAP share. As the CEO of SAP, why would you encourage that investment? Why should our shareholders continue to trust this company moving forward?
Well, I'm the guy who can easily be quoted in the book, Winner's Dream, for trust being the ultimate human currency. We have been at this for quite a while now. And again, being a part of the Executive Board since 2008, being co CEO or CEO for now in the 9th year, every promise that we made we kept, including last year, for example, where we raised guidance twice and even met or beat the guidance in all those key metrics. We have a very competent executive board. We have a very strong leadership team and very highly motivated employees, and our customer base is the best in the world.
You'll get to see 3 of them today that represent that statement extremely well. So we're blessed. But there's one other thing. If I think about SAP right now, I think the stock really needs some clarity. And the fact that anyone would even ask That question needs some clarity.
So let me try to put a little clarity on it. You have a situation where the sum of the parts is definitely greater than the whole right now. So let's just take the 2020 guidance of the company as an example. We said we'd be $8,500,000,000 in the cloud, okay? So if you look at the competitive benchmarks for just that, okay, in U.
S. Dollar terms, that's $100,000,000,000 company in the Cloud. Not to mention, we haven't even gotten started in CRM or the S4HANA run that we're about to go on. But that's $100,000,000,000 in the cloud. Let's take the core.
If you take the core, let's say, something in low 20s $1,000,000,000 with an incredible franchise, a great install base, sticky maintenance and amazing margins. And you just looked at that and said, let me benchmark that against a similar company at least in terms of the space like a VMware or whatever, you take that multiple, you have yourself another $100,000,000,000 plus So just on that alone, I got $200,000,000,000 in market cap. So to me, if I got $200,000,000,000 of market cap from just that exercise, and you're going to get to see a vision for HANA today that's going to fundamentally change the world. We're not just going to be a runtime database company, we're going to be a fully used database company, and you're going to see database as a hub, as a suite and as a service that's going to hit the market and take it by storm. You're going to see S4HANA in the public multi tenant cloud that's going to run away with the market in the upper mid market, the attach rates in the large enterprise.
You're going to see CRM now assert its will and we're going to get back to some extent what was rightfully ours, but there's such a huge addressable market, we can get plenty of net new and attach that to all the things that we're doing. And I don't think any of that tailwind is actually factored in. So I believe that the time for SAP has never been better. And I believe if you just take that conversation And you say to yourself, wow, but what about 5 years after that? I think it's clockwork.
Why? Because 75% of it will be in the bank before the year starts. We have totally transformed the business model of this company. And as long as we innovate and keep executing,
So we'll leave it there. Bill McDermott, CEO of SAP. Thank you very much.
Thank you, Nick. Thank you. Appreciate it, man.
Thank you. So did you want to say a quick word? We have Vern Loeck that's going to come here next and then we have Jennifer Morgan and Luca Muchach. Any words about our Board members? I would love
to and I'll begin Jen, I'm so proud to see that Jennifer Morgan is not just Executive Board member of SAP, but is a leader of consequence and has a huge role in our future. And I think you will feel the same way, especially with our dear customers today when you see her in action, management, leadership, it all matters. Christian Klein is our Chief Operating Officer. It's pretty nice when you can take 30 something leaders and have them be the Chief Operating Officer of a company of the size, scale and stature of SAP. And so many young people join on his team now and are focused on the run simple SAP and what we will be.
Luka Muchic, I think, as a Chief financial officer really doesn't need an introduction. You know him, but right now I don't think he's ever had a better partner than he has in myself and the executive board to truly go after the cost and bend that margin curve to serve it up just the way we said we would in 2018 and beyond. And I think putting the S on for and HANA, I mean, this is the core crown jewel of the company, and I want to thank Bernd for his leadership and also you're going to get to see Frank Cohen today. Now keep in mind, Frank Cohen has done many things with his great career, but also having him really charging for S4HANA in this cloud and driving that with the same force and nature that he led EMEA. I think you might remember how EMEA performed under Frank's leadership.
I mean we've got an unbelievable team here. And I have to say, Burns got Franz Fager with him. And just so you know about Franz, it was Franz and Hasso that did HANA. I know Franz will never take any credit for that, but that was Haso's most trusted innovator as they came up with a great future for HANA. And we had this supervisory board meeting where we did a technology and strategy committee session, And when we saw this, people were literally coming out of their chairs on what the future is for HANA, the data hub, the data suite, think about a control tower for every company in the world, getting data from any source and managing it with clockwork precision.
That's what you're going to see today from France. So this is just among The great people here at SAP and I'm serious. We're honored that you came. We're sure lucky that It's not tomorrow and we didn't have a blizzard to contend with. But I really want you to feel like you're getting all the answers to your questions on this business model and the commitment in this team to win.
Thank you very much. And by the way, we will win, guaranteed. Thank
you. Ladies and gentlemen, it's my pleasure to welcome our Executive Board Member for Products and Innovation, Bernd Leuker.
Thanks,
Michael.
Well, good afternoon, And thanks a lot from my side for joining here for the Capital Markets Day. As we stand here, Hudson Yards, a beautiful building, We stand as well at the dawn of a new era, an era where we develop new intelligence into our entire portfolio. And I think intelligence, and we heard some examples from Bill, that will change the world to the better and improve people's lives. And today, I'm proud to say that we are the only company in the IT sector that we will be able to deliver what Bill called the intelligent enterprise. In this, we connect humans, and we heard from Bill as well some animals.
We can connect products, we connect machines and directly having impact on the business result of our customers and not just answering questions, how do we automate a function point to get a little bit more efficiency. And as our strategy has evolved, we realize that it is not sufficient to just simply build machine learning algorithms and place them into the existing processes as we have defined them for a decade or more. We are instead transforming our business model to win the intelligent economy around three principles. Number 1, and you heard it loud and clear from Bill, only cloud can deliver intelligence at scale. At scale is a differentiating word.
2nd, SAP will set intelligent business outcomes, And we will change our commercial models as well with that. From existing on premise, we move to cloud based, But as you heard at the Mobile World Congress last week, we announced an outcome based, consumption based business value driven commercial model. And finally, a unified process landscape in the intelligent economy, of course, a landscape that is built on the ground jewel of HANA. And last year here in New York, I spoke about a challenge many customers were facing. They call it a 2 speed IT challenge.
And I think we have helped our customers to master that challenge. And today, We have the largest cloud portfolio in the industry with over 100 solutions and over 150,000,000 subscribers. Think about that numbers and the potential you have heard from Bill already. And this year, I will show you how our cloud leadership will help SAP to win the next era of computing, which is the intelligent enterprise. Now let's start how we are winning in the cloud.
As the cloud markets mature, the winners will be determined by the ability to deliver business value and not just to save costs and value driven by simplification. And for years, SAP has helped to overcome these challenges for our customers and maintaining this focus On simplicity, in the architecture, in the processes, in the way we engage, and Cian will talk more about that later on, In the integration of our solutions, our customers have moved with us into the cloud and into the cloud in dedicated targeted LOBs in the platform and as well in the core. And I can give you an example with digital supply chains. Bill, we have been in Davos together where Manufacturing and supply chain are coming together. They are coming more closely together as our customers' demand is in order to provide their customers very individualized products, products that are not just having a great demand but as well speed in delivery probably at the next hour.
And to do this, we bring everything together. We connect the cutting edge innovation by connecting these things, these products with IoT. We help our customers to bring intelligence into the planning process with integrated business planning. We are able to have a digital twin of every physical asset and enable for the first time real product life cycle management. The term exists for a long time.
But to have the ability that product feedback is directly from use of the customers going into design, in the engineering, into the maintenance and service business for our customers has massive impact. And this is creating this continuous improvement process our customers have been talking for years. And this is what many call in Germany Industry 4.0. Others call it a revolution in manufacturing and supply chain. But I just want to share the facts why it has an impact on our business.
It's triple digit growth in cloud and is fostering as well double digit growth in on prem, going from 27,000 customers when I was standing here last year in that segment only to more than 40,000 customers as I'm standing here a year later. And with recent wins like Omega, the Swiss watchmaker, like Panasonic, and I'm not counting and telling you all the more than 10,000 or 15,000 customers we have added, delivering this great end to end innovation, completely integrated to the core. And this is where integration of the business Bill was talking about is adding this value, driving our customers to connect and to deploy the S4 solution family. And the fact tell the story. We have over 8,000 customers license for S4 as I speak here today.
We have passed just at the beginning of the year 1500 live customers after announcing end of August customer number 1,000 being live. So you see the acceleration not just in adoption as well in life usage. And about half of them are net new names. Of course, the other half is addressing our installed base. And when I was at the German speaking user conference in Q4, I had live customers with SMA Solar, which is photovoltaic system company.
I have AlGaia with me, a professional service company, on stage talking about the massive value S4HANA Cloud is bringing to them. And these two customers shared that they could go live in weeks, not in months or quarters or sometimes even years, which we had in the past. But even in the S4 family, there is more than 50% reduction in the implementation time, whether you chose the on prem versus the cloud version, not talking about the big acceleration towards the ERP implementation types. So nearly all of these S-four projects are on time, are on budget. We have trained more than 180 partners globally.
And what I'm personally proud of that we see an all time high record in customer satisfaction in this S4 customer segment. Very important for us as we want to build a long term trusted relationship and not just having short term success. And recently, IDC has recognized us with S4 as the leader for large enterprise ERP in the cloud as well as a leader in dedicated industry segments like professional service. But now let's hear from 2 S4HANA Cloud customers, Deloitte, a global service provider, I think you all know of that, with 245,000 employees but as well, GFI, a major professional service firm in Europe with 15,000 employees, both leading service providers that are creating new value by incorporating S4HANA Cloud and make them the basis for running their business. So proving that the industry focus that made us strong already 2 decades ago with the Business Week is proving again that, that knowledge is still making us strong and is paying off.
Let's listen to them on the video.
So Deloitte selected SAP S4HANA Cloud. For a few simple reasons, I would say, a lot of this has to do more with speak to value, I would say, rapid implementation, This over the next couple of years as well. All these changes in technology require companies to adjust and to adapt and to really reinvent themselves much fast
We are a fast Growing company, we have a very high expectation in terms of financial and controlling. We need to follow innovation. We are going to deploy SAP S4HANA Cloud for in all of our company for all the business lines. I think the 2 main benefits time reduction and increase of efficiency. The goal is to have an homogeneous approach of all the process, all the reporting, all the way in order to manage our business, to have a real time vision of Our company, just in order to take decision very quickly, we want to digitalize our
So great. Now let's hear directly from the man responsible for driving our future success In Cloud ERP, please welcome with me on stage Frank Hohne, President of Cloud ERP. Frank, thanks for joining me here today. So we have heard a lot about customers. We read a lot of articles.
But from your perspective, what is the real value our customers are getting from consuming S4HANA Cloud?
So there are three aspects I would like to mention today. The first one is total cost of ownership. There is no doubt that our customers are all willing to reduce their cost and get a more efficient IT system. So our S4HANA Cloud is definitely delivering a better TCO in 3 different ways. First, it's a 16 to 20 weeks implementation time.
So think about how we have been able to reduce the 16 months that we had in the past for an ERP to 16 weeks. So companies who want to start their digital transformation. Companies want to make some mergers or acquisition. The best way is to go to this very fast implementation cycle. The second thing is I think that S4HANA Cloud is actually generating a lot of high degree of standardization and simplification, which is at the end what customers want today.
They want to simplify. They want to rely on one system. And then the third thing is We are going to produce and to provide native integration with the other cloud line of business of SAP so that they don't have to develop the glue between the part. They don't have to develop interfaces. They don't have to manage that they have only one data model, and we can deliver all of that as part of the solution.
I think this is going to be an impact, serious impact in terms of TCO. The second thing that I think is probably the most important when it comes to value is we are betting on artificial intelligence. And I know that you heard this name this word many, many times. So let me be very precise what we are doing with that. The first thing is we want to be the 1st ERP in the market using no keyboard, using voice recognition.
Why? Because that's the normal way you want to ask questions. An executive is not going to the keyboard, he's going to ask question. Show me the simulation of the crude oil price. Show me this, show me that.
And I think that it's absolutely possible today to deliver this solution. More than that, we want to have an intelligent assistant. So let's say you are the CFO of a company and you have a meeting with procurement in 2 hours. Why can't we consider this system intelligent enough to go to your calendar, to look at the agenda and bring you the KPIs for procurement before the meeting. So the system will learn from new habits and will adapt intelligently so that you get better efficient ways to use the system.
That's the UX part. The second part, which has also a lot of implication in terms of TCO is automation. So we're going to use AI to automate everything that can be automated in ERP. And the good news is there is a lot of tasks that are repetitive that you can automate. So let me give you an objective very clearly.
We want to automate 50% of the manual tasks that you have in ERP in 3 years' time. That means huge saving for companies. And that will not be something aside of your software, that will be integrated into your core system. And then the third thing, which I think is also important, is The speed of innovation. I mean, things are changing very fast with the new technologies.
There is no more time when you can wait 3 years to make an upgrade. And we are delivering 4 releases every year. Every release we make, we bring 20% more functionalities. So look at the speed of innovation that we are bringing to
the market. I think these three things are important. So clear answer for the value, Capturing standardization but going beyond towards automation.
Yes. And there is one more thing that I want to add on the AI because we talk about automation and UX. That is a third element which is also a key for us. The best practices we have today have been built in the based on the technology that was available back then. But what if we can now reinvent the processes using the latest technology, using IoT, using blockchain, but more importantly, using AI as a catalyst to really transform the companies.
Our objective now is to rebuild the processes and generate and delivering to the market the next generation of best practices. We've done that for 4 years. We're going to
reinvent ourselves and generate a lot more value through this next generation. Completely agree. And looking into the faces of The financial analysts, they asked us, Frank, great oxygen for the business, boosting up the P and L. Luca is smiling, but How long will this last? So how much of our existing installed base have we converted already?
And how long will it take to convert the rest of S4?
Yes. So I think today, we have about 20% of our customer base. We have adopted already Sfour in different shape or form, on prem, private and more recently also in the public cloud. And if you look at what it means, it means that the potential is still out there. We expect this year, if I should give a number, 3,000 customers to migrate to an S4 platform.
So that's very important. We also have to mention that almost 50% of our S4 customers are new customers. It's not only migrating our customer base, we are winning market share because of the power of Sfour in general. And then there is another thing to mention, which is interesting, is that we see a motion from on prem to private. And now we see more and more emotion from private to public.
As a matter of fact, the S4HANA Cloud, public cloud, is the fastest growth ever product, cloud solution that has been entering the mainstream market. And if I tell you now that our pipeline is 7x bigger that what it used to be in January 2017, you can already imagine that is going to continue to be the case.
So that means the potential is much more than the SAP installed base. This is clear message. Now some, I think, Silicon Valley based companies were reporting their numbers last week. And I don't know if they play in the ERP space or not, but seems to be in the earnings space. Otherwise, they would not mention us in their earnings call.
But they said SAP is not competitive when it comes to ERP in the cloud. I think what is your perspective on our competitiveness when you talk about S4 Cloud?
Okay. So let's try to divide the market to be more precise Because the detail is David is in the details. So there is 2 aspects. There is what we call administrative ERP, which is back office application, finance HR procurement And there is what we call operational ERP, which is the specific industry related activities, whether it's billing or under management or manufacturing. We intend to play on both sides.
We believe today we have a very competitive financial HR procurement capabilities. We're using, of course, SuccessFactor and Ariba natively integrated with our system. And with that, we believe we have a very competitive system. Actually, It's already more competitive and functionality more capable than one of our most successful product, all in one, that we launched, and we have already 25,000 customers. But what I want to say that it's interesting that Karl Gartner published yesterday a market guide for cloud ERP for product centric companies.
And guess what? S4HANA Cloud is there. The company is using HR mostly. It's not there. So no way they're not even in the list.
So why is that they are not in the list? This is very simple because they don't have a solution. And I think that it's either we believe that cloud ERP can be more than just administrative ERP. At the end, we believe that customers would like to adopt that for their operational ERP as well. Now it's also 2 option.
Either they don't believe in that, in this company or they don't even have the solution today or the expertise to develop that, but we are going to play on both sides. I can guarantee you that.
Frank, this was a very clear message. I hope some answers from the earnings day call have been answered already. Frank Cohen, President, Calcutta.
Thank you very much.
Thanks for joining us. So next to delivering The core in the cloud. We are committed to deliver targeted cloud LOB solutions, cloud LOB innovations across our fully integrated modular suite. And this drives customers like the Emirates Group, like Standard Chartered, like many more, to buy into this end to end integration story as we are the only one who can offer that entire portfolio. And given customers as well the choice to start where their biggest need is, this could be in HR with our SuccessFactors portfolio.
This could be in Spend Management with Ariba, with Fieldglass, with Conquer. This could be in the customer experience segment, Leading with fibrous. So let's look in more depth, starting in the HR segment. And in many companies, like Bill has said at SAP, The digital transformation at the companies, at our customers, start with their most valuable asset, which is their people. And for engagement, customers need consumer grade HR solutions, and SuccessFactors is exactly delivering their digitized end to end HR processes with new Ferrari based mobile applications that bring insight into the employees.
The integration of what Frank mentioned, the Copilot, creates a conversational UI Everybody can use instantly on their mobile phone. And we go further, piloting assistance even with Microsoft and Slack to submit leave requests through a messaging app. And with our new privacy center, we support managing employees' data within the privacy regulatory framework of each region and each country where we are playing in. And you know that we are a global player, while some others are niche players in dedicated countries. With the focus, of course, on innovation and on security.
And Bill said it already, and I'm happy to repeat it in case you missed it, that Employee Central has more than 2,300 customers already, and this other company would be proud of having these numbers, not just in that module, but across the company. And with recent wins like the great brand name from Italy, Salvatore Ferragamo, Like Henergy Holding in China, it shows that we are present globally showing our unmatched global coverage and as well innovation capability. Let me switch now going from the people to the customer experience. And in this market, the big opportunity for brands is to build a shared purpose, a shared purpose between our customers' brand and their customers. And it is not enough Just to speak with the customers over a Facebook chat.
You have to become part of their persona, their values, their likes, their dislikes, what they share with others. And with SAP Hybris, we have laid the foundation for our more than 300,000 brands which we are able to serve. We connect their customers. Jen, you have been hosting that, I think, or serving that right here in New York at the New York Fashion Week. So hybrids enabled voting people's most favorite dress codes In real time, allowing then the designers who were observing this to have the best looks right there in the stores instantly.
What a breakthrough for the fashion industry. And we deliver this by incorporating as well the machine learning capability into the breadth of that portfolio with conversational chatbots as well personalized recommendation, which is essential, I think, in the fashion industry and Further improve the power of our vision, we have, and Bill said it, acquired GIGEAR, a company that has over €1,300,000,000 GDPR compliant customer profile, enabling us to attribute online behavior to online but as well to offline sales. And pending the regulatory and the shareholders' approval, the addition of Calidus Cloud will align our winning SAP end to end CRM innovation strategy and being able to serve us holistically across commerce, sales, service, marketing, revenue and enhanced now with Conant Callidus with an integrated configure price quoting tool That has an instant integration into the commission management, which is key for the people who are serving the customers. And S and P will be the only provider for that complete CRM integrated portfolio across the processes in order to address the full CRM market. And I think our numbers speak for themselves while we are growing close to 100% in the cloud.
Some other companies, admittedly, who have a little bit higher share, they are proud of growing 20%, 21%. You have heard the announcement. I leave it up to you to do the math. I'm just proud of the performance we have in that category of our portfolio. But let's continue and talk about the winning platform Bill was mentioning, a core part of our data strategy, which is to make any kind of data, of course, the structured data resulting from transactional system, But in future, more importantly, the unstructured data to make this data usable, accessible in a flexible way.
And SAP HANA remains the core of our business. It remains the core, what we now call the HANA data management suite. And with over 21,000 customers and even quoting a research report by Citi coming out last week, proving that, that HANA platform is delivering the value which has been promised when France and Hassell have been launching that platform years ago. And expanding HANA into the cloud towards HANA as a service, you could call it database as a service, enable us to maintain that great sales and growth momentum. But as I mentioned, today's data challenge is that data is created in many places.
So many people talk about distributed data. So information is everywhere. Of course, still in transactional system, but in future more in products, in machines, in people. So we are as well proud with our great innovation 4th leadership that we were the 1st in the market to capture that need. And we launched here in New York last September the SAP Data Hub, the only data management solution that is able to visualize the flow of that data, the processing of that data across distributed landscapes.
And this allows us to process petabyte of data instantly. And based on that innovation, we have combined HANA and the Data Hub, what we now call the SAP HANA Data Management Suite to manage and to orchestrate but as well to monitor the stream of that data holistically end to end as we are able to do it in our application portfolio And to end with the Intelligent Suite, we are as well to provide this across the technology platform. And what does it mean? It means that we can create new type of applications that use the capability of that SAP HANA data management Microservices can be written without the hard binding to data structures or data stores. Given this unprecedented flexibility I was talking about, the agility.
And why? Because the data hub is able to interpret different data formats, is able to create and identify the metadata that is necessary for this distributed data processing. And just remember how data processing was done in the last 40 years. It was select data, process data, store data. The next process step come, select data, process data, store data.
What we can do now, we can include operations, so processing operations in a data stream without storing the data. What a difference in potential we have by building these new applications. But now let me introduce Frans, Frans Ferber. Bill introduced him already. The great brain behind HANA, the great brain Behind the data hub, the great brain behind the HANA Data Management Suite, Frans, thanks for joining me here today.
So as the brand and innovator behind it, from your perspective, what is the value of the SAP HANA Data Hub?
The value and the uniqueness of the Data Hub, and there I personally believe and we are quite sure on that because we did the analysis is that Data Hub is unique in the sense that we are the only software product, which is taking care end to end of the data assets, the most important asset in a company. So it's not just that we look at ingestion of the data and in data quality, In preparation of the data, machine learning and feeding them into business processes, we really take care of the whole life cycle management of the artifacts of the data and of the whole system. And as you mentioned already, that's very similar when you look at an ERP system. It's not just the single applications which you have in the system. It's not that they are independent.
The most important thing is, 1st of all, the integration. And second is that you have the life cycle management, deployment, delivery, all these kind of things. We take care of the complete system, of the data, of the assets, of the data. 2nd is, we are the only system who are really multi cloud. In multi cloud, in our definition, does not mean that we run on Google and on Amazon and whatever.
Of course, we do. Everybody does. But we are independent of that. We are building our system logically on top of these cloud providers. So we are saying we can use services from Google.
We can services from use from Alibaba, for example, best Chinese translation service and services from us as business services and building a system on top of that, a data system on top of that. This is really unique. And with that comes also the point that we are saying, We don't tell customers give us our data and then we take care of you. What we are saying is leave the data where you are, where they are, leave it there. We nevertheless take care end to end of your data processes and of your data.
That's a big difference because moving data today is almost impossible.
So my big statement. Before, people were bringing data to the processor. Now France was clearly articulating we leave the data where it is, and we bring the processing capability to the data itself, a paradigm shift in the big data world. And France, I think it was really fun for me to go with you together to customers talking about the massive potential, the abilities we have with that data hub to help customers to win in the digital and in the intelligent era as well. So from your perspective, How would you summarize customers can use the data hub to unlock the value of that massive capability?
So we are seeing, in principle, 2 kind of problems customers solving with Data Hub. 1 is, of course, that you have data driven processes, and that's really changing our system design in software. Processes are starting out of data, out of events, out of insights, out of intelligence, out of data. It's not that we have transactions where we where we store data and then data is in a database and then we're doing another process on top of that. Data drive changes and drive actions where we do something with the data, out of events, insights.
And especially when you look at IoT, when you look at sensor data, when you look at transactional data, video data, this all this kind of data, social data, you see what this data can affect and how we can really enhance our business processes with that. That's the big thing. And of course, integration of multiple stores of multiple systems. But let's look into the system. Maybe, Patrick, you want to give us a view on the concrete system of data hub.
We promised we show it to you. So Philip, please give us a glimpse on.
Sure. I'd love to.
So you heard it loud and clear, ladies and gentlemen. Data driven applications are the foundation for intelligent enterprises. And with SAP Data Hub, we have created a truly amazing solution that unleashes the power of data right at your fingertips. And I'm so excited to show it to you right now. Here on the screen, you can see the cockpit of the SAP Data Hub.
From managing connections over creating and maintaining metadata to data discovery processing, cleansing, harmonization, you can find it all here. As Frans has just outlined the true thing that makes SAP Data Hub is unique that we can connect to all the different hyperscale cloud providers, including Amazon, Google, Microsoft, and of course, now to forget our own SAP data centers. But through multi cloud does not just mean we can connect and operate on these other platforms. It also means that we can keep the data where it belongs to, because we cannot move the data around all the time. Instead, we bring the business, the business logic and the applications to where the data resides.
In other words, SAP Data Hub is central business management with decentralized execution, giving you sheer unlimited scalability. But now let's look into the heart of the SAP Data Hub and develop our first data driven application. For this, We deep dive right into the heart of the SAP Data Hub, the programming environment. However, you're going to have a hard time Looking for any code here, this is intentional. Thanks to this graphical development environment, even non developers are able to create data driven applications with ease.
So what you see here in the middle is what we call a data pipeline. A data pipeline consists out of multiple operators, which are acting on a continuous flow, a continuous stream of data, manipulating processing the data and giving you the insight you desire. Here in this example, we are using a public TV stream from a German broadcaster that we are capturing on the left hand side in the first operator, then we're just using a video player operator that simply plays back the raw signal as is. Down here, we have another video player. However, it is intercepted by this color to gray operator, which turns the live stream in real time on the fly into a black and white image and then sends it to this video player.
Now we can actually play this back to see the results. So we see 2 windows popping up. 1 shows the original colored stream, the other one shows the 2nd video player with a modified image. So it stopped this year and now the real fun begins for me as a developer. So what I can now do is Take one of the almost 500 operators that are pre shipped with the Data Hub.
For example, I would take a blur operator and I drag and drop it onto the canvas here, I unwire the initial connection and then take the color to gray output onto the blurs operator's input and the output back to the video player. I can just save this pipeline and I'm done. It's that simple. So when I now replay this video, I can get immediately the result. Now the image is not just black and white, but it is also blurred.
This is really amazing. It's that simple to develop the aspects here. Now you may wonder where's the business aspect in this. Now just for example, you can take another machine learning operator from the data hub that is trained to recognize your individual brand in real time from the TV stream, for example, in an advertisement. And then you can send this event into SAP Hybris Marketing or simply put a tweet out on Twitter to reinforce the engagement with your most loyal customers to include them even further into your marketing efforts.
At the same time, of course, SAP Data Hub is not just limited to video processing. Just imagine what's possible if you connect arbitrary data sources here, social media, market data, IoT sensor data or just your financial and logistics data from S4HANA. There are endless opportunities and they are basically just constrained by imagination and creativity. And I really believe that our customers will love the product as much as we do. With that, thank you so much and Back to you, Bert.
Philippe, thanks a lot. As well, Fran, thanks a lot for joining me here today. It's just to show you how efficient we can create these new applications going forward. So I would say the takeaway is when ERP is the core for enterprise processing, this is the core for distributed data processing. It runs in a truly multi cloud distributed architecture.
And third, we have made it so simple to create next generation applications for ourselves but as well for the entire ecosystem. Now talking about many more capabilities like graph engines, time series engine, all the capabilities Frans and his team has incorporated into the standard operators already. So Fran, thanks again for you and your big team and especially for the tremendous great work you have given to us. We have taken all our business expertise in our technology expertise, and we have moved it to the cloud. Luca will discuss the numbers later.
But what comes next? How we will continue to drive innovation for our customers? And let me go deeper. As you have seen these tremendous capabilities, We use machine learning across the portfolio to build new experiences in interactions for our users. As Frank said, to build new processes.
And Gerrit is here, the Lead Architect and Head of Development for Analytics, to give new analytical insights for our customers across the portfolio to deliver a higher intelligence, more insights in real time. And we have defined 5 key enablers for this intelligent enterprise. And let me start with the experience layer. And applications will use the power in the entire enterprise in an integrated modular suite. And the next level of that power of interaction is when we can bring that intelligence layer into the cloud centric foundation to make the intelligent enterprise not just a talk to make this reality.
Let's start with the experience layer itself. And we have focused in the last couple of years a hell a lot on user experience. We won in 2016 1 Red Dot Design Award last year. We won 3 Red Dot Design Awards, but we are not at the end. Innovation continues in that segment.
The intelligent enterprise allows us to automate as many actions of the end user as possible. And if you can run that screen in the background, which Garrett and his team has presented, it allows us where we don't automate a process, as Frank was promising, To use natural interactions, whether this is voice interaction, whether this is like you are doing this in a meeting, you probably don't talk to your machines, you want to type. But what you want to know from the system is automatically adapted, interpreted and give you the result which an intelligent system can give to you. So to create a human first interaction design that people can trust, we are proud that what we call the SAP pCoPilot is the 1st enterprise digital assistant, knowing that many digital assistants are in the consumer space already on the market. And the next layer down is the suite of applications that power all the aspects of our business, and we deliver that integrated suite.
Deliver that integrated suite in a unified way, retaining the flexibility of individual modules, but enabling one experience, one view for the customer to consume, one way of managing the life cycle, one way of getting not just experience, but as well reducing The costs in order to consume the innovations. One way of massively enhancing speed from making the decision towards active and productive use, combined with what I said before with complete new commercial models, such as pay per use. And the intelligent enterprise makes that cloud platform. We have been talking about quickly in this opening talk, the center of gravity. It's vital in our strategy.
And that is why already 8,000 customers have decided to use the SAP Cloud Platform. That is why almost 800 partners use the Cloud Platform for helping our customers to digitally transform. And that is why we see triple digit growth in that business. And this is why we see triple digit million bookings already last year in our P and L. So the cloud platform will be the one required platform as a service offering to extend our solutions, to integrate the different cloud products, but as well to build new capabilities.
It will be the go to platform and underlying technology to converge all new cloud solutions, which we will continue to build and to innovate. It is also the platform for refactoring existing solution because it will enable the transformation of individual SaaS applications, of our digital core to a homogeneously accessible unified experience. It will be The enabler for the ready to use suite out of the cloud, which Frank has shown on his road map on his as well as state of the art in S-four. It will enable as well that core processes can be rethought as we will bring core business objects and core business processes onto that platform. That means we are going into an era where we carve out certain process steps and certain objects to have a more efficient internal development process organization, contributing to the margin improvements, Luca will talk in a minute, contributing as well to build new applications faster, but as well providing access to key objects in the master data like the customer master, the product master, the employee master to the entire ecosystem, but as well giving access via APIs to essential processes like the billing as a service process.
That means ultimately, We will recode, we will refactor certain elements of our entire portfolio on that platform. But don't misinterpret it, We will not recode all our cloud assets on that platform. So it's important that you understand that certain elements we run on, But the cloud platform will run with our comprehensive cloud portfolio. So keep in mind, run on and run with, Very important. The 4 key aspect is modern commercialization because all the processes that run on the platform will have a consistent customer experience to find, to try, to buy, to activate and to consume these capabilities on the platform in a credit based pay per use consumption model.
Secondly, We will allow a consistent life cycle management of all these services on that platform. 3rd, as what I mentioned before, we are committed to provide key services, key objects onto that platform. The API Hub is the enablement of what is known as the API economy. And the 4th point, we will support Infrastructure as a Service abstraction. For our strategy, which is SAP's multi cloud strategy, as we offer These capabilities in our data center, but as well on the hyperscaler, Microsoft, Google, MSN.
And this protects our customers from lock in situations into the hyperscaler, and this is very important when we talk to our customers these days. We as well use on that platform open source framework like a Docker, like a Kubernetes, like Cloud Foundry, all complementing each other in order to have as well here an efficient development process, but as well to have the capability across the portfolio with a unified identity management, with a unified role based access management and as well with a unified role based access management. And as well with that platform, we laid the key foundation for SAP Leonardo. Why? Because in the intelligent enterprise, the cloud platform will enable the usage of machine learning, will enable the usage of blockchain, of analytics, of IoT, of big data services, of data intelligence incorporated in all of our processes and make it easily consumable for our customers.
So to summarize throughout the history, SAP has and will continue to define the future, the vision and build show thought leadership in the era of enterprise IT. R2 was the first where we went with mainstream in an integrated ERP. R3 brought ERP to next level with client server. S4 was leading into the digital enterprise. And now, as announced by Bill, we lead into the intelligent enterprise, leveraging All the work we have done on the foundation with HANA as without the simplicity in architecture, we would not be able to seamlessly follow that journey and go into that new era, applying machine learning and artificial intelligence across the entire Leonardo portfolio into all our cloud assets.
So by investing into a unified machine learning, we will provide machine learning foundation layer, not just for our own developers, again as well for the entire ecosystem that consists of our own algorithms. But more importantly, we will incorporate as well and leverage partnership with NVIDIA. We will leverage the partnership with Google in order to embrace all of these capabilities that exist in the market and make it available for our customers. Now finally, I want to close by what is the foundation and how can we make this big vision a reality and having profitable growth. Of course, the foundation is the platform, but I want to talk finally about the economics behind And we have 3 main points I want to share at the end.
1st, our cloud solutions and our platform stack run, as I mentioned, on the major public cloud providers. We want to be friends with the best. To repeat, the Amazons, the Googles, the Asures, we don't want to compete with them in that segment of infrastructure. And that will significantly contribute to improvement of our margin. We have brought together all our cloud infrastructure and operation.
In order to maintain the critical skills and the competency in the cloud, We as well have decided that we will continue to run our own data center, in case this is a question you have. And we operate Today, more than 45 data centers around the world and as mentioned by Bill, fully powered by renewable energy, truly green cloud. And for our internal operation, to come to the second point, our strategy is to harmonize the different infrastructure stacks, which we have today and go into a converged cloud with the Google Cloud Infrastructure as the go to infrastructure in our data centers, Driving costs down, bringing the operational economics of scalability, of elasticity, quality, reliability into our data centers. So there is no difference anymore whether you run a product on a highly elastic Google Data Center or whether we run it in an SAP Data Center. And our strategic focus on implementing tools such as Kubernetes And having a flexible deployment of these services is already paying off as we speak here today.
And finally, we have as well a strategy not just to consolidate the stacks as well to consolidate the data centers. We have already closed more than 10 data centers in the last 2 to 3 years. And we have a plan to further close 18 data centers until end of next year. And there was no noise. We just do it in the background in order to contribute to a highly efficient cloud operations.
Finally, and that message is as well, and I have to repeat it loud and clear, end of the year, all our cloud products will run on HANA and contribute further to running on a winning platform in the market and not on some outdated older technologies, which some of our competitors offer. So let me summarize. We have more than 88,000 innovators in that company, And we act as one team, bringing together the experience of best run processes across 25 industries. We extend that offering and help our customers to transform in the digital age and take our place in the intelligent economy. And I promise you, it will be a big space in a big place, which we will conquer.
Thanks a lot. And giving back to Stefan.
Some of the bottles, that's I think a good segue into the pre perception we have now, the coffee break. We have wine and later on for the executive reception. So we'll limit the reception to approximately 10 minutes and continue So I guess in the interest of time, let's continue. Our next session focuses on the customer side. And we have 3 great customers here joining us in New York.
I'll let Jennifer Morgan introduce the customers. You know them much, much better. But before we start with the customer session, Jennifer will talk about our go to market approach and the latest trends we are seeing in the marketplace. So Jennifer, the floor is yours.
Good afternoon, everyone. Thanks so much for being here today. Before I invite My esteemed customers to the stage with me. I thought I'd just take 5 minutes to cover 2 things. One is to give you a quick window and perspective into our go to market and coverage model for 2018.
And then more importantly, invite 3 of our customers up here and have a conversation about their businesses, where they're headed and where SAP fits in for them. So what I'd like to cover are 4 very basic things. The first is where are we selling? Who is selling? What are we selling?
And what are some of the trends that we're seeing across the business? So where are we selling? Very simply, we sell across the key regions, the Americas and TJ, which I have responsibility for from the sales perspective. My partner, Dare Fox Martin has responsibility for sales across EMEA and Greater China. Across these regions, we have 34 market units and the leaders and the teams in these regions that are working on Adaira's and my team responsibility for the end to end customer experience relationship success.
The way that we segment our customers within these regions, we look at it across This is a program that we've had in the business probably for 10 plus years and we've really, really, really honed in on what makes this successful. These are customers who are willing to be the 1st adopters, who guide our innovation, who are willing to commit to us to developing 3 year strategic roadmaps and are the customers who really implement and adopt our portfolio very, very broadly. The second part of our segments is key accounts. Key accounts are $1,000,000,000 and above. We have great penetration here obviously with S4 and across the line of business.
And the 3rd segment is our general business, our small and medium prices. This is a partner first sales approach. Okay? You see about a deep double digit amount sales going through our partners in this segment. They're really leading our sales.
It's very much a cloud first approach. This segment grew in deep double digits in cloud in the small medium enterprise and we expect this to continue in 2018. And we also have a really strong focus obviously on new customers in this place. This is a very, very exciting segment for us. We've seen a lot of growth in 2017, again, very deep double digit growth of new logos coming into the cloud with SAP.
So who is selling? Who is selling SAP? Obviously, the best sales force in the world, Our people, the way that we go to market, we have industry account executives. These account executives have responsibility for, as I said earlier, the end to end view of the customer. Their job is to really understand and be an expert in that customer, their business, their industry.
Those industry account executives are supported by specialist account executives who have a deep understanding of the different lines of business, the products that support those lines of business and the industries in which they operate. And those sales specialists are about over 50% of our overall sales force today. We've got a strong culture. Bill mentioned earlier, our employee engagement, employee trust levels are off the charts. I'm very proud of the fact that Fortune has named SAP number 28 and one of the best places to work.
We weren't on this list 2 years ago. We moved up 30 places. This is important. My motto, you focus on the people, the numbers will follow. And so building this culture is very important for us to have salespeople who are not finishing a career with SAP, but salespeople who are in the middle of a great career, salespeople who are starting a great career.
Bill mentioned our sales academy. We had made a very significant strategic decision and investment several years ago to really invest in building new talent coming right out of school, 24 years old. These folks are entering our sales force. We now have enough data that has telling us these folks are performing just as effectively as our most seasoned account executives. 76% are participating every quarter.
The same amount of these new talented folks are making their numbers every year as our most tenured experienced sales representatives. So we're really excited, very proud of the sales culture that we've created and the folks that we're able to attract and retain because of that culture. We also put a strong focus on the partners. You heard others earlier today and throughout the day you'll hear about the different relationships and the partners we have. We have a lot of long standing partners who continue to invest in SAP.
Our global strategic partners, the big SIs, They have over 30,000 folks trained in S4. On average, each of these partners are investing in about 1,000 additional folks being trained on S4 going forward. So they are seeing huge growth in their SAP practices. We're seeing partnerships that may have started one way several years ago evolve into new capabilities, new innovations. Microsoft is a great example of that.
A lot of our customers are running Azure. They want to take S4, they want to put it on Azure. Microsoft is doing the same thing and we're seeing a lot of uplift there. Fact, they'll be out at Microsoft tomorrow. We've got 2 sales forces that are really harmonizing, using the synergies across the enterprise and going to market with our customers.
And then we have new partnerships. Bernd alluded earlier to Google and this is very exciting as well. Many of our partners are running in the Google Cloud. And we talked also today about artificial intelligence, machine learning, the intelligence across the enterprise. And I think that Google is going to be a very groundbreaking partnership for us as we accelerate our for us as we accelerate our move into this part of the business.
So what are we selling? We talked about where, we talked about who's selling, what are we selling? We've simplified our go to market structure to not just focus on products, but to really focus on business solutions and on motions that are meant to drive synergies for our customers and create more simplistic customer experience and to create synergies across our sales force, so we can take our best people, get better scale and really focus on business solutions. So I'm going to talk about 6 key motions. The first, digital core, you've seen it today.
Digital core is simply S4HANA. You can have it in the cloud. You can have it on premise. There's choice. We want to approach our customers with choice versus, hey, we've got somebody selling this product, somebody selling this product.
Customers all take many times a different journey. Many want a hybrid journey. Many are starting in the cloud. Many are transitioning to the cloud. By having a consolidated sales motion, we simplify this and we focus on what's right for our customers.
You heard earlier, not even, little bit less than 20%, I think Frank said 20%. Less than 20% of our customers have moved on to S4. Our pipeline is very robust. And in addition to the existing customers moving on to S4, last year about a third of our new S4 customers, several 1,000 as Frank mentioned, were new customers. So in addition to the runway we have from our existing base, we see a lot of new logos who are moving on to S4.
Again, many in the cloud, Some might start on premise. We do see a lot more in the cloud. And our sales force is very, very focused on cloud first. The incentives are in place to drive cloud, to drive the public cloud and we've got great collaboration. So we'll continue to see great collaboration and great growth in this area of the business.
The second area, people. This is our SuccessFactors portfolio. 68.5% of the Fortune 500 run SuccessFactors. The strength in our SuccessFactors portfolio and what allows us to really get the growth we need is the ability to move into these markets globally whether it's APJ, whether Southeast Asia, whether it's Latin America as an example, we can get there very, very quickly. We see deep double digit growth in this business in some of those markets that I just mentioned.
And we see the conversations really changing from managing events in a cloud system around HR to creating new experiences, new ways of engaging. When you think about some of the partnerships and a lot of the topics that folks are focused on across every company, It's how you create the culture. What's going to drive the results? Is it diversity? Is it health and wellness?
Those are some of the topics that We see CHRO's purpose exploring, employee activism is becoming very, very common in companies, social activism. All these topics are new topics that are driving new ways of engaging. And this is where we see our partnership with Thrive Global being very innovative. This is Arianna Huffington's company around health and wellness. We're combining the content and insights combined with our AI and ML technologies and we're able to go upstream in a journey of an employee.
We know what happens when somebody gets promoted or when there's a life event. Had we better engage and create the best experience possible versus just reacting to an event. So we really see this evolving and we're very in the field of differentiation will come from a lot of the Leonardo technologies and scenarios and the new partnerships that weren't even here a year ago. The third area is the customer. This is Hybris.
This is Giga. This is Callidus. You've heard a little bit about this today. So maybe I'll just give you the perspective from the sales force. Our sales force is very fired up about this.
They're salespeople themselves. They understand very well this line of business. They use these solutions and this is something that we believe is going to really supercharge our sales force and our growth. So you're going to hear a lot more about this. This is an area we'll continue to be very focused and invested in and you'll hear a lot more about this at SAPPHIRE as well.
The 4th area is platform. Vern just talked about that. So we have specialized sales force that focuses very much around the full use of HANA. The 5th area is Leonardo and Analytics. Since we launched Leonardo in Sapphire this past year, the message has really resonated well with our customers.
Our partners have already really invested. They put Chief Leonardo Officers in place. They have over 100 and accelerators across different industry scenarios. We closed several 7 figure deals across every region in 2017 with Leonardo really being the difference maker in every region. And just a little color on the industries, discrete manufacturing, Energy and Natural Resources and Consumer were 3 of the big areas where we saw Leonardo thrive.
We opened 4 Leonardo Centers Last year, we'll open another 8 this year. When our sales teams are able to bring our customers to show them What Leonardo means to bring it to life, these centers have made a huge difference for our sales teams. And finally, the last area, network and spend management, Ariba Concur Fieldglass. As I said, the strength for us is the global reach, is getting there first. So in addition to continuing to have great success and growth in our more mature markets, we're really moving fast and getting out into these other areas where we already have a presence and where we're able to exploit the synergies of the portfolio.
Very strong pipeline across these 3 together where we've got 2 or 3 of these solutions, a Reeburn, Concur, Fieldglass and Concur as an example, because the spend message is much more powerful than talking about one solution alone. And finally, what are some of the trends that we've been seeing out in the field? Well, as I mentioned earlier, industry remains a differentiator for us. I think somebody said earlier, everybody is out there Every technology companies out there talking about ML or AI. But when you are in talking to a CEO or CFO or a Head of Sales, They want to understand how is that technology relevant in the context of their industry, where they should be thinking about disruption and where it applies.
And this is exactly how we've trained our sales force so that they can have these conversations and their business relevant. We see as I said earlier, the same growth I mentioned in Leonardo, those are the same industries we see as really fast growing, strong pipeline in 2018, very similar to some of the industry trends we saw last year. We also see our customers increasing their commitment to SAP. We always very much keep an eye on the average contract duration that our customers are signing up for at the time of bookings. We've seen that duration increase in double digits in the past year.
Customers are getting very confident about their future with not just 1 or 2 products, but broadly across the portfolio, which really leads me to my next point, which is the synergies of the portfolio. When we sell S4HANA Cloud, Every time we sell Sfour on a cloud, there's always an opportunity for us to broaden that value proposition into some of those other areas I just discussed. 20% of every Sfour transaction at the time of that transaction involves at least 1 or more cloud solutions. We see about a third of our revenue coming from customers who have more have 3 or more of our cloud solutions. So our field is really understanding those synergies as they develop and understanding how those synergies can create a more impactful conversation with our customers not just about one line of business, but about the enterprise about an intelligent enterprise.
And we continue to look at how we'll exploit these. And then finally, Bill talked about customer for life. The DNA in our folks is really, really focused right now on keeping customers for life. We take nothing for granted. The on premise world is not the same world that it is today.
And we need to continue to win our customers over day after day. So we are incenting and paying our account executives on the renewals. We aren't afraid to proactively understand and use our own intelligence about our customers to approach and help our customers make that journey over to the cloud versus wait hoping and then maybe waiting for them to tell us that they want to do something differently. This is something that we've trained the field in. We are leaning into this and we're really excited about this being part of our growth.
So with that very quick commentary, let's turn to the most important part of the day, which is our customers. And so I'd like to invite to the stage with me 3 very great customers and more importantly friends, Mike Heim from Whirlpool Todd Thompson, CIO from doTERRA, Amazing company. I love I'm obsessed with doTERRA. If you guys haven't heard about them yet, you got to Google it. And Jeff Miller from Pregis.
Please join me. Good to see you all. So today we'll take about This isn't a shy group, so you all kind of jump in. But what I wanted to make sure that we talked about today is we wanted to have 3 very different companies across different industries at very different points in their growth and to see that sustainable relevance of SAP kind of no matter where you look. So we'll spend about maybe 8 to 10 minutes with each of you.
And as each of you have comments, I hope that you'll jump in. So Jeff, let's start with you. Let's talk about Cregis. You just closed your, I think, 4th acquisition, right? Very fast growing company, lot happening with you.
Tell us a little bit about Strategy of the company and what are the focus areas for the business?
So thanks, Jen. Let me start with really who we are as a company. We're a company much like SAP that puts our customers first. And we truly believe that our customers whose products warrant protection deserve Pregis. So we're moving forward in a number of different ways.
You asked about objectives. We're moving forward really in 3 different spaces. All of those spaces can roll up into one main strategy and that's sustainable growth. The 3 waves of that really are acquisitions. We're a company that has acquired really for production capability, product expansion, new markets.
We had a gap in our e retail business, so we bought a company to fill that as well as vertical integration. 1 of our acquisitions now is our best supplier. So we're leveraging SAP and our digital core to move forward with that. The 2nd wave really is technology and innovation And we're addressing that in a couple of different ways. We invested in an R and D lab.
We're moving forward with an IQ center. Customers can come in and touch and feel our products. But most importantly, we're moving forward in putting some money into connected goods and getting our systems connected. It's here where SAP Leonardo will help us.
So you're doing a lot of acquisitions. How important is it for you? And how quickly do you need to integrate these companies On to one platform?
Great question. Moving these companies onto one platform is paramount of importance. The true value that we get in harvesting what we've invested in the digital core is getting everyone onto one platform and moving forward with that. The ironic thing with that is that some of the same competencies are still needed. So consistent processes helps us with operational excellence, common data.
In the past, we reported on data. Now we're using those data to make real time business decisions.
Excellent. And you talked about Leonardo. So in your world, in the packaging world, how are you using Leonardo and some of those innovations to really create the differentiation and move fast.
So for us that's pretty special because we're a middle market player in the packaging space. We really need to innovate to stay on top. And we're really looking at that in 2 different ways. It's transparency of data of what we're receiving back from systems And then leveraging that from a services perspective, getting that data to be able to help us keep customers up to keep systems running and that benefits us because we sell more product. The second wave of that is really consumption.
So we work with a partner channel. These partners know our end users as well as we do. And really it's using data to then feed back into the systems for reorder patterns and eventually feeding that back into our ERP system for to place purchase orders.
Excellent. And you recently replaced your CRM system with Hybris?
Yes. You mentioned earlier the sales force and CRM. In our world, our sales teams don't really like CRM. We had an arguably standalone CRM before that wasn't being used, so we weren't getting any value out of it. Now we have Hybris and cloud for sales and it's really driving consistency
across the platform and it's being leveraged.
We have the form. I mean, it's being leveraged. We have the anywhere, anytime availability that's helping drive adoption. And we're really getting Excuse me some value on that space.
So S4, Leonardo, Hybris?
We have SAP Cloud Platform that we're feeding data back to. We have Business Objects Cloud that we're starting to work through. You have Concur. So we're a growing company that's really partnering with SAP to use bits and pieces across the suite.
And get the synergies across the Correct. Thank you, Jeff. It's so great to have you. Appreciate you being here with us today.
Thank you.
Okay. So I'm going to talk to you now, Todd. DoTERRA is an incredible company with great purpose focused on health and wellness. I'm obsessed with All of your products and the essential oils, they're incredible. So, talk a little bit about where you all are in your journey.
You've got, I think, millions of people, right, who are selling your product, who are out there in front of customers. Tell us a little bit about your business model and how you're using SAP?
DoTERRA means gift of the earth in Latin and it really for us what we see is Consumers are adopting this wave of interest in natural health and wellness solutions. And that means a lot of growth for us. And that growth is happening here and around the world. And as we grow around the world, we need a platform that will support that growth. We've had to put that platform in place.
We're only a 10 year old company. So we've had to put that platform in place in the middle of adding several $100,000,000 in new business a year, we've put SAP in place underneath that business, which has been great for us.
And 5,000,000 people are using SAP. So you're the folks who are out there selling your product?
Yes, we have So 5,000,000 customers, some percentage of those customers are actually also sharing the products with other people. It's kind of That we were kind of doing the gig economy before the gig economy was called the gig economy, before Uber was around. And really what it is, is we allow people to become enthusiasts about essential oils and health and wellness and to get involved. And Hybris is the platform that we use to engage them for both ordering and for enrolling the products.
And how important was HANA in that decision to you in terms of the platform?
So HANA is just underneath everything we do. We're running S4. So HANA is underneath the ERP. HANA is underneath Hybris. HANA is underneath the CRM, the cloud per customer CRM that we use.
And HANA for us It allows us to have the entire business as Bill said on end to end on one database, which is really, really unique, right, to be able to go from order to all the way through to fulfillment and financial analysis and reporting all in the same database. It's been powerful for us and HANA performs really well.
Excellent. And I'd like to talk a little bit more. I've read a lot about your commitment to co impact sourcing, the quality standards you use. Can you explain a little bit about that?
Yes. Co impact sourcing for us is as much about giving back to communities as it is about getting quality oils. To us, I think what's most important is We source from over 46 countries. When you have plants that result in these essential oils, they come from 46 countries around the world. Most of them are developing nations.
And many of the economies can use a lot of help. We impact tens of thousands of families annually through the work that we do in these communities. But it also allows us to get the highest quality essential oils that no one else can do. 86% I think of our essential oils are sourced uniquely to doTERRA. We go to parts of the world where we know that the oils are the best.
And SAP allows us to run the forecasting and supply chain logistics to be able to understand what we need and where we need it and get it there.
So your overall portfolio of SAP consists of?
Well, we run S4HANA, obviously running on the HANA database. We run Hybris Commerce, doing over 1,000,000 line items a day, both order entry and fulfillment on HANA. We run Hybris Cloud for Customer. Obviously, we use Hybris also for Business Intelligence. So pretty broad suite of your products.
And you're growing internationally very quickly as well.
Yes. We're like 65%, 70% international growth. So it's pretty brisk.
Well, it's a great company, a great culture, because I personally experienced it and the growth that I've seen Out in Utah with your employees and with the product has been wonderful. It's an honor to work alongside you and have you as a customer. Thank you so much. It's great
to be here. SAP has been a key partner for
Thank you very much. Speaking of growth and big customers, my time, Whirlpool, an iconic brand, right, continuing to grow, continuing to reinvent. You've had quite a journey With the company, tell us a little bit about where Whirlpool is headed.
Yes. Whirlpool, for those who don't know us, one of, if not the largest Appliance manufacturer in over 100,000,000 homes. Our brands are Whirlpool, Jenn Air, KitchenAid, brass temp and console in Brazil, if there's any Brazilians here, another big market for us. We're I mean, for us, it's all about product excellence and speed to market, changing the nature of our product, winning the digital consumer journey and then reinventing our value supply chain, we think, is really important to how we're going to choose to compete. We made some big acquisitions in China, and we made a big acquisition a couple of years ago in Europe of a brand called Indusit, also very important for us and a great place where we used SAP candidly to it was an opportunity for us.
We had some older landscapes. We stood up a new greenfield landscape, which you don't get many opportunities to do as the CIO and a 100 plus year old firm working in a green space is not often a choice for us, but It's a great opportunity for us to stand up a new instance and really take best of best out of the 2 companies that we had and roll them into really a new operational backbone, I think, for the future. And one of the first things we did was went straight to the cloud with IBP and had a demand signal consistently across that set of countries in EMEA almost immediately. So it was a big step forward for us.
Mike, when you and I And I remember because you and I spent a lot of time on the people aspect as you were moving to S4 making sure that as you went digital, kept the focus on people, human, because you know that the growth that you were going to need and the focus was going to require your workforce to be engaged in a new way. And you put us through the paces. I remember it well.
Yes. We had an interesting product selection process With our business partners in HR, but we're well on a journey with success factors and we're live in the U. S. We're currently implementing in Asia and Brazil that a point about having a global footprint and a global partner really matters to us and then we'll follow that with EMEA. Yesterday, I mean, interestingly enough, sometimes we talk a lot about integration and it's just very practical at times and I think we lose sight of that.
I was in a steering committee on a different product yesterday a different program yesterday that we're implementing and it became important what was our as we try we have 70 different manufacturing and engineering centers around the globe, and we were looking at how we optimize the deployment of engineers against products and product development as we try to get those to market more quickly. And it became important to know where do I have what skills and what capabilities and what part of the world and the success factors help us do that.
So
the integration just really matters. And all of our landscapes, we recently upgraded to HANA, and we see great benefit with that platform, but one of the biggest risk I saw when I joined Whirlpool was just simply our core operating platform was not what it needed to be for the future. And I described that at least in our roles like breathing. We're all sitting here having a great meeting, have great conversation. We're all breathing and we're not even thinking about it until the second that you can't.
And it gets 100% of your attention. And Upgrading these landscapes allows that to run like clockwork, so we can focus on all these other spaces that are really new and different for us as we move from being a largely product company historically really to a consumer company where we're going to be much more intimate and much more embedded into their homes. So I mean, believe it or not, your dryer wants to talk to your thermostat and you actually want to talk to your oven. I mean, who would have thought that?
Yes, right. So Mike, you talk about that platform. How important is that when you think about the data, the connections, IoT? I mean, Was that part of your thinking in terms of that platform?
Yes. At the end of
the day, I mean, we'll be able to track everything from concept through to deployment in the home. And we'll know how people are really using our products. It will help us drive up quality in those products. It will help us do Different use cases, special cycles for special fabrics. One of the great things about being in the appliance industry, I just learned more practical things than I ever thought Possible.
I know how many times you can improperly wash a garment and the color begins to fade. I know that not only because I've learned a lot of work, but my wife has pointed that out to me a time or 2 also. So the connecting all of that and truly Being embedded in homes, we believe ultimately is a competitive differentiator for us.
And Mike, you talked about kind of winning the consumer And you're a Hybris user. Talk a little bit about your experience and how you're using Hybris?
Yes. We believe the one of the big opportunities for us is almost all shopping begins online as we all know. Increasingly it's going more and more direct to consumer. We're still largely a business to business player today. But we really needed the opportunity to both upgrade our capabilities on our B2B platforms and upgrade our capabilities in direct as we start to look at end to end business models and it's hybrids that will help us do that.
In fact, May 1, just in time for Mother's Day, Just in time for Mother's Day, May 1, we'll come up with a new KitchenAid platform that we'll launch on May 1. So everyone needs a stand mixer for their wife or Mother's Day.
KitchenAid is an awesome brand. So real quick, Mike, when you think about your broader portfolio, I mean, you spend a lot of time overseas all the different parts of your business. Every time I talk to you, you're usually in a different country. So kind of broadly, as our other panelists describe, If you could just summarize kind of how you're using SAP across other areas of your business maybe that we didn't talk about?
Yes. Probably easiest to say if SAP is not running Whirlpool is not running. So all our core operating platform on SAP, HANA, Hybris for our go to market strategies is very important to us. We've got Concur running for all our travel and expense management. We talked about success factors a little bit earlier and they're all The points around integration and all that has to integrate and the point Jeff was making about what despite all the cool stuff process matters, Data matters, master data management matters and these tools let us do all that.
Well, I think this has been a great conversation. And I talked about customers and what does that mean? And it's really having customers who are willing to lean in, share where they're going from both a business and a technology direction, so that SAP can really help maybe in ways that our customers haven't yet seen and you've been a great example to kind of showcase some of those new areas and really show SAP across many different industries, many different lines of business. But I think every all of you have in common the synergies across the portfolio. So It's been an honor to have you as our customers and to have you here today.
Thank you so much for joining us and joining our audience. Thank you. Thank you. And now I would like to hand the next portion of our afternoon over to my esteemed colleague, our CFO, Luka Mutic.
Thank you. Thank you, Jen. Well done. Really inspiring customer journeys. I think that's always the most important thing at the Capital Markets Day next to, of course, the financial update, which I will be happy to provide.
Now if you're going last before the Q and A, of course, as always, you're facing the challenge to keep the attention level high. Last year, I tried it out with the Super Bowl. Now obviously, that is too far behind us. And also the result, if I'm honest, was not entirely to my liking, so I won't use that example. I thought about something different.
And therefore, here's the call out to all of you who are following the Chinese calendar, which means Happy New Year. Indeed, it's only 3 weeks ago that we have crossed over from the year of the fire rooster To the year of the Earth Dog. Now you will be asking yourself at this point where is this guy going with all of that. I will tell you, I've been studying the Chinese zodiac a bit. And what they said about the year of the fire rooster actually was that it's supposed to be a year of resolve and achievement.
And when you think about the year of the earth, Doug, the qualities that are supposed to win in this year are actually all about reliability, honesty and trustworthiness. And this is, I think, a very fitting theme for Markets Day of SAP. Why is that the case? Because as you know, since a number of years, we are now on our road to fulfilling the financial commitments that we have given out to you at the outset of 2015 as part of our midterm financial aspiration. And indeed, we have executed with precision, with commitment, with resolve and with the right achievements, all in line with the honest commitment that we have been giving to you throughout that journey.
If you think back,
we have often raised our financial commitments, and we have always kept them. Across the cloud, where we have been operating on a CAGR of around about 30% growth rates now for the last few years, actually even preceding the 2015 time frame. And actually, our commitment stands To even further accelerate this growth and keep that momentum at 30% growth rates all the way to 2020, And to talk about a semi secret to you, of course, there's going to be a life after 2020 as well. How are we going to achieve this? Well, very easily with all of the innovation that you have been hearing about from all of my esteemed colleagues, we have Now a very important inflection point that a number of organically developed SAP Cloud assets are reaching the chasm to really go from hyper growth mode from lower base to continued hyper growth at a much higher base.
That's the case for SAP Cloud Platform. That's the case obviously for S4HANA Cloud. That's the case for our CEC Cloud portfolio around high risk cloud for sales and the other accompanying solutions. It's the case for our Analytics Cloud solution, a solution that I'm really very proud of because we have co innovated a lot about the capabilities of this solution. Gellert is here from within the finance and the organization and many other solutions that are now seeing the advent of a really, really big baseline business that we will further extend and that will bring our growth rates up to the 30% for many years to come.
We have visibility into a very robust pipeline. And actually, the forward looking indicators of last year point to continued growth. We had a very strong growth of our backlog, 38% growth to €7,500,000,000 We closed exactly the 30% cloud bookings that we need to sustain our growth rates in 2017. And clearly, from our visibility perspective, growth opportunities are tremendous in the cloud. But it does not stop there.
We continue to have a business portfolio that allows us to grow on the total revenue side at superior growth rates to all of our traditional competitors. And this is, of course, a function of the fact that we don't only have a fast growth cloud business, but that we have a highly complementary incremental business in the core as well. Our stickiness in the core remains unmatched. We have extremely high support renewal rates. And with solutions like S4HANA, we have heard about the 80% plus of installed base customers that we still have an opportunity to convert.
This is continuing to be a growth engine for our core business, While, of course, other parts of the portfolio are migrating to the cloud, it will absolutely remain a source of strength for our core business as well. And finally, we have been talking about the commitment to sustain growth in operating profits all the way through our cloud transformation, And we have always met those commitments. But now is the time to capitalize on the scale that we have already achieved in the cloud, transform that to an over proportional contribution in absolute profit from the cloud business in the next few years, While working down the levers that we have to increase operational efficiency, increase the gross margins in our cloud business and thereby Achieve profit contributions in the next few years that are in terms of growth going to materially surpass the growth rates that we have seen in the past few years and by that, naturally, result in margin increases for the company. And I will lead you through the key levers and where we will see the opportunities to expand profit and margin in a minute. But let me first come back to the growth trajectory.
Because in 2018, as Bill has said, we are reaching a very important inflection point in our business model transformation. As we had indicated all the way back in 2015, we will see the advent of a situation in which the cloud revenues for the first time surpass software license revenues, despite the fact that we have done remarkably better in on premise licenses since 2015, since the point in time where we originally made that commitment. And therefore, you can also see that the trajectory in cloud is extremely positive. Of course, in the next few years, this amplitude of growth trajectories in the cloud will further accentuate itself. And therefore, in 2020, we are looking at a cloud revenue ambition that is already at the level of, for example, the biggest cloud applications company that you know of today.
And of course, after 2020, those growth rates will continue a commensurate consistent level. And therefore, the cloud business will be in a relatively foreseeable time frame the biggest absolute revenue contributor, not only surpassing software licenses, but even surpassing support revenues, not too distant beyond 2020. Now, does that mean that our core business will suffer? No. As I've said, It is to a very large extent very complementary and incremental to our ever stable core business.
Yes, we have an implied guidance for core licenses as part of our 2020 ambition that is pointing to low to- mid single digit declines. Guess what? We have had this kind of implied guidance for the last 3 years. And still, we have been doing remarkably better than that every single year. We had positive growth Is there a fundamental change in the business behavior that we are seeing?
No, absolutely not. That's why I have here In this chart, the range of possibilities. It could well be that also in the next few years, we are continuing to hold the waterline, and we continue to see stable or even slightly increasing software license growth, we want to give a prudent ambition that leaves the room also for our people in sales to do the right thing for our customers, to transform them to the cloud wherever we can. But at the high end of the market, With the most sophisticated largest enterprises, it will be a hybrid reality also in the future, and this will leave a lot of room in areas like the digital core, but also digital supply chain and manufacturing spaces to continue to grow on premise. That's just very important.
I wanted to get this past and behind us so that you don't think that there is a change in the fundamental market environment we are seeing here around the core. The next important thing to notice as well, and I've been showing this slide, I think, now at least the 4th time on every Capital Markets Day, We continue to push heavily and very successfully for a more predictable business composition. We are well on track to achieve our ambition to have 70% to 75% of our total revenues in highly predictable revenue sources, that is port revenues as well as cloud subscription revenues. So if you are shareholders that prefer to sleep well at night, buy into a very strong growth engine, but that is nevertheless highly predictable, then SAP is clearly the share that you should consider owning if you haven't owned it already. Now let me come to the margin trajectory and to the key components of this.
There are actually three areas that will compose the inflection point and the increase of our margins going forward. 1 is clearly scale. We are reaching now the point where we will move in a time frame of 3 years from a 16% share of cloud revenues to almost 30% share of cloud revenues as a percentage of total revenues. Actually, that picture when I showed it the first time in 2015 was at 10%, 11%. So that means We have almost tripled the relative weight of cloud revenues as a percentage of total revenues then within a period of only 5 years.
That scale in the cloud gives us now the opportunity through a much higher renewal base and therefore much more profitable renewal revenues that we can drive to drive down sales and marketing expenses as a relative share of revenues, I will come to that in a minute, and achieve through that scale a substantial expansion in the profit contribution of our cloud business. The second important element is mix. And when I showed this slide to you 1 year ago, the perceived composition of our cloud revenues among SaaS PaaS and Business Network Revenues, which have a much higher gross margin versus Infrastructure as a Service revenues around the HANA Enterprise Cloud was round about 85% to 15%. Now we see changed market dynamics. First of all, we have seen a very, very strong growth rate in 17 and believe due to the substantial contribution of our organic cloud assets as well that these growth rates will continue to be superior in our SaaSPaaS business.
At the same time, through working with the hyperscale infrastructure providers, our partners, and enabling them to take on more workloads on the infrastructure as a service level, we are actually able to utilize our ecosystem much more effectively, which helps us in 2 ways. 1st of all, in lowering the CapEx needs that we have for our own business, but also in providing and distributing more workloads for them to own and drive on behalf of our customers. And therefore, we Expect now that the relative share of infrastructure as a service revenues within the total of cloud revenues We'll probably end up roundabout 10% and not the 15% that we had before by 2020, which will be, of course, very helpful to the overall gross margin profile of our cloud business. Now last but not least, of course, we have to look for operating leverage, both on the gross margin side, but also in terms of our operating expense ratios. And let me cover this.
We continue to believe that we will by 2020 make a big jump in our cloud gross margins to the lower 70s. How are we going to achieve this? Actually, through three measures. First of all, in the private cloud, we are marching from a highly negative gross margin a few years ago towards 40% gross margin ambition at a lower relative weight, but clearly helped by the great partnerships that we have started build brand has been talking about this that we get at very, very attractive terms access to Google infrastructure, for example, to move into our own data centers, this will be extremely helpful in this respect. In the business networks, we are anyway marching steadily in a business that is very mature and is operating already at high gross margins towards the 80% margin target that we had originally set, Actually, given the trajectory that they are on and given the fact that currently there are one off investments also happening in the business network space because Ariba, one of these assets, is at the moment also finalizing its transformation to a HANA based technology platform.
We should be able to do better than the 80% already by 2020. And finally, the biggest jump is going to occur in public cloud in SaaSPaaS. Why is that the case? For two simple reasons. We had significant investments at a lower level of maturity for a few years to build out our hypergrowth organic cloud assets around S4HANA, around Analytics Cloud, around the SAP Cloud Platform.
Now these solutions are reaching maturity. They are accumulating more and more customers, and therefore, the revenue profile is a complete of a completely different nature than just a few years ago. And therefore, they will be more and more positive contributors to our SaaS PaaS margins. And then secondly, By the end of the year, as we had said, we will finalize the transformation and migration of the premier acquired cloud assets around hybrids and factors towards HANA. And that will result in a removal of significant duplicate costs through the maintenance of duplicate landscapes that we have at the moment still have, which will again also help us on the CapEx front going forward, but definitely will also result in a material jump in the public cloud gross margins.
Now of course, we don't want to stop there and only look at the cloud business. We have and continue to have opportunities to further streamline and improve our cost ratios as well as the gross margins in our software and support business. And in services, we made a big jump. I'm sure you have recognized this in 2017, increasing our services margins by more than 5 percentage points to now 23.5%, which is for a services business certainly a market leading margin performance. Until 2020, we will definitely want to keep this.
We have invested heavily in heavily in changing the portfolio of services that we have available, rightsizing the services organization in terms of skills as well for those services that are still in demand. So fast paced S4HANA transformation services, cloud based implementation services as well as Leonardo oriented innovation services, which by the way come at very high margins, and we definitely want to keep this margin level. On the cost ratios, also some important indications. First of all, you will have noted that in the last few years, we have been investing heavily in building out our sales and marketing capabilities, especially around the much broader portfolio that we have been creating. As Jen has alluded to, We are now streamlining our go to market motions, and we are centering around a restricted set of buying centers, bundling more of the specialized sales competencies in fewer clusters and going to market in a very concerted, intertwined approach with our industry AE organization in the regions.
This will drive substantial efficiency gains that we can have, will result in lower overhead and management costs that we have for those units. We have already seen in 2017 that actually the cost of new business acquisition has been going down quite significantly. Our order entry has been growing in 2017 by 17%. Our sales and marketing expense has been growing by 9%. Actually, in 2018 and going forward, this divide will only get larger.
So we believe that the sales and marketing expense ratio has eclipsed and will in 2018 and going forward trend down. Investments because the transformation has largely happened into new innovation areas, which means that we should not see a further increase of the R and D ratio, but we will, of course, need to keep it stable because Innovation is always going to be the only ingredient to long term sustainable success for a technology company like SAP. And finally, in my own space of G and A, we are starting to utilize the capabilities of Leonardo to drive down cost as well. We've just gone live at the end of 2017 with machine learning, for example, in our shared service centers for areas like invoice matching and cash application with remarkable stunning results in terms of automation increases. And that will result in a situation where we can, with the same kind of capacity Going forward, handle all of the growth, which should result in the G and A ratio continuing to trend down based on the successes that we have already had in the past few years through the transformation programs that we have been running in 2015, 2016, for example.
So basically to bring all of that down, I want to come back to this picture that I've been showing on the last Capital Markets Day as well. Well, I committed to you that 2017 will see the trough in our company level margins and that as of 2018, you will see an increase in margins. All of what we have been discussing today, all of what I have been covering until now in my speech is actually the ingredients that will allow us to make this happen. We have in the past few years had a situation where the mix shifts between on premise and cloud towards a much greater extent of cloud based revenues as well as the investments that we had to take in, in order to harmonize our infrastructures have overshadowed the efficiency increases that we have already had. Now they will come to full fruition, and we will see not only in 2018, but actually at an accelerating pace as of 2019 further margin expansions.
You need to remember that in 2018, There is a quite significant IFRS 15 effect from change in revenue recognition practices that is delivering the 90 basis points margin increase that we are at the midpoint of our outlook guiding for. Actually, in 2019 2020, This effect will dissipate. It will get smaller and smaller. And that means that the underlying organic margin expansion in both of those years will be substantially larger, actually more than twice as large as what we are planning for and what we are seeing for 2018. Now to close out, I want to also make some important statements around operating cash flow as well as CapEx and therefore also free cash flow.
First of all, on the operating cash flow side, you might have been reading in our integrated report that we plan for 2018 for a roughly stable operating cash flow compared to the previous year. This is due to onetime Cash outflows that we expect, especially in the tax arena, in order to pay for the high risk IP migration that we have successfully closed last year, and there will be an exit taxation in Switzerland that will contribute to this roughly flat performance. But thereafter, We absolutely believe that the operating cash flow will track the higher profitability of our business. It's this confidence that has allowed us to also raise our dividend policy for the company in the sense that we want to going forward pay out 40% or more of our net profits as a dividend. In fact, this is what we have done already even without the official dividend policy destating this for the past few years.
The dividend has increased at average in the last 4 years by 10%. This year, we are even increasing by 12%. And this is certainly something based on our cash flow performance we expect to continue to be able to drive. More importantly, we believe that our acceleration on the free cash flow side after CapEx considerations will actually accelerate beyond the increases that we will see in the next 2 years on the operating cash flow side. Why is that?
Because After 2018, the last year in which we have significant further investments, both on the cloud delivery side because of the duplicate landscape maintenance that will conclude in 2018, but also increased building activities because we had significant headcount growth. Therefore, we are investing in new buildings also in our headquarters in Waldorf and in other places. Once this has run its course, which will be the case in 2018, Actually, we believe that there will be very limited, if at all, further need for CapEx increases. Of course, the collaborations with the hyperscale infrastructure providers will help us materially in this respect. And therefore, As we will not grow a lot further above the less than €1,600,000,000 that we expect for 2018, Therefore, the free cash flow acceleration should actually even be higher than what we expect on the operating cash flow side.
Now to close out a last look at our 2020 ambition, because I think it has been undervalued What we have been doing at the beginning of the year, we have been raising our 2020 ambition at the beginning of 2017. And we have confirmed this 2020 ambition, even despite fact that we had material adverse movements on the currency side during the year. So we see that our Organic business evolution and business volume creation is absolutely able to even weather the storm of such adverse currency effects. Beyond 2020, we are starting, of course, to model what to expect, and we'll update the markets when we announce full year earnings for 2018. But just to directionally think about what to expect beyond 2020.
First of all, you can continue to expect a fast growth cloud business that will become an ever increasing piece of the overall pie. And therefore, also the continued growth in total revenues even beyond 2020 should absolutely be very, very consistent and commensurate with the superior growth rates that you have seen in the last few years, which have been clearly outpacing competitors. Secondly, as we further scale our cloud business, as the one off investments into the convergence of our cloud infrastructure and our technology platforms are over, we don't see similar onetime events anymore, which means that also beyond 2020, We clearly see a consistent further progress on the margin side, and we will have commensurate and similar progressions on the margin side than the ones that we are planning now between 2018 2020. So to set us up for Q and A, I'm convinced and very confident that SAP, from a strategic positioning perspective, has never been in a better place than at this point in its history. You have heard from our customer panel that SAP has reached a strategic importance for our customers, driving end to end business transformation, developing new capabilities, making sure that they run with maximum efficiency and maximum reliability that is unprecedented.
Therefore, we have a great opportunity to follow these most successful brands in the world on their journeys to digital transformation and drive superior growth for SAP as an outcome of this. This is all based on organic innovation. In the last few years, as Bill has said, we have not been doing significant Acquisitions solutions like the Data Hub that Francis and Bernd have shown previously have been completely based on SAP's own engineering competency, but will substantially change the way how customers can use data as a strategic asset and really operationalize it as a source of competitive advantage. We deliver all of this through a highly predictable and very sustainable business model that is going to be the essence of what makes SAP relevant in many years to come even beyond 2020. And we have already made the key investments to get us there and now are looking to harvest those fruits in terms of increasing margins and exponentially increased profit contribution in the next years leading to 2020 beyond, starting right here with the year of the earth, Doug, in all honesty and reliability, and looking forward to taking all of you with us on this journey, be part of a winning company, be part of SAP.
Thank you. Yes. Thank you
very much, Luca. I think now we have time for some Q and A. We get some chairs here on stage. And I would like to invite Jen, Christian, Bill, Bernd to join Luca here on stage for the final Q and A. As a reminder, for those who follow the event over the web, we have also the opportunity to take questions by e mail.
Please do send the questions by e mail to investor. Sap.com. But I think there's so many attendees here in the room in New York. We should start with a question here in the audience. And I think our question goes first to Dorek Arviz from the Canadian Pension Fund.
Can you get the microphone here right In the middle.
Hi, thanks. I'm Derecka from the Canada Pension Plan. I suppose I've got 2 questions. The first is probably to Bill and to Jennifer, which is You gallantly talked about your customers and we've spoken to a ton of your customers and simplicity is not something that often comes up When you're speaking to an SAP customer about the SAP product, that's not necessarily a negative, but you've mentioned it a lot today and it's the first time I've heard it in a long time. And so can you talk to us honestly about what that journey is for your customers to get to a more simplistic SAP product?
And the second question is probably to Jennifer, Bill and Luca. And I apologize for doing this in a public forum, but I keep on asking this question. You talked about it today, which are your sales and marketing expenses relative on a cost per employee basis, which are much higher than some of your core peers. And there could be good structural reasons for that. And I'm pleased to hear you talk about a reduced trajectory for that.
But can you talk to us about where they can go longer term without limiting the growth of your business?
Sure.
Maybe I'll just start off with the big picture on RunSimple, and then Jen, you can pick it up with the customer and all the colleagues. It was I believe it was right around the 2011 SAPPHIRE timeframe where we came out with RunSimple. And the research leading up to RunSimple was all around corporate complexity. And What we looked at was research that basically said the most intractable productivity challenge of this generation is actually complexity itself. And that it was imperative that companies run simple.
And you're probably interested in like what progress have we made on that front. One of the things that you have to keep in mind is SAP solves some of the more difficult challenges in the enterprise. So when you think about an end to end demand meets supply chain and all the enterprise coherence that goes into something like that. It's a little bit more sophisticated than let me take an SFA tool off the cloud and rent it. So I think some of that is we always wanted to basically do really sophisticated things for companies, but make it as simple and as easy to consume as possible.
So here's a summary that I would give you. 1, design thinking and innovation has fundamentally changed The context of our customer relationship pattern. Design is basically around desirability, feasibility and viability. Do we have the dream? Do we have a tight plan to achieve it?
And does it make financial sense? We bring that enterprise coherence to the equation, and I think some of our customers talked about that single view of the consumer and the back end sophistication to meet that demand of that consumer. Since 2010, we went from a company that really had nothing going on in terms of cloud revenue to this year, the cloud superseding the core in terms of net new license sales. And by definition, many of those line of business network or even now our ERP consumption in the cloud, as Frank said, is incredibly more simple you're implementing a system for an enterprise in, let's say, 4 months instead of, let's say, 1.5 years. The other thing I think is really underrated, and Bernd, you may want to talk about this also, is the SAP UX.
And Fiori is a not just a more beautiful user experience, but it radically simplified the steps in the work process by which an individual using a screen, whether it's a mobile screen or a desktop screen, the motions they have to go through to accomplish a task. So big picture, I think the brand was right. Complexity is an intractable problem. It's a race without a finish line. We made enormous progress with the UX, with the cloud, with the consumption, with the ease of implementation, but by no means is that work ever done.
I mean, we're going to keep pushing on all fronts in that regard. I don't know if you want to give some Specific from a customer viewpoint, Jen?
Sure. I would touch on 2 areas from a simplicity in terms of how we touch our customers. 1 is when we sell to them. And the second is most importantly, how do we make sure that the adoption is happening quickly and successfully. So You heard me talk about really how we're simplifying the sales motion, so that we don't have a bunch of different people representing all the different pieces of the portfolio.
And you're You're right. I think that this year that's a change. You'll see that simplicity and our customers will feel that. And the focus will more be on their business challenges versus talking about a lot of individual products. And I think that will continue to continue the success we've seen in getting those synergies when we talk about an overall line of business or an enterprise process, that's when we bring the best of SAP, because we get those synergies.
So you'll see that on the sales side, you'll see synergies and I think the customers will feel that on the sales and engagement side. From a post sales side, our customers you can look at on the post sale and we see our customers are engaging with SAP across many board areas. If they're using SuccessFactors as an example or maybe whether somebody on our services side is supporting them with an engagement. We're doing the exact same thing. So over the course of the last several months, we've really been working across each of our Board areas to make sure that we almost redefine the experience that we want our customers to have, so that we can both create more of that one phase of success from SAP to helping our customers and engaging with them, so that the customer understands number 1, what's the value I should expect that you promise me during the sales cycle?
And how are you SAP going to bring that about? Number 2, who's the value custodian who's going to really wear that jacket on behalf of so I don't have to go to somebody over here for this or somebody over there for that. So this is a big focus for us as a game here to make sure that we've really looked across all the different support factors, bringing those together in a more harmonized way, so that culturally And engaging with our customers, we move from lead to reference. And that's really the culture change that we want to embody through those actions on both the sales side and the post sales and the go live side.
Yes. And maybe just quickly on that topic of the sales and marketing expense ratios. First of all, I would dispute a little bit that SAP is kind of here the high flyer in terms of sales and marketing expense ratios, there are certainly some companies in the cloud that I could tell you now and I don't think I need to mention that have substantially higher sales and marketing ratios. Nevertheless, it's indeed the case that our sales and marketing ratio has been going up. That's a function of simply two factors.
First of all, our portfolio has gotten lots a lot broader than in the past. 10 years ago, if we're honest to ourselves, yes, there were some new dimension products, but we were essentially selling one single solution, which was the SAP Business Suite. Now we have a much broader portfolio, which needs specialization. It needed this specialization, especially at the outset of the transformation that we have been doing. Secondly, I would argue that we have been growing our business at certainly superior rates.
So others that have decided to work on a narrower scope and kind of coerce all of their go to market activities into a narrow scope of interaction with customers might have had a little bit lower sales and marketing expense ratios, but certainly have not been able to match our growth as well. Now what we are doing, What Jen has alluded to as well is, 1st of all, we are streamlining those structures in a sense that we are addressing the same buying center with one concerted view. We had in the past 13 separate specialized sales organizations. We're bringing that down basically to 6. That's what Jan has mentioned.
And that, of course, will help not only in terms of cost, but more importantly, actually in a streamlined and very effective approach. And then there are other efficiency levers that, of course, we will pull that have to do also with the migration towards a far greater share of our cloud business as a part of the total. And the more we have recurring revenues from renewals from our cloud customers, the more our sales and marketing ratio will come down because for those renewals, as Jen has said, we are incentivizing our sales force, but of course at a lower relative weight as opposed to the net new bookings. So that will inevitably lead to an improvement of the sales and marketing ratios over time.
Thank you. And we take the next question here from Phil Winslow in row number 3.
Hi, guys. A question for Bill and Barrington, maybe All those could weigh in too. Bill, you laid out sort of the history of SAP in the 90s. It was about the breadth of the suite and the vertical depth as well. If I think back to when you took over 8 years ago and the transformation we needed there, embrace the cloud, modernize the data platform and then embrace new business models.
When you think about as we transition here from let's say run simple to run smarter, lack of better term, to win with Leonardo, When as you mentioned with AI, ML, because lots of people are talking about this. What's the factor here? What are those handful of things that you have to do right to win this next leg from call it an operations and strategy perspective and then Biren from a technical?
Sure. First of all, never lose sight of who the boss is and the boss is that customer. And the alignment of that customer in their industry to truly deeply understand their business processes with a single view of their consumer, so the customer's customer, and how to radically automate things on an end to end basis. And that's the breadth, that's the depth, that's the industry domain expertise and the global coverage model, because one of the things that really has helped SAP is the fact that we are so global. And when we have competition that comes into our swim lanes, they tend to do better in a concentrated geography.
But once the level of complexity gets bigger in each account they serve or the number of countries they try to cover, That's when things start getting real dicey for them. So industry, end to end, building the ML, the AI, the IoT, the blockchain capabilities into the application. And then recognizing, and I hope you all are getting the memo on this one that it is a HANA world now. And we have to assert our will to make sure that every company in the world has the opportunity to run simple like SAP does. We took a 15 terabyte environment and now it's less than 5 and we run the whole company on SAP's platform.
And when you think about what else we've done to serve the world, Think about a digital boardroom where you can ask Hana any question and have an immediate answer on the fly. Just think about how that improves the executive dialogue, the decision making, the collegiality between external directors and internal management boards. The fact that we're now focused on real information, real facts without all the complexity and the heaviness that goes along with running most companies. So I think to summarize what has to go well, we have to continue to keep that ever consistent core front and center, keep the main thing the main thing. Number 2, keep the cloud assets at the line of business, the business network and the enterprise level growing fast, get big fast everywhere.
Number 3, an upside opportunity for CRM, And upside opportunity for multi tenant public Cloud4HANA is huge tailwind to the first couple of things that I mentioned. And then finally, just keep this workforce inspired. I There's been no sales force in the world that performed like this sales force. There's no development organization that I'm aware of that has done more in the last few years on the organic innovation side. So we keep our people really inspired, really happy and totally immersed in what's important to the customer and never let bureaucracy seep into the halls of SAP, won't be just fine.
You want to add?
I think, Phil, very important question that when with the move to the cloud, and Chen perfectly shared this with you, We have made a big step towards RunSimple and across all the dimensions of the company. Now coming to intelligence, incorporating intelligence into the processes. It is fundamental that we leverage what we have done with HANA as a platform in simplifying the entire fundamental architecture across the portfolio in our products. Why? And we have tested this internally in our labs.
If you take the same data set, if you take the same algorithm and apply this and we did it in finance to a classical ERP on a traditional database and apply this to finance in S4HANA, the quality of the results of an MLAI algorithm is massively higher. Why? Because it's a much simpler architecture. So first of all, the learning curve is faster, But as well, the accuracy of the result is significantly higher. So and then the second point comes, There is a potential risk that incorporating ML and AI is introducing again complexity and some of the players in the IT market do this by taking out the data, having an intelligent platform sitting somewhere, Then you have insights and then you ask yourself, how do I translate now these insights into tangible business results?
While we have chosen the path, we want to embed that intelligence across the Leonardo portfolio into our platform, into our cloud platform. So yes, there is an initial training phase of any algorithm, but then it's embedded across the portfolio. So bringing intelligence is benefiting from all the investments we have made in the past. So, important that these 2, let's say fundamental philosophies are kept stable. Otherwise, the risk is that we again go back to where we have been 10 years ago on a perception that we are solving complex problems, but we are as well hard to deal with and happy that we have overcome this.
Okay. And the next question right in the middle from Keith.
Hi, thank you. It's Keith Bachman from Bank of Montreal. Bill, I wanted to start with you, if I could. You've mentioned CRM a few times as a new market opportunity. Obviously, you've recently moved into that market with some M and A.
How do you put boundaries on scope of how you're thinking about the broader market opportunities with CRM? Then I have a follow-up. Thank you.
Yes, my pleasure. Thank you for the question. We've been in the CRM business for a long time, and we have a sizable CRM business. But now with the assets We have at our core, Cloud for Customer. You heard some of our customers talking about that today and they really like it.
It runs really well. We have an organic marketing product that looks fantastic with a beautiful user experience. And we can expand that into the channels that need to support the marketing product. And that's how it grows big. We have now with GIGEA, the customer profile And the GDPR compliance is going to become a lot more important in the next 60, 90 days and we'll make a lot out of that at SAPPHIRE.
We have Hybris, which is the world's leading omnichannelecommerce platform. And when you think about configure price quote, the whole lead to cash cycle, now you're really getting into the psyche of the sales professional Because when they do a proposal on a product, they do a proposal on a service, they are now configuring that on something that's SAPs With the Calidus Cloud, it's the market leading solution, and it's also tied very heavily to their sales compensation. So now we have the chessboard filled up with the assets that we needed. When you can apply that to this idea of the single view of the consumer and then the idea of fulfilling in the back end. For example, if I'm thinking about that KitchenAid dishwasher as an example, I'm going to be real interested in what the consumer is doing social.
I know that they're going to shop it on the Internet, whether they buy it on the Internet or not. They're definitely going to be shopping it on the Internet. I know the direct to consumer is the seamless way to get the transaction done. And I know all the history that has in dealing with me is going to come in real handy as I configure price quote and make a real time offer to that consumer. But most importantly, Maybe they're opening up a new house in North Carolina and they not only want the right product at the right price, but they want it delivered where they need it to be delivered with very special requirements.
This end to end is what we do. And I think, and I really have believed this for a long time, Commodity CRM is SFA. Commodity CRM is like a marketing campaign associated with a sales promo. When you get into business scenario, direct to consumer, channel marketing, leveraging an ecosystem, applying geospatial. Now you're talking CEO language.
So with the SAP Cloud Platform and all the assets that we have, we're in a pole position to create a different argument within the enterprise at the CEO level, because as they digitize their business on an end to end basis, Now we have the assets in CRM to go head to head with anybody else that's out there. We got a lot less to lose in CRM than they do.
Thank you. And you had a follow-up?
Yes, sir, if I could. On HCM or success factors in particular, I think U. S. Investors perhaps have the opinion that SuccessFactors is falling behind and it's a 2 horse race between Workday and Oracle. Perhaps proposed or promoted by those vendors, but can you talk a little bit about how you see the growth of HCM within the broader SAP?
And how are you leveraging the cross sell opportunities within your broader installed base?
Sure. Yes. So first of all, I was the CEO that acquired SuccessFactors and partnered with Lars Dahlgaard early on and SuccessFactors was clearly the leader and especially in talent management at that time. And fast forward to now, we have 2,300 Employee Central, which is the full Human Capital Management Suite, which is more than Workday. It is true that there was some bumpy execution along the way on success factors as it got bigger and to scale it at the SAP standard, but that is behind us now.
It is also true, and I give you my word on this, that there are very large customers out there, consistent with Gartner Research that have more than 5,000 employees that are very unhappy with the competitive alternative to SuccessFactors. So if you think about the SuccessFactors business right now in Asia Pacific, in Europe, in the Middle East, In South America, it's growing faster than Workday by a lot. In the U. S, it is a battleground, but it is still growing in mid teens double digits. I believe now we have the leadership, the delivery competency And the battleground set up for large establishments, in particular, with 5,000 or more employees, especially with all the negative references that they have where they get into large employee type organizations to start really asserting our will.
So I would keep an eye on the billings of the competition and the billings growth of SAP, And we are very confident in our position with success factors against Workday. Now if I was Workday, I would basically think it was an intelligent marketing strategy to say that they never see SAP and financials in the cloud, which is an interesting paradigm because as Frank and Bern said, Gartner just rated us number 1 with Cloud ERP, which is the S4HANA cloud story. But if I only had financials, I might say I never see SAP in financials. And if I really had a war every time I had to go against SAP and Human Capital Management. If I was the other guy, I might say I only worry about the other one.
So Don't confuse clever Silicon Valley, 3 card Monte with what's really going on. That's my recommendation. And believe me when I tell you, they don't want any part of us. And unfortunately, When these kinds of comments come out, they're going to get all we got. And that's a lot.
So bring it on.
We have next question here from Michael Ruiz, and then we move again towards the back.
Thank you. Luca one for you. Looking at the new sort of breakdown of the 2020 cloud targets SaaS and PaaS is obviously more important. It's got to grow mid-thirty percentage points at least. Can you talk a little bit about what's within it today?
So how important is success factors within the run rate? And looking forward to 2020, what will be the predominant contributor? Will it still be SuccessFactors? Will S4 be the number 2? Will it be cloud for customer?
And then Bill, just in terms of the sort of management targets, there's some more insights in this year's report and accounts. It looks like revenue growth or bookings growth in the cloud is 75% of the targets and profitability is 25%. Why is that the right ratio? And why is cash not one of the targets that you set yourselves?
Okay. I will quickly cover the first question. So first of all, as you know, SuccessFactors as of today is such The big part of the base of what we see in SaaS Pass is that if what Bill just said would not be true, there would be no way to achieve those growth rates also leading into the 2020 target. So again, back to the point, let's please don't be confused by some statements that you get from elsewhere. I think the numbers prove that, of course, SuccessFactors is a nicely growing business and will continue to grow nicely.
Now in terms of the race for number 2 by 2020, That's a very interesting conversation. I think from a market size perspective, there is no doubt areas which we have an opportunity to grow and establish a very, very strong position. So those 2, I would say, will be in a very close race. But let's not underestimate the cloud platform, please, Because the cloud platform is following an entirely different business model. Here, we're talking about a pay as you go based business model That will depend on the activity that we can instill in the ecosystem to build on top of the platform.
And if that activity is leading to success in our customer base, then actually we can look at a hockey stick that can be tremendous. And actually, therefore, while I see relatively high likelihood that the CRM portfolio And as for HANA, we'll be close contenders to that 2nd place in 2020. If I look beyond that, I would definitely also put some dollars on the SAP Cloud Platform.
Yes. And on the compensation, Michael, That was the final one? Yes. So I think look, I think the bottom line is we're a growth company. And the growth is going to happen in the cloud.
And if you can keep that ever consistent core, which I'm very confident that we will, and you can continue the very fast growth in the Cloud, and incidentally, it is organic. We're doing all the right things, And we have enough central control on the way the profitability is going to be achieved in the company. So I think keeping the site on the growth, keeping the site on predictable sustainable revenue streams, especially the cloud is the right way to incentivize, Because the profit, if we do all the things right with the customer and with the growth story, the profit is going to come. And we've done it by design. So I think that will be the more important part in terms of the heavier lifting to get what we want.
And I think the operating income and the margin improvement is going to come, Just as we laid it out today, very confident now by the way.
Quite frankly, the most important driver for that focus On the bottom line and on efficiency increases for simplification is sitting here on stage. Christian and his role is going to be instrumental of getting us there. And he has the full buy in of both the executive and the supervisory board to drive really an end to end process based simplification across the company. And that will leverage a lot of synergies That we can still draw. Maybe Christian, if you want to say a few words around your agenda and your priorities that would make it very tangible.
And these are much More important levers than any kind of compensation tweak.
Agreed.
So thank you, Luka. And also and Michael coming back to your question, I guess, And now when we talk about the growth ambition and the margin ambition of this company, it's very important to And where does this company stand with regard to its journey to the cloud? And as Bill outlined before, we acquired a lot of great cloud assets in the And in combination with our organic developed cloud solutions, we are today probably the cloud provider with the broadest SaaS portfolio in the market. But of course, we have to acknowledge that with every acquisition we did, we also increased the number of technology stacks inside SAP, which has driven complexity for our customers and also for our internal operations. Now that's why it was so important to make the decision to migrate all of our solutions to SAP HANA, where we invested big time the last 2 years.
It was also very important And now to move
all of our solutions to
the SAP Cloud Platform, because now we are at the point where we can, 1st of all, build the foundation for the Intelligent Suite. And as history has shown, I'm absolutely convinced the Suite will win Because with the suite, our customers can use now our great LOB assets to run their business processes end to end, and we see this already inside of SAP from the front office to the back office. With SAP HANA and Analytics Cloud, we can already steer and measure our business real time end To end, with Leonardo, we infuse this now into our products, and we heavily co innovate with Rob and Bernd and now to make our processes more intelligent. So that's one major factor where I see major growth. And when it comes to our margin and our cost margin in the cloud, now while we are moving all our cloud products to SAP HANA and consolidate our solutions on the SAP Cloud Platform, we are able to reduce our technology stacks, which really drives much more scale, especially in our cloud delivery.
Now we are able to standardize our processes when it comes to set up and the provisioning of our tenants. We can bundle our buying power on the hardware side. Now it's really the point where we can build this intelligent cloud suite, we can transform SAP. And I'm absolutely sure, as I said at the beginning, the intelligent cloud suite will win. And it will help SAP to drive the top line and the bottom line.
And Michael, one thing to build on what Christian is saying, which is absolutely spot on. There's a manifesto that exists at the Executive Board and the level 1 leaders cross functionally across the entire company. So everything that Christian just said has been agreed to and if you will, as a condition of employment. So it's not like there's any debates on this. This is the way it's going.
And therefore, to finalize the answer on your question, if this is the way it's going and it's a manifesto and it's been decided as a condition of employment, you can pretty much predict Just scientifically where the math is going to go on the margin and the operating income as long as you get the numerator right. That's where we're at.
Thank you. Let's move to the next question. I see one in the back here from Walter Pritchard.
Hi. One for Luca, one for Bill. I think 2 short ones. Luca, I know you haven't closed Callidus yet. I think your guide for this year doesn't I think one sort of surprise some we're hoping you take off the table is just the impact of Callidus this year on your margin trajectory.
So if there's anything you could say about that that'd be helpful. And then for Bill, on CRM, I think some of us a lot of us cover still Salesforce, the company. We understand you have a very clear advantage with Hybris In the CRM suite where you can tie that back to your digital core, is there anything else you could point to in your CRM strategy that gives you a similarly strong linkage into something that you've had as core competency for very long that might further convince us of your ability to gain some share in that market?
Maybe just quickly on Callidus. First of all, of course, it's hard to exactly measure this because we don't know exactly when it will close. But suffice it to say, it will be a minor event from a margin perspective for two reasons. First of all, it's just simply not large enough. And secondly, it's a profitable company on a non IFRS basis.
And therefore, the margin impact of this acquisition will be more or less negligible. There will be a minor one, but the thesis and the trajectory that I've outlined here will not change in a really noticeable fashion due to the acquisition.
Yes.
And then maybe your second part of the question was in the CRM portfolio. Definitely, we are market leader with commerce. But what we identify in the market is The business is going towards an electronic commerce, e commerce and as well what I said before towards individual products. That means with the acquisition of GIGEA and the ability to identify individual profiles, That has an impact on the related parts of our customer engagement portfolio. So, we just launched last year, the high risk marketing product.
Now with that insight, you can do personalized marketing. And we see here great growth already despite the fact that the product is young. But as well when it comes to cloud for sales and cloud for service, This has an impact as well on the service business. Why? Because it is not just that companies is coming more from the service business.
I mean, there are some famous examples even in books published. The printer industry was the first one, Then coffee with the Nespresso capsules, but you can go across many industry, the impact on service is getting significant. So we see really nice growth rates in cloud for sales and service. And then what Bill said before, the competition in sales force is stopping there. But when it comes to delivery, imagine a personalized product without the ability to have the related supply chain and if it's a manufacturing industry, the related manufacturing where the semi finished product is carrier of the customer order information and then you need to be able to link that product exactly to the destination address.
That is a scenario Salesforce cannot offer today. And we see here that in that combination, our portfolio is exactly addressing the need. So would not say it's an individual capability itself, but it's the comprehensiveness that is mutually driving the growth on the cloud, which Luca perfectly illustrated. And this is where a lot of this cloud growth is coming from.
Yes. And I would also not make this all about SAP versus one other company. This is a very large addressable market. And if you take that single view of the consumer and that individual and personalized view of the world that Vern just gave you And just think about SAP's domain expertise in industry, our global footprint and the unbelievable power of HANA. There's one other thing that you have to add.
I think the more interesting part about Salesforce's business has been their platform play and the ecosystem that they've built around it. So now that we have the necessary assets in CRM, I think with the SAP Cloud Platform and the ecosystem play where others will build their innovation with us, for us and go to market next to us is going to make a very, very big difference. I talked to a major manufacturer in the United States. They have gotten consistent price increases. The price was up 65% on an 18 month basis with the competitive alternative to the point where they're now looking for options.
Will be one of those options because there's immense commoditization on the core SFA related stuff. The real innovation is going to happen on the platform with new applications, the machine learning, the artificial intelligence, the new single view of the consumer, scenarios that are relevant by industry, and then you're going to have the data and the fulfillment. And that's where we're going to come in heavy. So my take, we're a different company than we were the last time we took a big run at CRM. And don't forget, when we took a big run at it back then, we were an on premise CRM company.
Now it's going cloud. It's going platform. It's ML, it's AI, it's IoT. It's all about end to end. And I think that is where we're going to create some real, real interesting opportunities for SAP and most importantly our customers and shareholders.
Thank you. So we have Ross MacMillan here in the back.
Ross MacMillan, RBC. Two questions. First, just on S4. Frank Cohen commented that he was looking at 3,000 or so migrations in the plan this year. If you add net new that would be a significantly higher number moving to S4 this year than last year.
And I just wanted to make sure that I'm interpreting that correctly And that there's no consumption model change that you're anticipating in the mix? And then the second question is for Luca. In your 2020 targets, you took down your public cloud gross margin number. But I think you've talked about that as being an evolution and that It has still the path to kind of get to that 80% number. Maybe you could just talk a little bit about the time frame for that?
Thanks.
Maybe that's very quick, that second question. 2 years. Wanted to be done in 20 I think now it will be a 2022 target to get to the 80% for SaaSPaaS. Yes.
And to build on your Four questions, but Jen, you're happy to comment on that as well. Yes, when we talk about the conversion numbers, we are definitely targeting that from our installed base, we are convinced that we can get 3,000 customers according to plan this year and migrate them towards S4. And a lot of it is in the pipeline already. Actually, the pipeline is bigger than ever before. And driven, of course, by a very high interest in S4 Cloud.
Now your second part of the question was, is it only installed base? No. We see significantly interest in net new names. So customers that have not been consuming the business suite before, and the ratio has not changed yet. So we see it as roughly fifty-fifty.
If we go over the previous quarter, sometimes it was 45% and it was 52%, but it's roughly a fifty-fifty equation. And this makes us so confident that we have the right choice, we have the right product that is delivering the value. And now what Frank was talking, By embedding the machine learning and artificial intelligence capabilities into that product, We believe that we have a superior value, and that is driving specifically growth in the cloud. As my comment before was, is it possible to deploy these capabilities in an on prem data center? Yes.
Does it make sense from an economic perspective? I would make a big question mark as The first wave into the cloud was clearly driven by CapEx to OpEx. Now You need to operate a machine that is having a TPU or from NVIDIA a TPU, And you need to be able to operate this not just one day, 24 hours a day, 7 days a week, 3 65 days a year with mission critical business processes. And that gives us that confidence that Next to the installed base, we will have that other part of net new names significantly driving the business. And Jen,
I think we have time for 2 more questions here from the audience in New York. And I We'll get the microphone to Adam please.
It's Adam Wood from Morgan Stanley. I've got 2 if I could. Just 1st of all, on the mix between the on premise license business and the subscription business, you've talked about much more S4 public cloud happening which should be subscription. Talked about analytics moving to the public cloud, CRM increasingly a cloud factor. A lot of that would have been bought on premise over the last 2, 3 years.
So could you just help us understand why there's the confidence there that license business doesn't weaken further as those product areas move more towards subscription buying? What's the driver In the on the license side? And then secondly, it's interesting that there's so much net new business coming in on S4. I assume a lot of that is kind of high end mid market. But some other partners say that in the mid market what customers want is more of an integrated suite versus the S4HANA core and having to consume the line of business applications.
Could you help us understand what the solution is for the mid market and lower end of the mid market? And why SAP's strategy there is from a Cloud ERP perspective?
Yes. Maybe I'll start on the confidence around the license. Well, it's because The S4HANA opportunity is huge at the high end of the market, and we still have a huge share of the installed base to be migrated. And now they have the breadth of S4HANA capabilities that allow them to do end to end transformation. We have basically completed the functional scope of the preexisting Business Suite on the S4HANA architecture.
And that had been a process over the course of the last 3 years. So what we now see is that you can really drive end to end transformation where previously the processes And the programs were more directed initially at the finance line of business. Therefore, the average deal size to go up. And there are Additional areas that are complementary like in the manufacturing and digital supply chain space where we're also growing double digits. It's not only S4HANA as the lonely kid on the block.
There are still some other opportunities where we continue to have growth in on premise. So that's why to predict At what point these forces will level out is extremely difficult. That's why we are taking a prudent approach. But we believe actually that the speed of Sfour transformation over the course of the next 3 years back to those additional customers that Frank has mentioned will actually even accelerate.
You want to talk about the core therapy and then the virtual suite?
Of course. I mean, and first of all, your statement is right that the Huge amount of the growth in S4 is coming from GP, upper GP and then as well large enterprises. While don't forget we have still in the lower GB still SAP business by design as an integrated sweep by definition. So we are addressing both segments. And beautifully, we see in both areas growth.
So it is not if somebody thinks it's S4 Cloud serving the segment from the largest companies in the world down to the smallest with whatever 15, 20 employees. Now they are definitely looking for a much simpler an integrated ERP in the cloud. And even the big companies, I was personally visiting 1 in Europe 4 weeks ago, And they told me even, don't make the by design product comparable to S4 and the virtual modular suite. Why? Because we enjoy the simplicity.
And if we don't be misled by our guys in our country because they would love that you bring more and more of these capabilities. So the moment, in this case, it was a subsidiary, it's getting bigger and bigger, then we need to talk about migrating that to S4 Cloud. And we have the conviction that with that clear separation of lower GB, we have the by design product In upper GB up to Ali, we have the S4 Cloud. We have in both categories beautiful growth areas. And what just want to repeat what Bill said.
There are economies of scale, which we can leverage. Just think of the huge amount of new regulatory things that come up. We have done already a service on the cloud platform, which is called tax as a service. We have roughly 1,000 engineer who are day in and day out only making sure that across the portfolio, all our products are globally fulfilling the regulatory compliance across the world. Now imagine that the more we can provide these capabilities as a service on the cloud platform, Tax as a service was the first one which we built.
We can leverage these capabilities not just in by design, not just in S4, but as well across our targeted LOB specific assets. And therefore, it is not a black and white answer. But if you are asking Is SAP addressing the entire market from the smallest company up to the largest with one product? No, we still think we need 2 product offerings in order to address the entire market segment.
The question was, are we committed to supporting by design long term. And the answer is S4HANA is our flagship product. That is our flagship product. By design is something we have and continue to support and it continues to grow. Vern stated it very well, it fills a very important niche in the market and we'll continue to fuel that.
Customers like it, they want it, they're happy, go for it. But the reality is, Taking your question one step further also, Adam, S4HANA is that ERP solution. And there are both best of breed possibilities and best of suite. I thought it was great when the customers were up here and they were basically talking about, I have Espoo Ahana and I run Concur from my travel and expense. I run SuccessFactors from my human capital management and we have a user experience and a virtually integrated suite on a common data platform and a common platform where all of this is a suite.
So I think you get the best of both worlds. You get the best of breed at the line of business or the network and you obviously get the best ERP system ever created in the history of the world And you get this now completely virtually integrated on a common platform and a common data model. Wow.
Yes. And you see this force at hand. When you take a look at the big competitive replacements that we have seen towards the end of the year, 10 years ago, it would have been completely unthinkable to do such a holistic placement at a company of the size of a Standard Chartered or an Emirates Airlines. It is only because we are the only ones who have these broad capabilities and that we are leading in all of those areas and we take care of the integration that we actually win those businesses. And those are certainly not Smaller mid market businesses, these are among the largest institutions that exist in their respective industries.
By the way, that's a great example, Emirates, in terms of next generation CRM versus sales force pipelines and leads and forecast calls. We're now talking about next generation business modeling for the perfect customer experience, including the financial implications of what seat they get, what treatment and what service provision that they get, including customizing the trip just for them. So for example, if I'm in Coach, but it's my birthday and I want a bottle of champagne, in that customer experience online, I expect you to deliver that Emirates. So you see that personalized CRM down to that individual consumer level calling the shot is where it's going. It's not anymore going to be a system of record that companies are going to lay out big bucks for and on endless price increases because the razzle dazzle is there.
This is going to be, I want you to help me take care of my customer. So it's the customer's customer, It's mass customization at scale in a highly personalized way, which requires a common data model, a common platform and an unbelievable end to end capability where you can satisfy the perfect experience. That's the new CRM, That's the one SAP intends to take over.
Thank you. One final question from Kirk and then we Go over to the reception.
Thanks very much. Kirk Materne with Evercore. Thanks for your time today. I think all of you have talked about the cloud platform being a pretty big opportunity when you look out over the next few years. Can you just talk about, I guess, One, how do you start attracting those ecosystem partners, both SIs and ISVs?
Are there incentives? Are you going to leave open vertical markets for them to go develop on top of, I'm just however you want to explain that. And then I guess maybe for Jennifer too, as you think about sort of verticals In general, is there any as you sort of take the conversation up to the CEO level, is there anything in the go to market model that needs to be changed or tweaked as you start sort of up leveling the conversations around business solutions? Thanks.
First of all, it's a great question. And Due to time, I could not address it when I was talking, but I'm really thankful that you asked for it. What we have done is we were all Sitting together with the SIs, we were segmenting the industries we are playing into categories, service industries, manufacturing industries. And then within these clusters, identifying individual industry capabilities. And we were very open and transparent saying, okay, Accenture, where do you have the domain expertise?
Gemini, where do you have it? Deloitte, where do you have it? Even in some areas, we segmented it by regions and markets. And now assuming that We have all the engineering power to deliver end to end solution until the nitty gritty industry specific things. No, we don't have and we never had before in the business suite.
The difference was in the business suite, these SIs were adding these capabilities, sometimes as add ons, sometimes as modifications into our system make it very hard to consume new innovations. Now we have committed to them that we rather build APIs and enable with the basic foundation these industry specific capabilities as additional add ons on the cloud platform, which can be seamlessly added to the core. And by this, We have then helping us to drive accelerated adoption and sales. And The message I can share with you, when we had these meetings with all of them, they were all massively increasing the load, the number of people and the financial commitments towards SAP, which made us very confident that we can address With the help of our strong partner ecosystem, that accelerated growth. And it is not just that we want to serve them, we need them And they need us.
So it's mutually benefiting.
And if I could just build one thing, we have SAP IO, which is a whole startup community where we help not only fund, but partner with and provide a platform for young companies, aggressive entrepreneurs to build their future, their business. And we're going to make this highly available to them. And there'll be a number of ways to do it, including incentivizing them. But I think that's going to be a major move in the CRM space we've been talking a lot about today. Jen?
Yes. I'd say, I'll use the word industry again and build on what Vern just said. When we have conversations with the C suite, they're looking for a point of view on where within my industry and my should I be focusing for differentiation and disruption? What do I need to be thinking about? And so, Vern talked about we've got great partners.
And these partners have invested pretty significantly in building out Leonardo scenarios. I mentioned just our largest size have built out 100 of these accelerators by industry. The work that we've done with Mala Anand and her team in building out accelerators across retail as an example. These points of view are really, really helpful as we go in and we talk to the C suite. Say the second thing is, I'll give you an example.
So a really large retailer, who is a customer and they're putting SAP in across S4 everything else. And as we're in having conversations about the enterprise, we find all these other areas where the platform can get them really quick value along the way. In this case, their bakery division had tens of 1,000,000 of dollars of waste every year. That was an area very, very quickly. We could identify, hone in on, create an accelerator to address that, put some of the machine learning intelligence around that by industry and give them a very, very quick win alongside of the broader So we're seeing a lot of that happening across all the different industries.
And that's where our sales folks really have an advantage They've got the experiences we've got with Leonardo and the partners are just cranking out these accelerators across the different industries. That makes a difference.
Well, thank you so much. This concludes the Q and A part of our Capital Markets Day. And we'll now continue with the investor reception, which will take place on the 48th floor, which is 4 floors down from here. Thank you. Thank you very much, everybody.
Thank you.
Thank you.
Thank you.