Good afternoon, welcome to our Capital Markets Day 2015. Thanks for joining us here in New York City, the second Capital Markets Day in two years. We are, in the meantime, used to this special Capital Markets Day weather. Monday, heavy snowfalls, Tuesday, sunshine. A colleague of mine said yesterday we should actually rebrand the event and call it Capital Markets Day on Ice in the future, that's probably more for the cocktail hour later on. What I'd like to do at the beginning, share with you the agenda for today. We'll kick it off with a presentation of our CEO, Bill McDermott, on SAP's strategy and vision, how we expand the addressable market, how we reinvent the core, our leadership in the cloud and in the network. We move on to a financial presentation.
As you know, on January 20th, we updated our midterm financial targets, I know there is a huge amount of interest to understand the underlying business model and financial model. Luka Mucic, our CFO, will talk about how both business models within SAP, the core and the cloud, will contribute to the operating profit expansion of SAP in the next years through 2020. We move to the innovation side of the house. Innovation is at the heart of the company. You probably saw the press release this morning on S/4HANA, one of the most important announcements we have made in our history. Bernd Leukert, the board member in charge of R&D, will walk you through the announcement from this morning, will explain how our applications increasingly leverage the value of HANA.
I think a classical element in the Capital Markets Day is the customer presentation. I know from all your feedback that you found the Conagra presentation last year extremely valuable. We are very fortunate having two very important customers today here on stage. Hans-Ulrich Engel, the CFO of BASF SE, BASF, the largest chemical company in the world, Alan Matula, the CIO of Shell. Both of them will talk about their long-term strategic relationship with SAP. We move to the business network, we have Steve Singh on stage, the, let's say, the newest member of the global managing board. I know from all the discussion with the investors, the business network opportunity is one of the underappreciated elements in our story, Steve will share with you his vision for this particular element in our strategy.
At the end, we have all executive board members on stage for a final Q&A. After the event, we would like to invite you for a cocktail hour. This is about Capital Markets Day on Ice. We hope that we can continue the discussions then. I have a couple of housekeeping items before I hand over to Bill. The event is webcast on our investor relations website. Later on for the Q&A, please also send us questions by email to investor@sap.com. We'll make sure that all the slides of the presentations today will be available on our website for download after the event at 4:15 P.M. approximately. Finally, after so many years, I still have to read this because I haven't learned it by heart, it's the safe harbor statement, I read the short version.
Please note that except for certain information, matters discussed in 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 expectations. The factors that could affect the company's most future financial results are discussed more fully in the company's most recent filings with the Securities and Exchange Commission. That was my brief intro. With that, I hand it over to our CEO, Bill McDermott. Thank you.
Thank you very much, Stefan. I don't know about you, but I just don't think anybody reads that safe harbor statement with quite the same passion as Stefan. That was moving. Inspiring. Thank you, Stefan. I'd like to welcome you all here to New York Stock Exchange. Today's been an amazing day. We launched, as you may know, a very important product today. We'll talk about that a little bit later. It's almost to the day my fifth-year anniversary as either co or sole CEO of SAP. I must say, I'm incredibly honored to be with you and also to be in this vital and enduring financial institution at the New York Stock Exchange. I think this will go down in history as a really important moment for SAP and a leap forward for the enterprise software industry. I really believe that.
Let's talk a little bit about the addressable market. It was 2010. I remember putting this strategy together in the boardroom of SAP. I remember the conversation like it was yesterday. We basically said we have a great core business. We're the market leading ERP company. We lead in applications and analytics. It was $110 billion U.S. addressable market. We were a really solid company. At the same time, we didn't want to just take the core for granted. We knew that we had to actually triple our addressable market to be a growth company. That we had to establish a compelling vision to help the world run better and improve people's lives, to inspire our employees.
Because we saw the rise of the middle class, and we saw the millennial generation only using the mobile device because that's what they were born into, we made a bold move at that time to buy Sybase and really go after mobility. At the same time, we knew HTML5 was the way to go, and we believed in securing those devices and running really pretty applications on the mobile. That became an operating principle in the strategy. The second piece was this idea of data doubling in the world every 12 to 18 months. The Internet of Things, all these devices coming into the enterprise, creating massive complexity and huge data issues. In fact, as you know, 98% of that data was completely unanalyzed. It was dark data sitting in old school disk-based database vaults. We had to do something about that.
That's why we invented SAP HANA. At the same time, we continued to invest in SAP BusinessObjects coming forward with SAP Lumira to radically change and beautify the user experience. Most importantly, SAP became a platform company, and I think that was key because not only now were we number one in analytics, but we also became the fastest-growing database company in the world. Very important. As you look at this and the moves that we made in the cloud, you'll notice that the cloud not only became the pervasive computing theme in the world, but it also became the growth strategy for SAP. We made a bold move when we bought SuccessFactors. Incidentally, SuccessFactors is and will remain the number one human capital management application in the cloud. We deal with employees from recruit to retire. You'll notice that the Ariba transaction also worked out quite well.
Now you've got companies all over the global economy dealing with digitizing the procure-to-pay process in an automated supply chain, crushing POs and checks and the financial transaction being closed out by an efficient network. We take care of all that. I also think the Hybris move was quite interesting. I tell you today, companies that are in the hygiene business for sales force automation in the cloud are going to feel the heat because customer engagement commerce is the big idea. How do we connect with that consumer on the device, any device, in any channel? Could be internet, could be call center, wholesale, retail, or community. How do we know what they like? How do we predict what they want? How do we close e-commerce transaction? How do we fulfill an automated supply chain?
If you're in SFA and you're in the cloud, you just woke up today to a whole new world with customer engagement commerce. Good luck. As we made these cloud moves with SuccessFactors and Ariba, we also went after the most important growth market in labor in the world to shore up our HCM position and drive the network with Fieldglass. Today, the fastest growing labor force in the world is contingent or temporary labor. It's growing at 40% a year, whether it's the U.S. or even Europe. The question is: how do I recruit these people? How do I make sure they're secure? How do I know the cost associated with them inside and out? How do I build project teams and take advantage of global talent?
How do I disband these teams and make sure that I can run the profitability analysis on my people in real time? Whether you're looking at it from a people perspective, whether you're looking at it from a procure to pay in an efficient indirect materials perspective, or perhaps most importantly, a Concur perspective, where travel and expense is now automated from ground, air, hotel, food, and entertainment, all on a common platform, SAP is the number one in every single category. What's interesting about being the number one in every single category is all these categories now blend together in one business network concept led by Steve Singh for the whole company. Why is that important? Because all these topics are hot in the boardroom, and now we bring a suite of business network assets to the customer.
Today, 75% of the world's Fortune 2000 run on Ariba. We have more than EUR 700 billion running through the Business Network. To put that in context, if you take Alibaba, Amazon, and eBay, combine all three of them, SAP is two times larger than all three. As I think about it from your point of view, in this five-year innovation journey that SAP has been on, we have assembled through organic or M&A means EUR 50 billion in innovation. Now we have all the parts we need. We have an unbelievable core, which I'll talk about in a minute, as it's been reinvented on HANA, S/4HANA. We have the line of business cloud. We have the Business Network. When you think about all these assets coming together, you're finally in a position to help customers radically simplify, change the way they run and grow again.
SAP has all the assets we need now to get the job done. Last year, we talked about our strategy essentially to Run Simple and beat back complexity. Complexity is the enemy of our time. We just took simplicity to the next level. We are running the entire Business Suite on HANA. The Business Suite has now been reinvented and natively built on HANA. The name of this product is S/4HANA. S stands for simple, 4 stands for fourth generation, and HANA speaks for itself. It's the world standard in-memory data platform for this generation, not the last one. Why is it so substantial? Because beyond TCO reduction, which is dramatic, it's also about creating business value for the customer. Imagine your forecast and the accuracy around that, and essentially segmenting the markets, the deals, the flow, so you have a greater outcome with more precise planning.
Imagine if you could close your books 72 hours earlier, just to pick a number. It could be a lot better than that. Imagine the power to reinvent and simulate new business models completely on the fly, and create the boardroom of the future, where the management team sit at a common area, looking at all the operations of the company with real-time data, giving them feedback loops that they can make real decisions on. Game changer. Also on S/4, we created a simple and beautiful user experience. It is all Fiori based on HTML5. We know that the user experience was not the strong suit of SAP, but we also have a massive install base, and any time you change the user experience, you have to be quite thoughtful about that. We think now we have the best user experience on the market because it's built with the most modern technology.
We built it with our customers. They co-innovated with us, and what we have designed now is quite gorgeous to use. We now have reduced the number of clicks in the user experience by 70%, and we have over 5,000 customers actively using Fiori since June 2014. All this is driving HANA adoption. Over 1,700 new HANA customers were added in Q4 alone. We now have more than 5,800 HANA customers in the company. We are at scale. There's over 400 new Suite on HANA customers that were added in Q4, and the total of Suite on HANA customers is more than 1,850. We already know it all works. In terms of Simple Finance, it's catching on very rapidly.
Right after it became generally available, we had 40 customers sign up for Simple Finance. By the way, the things that we do in finance, while others are working with accounting, we are doing things that are radically more interesting. I cannot wait for you to see some demonstration of that today. We have six different cloud engines that are going to help us grow the cloud business 7X, seven times, sevenfold, it is a lot, between now and 2020. First of all, HR and SuccessFactors. Employee Central is growing 100% year-over-year. We now have 600 Employee Central customers. We are beating companies like Oracle, which you would expect, but also companies like Workday quite handily. Companies like Whirlpool, Kellogg, Singapore Telecom, and many others have chosen SAP. In finance, S/4HANA, we offer sophisticated functionality in the cloud.
Think about this, treasury, fixed asset management, risk management, all on the fly. Then there is customer engagement commerce, redefining CRM and leapfrogging incumbent players. Cloud for Customer is growing 100% year-over-year or more for the eighth consecutive quarter in a row. We are beating Salesforce. We had 100 wins over Salesforce in the back end of 2014, Deutsche Telekom, TUI, Samsung, Carlsberg, Nespresso, to name a few. We are only getting started. If you want just Cloud for Customer, we want to do the SFA thing and automate the internal hygiene of pipelines and forecasts and those kinds of things, we have that on a standalone cloud basis.
If you want to couple that with customer engagement commerce and completely change the way you run your customer relationship from the consumer in, we have that. We can put it together in one end-to-end value chain. One thing you may find interesting, when we do M&A, we keep the assets, the leaders, the leaders of development. We fold SAP into those companies, not the other way around. We buy the most prestigious asset, the best technology. We keep the people and the innovation. Everybody we bought on the innovation side has stayed with the company because they are entrepreneurs and they like the environment we create. Let us talk about procurement and travel. Ariba indirect application procure-to-pay with AribaPay is now at scale.
I am excited about this because if you ask the customer how much redundancy comes out of the process, they are excited. If you take Concur. This company, I want to be really clear on this company. I am going to show you a demo in a minute. All you need to see is this demo to understand exactly why this is going to be one of the best moves SAP ever did. Does anybody in here like their expense management process? How are you doing filling out expense reports? Aren't they fun? Now you have the ground, the air, the hotel, the food, the entertainment, all on one common platform. Concur puts the S in simple for SAP. They have 25 million users in the cloud.
You're dealing with a company that started 23 years ago, growing at a 30% CAGR with one of the great CEOs in the industry's history, who's actually excited to run a huge business at SAP in Steve Singh. Partner, partner, and we've got huge plans for what we're going to do together. I would like you to see the head of development for Concur. I just was all over the Middle East last week, and everybody that saw this demo wanted one.
Hi everyone. My name is Barry Padgett. I'm the Executive Vice President for product at Concur, and today we're going to take a virtual journey together. I'm going to show you just how easy and how painless travel and expense can be with Concur. Now, our virtual journey today only lasts a couple of days. It goes from Seattle to San Francisco, and I don't yet know the airline ticket that I want to book, but I know I need to book a hotel. We're going to book a hotel, two hotels, one for each night, so I can show you a few different options. I've connected my IHG and my Concur accounts, and what you're looking at here is the IHG site. Now, a Concur profile has been created automatically, and that profile data is what's being sent to IHG.
My negotiated rates are going to show up on the IHG site. What you see now is I've gotten my search results back. The data is going to come back into Concur and be integrated into a single itinerary. I've now booked that first hotel for just one of my two nights. What I'm going to do now is switch from my iPad to my iPhone running Concur Mobile. Now I need to book my air ticket. We're leveraging a combination of my own travel history and big data. The fact that we have tens of thousands of companies and tens of millions of users sitting up in our T&E cloud, we can be really smart about finding a recommendation for you. I'm actually going to use my voice to search for the flights and tell Concur what I want to do.
Flights from Seattle to San Francisco, departing June 9 and returning June 11. Now it's searching for flights, and it's come back with flight results. Now that I've completed my airfare booking, Concur has already noticed that I booked only one night of my hotel stay, but there's still another night that's left open. I'm automatically sent to a hotel search results page to find my second hotel. There's my pricing. I'll hit Slide to Reserve, and just like that, my booking's done. What I have now on my screen is a single integrated itinerary. Let's get our virtual journey started. The taxi's just picked me up and let me off at the airport. The driver gave me a good old-fashioned handwritten taxi receipt.
I'm going to take a picture of that taxi receipt, not only are we going to upload that image to Concur, we're actually going to lift the data on that receipt, the handwritten data, and translate it automatically into an expense report. Now it's time to go back to the airport and head home. Here's a great example of how our partner platform and our ecosystem really come together. I'd like to grab a quick bite and a coffee when I get to the airport. I'm going to go to Starbucks. I'm going to go ahead and launch the Starbucks app. I'm going to hit the Pay button. I'm going to automatically go to the card that I've designated as my business expense card. I'm going to hit Pay. The barcode comes up.
When I get back at the end of the trip, you'll see that the expense is sitting in my expense report automatically. Well, our virtual journey is almost complete, here's the best part of the story. Our expense report is completely filled in. Here we are back at the iPad. As you can see, every expense that I need to take care of from this trip's already been created and is sitting there. From my airfare to both of those hotels, to even that paper taxi receipt, there it is. It's been automatically filled out for me. To end our virtual trip, all I need to do is hit the Submit button. There you go. With Concur, we've made the travel and expense process painless, seamless, and best of all, simple.
Thank you, Steve. Obviously, thank you for a great company that you built, most importantly, thank you for your friendship and your ongoing commitment to SAP and what we can create together. We had a dinner together that started all this off in trust a few years ago. We had another one just before we agreed to do this, we did it in trust and friendship, I really believe we're onto something massive here. This is going to be a big part of the enterprise, the core, the cloud, the network, the extended ecosystem, huge money. Let's talk about the industry cloud and the Internet of Things. What makes SAP is we cut our teeth in industry.
We know 26 of them inside and out, to be able to offer the industry cloud with that domain expertise, the rich install base, and the alliances and the ecosystem is unbelievable. For example, when we made a decision to go into the sports and media vertical, right away, the owners of franchises could see the power of the fan experience. There was the league commissioners that saw the power of connecting with the fan on their website with all their data. There was the apparel companies who wanted to use smart apparel, connected apparel to connect to the device and the athlete to completely change the game. There were the trainers that basically said, "My job is to make athletes better. How do I watch their performance? How do I study their moves? How do I protect them from injury?
How do I help them train better?" There were the league medical staffs that got involved, "How do we save athletes from getting concussions and study those things in real-time so we don't have to rely just on human wisdom?" All this is happening. It manifested itself in the German national football team winning the World Cup when Oliver Bierhoff, who was the general manager of the team, said, "We had a 12th man on the pitch, and that was HANA." We're going to completely change industry, completely make it real-time. We're going to do it in the cloud, and we're only getting started. The next big opportunity as we identify it in Industry 4.0 and the Internet of Things is a $140 billion US dollar addressable market. We're set up for it. We have the core, and we want it.
Somebody said to me, "Bill, help me understand an industrial company trying to captivate this idea of Industry 4.0 and take advantage of the Internet of Things." I said, I'm the executive sponsor for a company that makes very significant engines. What's quite interesting is they make very little margin on the original sale of the engine. On the post-sale maintenance, they make most all of their profit. If they could focus on post-sale maintenance and really do that well, they would radically change the profit profile of their company. Now with SAP HANA in their specific industry, when that machine has a problem, it knows how to predict the fault line and simulate the service call. It puts a call out onto the business network, which is Ariba. It orders a part, most likely from China, at 20% cheaper than they're buying it now.
It's shipped to the quality standards of the consumer. It's delivered ahead of time. The technician that has that unique skill for that unique part on that unique machine is there in advance of the go-down, and now preventive maintenance takes hold. The machine is fixed at a much higher margin profile, but more importantly, the customer never had any downtime. It drives immense loyalty and after-sale because the customer is super happy. All that's being done on a business network leveraging the Internet of Things on SAP HANA. Game change. As I think about the private cloud, and I think about it from your point of view, you know SAP's got its own private cloud, and we invested heavily, and that's behind us. Customers could have choice, and they could have that private cloud in the geography they want it.
Also, we have very important partners that have agreed to the SAP HANA, S/4HANA reference architecture, and they love to run our system in their cloud. One example is IBM and SoftLayer, and there are others. That's the way to expand the core software at a higher margin with a bigger partner ecosystem, and it's all good for the customer. Then there comes this idea of integration through the HANA Cloud Platform, the most advanced real-time platform as a service. There are now 1,200 customers on the HANA Cloud Platform, and we literally just got started. Right, Steve? Customers like Pepsi and OEM partners like Birst and GTS are building tremendous faith in it, and it's going to expand quite rapidly because now we're actually focused on it. The value of the platform is to extend SAP cloud applications and to deliver integration, the integrated enterprise.
Integration is core to the platform. You'll all remember the best-of-breed fiasco after the year 2000, how they may have been best, but they sure didn't breed. We've now hit a new plateau in the cloud where the similar thing has taken place, only this time in the cloud. A HANA Cloud Platform will change everything because you'll have the core. You'll have the integrated line of business cloud. You'll be connected to the business network and ultimately to the Internet of Things and the consumer. Wow. I think about wow, because in every industry, in every market segment, in every corner of the earth, this resonates. That's why when we took you through our growth ambition to grow our cloud revenue 7x between 2014 and 2020, we had great confidence in telling you that.
That's why when we said we'll reach EUR 3.5 billion-EUR 3.6 billion in the cloud by 2017, we had great confidence with that. That's why we said when we'll reach EUR 7.5 billion-EUR 8 billion in the cloud by 2020, we had great confidence in that. As I think about it in summary, new growth engines, Cloud for Customer, Industry Cloud applications, the Internet of Things, the HANA Enterprise Cloud. Put that together with all the SAP assets, we feel very comfortable giving you a 30% CAGR on our cloud business on an organic basis between now and 2020. We're ready for prime time. As I think about the 1990s and the idea of SAP networked the enterprise as a theme, the HR department was connected to finance. The inter-enterprise with the business network takes the conversation to a whole new level.
There are huge fragmentations in the global supply chains in the world today. This is a $10 trillion marketplace, and that's if you just take the Global 2,000 companies. We want that, and we want it now. The SAP network vision is to connect enterprises, people, and devices. Our network strategy is to deliver a network of networks. Ariba for B2B commerce, Fieldglass for workforce, and Concur for travel. As I think about the perfect enterprise, I think about a company that's on the move, the fastest-growing apparel, sports apparel, performance brand in the world. I think about their dream, which is essentially to run real time. How do I run my business in real time? Well, now you can with S/4HANA. They want to run networked. How do I take advantage of the cloud and the commerce between companies in a network?
They want to run simple. The radical simplification of the SAP suite, the complete crushing that it will put on the IT stack of the 20th-century architecture. The value that it brings back to the business is why Run Simple was our vision. I'd like to give you a perfect example of Run Simple in motion.
Hi, Bill. Thanks so much for having me. Hello to everyone at the SAP Capital Markets Day. I'm really sorry that I'm not able to be there with my good friend. More importantly, incredible partner in SAP. We've got our own earnings tomorrow, so we're back here in Baltimore still preparing.
What SAP has done for us over the last nine, coming up on 10-year process we've had of building this company that's allowed us to go from a EUR 280 million business that we implemented to more than EUR 3 billion as our current outlook has us heading today. Meeting Bill McDermott just prior to my IPO in 2005, he was the first person that said to me, "Kevin Plank, did you know that your business has the ability to be a EUR 50 billion brand?" It was the first time that made me think about how truly large our organization could be, but more importantly, how impactful our organization could be. Keeping up with that scale is something that no company can prepare for or plan for.
These are the kind of things you find out and say, "Wow, we need a better solution that can grow and that can scale, and that we can stop thinking about having to re-implement something else." That is probably the greatest advantage that SAP has given us, is this ability for unencumbered growth. Following on with that, implementing a product like SAP HANA, which allows us to get data and information real time, and just as importantly, to anticipate where the ball is going to be, not where it is. That is what running real time means for an organization like Under Armour. Look, this is a company that began as a stretchy T-shirt for football players on field. Very quickly, we realized that baseball players and lacrosse players and soccer players and field hockey players and players of all sports wanted it.
We continued to evolve to meet the needs of our consumer. Well, that evolution is nothing that's going to stop anytime soon as we move into categories like footwear, as we move into things like the digital space, most recently with our end of 2013 acquisition of MapMyFitness, which is a user community of 20 million people that use it for GPS tracking if they're going for a bike ride or for a run. That, in just the last 12 months, has nearly grown by 60%, now eclipsing 32 million registered users. How we take that data of 32 million emails, activity levels, and the understanding of that consumer, and how do we evolve that to help our core business? Which one thing that is written on the wall in my office, don't forget to sell shirts and shoes.
Helping us sell shirts and shoes is where we ring the register. It is our core product. Most companies take a long time to figure out exactly what their shirts and shoes are. We know exactly what they are, and we're going to sell a lot more of them because of the run scale systems that we have from a partner like SAP. We like to say at Under Armour, the only thing that will get you fired in this company is someone who says, "That's the way we've always done it." The fact of the matter is in a growth organization, change is constant. Those that win are those that are in constant evolution of the company that we're going to be. The one thing you find in growth is the complexity that happens as you begin to hit scale.
The biggest question that I have, do I have a team, first and foremost, that can scale? Can my systems and processes scale as well? That's where the implementation of an organization, just as importantly as a computer system, help us. For us, when it came to the systems side and what we wanted to do with our business, there was no, not bigger, but better partner than SAP. When we first brought in SAP, it wasn't us sitting here and saying, "Tell us how our best practices are something that's going to influence what we want you to do with your system." We sat here as an organization and said, "We're the piece of clay.
You tell us how best-run businesses are meant to be doing it, that's what we want to follow." So we basically built a model that evolved to fit SAP, counting on that to be part of the best practice. Frankly, 9 years public and 30% growth, we're incredibly proud of what that's delivered for us.
Under Armour is a growth company, having just reported our 4th consecutive quarter of 30%+ top-line growth, our 18th consecutive quarter of 20%+ top and bottom-line growth. We just celebrated our 9th year as a public company last November. This company is one that is a machine that is relentless in our need for growth, because that's the opportunity that our company has given us. Having systems that can scale with the growth and, more importantly, the opportunity of our business is not a matter of if, it's not a matter of how we're going to do it's a matter of we need people that can actually implement and execute. This is nothing that goes with personal favor or friendship. This is something that says, at the end of the day, we can love one another, but we need you to perform.
Frankly, that's where SAP has stepped up for Under Armour over and over again. If I have one message for all of you at SAP's Capital Markets Day, it's how fast business is moving real time. Look, living in this fishbowl world that we do of what's happening with our companies is that we've built these models, we've built these progressions as businesses that create a certain expectation of what you have. However, I think when you find the real visionaries are those that can continue to maintain that core purpose that they have, understanding what the core is and always bringing everything back to the core, but evolving with the message that's happening out on the world in real time. This world is going digital. This world is getting connected.
The Internet of Things is an incredible reality that we're transforming all of our businesses and moving into what the speed at keeping up with that is, and more importantly, staying in front of it. Thank you very much for your time today, and I wish you all the very best. Congratulations to Bill and the entire executive team. Let's keep running hard. Protect this house.
As I wrap it up, I think that Under Armour is an example of the perfect enterprise. They run in real time. They believe in HANA and the integration power of S/4HANA. They're a company that runs networked, and they believe in commerce exchanging hands in a globally efficient supply chain in the categories I outlined, whether it's people, indirect materials, or travel and expense. They are clearly a company that wants to Run Simple and radically reduce complexity so they can serve the needs of their consumer on that device in any channel, in any community, in real time. That is who SAP is. We are the company that can bring the perfect enterprise to life. We've got the vision and the strategy, and we now assembled all the parts over these five years to execute. Our people are happier than they've ever been.
We just celebrated our employee satisfaction survey, in spite of all the change and transition in this industry, they love our strategy and where we're going. We've never been more brutally focused on customer satisfaction and business outcome than we are right now, whether it's in the industry, whether it's in the geography, or whether it's in development, connecting with sales, connecting with customer, connecting with delivery. The transparency that we gave you in the forecast and also the guidance giving you visibility into future out years underscores the confidence of this management team. This business now is ready to fly. I think S/4HANA did a very important thing today. It basically reinvented the core. When you have a new core, you have about 300,000 new conversations with customers that are going to take place all over the world.
In all those conversations, there's money to be made, not just for SAP, but more importantly for the customer. I think we've priced this right. We have a beautiful go-to-market in every geography around the world, and we're built to last. I'd like to thank you, ladies and gentlemen, for your attention. I'd also like to reinforce with the ultimate confidence possible that Run Simple will change the world, and you saw it today here in New York. I'm excited, we're ready to go. I'll now turn it over to our Chief Financial Officer, my colleague and friend, Luka Mucic. Luka, come on up. Go get them.
Good.
Go get them.
Yeah. All right. Thank you very much, Bill. Good afternoon. What a significant day for SAP it is. As I was thinking about the theme of my presentation, driving effectiveness and efficiency of our business models, I was thinking, actually, my presentation has almost been held already. If I know one thing in this industry that I've been working for now close to 19 years, then it actually is that in this industry, without amazing innovation and without customer centricity, you will not go anywhere. Growth as well as efficiency will be a consequence of those two factors. We have seen amazing innovation this morning with SAP S/4HANA, with the launch, the most significant innovation that we've probably made since decades. You have seen now in the Under Armour example, what SAP is able to pull off for our customers in terms of customer centricity.
You will hear some more excellent examples a little bit further down the road. Nevertheless, let me spend a few words on what the customer centricity and the innovation of SAP will be able to drive in terms of financial outcomes. I hope that's not me and my heart that is pounding here. I'm actually quite cool. Bill has said it, SAP in the next six years has committed itself to be an exponential super growth company in the cloud, growing our cloud business sevenfold from the scale that we have reached already today, being the number two cloud company by measures of revenue, is a significant statement that we are making. At the same time, we have said as well that our core, our software and support business, will continue to contribute through 2020 to overall revenue growth at SAP.
We want to grow our total revenue by close to EUR 10 billion in the next six years, while increasing the efficiency of all of our business models, our different ones in the cloud as well as on-premise, and adding EUR 3 billion, roundabout EUR 3 billion in additional operating profit in those same six years. While at the same time, we are continuously and significantly investing into innovation. Bill has alluded to it in his speech as well. While we steadily increase the predictability of our overall business, because the range of predictable revenues and the relative ratio and share will increase over time to up to 75% by 2020. Wow. I thought about this a bit, and maybe you are thinking about this as well.
How many companies operating at the scale of SAP can claim that in those four dimensions of predictability, growth, operating profit expansion, and commitment to long-term transparency, can say that they are in the same league? Actually, I believe we are creating a new market segment, which I would like to call the RSSG companies, in which SAP is playing. That's a rock solid super growth company. Obviously, when we announce this guidance, we have been faced with some concerns from the financial analyst community, from many of you, from investors alike. Let me take them head on, and discuss a little bit with you how they should be read. Concern number 1, SAP, you have given up your overall operating margin target for the company. Is that true? Yes and no.
What you see in SAP's overall revenue profile is a tremendous mix shift towards the cloud business. By 2020, if you take our ambition, we should be at almost 30% relative contribution of our cloud subscription business over anything else in the company. That means because while this business definitely will return positive operating income to the company across all of the cloud business models that we are driving, I'll come to that a little bit later, and result in significant operating income contribution. Nevertheless, in this high scale, high growth phase, the operating margin of this business will stay at a lower level than our traditional on-premise business. There will be a short-to-midterm negative weight on overall company margins.
Should we therefore optimize our business for the past or the present and refrain from hitting the gas pedal as hard as we can and reaping the benefits of all of the cloud-based innovation assets that we have at our disposal and growing this business knowing that this will be an even better basis for higher long-term returns? We would be foolish if we are doing this. This management team is not ready to do this, let there be no doubt, we have a clear ambition to increase the efficiency and the bottom line returns of all of our business models at SAP, and I will show you that ambition in a minute.
We're not backing off margin targets for our cloud businesses and for the on-premise business, it makes no sense to steer the business overall vis-à-vis an absolute operating margin target, not in this period of transformation. The second concern, is the core business going to go away for SAP? That's an interesting one. We are actually in our guidance modeling a conservative outlook for software license revenues. Why? Because we are assuming unchanged conditions, and we know that in 2014, the emerging markets had a difficult environment. In many of them, which are important for SAP, like in Russia, like in Latin America, actually, we saw negative growth due to macroeconomic conditions. At the same time, of course, there are opportunities in our classical software business, like S/4HANA that you have seen now in the on-premise deployment option.
It is clearly an opportunity that we have to reinvigorate growth there. We wanted to have a cautious outlook. The important point that you need to understand here is that even with an assumption of negative software license growth, we would be growing our overall core business. Why is that? Because of the resilience and the great strength and stability of our software support business. If you think about it, we have renewal rates in our software support business of round about 97%-98%. We had them consistently now for many years, despite the fact that we have been driving a strong cloud transformation since at least three years. Enterprise support today is our absolute de facto standard. In Q4, 99% of our net new customers have adopted enterprise support, which comes at 22% of a support rate.
It means that a customer, for every new license that he's buying, even though it may be less licenses on a year-after-year basis, it still pays more support. That's, in fact, what is happening. Here's an artificial example of one individual customer that acquires, year after year, 5% of software licenses less. Still, due to the fact that these licenses generate additional support revenue, you see the total revenue going up. Of course, this is a simplified example, as it does not consider churn through migration credits and also not, of course, this individual customer is maybe not going bankrupt, and therefore you don't have any churn there. Still it gives you the notion that total software and support revenue would increase, even in light of a negative software license revenue growth. Last but not least, here's the third myth.
In the cloud, you cannot make any money. Clearly, this is not true. In our plan, we consider that we will have an exponential growth of our cloud subscriptions and support gross profit over the next six years, with around about 40% CAGR. We also expect that during the same time frame, we will expand our overall cloud margin by roughly 9%. I will come to the different constituents of this overall result because our business models in the cloud are quite different, depending on whether you're talking about the network, the public cloud, or our private cloud options. At the same time, we also are clearly seeing the potential to further expand the profit in our software and support business.
We actually believe software and support gross profit will grow with around about 3% CAGR from 2014-2020, with around about two percentage points improvement in the software and support margin by then. Altogether, with the rest of our total cost base that we have, that we will continue to optimize for efficiency. We have Run Simple campaigns going on. We will use our own applications, SAP S/4HANA, of course, to drive simplicity across all of our operations. I'll come to that at the end. This will drive a 6%-8% CAGR on total operating profit through 2020. The cloud, especially in the later years, will be an exponential contributor to the same. Absolutely are we committed that we will make money in the cloud, and we will make money across all of our business models in the cloud.
Let me come to those and lay them out a little bit to you because it's important to understand the differences here. We are operating three distinct business models in the cloud that differentiates ourselves from all of the main competitors that we are looking at. We have a traditional public cloud business, mainly around SuccessFactors, our own developed cloud assets like SAP Cloud for Sales, and the other solutions that we have organically developed. This is a classical subscription SaaS model, basically with typically a three-year term, and with annual billing, you also generate pretty high deferred revenue balances. Very comparable with, let's say, a Salesforce or a Workday. Here, clearly, we see the potential to go to at least around about 80% gross margin in this business.
We have the business networks, which is a completely different business model, where we have by far the market leading position, as Bill has outlined, with Ariba, with Fieldglass, and with Concur. A very predictable, sticky revenue stream based on transaction revenues that, once you onboard the customers, typically expand over time. Primarily pay-as-you-go based, but very stable, with the consequence that we have a more frequent transaction-based billing, which leads to lower deferred revenues, but with a very high gross margin as well, at least in the same range as our public cloud business. We have our private cloud business, which probably, if you take a look at it in isolation and would just look at the infrastructure as a service component of us hosting mission-critical applications, sounds not extremely compelling from a gross margin perspective. Here we see a potential to get to around about 40%.
You cannot see this business in isolation. We are driving it to really support our large customers transition to both SAP HANA as well as cloud environments. It is a means for us to lift and accelerate the adoption of SAP S/4HANA, as well as SAP HANA as a technology platform underneath it. You see a lot of cross-revenue synergies, therefore, in other lines of our P&L than in the cloud subscription line, i.e., in software revenues, as most of the customers today, and probably also in the short-term future, still prefer to consume the underlying licenses and traditional model for those applications. This will change slowly over time, that they will also go to a subscription model for this element, which will then, of course, also change the commercials and the overall profitability of this business model.
For the time being, suffice it to say that also this business at these gross margins will return to positive operating income contribution for SAP. It's a fast-growing business. We have invested a lot, especially in 2014. Now we scale this business also via partners, and we definitely will look for further standardization. With SAP S/4HANA, we have an excellent opportunity to drive, at the same time, innovation, while at the other hand, being more rigorous around standardization for our customers in this model to not make it a one-on-one implementation paradigm, but really make it a more efficient model for onboarding our customers to the private cloud. This business, similar to the business networks, also does not generate huge deferred revenue balances because there you have a pretty short monthly billing cycle as well.
In order to make sure that in the future, as all of these business models are growing, you can accurately model our forward-looking business value and volume generation. We are considering to give you, in addition to the disclosures around deferred revenue balances that you're using today to generate calculated billings metrics, also more oriented metrics that are similar to what we are using internally, a more order entry type of billings disclosure that allows you, across those business models, to more accurately visualize what SAP is growing in those different business models. Last but not least, when it comes to overall profitability in the cloud, and I've talked about the fact that the cloud will exponentially contribute to our operating profit contribution while in the growth stage, it will not yet reach the operating margins of our traditional on-premise business.
Let it be very clear, there is a lot of concerns about the cloud never reaching these models. This absolutely neglects the fact that in the cloud, the key components and the key arithmetics of how profitability is building up is completely different. It's actually completely the opposite of what we see in the traditional on-premise license model. We are coming from a stage today in 2014, where we had roundabout a 60/40% share of new and upsell cloud bookings or net new business as opposed to the revenue impact of renewal business. This will change until, let's say, a mature state is reached towards the end of the decade into more direction of an 80/20 contribution of renewal business as opposed to net new and upsell business. What does this mean? It's an exponential impact of the profitability within the model.
The whole issue of sales and marketing expenses, which come up front, basically, and then are negatively affecting the first-year margins of new cloud contracts, is more and more wiped out by a larger share of renewal business where you have close to none additional costs than just the cost of operation of the cloud infrastructure. This is a factor that, of course, will in later years, when you reach an even more mature state and when then growth rates come down from the 30% CAGR that we are projecting until 2020, will even more exponentially kick in. Would we artificially reduce our growth in the cloud to get to this stage more quickly?
No, absolutely not, because we are making excellent money in the cloud, even as we speak, and this will get even bigger the more we scale, and then the effect at the far end will, of course, be even higher. That's the good news about the cloud business model that makes me very confident from a financial perspective as well, that we will have a lot of fun with this business model in the future. Last but not least, I could not end this presentation without spending a few words on upsides because we have talked about a guidance in which Bill has already confirmed that we are absolutely confident in as a management team. This is our guidance that we have devised as the current top executive team of SAP. Of course, we see opportunities to do even more and do even better.
On the top line, S/4HANA is really an opportunity that I think we are only starting to understand now from the initial customer conversations that we are having, from the joint ideas that we are bringing up with customers, how they could use this paradigm shift in how architectures of applications are looking like in order to transform their businesses. This can spur growth in both the cloud as well as in the on-premise business model. Extremely important. On customer engagement and commerce, Bill has said it, I think we are only scratching the surface of getting really painful to Salesforce and the other guys in this patch of the market. We have proven in the last one and a half years that we can scale the business from Hybris exponentially. Of course, there's still a lot of room to grow even further.
The topic of industries, the industry cloud notion, the strategic industries, especially where our relative share of wallet is still relatively low, as compared to some of the traditional industries that SAP has been servicing for a long time, holds a lot of growth potential as well. Run Simple, I've talked about it, is something that we are only now, after we have gone as a whole company on S/4HANA, can now start to recognize. We did this transformation last year. We went live mid of April on Simple Finance after just two months of implementation. Now we are seeing the opportunity, as just one example, to completely empower everyone in the organization for self-service reporting due to the flexible reporting options that are really repatriated into the transactional system landscape.
As a consequence, we will dramatically reduce overhead in the organization that is today focused on providing analytics and reporting for business managers and business experts as a service because that service is there right in the system and can be automatically adopted. There are many other advantages that we can drive from automation with these innovative solutions. Last but not least, we have applied a very rigorous end-to-end TCO focus for all of our cloud solutions now. This is a joint effort that Bernd Leukert from the R&D side is running with Helen Arnold from the IT and cloud operations side, together with services, which is also extremely important. We have a completely new opportunity lingering around, in my conviction, for services in the world that we are moving into.
We need to repurpose services, obviously, which we are doing with our One Service initiative, to really be focused around services that matter for getting our customers quickly into the cloud, quickly to business value that they can reap from it. They will be high-margin services that we can drive, which clearly have an upside. All of those, I think, are excellent news for investors. We have a lot of opportunities to further grow our business in line with our guidance. If we are doing it darn well with all of the assets that we have in place right now, potentially even beyond it. We now need to focus on execution. Again, the most important ingredients are we need to be focused on customer centricity, and we need to be focused on continuing to drive innovation.
We have proven with S/4HANA to you that our organic innovation engine at SAP is alive and kicking and actually accelerating. With that, we will win in the market. With that, over to the innovation master of SAP, Bernd Leukert.
Thank you, Luka. Good afternoon as well from my side. It was July 6th, 1992, when it was a comparable moment, a comparable day. That was when I roughly joined SAP, and I was one of the first developers at that point in time who got the PC. All the others had terminals. It was the switch from the mainframe technology to client-server, and it was SAP who launched on that July 6th, R3. It was a revolution, which now 23 years later, built one of the biggest IT companies in the world. It's SAP, which is a company that is always betting on the future technology. We do not want to be a trusted advisor of our customers, supporting them with technology of yesterday by convincing them that they can build with yesterday's technology, the business model, and as well the business of the future.
It is exactly these days where we again know that a column-based in-memory database will be the future, and it would be wrong not to give a clear signal to the market, today to the financial community, but as well to our customers and to our partners, that we cannot just gradually reinvent businesses. We have to use the latest and the most modern technology. We ourselves have reinvented our products, but I would go beyond. We have reinvented ourselves. We prepared ourselves to be ready for the cloud, for the new business model with the greatest technology, which is HANA as an in-memory platform. It is a new paradigm. It is a moment where we will fundamentally change the IT architecture, but as well the possibilities for our customers in any industry. It's a new technology for a different time.
When you think about it, today's world become incredibly interconnected. It is the data, the content itself, that is the driving force for the next business. It's the digital service that are replacing across industries, physical products. It's an innovation challenge for every company. It's a matter of corporate survival for companies to manage these new connections, these opportunities with digital services. We have incorporated the skills, the knowledge, the insights across many companies into our products, into our transactions, in every process, in any decision. Every company has to consider software as the driving force for innovation. As Bill just said it nicely in the morning, of course, these technological innovations could drive complexity, and we have added that complexity in the past as well to our overall portfolio. This time, we have made it different.
We have built a platform that gives us the ability to innovate, or I would better say, to co-innovate together with our customers, solutions which build the future. We will do this in a way that we will reinvent businesses in three fundamental pillars. Number one, it is the platform itself, a platform that has to be open in order to be powerful. A platform that has to unleash the capabilities of our complete solution offering, as well to our customers, as well to our partners. It's the innovative applications itself that enable the most modern business processes, which customers run today with data insight, but as well go beyond that. Innovate in edges like e-commerce. There is almost no industry, no company, where e-commerce is not a topic, even in very traditional companies like steel.
There is the connectivity where the buzzword of Internet of Things is on the market that will drive simplification of delivering of services to our customers. It is always only successful if these companies as well can reinvent the core. As Luka said it, we ourselves have done it already in order to drive efficiency. Beyond that, the third pillar is the connected network, and Steve will talk about that later, which is a natural extension of any application. Let me shortly go through these three main pillars. HANA remains the center of anything we do, of anything we dream, of anything we build going forward. It is the enabler. When we talk about simplification, you need a platform. The automotive industry has shown that.
Without a platform concept, we would repeat the story as we have done with new dimensions in the past, where we had a stable core with ERP, but where we added innovations in the edges with different middleware technologies, with different platforms supporting these innovations, which ultimately ended up in a complex landscape that added run costs. This time, we have a platform that allows our customers to massively scale, to use the processing power to incorporate insights, analytical insights and reporting in the transactional business for any kind of data, whether this is structured or whether this is unstructured. On top of HANA, we have announced the HANA Cloud Platform as an open platform, an open platform which acts for ourselves as an extensibility concept for any application, whether this application runs in the cloud or whether this application runs on-premise, and it comes with an integration layer.
As well an open platform for our customers, for our partners to extend the standard offering which we have. Very important, when we talk about software as a service, it has to come with the business capability to integrate these innovations with the technical capabilities to have low costs of integration. That most open and modern platform, where we think platform as a service is defined by content and not by infrastructure, allows everybody to build extensions much more efficient than on any other platform that exists in the market today. The integration layer itself acts for us to deliver content for our customers, but as well enables our partners to build content for their extensions. We can build a marketplace, so they can leverage that marketplace to distribute that content and to monetize that content 100 times. All together, it's an extensibility concept.
The user groups, the customers, the partners have been asking SAP for a long time. In addition to that, we have heard from Bill that mobile is anywhere. It would be stupid if we would not add mobile as a service to that platform as well, if we would not add SAP Fiori as a service to that platform as well. We just launched at the beginning of the year, analytics as a service and planning as a service. A dimension no other competitor can offer. There are players on the market which offer solutions for analytics. There are other players on the market which offer solutions for planning. There is nobody else who offer analytics and planning as a service out of an integrated platform. We are just at the beginning of that endeavor, as we see that analytics will not stay on-premise.
Analytics will become real-time, in many cases, with the connectivity you need to drive that analytics out of the cloud. Our complete application portfolio will gain more and more value out of the SAP HANA platform as we speak, but we will continue to stand for the perfect integrated enterprise. Applications that process transactions, applications at the same time have to put any insight that is possible into the context of these applications. The applications have to become, of course, more consumable, more beautiful, but they have to be consumable on any device wherever you are. You need responsive design, you will see later that responsive design means it's the same content, it's the same algorithm, it's the same software that can run on devices like smartwatches, like smartphones, like tablets, like laptops, like PCs, supported by the same technology.
These applications of the future will be data-driven, not just consuming data by input from programs or end users. When I mean that applications become data-driven, I mean that these applications have to be really a decision support system in real-time for any end user, leveraging geospatial data, leveraging unstructured data, leveraging data from social networks. These applications will drive innovation across many industries. Always, we stick to our well-established paradigms that made SAP strong in the past. We honor, we appreciate, and we leverage the investments of our customers into SAP. That means when we launch new products like SAP S/4HANA, that does not mean that we make the path from ERP to S/4. A miracle that we make a Ph.D. out of it. No, it will be an easy move.
It will be easier, let me say it in that way, to migrate from an existing SAP Business Suite towards S/4 compared to upgrade an existing SAP Business Suite release to the next version. The nucleus is kept stable. We just eliminated the surrounding and what was, I would say, physical, what was materialized data structures in the past, has just been converted into easy-to-digest code, giving flexibility to the end user. The integration across applications will stay one of our key competitive advantages, we will deliver all these innovations with full choice. Of course, with a cloud-first mindset, therefore, SAP S/4HANA is announced, is launched today as a software as a service, you can only deliver it to the on-prem world when you build a release or an enhancement package.
That does not mean that we will stop in eliminating customers who want to stay on-premise from that innovation. Let's talk about that innovation S/4HANA as it is really the next big thing for SAP, a few minutes. It is a major advancement. It is a milestone comparable to July 6th, 1992. We have, and a lot of you have asked me that in the breaks already, we have redesigned, we have recoded the Business Suite for S/4 on HANA. It is the start for us for the third wave of IT transformation. You know, the first wave was the introduction of IT systems to support any business process in the company. The second wave for me was the introduction of the internet.
Now the third wave puts the data at the main stage, where the data is the value, the value of the product, the value of the service, which we offer. Not just to drive more efficiency, to drive a new category of business models of competitive advantage for our customers. S/4 is built, has incorporated that intelligence of the data, that insight that you only get if you have predictive libraries in the platform. That insight that a beautiful user experience means we are not just taking an individual screen and making it nicer. It means that we put the individual, the role, the persona into the center of rebuilding the user experience in order to make him the job run simple. This is a true next generation. Based on the success of Business Suite on HANA, where we have, in the meantime, more than 2,000 customers.
Just want to say that word. There are companies out in the market who are proud of having 700 customers. Workday, for example. We have just launched Business Suite on HANA a little bit more than 18 months ago. We have more than 270 customers running on HANA their mission-critical processes. It is a rock-solid platform. It was the moment where we said, based on that rock-solid platform, it is the moment where we can launch the logical successor of Business Suite on HANA, which is S/4. After R/2, R/3, we have now S/4, and Bill explained it very nicely what this abbreviation means. We make the main, the core, the main thing again. That means S/4 is the new default offering, which is categorized based on three things.
Hasso explained this morning in detail all the characteristics, if you want to understand and take three messages with you, it has a fundamentally simplified data model. You see the factors of data footprint reduction here on the slide. It comes in the waves we have built Business Suite on HANA, where we ported, we had the compression factor, where we optimized for HANA. Now with the simplification, with S, we have reduced the data model to the pure nucleus. Number two, it has a full Fiori web-based user interface. Number three, it has a system-guided configuration and implementation. There are wizards in the system that helps you to implement business processes for roles like a project manager, like a purchasing manager. All of this, again, full choice for the cloud or on-premise.
Let me briefly explain why this massive simplification is possible and why a significantly lower data footprint adds economies of scale and makes HANA a platform of choice for the cloud. By eliminating indices, by eliminating aggregates, which have been necessary in the past, otherwise, no end user would have expected a response time. We could achieve that the system itself get massive more flexibility. In the past, with all these aggregates, with all these indices, the system was performing as well, but at the price of complexity, and I would say even worse, at the price of inflexibility. Whenever you want to do a change, mergers and acquisition, internal reorganization, changing market demands, it was a massive effort for a company to adapt to these changes.
Now, just with the example of a financial document, instead of touching, updating, or inserting 15 tables in the systems, it is four. The same applies to purchasing, the same applies to sales, to warehouse management, and so on. As we do not update all these tables anymore, the throughput is massively increased. The only question that remains from my perspective, if customers should go there now is, what are the risks? What are the concerns? If you understand the massive simplification of the data model, that it is easier to integrate in that solution, but it's as well easier to migrate from an existing Business Suite. I think there is no choice for customers than to seriously think about to go to that next version as soon as possible.
As it as well adds with the user experience across 43 core roles, which we support in the Business Suite, a huge step forward for all the users. With the system-guided configuration, it is not just a massive reduction in installation time, it is as well a massive reduction in any change the system asks you due to market dynamics. That all together comes with packages that embed as well our public cloud solutions. We will have a package for human capital management, where, of course, our SuccessFactors solution is embedded and integrated. We will have a package for e-commerce, where Hybris is integrated. We will have a package, of course, for procurement, where we leverage Ariba. All these packages are not just pricelist items. These packages include software and predefined integration content, all delivered as Rapid Deployment Solutions.
S/4 will be the nucleus for all of these packages. To summarize, it's a new data model, a new user experience, and a new configuration, which means a complete overhaul of the system from the top to the bottom. The benefits are huge. Reduced data footprint has massive impact on cost of operations. Data throughput has massive impact on number of instances and number of systems. I just talked to a big German automotive customer who was in process of establishing another ERP instance. Now, since we shared with him the insights of S/4, he will not establish that instance, but rather consolidate existing ERP instances, and reduce cost of operations. Thirdly, I think the massive opportunity to be permanently flexible is a value in itself. If we think about top-line benefits, faster business processes always have an advantage.
It is as well important that you understand that faster as well often means smarter, that you can run sub-daily MRP runs instead of once per day. You can do back-order processing in real time instead of scheduling it. You have analytics embedded. You have a single source of truth. All enables better decisions and faster execution. As well on the bottom line, this massive reduction, this massive simplification enables you to run your existing systems with the existing hardware with a higher throughput, or we can say it in different ways, you can grow your business without investing in hardware.
Ultimately, let me summarize, it is as well an opportunity for you to consolidate system landscape complexity, which was introduced in the past by embedding a CRM, an SRM, a PLM, an SCM on top of an ERP system, and get rid of that landscape complexity which you have these days. Where are we today? We have launched last summer, already Simple Finance as a front runner for us as a testimonial if it works. We have more than 100 customers who are using that software already. Some of them are already live and in production. Others will follow as we speak. We ourselves have been the front runner to show the world that it is easy to use a weekend to go from the Business Suite to the simplified version. Now we have added these simplified capabilities, not just in financial and controlling.
We have started in procurement, inventory management, sales, delivery, customer engagement, warehouse management, all the modules which you know. Fully Fiori enabled. We will have an industry roadmap. Each industry will follow. First, you will hear from the first couple of industries next quarter. Quarter by quarter, we will have that industry roadmap completed. At the end, I think it's just time. I would like to ask then Sam on stage just to prepare before I close and say all of that will be enhanced by network capabilities. My friend and partner, Steve, will join us later, who will in detail explain the huge benefits of the network, which is a natural extension of any application. As in the past, we have optimized processes within the company.
We have optimized point-to-point connectivities, but we have not leveraged the network in the various dimensions Bill have outlined, and the digital content that all these participants of the network can add to the value of an application itself. Talked a lot. Maybe, Steve, you show us what S/4 as a nucleus combined with network and as well with mobile devices can deliver to us today.
Great. Thank you, Bernd. Good afternoon. My name is Sam Yen, the Chief Design Officer for SAP. We talk a lot about simple. But just because we do simple doesn't mean we can't do really complex things. In this demo, I'm actually gonna show a scenario that not only features a simple to use user experience, but also highlights the power of the HANA platform in an Internet of Things type of scenario. That goes way beyond core ERP. In this scenario, I'm playing a pipeline maintenance engineer. As you can see from the screen, this is a water distribution network. If I click on pipeline status, I see that the pipes are actually constantly relaying information about the health of the pipes through the geospatial data that's consumed by HANA.
We could also see the health of the infrastructure, which is about the pipes and the valves. Finally, let's take a look at the actual production overlay. Which not only monitors the current production, but also takes a look at the demand forecast, and automatically predicts, using the HANA prediction engine, that there might be an issue. We could drill down into this alert. I could see that the system has predicted, based on both the demand forecast, but also historical data, that there may be a pump failure in the near future, and that this will impact production and potentially affect some nearby schools and hospitals. I can drill down even further, and the system provides more context into suggested actions, whether to repair or to replace.
We see that the system has both leveraged the Fieldglass network to go through all of your contingent labor to figure out who is the best person to actually service the solution, and also leverages the power of the Ariba network to take a look at all your suppliers and find the optimized supplier for this particular situation. I could, if I wanted to, drill down and do even more analysis and take a look at the embedded analytics because all of this information is not only the real-time Internet of Things, but also is connected back into your enterprise systems and makes that connection for you so you could do that analysis. Okay. Finally, what I could do after this is I could review the details of what I've done, and I could go ahead and complete the order.
For this last part of the demo, I'm going to switch over, and now I am going to, if I could have the ELMO, please. Let's say, if we could switch over to the ELMO. I'm wearing this nice smartwatch. The alert has been sent by the ERP system, and as a service technician on the road, I can go ahead and take a look at my inbox and go into the Fiori application that Bernd has talked about as being responsive. Not only is it available on your desktop and your mobile devices, but also on your wearable devices as well. Look at my business workflow. Take a look at this hydraulic pump failure device that just came up.
Here again, you see the outlay of the part and some of the information about it, and I could go ahead and quickly approve and complete this transaction. Again, the power of an Internet of Things type of example that shows not only the simple-to-use interface, but also the power behind the system. That's the first demo I wanted to show. Okay. Moving on. Bill asked the question: How do we connect with our end consumer? I wanted to show an example of how we not only bring next generation user experiences, not just for the business, but also particularly directly to your end consumer. Let me ask a question. How many people have tried to build something from IKEA? Nobody in this room? A couple people in this room. How many people were left with some parts at the end of your build?
Right. How many people really fear those words, "Some assembly required?" Imagine the next time you're going and buying a grill that you want to put together, we just had the Super Bowl, downloading this SAP application called BILT from the App Store, and looking at typing in grill and finding the product that you have just purchased and now you have to assemble at home. What we've done is we've taken that same 3D visualization technology that you saw that blew up the pipe in the previous demo, and we've created a consumer-based experience that allows you to have a step-by-step instruction manual that tells you exactly what to do to put together this grill. If you go ahead step by step, it'll tell you the tools that are needed.
Head screwdriver and a small adjustable wrench to complete the. Attach two axle bolts to the rear leg set using two three-eighth. Slide a wheel over an axle bolt and secure using a wheel retaining clip. Repeat for other side. Note, ensure the wheels are installed with the protruding part of the inner hub facing the cart legs.
SAP has always done product lifecycle management, but this is PLM from the perspective of the end consumer. What happens to the purchase when it gets into the hands of the end consumer? The warranty information, the support information. This is a consumer-grade experience for end consumers as well. BILT is available on the App Store, Happy building, and thank you, everybody.
Thank you very much. Thanks, Sam. Thank you very much, Bill, Luka, and Bernd for your presentations. I want to go back to a theme in Luka's presentation. He said the ingredients for success, it's about innovation. You heard SAP's innovation agenda from Bernd. He also mentioned customer centricity. We are very pleased that we are joined today by two very important customers for SAP. First of all, BASF, represented by Dr. Hans-Ulrich Engel, the CFO of BASF, and Alan Matula, the CIO of Shell. I would like to invite Rob Enslin on stage. Rob is the Executive Board Member in charge of Global Customer Operations for the host of this session.
Thank you so much. I was going to do the customer introduction. Okay, those slides are not correct. First of all, I'm excited to be here today for a number of reasons, but I get the beautiful job to sell these innovations. Bernd, thank you, because you are making my job a lot easier, and it's pretty exciting to be at SAP with this opportunity. At SAP, we don't get to do this without one important factor, the most important factor for SAP, and it's the journey that our customers have been on with SAP for 40-odd years. We reignited that journey when I first started SAP R/3, and we're doing it again today. As I said, we don't get to do that innovation journey without customers. It's a distinct honor to have two customers here today that are not just any customers.
They have committed to SAP for many years, they've invested in SAP, and are innovating with SAP. Without these customers, we would not be the kind of company we are. With that, I'd like to invite Dr. Hans-Ulrich Engel, who's a Member of the Executive Board of Directors for BASF SE and CFO. Please join me on stage. I think you're going to need that. Thank you.
Sure. Good afternoon. This is a first for me, I have to say. I tend to address our investors and our analysts on a regular basis, but not those of our customers or our suppliers, thank you very much for inviting me. What I'll try to do is give you a brief overview on who BASF actually is, talk a little bit about our cooperation with SAP, because frankly, I think we wouldn't be where we are today without the help and support of SAP. Talking about BASF, I first of all let you read for the next five minutes through this very important statement. We'll get to BASF in a nutshell. BASF, obviously, a chemical company headquartered roughly 20 miles north of the headquarters of SAP in Germany. We are the world's largest chemical company, unfortunately, not a household name in the U.S.
Put things in perspective, you think about The Dow Chemical Company and DuPont combined, that's the sales of BASF, roughly EUR 75 billion in sales. 20% of what we do, 20% of our sales, 20% of profit, 20% of assets, 20% of employees in North America. I provide you with a little more data here, which you can read much faster than I can talk about it, which then allows me to quickly go to one of our key concepts in the BASF Group, for which we came up with a nice German word of "Verbund." What does Verbund mean? Verbund means integration. What we run at BASF is an integrated chemical model. I see the one or the other of you in this room nodding when I talk about an integrated chemical model.
I'll show you two more slides in order to fully confuse you when it comes to integration and the benefits of integration. Roughly 200 countries, which means basically all the countries in this world, is where we have our customers and where we serve our customers. Already talked about sales. We have about 112,000 employees. That is important also with respect to SAP and our license payments to SAP, as you will see a little later. We have about 11,000 people in research and development. What is this Verbund thing about? What I'm showing here is our site in Ludwigshafen, Germany, which is the biggest chemical site in the world. Roughly 10 square kilometers. What does that equate to? This is covering an area from about where we are right here up to Times Square. That's the size of the plant that we have in Ludwigshafen.
I call it the mother of Verbund. Why is that? Because what happens at the site is the key raw materials come in on the northern part of the site, they flow through our value chains to the southern part of the site. One product or one plant feeds off the other plant. Waste streams that we generate in certain parts of the site are used by other plants, turned into valuable products. A lot of data that you see on here. To confuse you fully, this is the type of chemicals that we produce in the first, let's say, roughly half mile of the site that you saw. This is the upstream part of Verbund only. I could come up with four more of these slides to show you the entire chemical site and the entire chemical value streams.
Why is this important and what does it have to do with SAP? It's pretty simple. When you run something like this, as I said, we have a total of six of these big Verbund sites, we have another 370 smaller chemical sites. We run them in one integrated model. We run them in a way that we want to fully understand what's the input in plant A, what's the output in plant, let's say, XYZ. That's the only way you can run this in an efficient and effective way, you can run it in a way to generate the profits that we generate. What we need for that is pretty obvious. We need data, we need information. There is one plant that, well, one part of information that comes directly from the data information system on which these plants are run.
They then are basically consolidated in the SAP system, which help people like me, not a chemist by training, unfortunately, to better understand what's really happening out there, and how we can generate the results with our products that we do. I hope that sets the scene. What I'm showing here in one short slide has actually taken us roughly 35 years to get to. We run the BASF group on one SAP system, on one SAP common platform, you may say, on one SAP ERP. 56,000 users. I hope, Luka, this is in line with the license fees that we pay. I checked it, so I hope we both have the same numbers. 56,000 users, roughly 350 legal entities that we have on this. As I said, it took us quite a while to get there. You see here the brief history.
Over roughly 35 years, we invested in the first part of SAP, which was a financial system, a relatively small financial system, primarily run at headquarters, at BASF SE. You then see the various steps that we have taken in order to get now to a world where we have one SAP system. That provides me, as the CFO of BASF, with an awful lot of helpful data. Finally, my data world is consolidated. Finally, I know that the P&L numbers that I get from Ludwigshafen, the P&L numbers that I get, let's say, from BASF Corporation in the U.S., or the P&L numbers that I can get from BASF in India or in China are comparable. No more stories about, well, this is slightly different because. No more of that. One system, one world, clear transparency, clear data on the financial side. That's that part.
2014, we changed the game a little bit in a way that SAP and us agreed on what's called a new strategic partnership. As the CFO, you look at something like that, and you ask yourself the question, "You have a big, strong supplier here. Do you want to enter into an even closer relationship with such a supplier, or don't you?" The answer was pretty clear. We wanted to, because we think that we can profit from a closer relationship with SAP significantly. Why? Because I think it will help us to drive our total cost of ownership down, which is absolutely critical in the environment that we're operating. There's also something else. Entering in these type of strategic partnerships is what BASF does with its customers.
You can either run the game or the business in a way where you have the classical discussions between the supplier and the procurement department, and they are predominantly about price and quality. Or you can get to the point where you ask yourself the question: how can we generate more value for both businesses together? We've done that, as an example, with the automotive industry, where we have our technicians working in the production lines in the automotive industry. You see this here on one slide. That's actually a paint plant where our people are working side by side with the people of our automotive customer. This is what we're now doing together with SAP. We have SAP employees working side by side with BASF employees, improving the way we use the products of SAP.
We entered into that agreement, Luka, if I recall correctly, sometime in, I believe, September or October. Put our teams together, put our people together, the outcome of that is frankly very encouraging. Now, something else that we do in our business, and we're now doing together with SAP, is what we call co-innovation, where we put people together that sit and work on certain solutions. An area where we do that, co-develop, co-create, co-innovate is, for example, transportation management. Our needs in transportation management as a chemical company may be different from the needs that, let's say, an automotive company has or a steel company has or a cargo of this world has. Working on the specific situations that help us as BASF run our business in a better way, that's exactly what happens in these co-development and co-creation, co-innovation teams that we now have put in place.
With that, I close my brief presentation. Hope I gave you a small overview, one on BASF, and two on the type of cooperation that we have with SAP. Thank you very much. Now we're gonna sit.
No, mine. I had the one question. A follow-up question on what's the incentive for both BASF and SAP, I think you answered that question for me, I don't have to ask that question again.
Do I get my answer then also on the screen?
No.
Oh.
We'll work on that one. That's part of what Luka is busy working on. Hans, what about these buzzwords in the industry? When I see the pictures of the car and the Adidas shoes, it reminds me how much you interact with consumers like myself. Today, this big word, big data, Industry 4.0, and how do you see the potential with this for BASF?
I think there's a lot of potential. We have actually started last year, also under that title, Industry 4.0, something that we call senior project at BASF. Our production processes are already highly automized. As you can imagine, I showed the site, I showed how our value chains work. There is an awful lot more there. I like the example very much that your Chief Design Officer showed earlier. Why? That's exactly the type of things that we work on at BASF, which is, I call that preventive maintenance. Our big plants, our upstream plants, crackers. I'll give you an example. A cracker is a one plus billion investment. You want to run them 365 days, 24 hours per day. That's continuous improvement or continuous production that you need to have. You need to run them full out.
The way to do this is to think ahead, to understand fully at what point in time do I have to exchange a valve or a vessel. Having this type of preventive maintenance information, understanding what needs to happen at what point in time, so that I don't need to shut down the big machine, would be key advantages. We have that in part, but by far not as developed as I think big data or Industry 4.0 can get us to. Big data, I also give you an idea there. We work, as an example. We have an agricultural solutions business: fungicides, insecticides, herbicides.
We work with companies like John Deere, hook up with the satellites of John Deere, pull the information from the satellites, share them with the farmers, who then on that basis, can make better decisions on how to treat their crops, what kind of fungicides, what kind of insecticides, what kind of herbicides to use. I think there's a lot of potential in the areas of what I would call smart manufacturing, smart supply chains, but also closer cooperation with our customers. I think what you and I are used to, you buy at Amazon, you know exactly where the product is, when it will be delivered. We're not always in business-to-business in our industry at that point, that our customers have detailed information on where the product is, what the temperature of the product is, which for chemicals can be rather or very important.
there's a lot of room there.
Great. Thank you. Can I ask the audience, are there any questions in the audience? There's one on the left-hand side towards the back. Gentleman with the red tie.
Thank you. In terms of S/4, now you're mentioning, I guess, better integration with your plant and with suppliers or people you supply. Could you give us any other thoughts on what you're looking forward to in this release? Why you're excited about it.
I think what it will help us, and we are actually in the phase of evaluating what to do, at what point in time. I think what it should do, is help us, as I mentioned earlier, to reduce our total cost of ownership. It should help us also to allow our people to exploit what is in the respective systems better than what we do today. Through that, overall become faster. I think there should be a number of advantages. As I said, and that's pretty typical for BASF, always, and maybe very German, takes us a time to evaluate, to assess, then we make our decisions, then we implement, and execute accordingly. We're currently in the process of assessing and evaluating.
Great. Thank you, Dr. Engel. Appreciate it.
Pleasure.
Great to see you co-innovating-
Okay
Partnering with SAP. Thank you very much. Now it's my distinct pleasure to welcome friend of SAP and a friend of mine, the Chief Information Officer for Royal Dutch Shell, Mr. Alan Matula. Alan. Any particular side?
Don't matter.
Alan, thanks for coming all over from the Netherlands, Holland, to join us. Everyone knows Shell. Everyone uses. Hopefully everyone uses Shell. Can you provide some insight into the scope of your business and the impact and how it relates to the technology landscape that you have in place today?
Yeah, very similar to the conversation before me. Very big company. Obviously, we operate truly global. SAP has helped us get to that point, right? Where we can operate our company on a global dimension that we haven't been able to do before. We've got operations in well over 70 countries. We got about 150,000 people on SAP, and that includes Shell and contractors. 43,000 retail stations, 30 plus chemical plants, refining locations. A real world-class company that operates at scale.
Yeah. Shell has been a customer of SAP for a very long time.
A very long time.
Right from the start of the oil and gas solution, has innovated with SAP through the '90s, and done many things with SAP. In the past 18 months, we had an opportunity to redefine that partnership.
From a blank sheet of paper, because there had been nothing done in our industry, or at least I or you had not done something like that previously. We had to throw out all the rules that SAP had, and we redefined the relationship that we have with Shell. Can you expand upon that?
Yeah, you're right. We go back two-plus decades with SAP. We're very proud of the partnership, but it's changed over time. In the early days, it was all about integration on some of the old platforms. I think R/3 presented opportunities to actually drive our global business model. Now we look at the landscape, Rob, and we look at the disruptive technology, HANA's a big part of that. We think about what do we need to do together going forward. The traditional model of sales into our organization just didn't work for us. What we needed was better collaboration. Very similar to the prior speaker, we put together a model built on an A Team concept.
Yeah.
Where there's one SAP person and one Shell person in a given business area, they're driving innovation. They're driving adoption of technology. Hopefully, all of that learning and experience is being siphoned back into your engineering groups. This is a true collaborative model built in a collaborative way. We did it as a byproduct of putting together the renewal agreement.
One of the things that when we did the renewal agreement, which I was fascinated, you had the concept, the A Team doesn't stand for the A Team, the concept that most people understand, the A Team. It stands for adoption. You had this concept that you wanted your users to consume more SAP. Can you elaborate on that whole consumption-based model?
Yeah. The world is so complex these days that you have to actually get in the SAP Business Suite and understand how to leverage the technology. The traditional model of just getting a software product and trying to roll it out through normal integration, that takes you only so far. It actually suboptimizes the technology you're trying to put in place. More importantly, on top of that, when you take SAP HANA, and you take some of the cloud activity, and you take what's going on in terms of vertical services being introduced, the kind of dialogues that you have come up a significant level. Yeah. Where our CFO might or might not have been interested in the configuration of SAP, under the SAP HANA paradigm, they're very interested because it actually changes their business model.
It will change the way our CFO looks at what he does in his finance organization. It's going to change what an asset manager does. It's going to change how our subsurface folks think about SAP and their technology. You not only need the collaboration, but you've got to raise the collaboration up to a level in the company that's unprecedented.
When we look at the way that we've actually managed the relationship over the last 18 months, it's actually a year now. One is we talk about running it better, we talk about using it better, and we also have this innovation bucket. I have been so impressed with your team, how they took Design Thinking, they went to the Hasso Plattner Institute, and I think you took it to a different level.
Right.
I hate to say that in front of Bill McDermott, but I think you guys have really taken it to a level where the amount of projects and opportunities that you're working on in your business to redefine things has really impressed me tremendously.
Yeah. It's interesting because we're very excited about what you're going to do for HANA with the suite. Actually, a lot of the early innovation has come from just raw ideas, taking a hard look at the HANA platform, and thinking about what are some of the things that we have never been able to do. HANA's being introduced into subsurface technology. Never before an SAP position. It's being introduced into our cash management, into treasury. It's being introduced into our trading organization. When we agreed to spend the first amount of money on HANA, we were worried about adoption.
Yeah.
We were worried about adoption. I now have about 70 projects in flight.
Yeah.
Very few of them actually have to do with the suite conversion, because actually it's using the power of the new platform to think about business problems we couldn't solve before. When we started, Rob, we started with, "Well, let's talk about replacing what we do.
Soon the business actually has changed their language to, "I've never been able to do this, and now can in-memory technology and can the SAP HANA platform allow me to do something I've never been able to do?
I'd say I saw that firsthand with Hasso on TP, and it was pretty amazing to see what you've done. When you think about Shell's vision for the future, how does it align with SAP's innovation path?
We're very aligned, we actually talk about three themes for us in technology. We talk about mobile first and anywhere, which is very consistent. We talk about cloud, and I'll come back to a belief around cloud. We talk about big data, which is actually part of the SAP HANA platform.
Yeah.
We truly believe that as you guys think about the reconfiguration of the suite, that actually, there's a huge opportunity to actually own vertical clouds or vertical service spaces. We think that the SAP HANA platform actually positions both SAP and Shell to actually think about redesigning their core business, not making an incremental change. What we're after is a step change. A step change based on the introduction of new technology. Just like client server created a step change, we believe HANA and in-memory will create that same step change. We have to do it together. We have to bring the domain experience. You need to bring the engineers and the architects to bear, and I think that's where this collaborative model is actually pretty key.
Absolutely. Stefan, do we have any questions? I can ask now? Stefan, do we have time?
We have time.
Okay. Are there any questions? Yeah, we have a question here in the front.
Thank you. As investors, we hear that some of the pushback on HANA is around the price. It's very expensive, in-memory specifically.
Yeah.
Maybe you can frame how, since you got over that hurdle, maybe put some numbers around it. How did you get over that?
I think very early in the cycle, and now I'm probably going back, Rob, probably a year or more. Very early in the cycle, I would probably agree with you. Where it was dedicated equipment, you had dedicated appliances. The barriers to entry were actually quite high because you're spinning up your own environments. We worked with Rob and Bill to actually work with a couple partners to drive them to a cloud-based, pay by the drink infrastructure. I think that has grown. I think that was a turning point for the HANA group that says-
Breakthrough for SAP
It was a breakthrough for SAP that says, we've got to get this to lower price points, and we've got to drive the Moore's Law curve. I think what they're doing to put HANA in the cloud and actually make it incredibly cheap and then drive their partners to better and better unit price performance is key to this journey. If they don't continue that drive, either themselves or through the partners in the marketplace, whether that's T-Systems or IBM with SoftLayer or HP, it has got to be a very competitive race to lower and lower price points that allow us to adopt the technology. It's not too dissimilar to where client-server was back in the 90s, when the first implementations of client-server were very expensive. Then the industry, through competition, actually drove the price points down.
I think you're going to find the exact same thing here, at least I hope so.
Good. I think Luka elaborated on that as well as part of his discussion. Another question? We have one right next to you on the right-hand side.
You mentioned in terms of adopting apps or building apps on top of HANA.
Yep.
One of the things I'd be interested in hearing from you, because you mentioned this sort of vertical cloud opportunity, is do you want to see an app ecosystem evolve on top of HANA, or do you feel like the most advantage you're getting is actually sort of developing those apps in-house? If you're developing them in-house, I guess, how easy is that to do for you all, given that you're not necessarily a software company?
We think about it in 3 pillars of value. The first one, which is just table stakes, is TCO. When I go through a big transformation like this for TCO, that's interesting, but it's not enough. Before they progress the HANA for the suite, actually, most of our innovation is being done on top of HANA with, I would say, 50% of the data nothing to do with SAP. Actually green fields. I think it's a combination of in-house development as well as working with some other partners. I'll give you a great example. We have always, in Shell, wanted to have access to the performance of every well around the world. 20,000 wells. Well, to get performance of a well in my industry, you actually have to get to the process control systems, which we run something called OSI.
What we worked with SAP and OSI is to create an interface where we can suck out all this real-time information and provide our engineers with transparency around well performance. There's an example of innovation at work. There's an example of we built something together. Actually, SAP built the interface, OSI enabled it, and we wrote the user app on top of it. It's actually almost a combination of the three. I wouldn't underestimate the power of the platform on top of the transition of the suite. It's TCO. We are going to reinvent the suite, and that's where I'd like to see a thicker stack in terms of vertical services.
We'll innovate on top of that, and I think it's a great platform for ISVs as well, and I think they're right on the perfect point, which is to keep it open and to get an ecosystem of ISVs out there.
Great. Alan, fantastic. Thank you so much.
All right.
You are a true partner. Thank you.
Thank you. Thank you very much, Alan, Mr. Engel, Rob.
You are welcome.
Now we have a 10 minutes break. We have some coffee, drinks outside, and we'd like to continue with the program at 3:15 P.M. Thank you very much.
How to win or lose. Not just how you play the game. I'm one step closer every single day. To the moment they can never take away. Taking one step. I'll play it all on my own. Do or die.
We'd like to move to the final part of our Capital Markets Day, and I would like to ask Steve Singh, the CEO of Concur, and the newest member of the SAP Global Managing Board, to come to the stage and talk about our vision for the network business. Steve, the floor is yours.
Thank you, sir.
Thank you.
Is it quicker around here? All right. Hi, everybody. Come on now, start talking. Hi. Look, I know you're tired, and I know you've had a lot of information thrown at you. There's a lot to digest. I'm going to ask for 10 minutes of your time, and in that 10 minutes, I'm going to talk to you about a multi-trillion dollar opportunity. All right? Look, first of all, I couldn't begin to tell you how excited I am to be here, how excited I am to be a part of the SAP family. By the way, I speak for all 4,500 Concur folks when I say that. This is an amazing company. It's got incredible potential, incredible opportunity ahead of it, and we're excited to be a part of that opportunity.
Look, whether you think about it in terms of revenue or you think about it in terms of customer growth, or for that matter, market share, when it comes to core business processes that run your business, SAP has always led. It has always been the champion of driving automation, driving benefit within your business. With innovations such as HANA, S/4HANA, and market-leading solutions like Fieldglass and Ariba and SuccessFactors and Hybris, and also now Concur, we're laying the foundation not just for how do you drive business value, how do you run your organization, but we're also laying the foundation for how businesses will communicate with one another and how they'll operate together. That's the opportunity that we're pursuing. I want to just highlight some basics around that, and then we'll drill down into details.
When you think about a business network transaction, there's really two sides of that transaction. There's you and I as individuals and the companies that we work for, and then there's suppliers who also clearly want to serve us. When you think about it from the point of view of the business traveler or the business employee or the companies that they work for, there's an expectation that these transactions are intelligent, that they understand the context within which they're being originated. That they understand, "Hey, you know what? Here's everything I need to know about Bill McDermott. Here's everything I need to know about what he wants in this particular transaction." Right? It's a minimal requirement that it does that. There's also another side of the equation for the supplier, right?
Every supplier in the world wants to do an incredible job at serving you as a customer. It wants to make sure that it does such an amazing job in serving you that you would never, ever think to work with anybody else. Right? The idea of the business network is to marry these concepts together and deliver it in a way that absolutely drives a delightful experience. The Business Network Group at SAP, that's the foundation. That's the opportunity that we're actually pursuing. Okay. If you're going to pursue that opportunity, it's really important to think about how the world should work. Not how it works today, but how should it work. I happen to be a big fan of a Jobs quote. It's not very often quoted, but it's a great quote.
That is, "The world that you see around you was created by those that came before you." Right? I'm a bigger fan of a Gandhi quote. I'm going to loosely translate this, that is, "Create the world that you want to see." Right? That's what we have an opportunity to do, not just within the Business Network Group, but also obviously as a part of SAP. To do that requires a couple things. It requires a deep love and passion for innovation and the ability to go drive innovation within our own company. It requires more than that. By the way, on that side, we're fantastic. We have an amazing company, very product-driven organization that drives innovation. Right? Not just in the acquired assets, but everywhere around SAP. It also requires one more thing. It requires an embrace of the ingenuity of other people.
It requires us saying, "You know what? Let's bring them into the equation. Let's make sure that we can take the incredible innovations that are happening in every corner of the world and bring them into our business process." Does that make sense, that part? Am I losing you already? All right. Look, if we can do that across an open platform, you've got an opportunity to go drive incredible innovation and incredible set of interactions that are intelligent. In fact, the way I might ask you to think about that is that the innovation of singular companies, right, is oftentimes incredible and beautiful, but it's nothing compared to the innovation of communities. Think about the iPhone that we all carry around. It's an amazing product. It's a beautiful product. Right?
It's the apps and it's the ecosystem around it that makes it magical, that's the opportunity that we have to pursue around the business network. How do we bring the innovation of others into our ecosystem? When you think about that network opportunity, let's start with an area that we all understand and that we all know, that's consumer innovation. Think about how we used to all buy movies and music and the like 10 years ago. Apple and Netflix and various other, Hulu, came together and said, "Let's create a platform or a set of services where content providers can serve up information, where developers can add incredible experiences and applications, and where we as individuals can consume those services in a model that was delightful." Think about how we used to shop for things 10 years ago.
Amazon and eBay came along and said, "What if we created a platform around which you could actually not only buy services from me, but all the partners that want to be a part of the Amazon platform or the eBay platform?" The common theme that you're going to see across all this is that these companies took new technologies and said, "Not only do I want to make a better experience, I want to radically change the experience. I want to make it radically better.
I want to take every part of the process and I want to improve it, all the way through the value chain." In doing this, one of the things you're going to realize is that there's no single company, there's no single application, there's no single organization anywhere in the world that can pull all that off. You have to take an approach that says, we are an open platform. Yes, all SAP apps will run on top of this platform. All SAP apps will deliver incredible value on top of this, but so is this platform open for everybody else. Whether you're building for your own business, whether you're building for Oracle, whatever it might be, you can build on top of our platform, and you can add value for the business traveler, for the consumer of business services, for contingent labor.
Wherever you want to add value, you can add value. That wonderful experience, it requires, frankly, a collective effort to deliver that network experience or that networked ecosystem. The experiences that we're seeing in the consumer world are also starting to emerge in the business world. You might say that business networks have existed for a long period of time, and you'd be right to some extent. ATMs have existed for a long time, multiple decades, and they deliver a great service. Compare that to your banking app on your phone, and think about the range of services that are available to you in the palm of your hand, the touch of a finger. Let's look at travel for just a second. Picking up a phone, calling your travel agent is certainly a viable way of booking travel.
Watching your travel agent enter archaic codes into a green screen is a networked ecosystem. It's just not the network that you're looking for. It's not the networked environment that really adds value for you as an individual or for you as a company, or for that matter, you as a supplier. You saw Barry's demo just a couple of minutes ago. Where we are today with travel, with that travel ecosystem, is a far cry from the old model. It's better than anything else that's out there in the world, but it's a tiny step in the right direction of where we're trying to go. What would be ideal? What would be ideal is if transactions completed themselves, automatically figured out this is what needs to happen. They drive through completion automated, boom, you're done. That would be ideal without any human interaction.
That's where we're trying to go with a business network. If that's the context, what should a business network focus on? What are the priorities for a business network? There are three in my mind. First of all, it has to be personalized. It has to be contextually aware of you, everything around you. Second, it needs to be actionable. Based upon either your spend patterns or upon data, it ought to be able to take actions on your behalf, whether those actions are explicit or implicit. Finally, it needs to be totally transparent. What I mean by this is not just transparent in choice, but transparent about what's happening in the ecosystem or what's happening in the supply chain.
You ought to be able to know that, hey, look, there are disruptions in the supply chain, and that's going to impact what your particular request is going to be at this particular moment in time. That has a massive impact on how that transaction will actually occur. Does that part make sense? Let me give you two quick examples that might highlight that. I'm going to start with travel. Here's how travel should work. When I get on my plane, if it's delayed, my connecting flight ought to be rebooked for me automatically. Concur knows everything about you, everything about your preferences and your corporate policy. We should be able to post a alert right on your phone to say, "Hey, you know what? Here's three options for you. Which one would you like?" They're all within your corporate policy, all within your personal preference.
You click on it automatically rebooks, automatically updates your itinerary. More importantly, why can't it connect to the rest of the supply chain? Why can't it actually tell the driver who's going to pick you up, "Hey, you know what? Steve's going to be 25 minutes later than anticipated." By the way, when we land, when the plane lands, Concur knows that the flight has landed. What we ought to be able to do at that point is say, "Guess what? We can check you into the hotel that you're reserved in. In fact, not only do that, we can actually deliver a key right to your mobile device." In fact, last night, my flight was delayed. I got in around 1:30 A.M., guess what?
The thing that I want to do right there and then is go wait in line behind 16 people to check in. What I'd love to do is have that key delivered to my phone. I go straight to my room. That's what a connected network transaction is. Let's look at this in the context of an airline company that happens to be a customer of ours. This is an amazing organization that has been working to put sensor technology across all of its infrastructure of airplanes. That sensor technology is integrated into our business network. It alerts the network that, you know what? This part is due for repair. This part is actually due to be replaced. That order can be done automatically for you. More importantly, a great network will actually integrate across other business networks. In this case, the Fieldglass network.
Wouldn't it be fantastic, in fact, in this case, it actually does exactly that. Wouldn't it be fantastic if it actually told the Fieldglass network that this part is scheduled to be replaced on the 22nd? These types of individuals are required to be on-site for that maintenance and for that upgrade on the 22nd. That's what a business network does. It drives incredible value through the supply chain automatically without you ever asking it to do anything. That's where our future is, and that's where the opportunity is. I apologize, I've jumped ahead here a little bit. Look, if that's the vision around the business network, where do we sit today? Well, SAP is in the incredibly fortunate position of leading in this new category of software, in this new opportunity around enterprise software. Right. We have the number one players in every core market.
Whether you're talking about travel and expense, or you're talking about procurement, you're talking about contingent labor. We are literally the number one player in every single one of those spaces. Now, this is fundamentally different when you think about on-premise software of the past, where you delivered a solution entirely internally, and you had a suite of products, some of which were best in class, some of which were really good products. The beauty of cloud computing, the beauty of where SAP sits, is we have literally the best products in every single space, and we're driving a level of cooperation and integration that drives real value for our customers and real value for supplier partners who want to work with our customers. Okay. I want to spend just a couple of seconds. I've got a few minutes left here.
I want to spend a couple of seconds to outline the opportunity around the business network. Now, there's really two parts to this that are very, very important. The very first part, though, is I'm going to go backwards here for one second. I guess not. If you look at that blue line across, right. It's very easy to think about a network and say, "Look, there's an opportunity to drive a transactional fee for connecting a transaction." I would tell you that's interesting, but that's not what we're going after. Right. What we're going after is how do you add value across every element of the transaction? If all you do is say, "I'm going to connect the transactions," guess what happens? Now think about the stock market, right, and how you trade shares.
Well, many, many years ago, it used to cost quite a lot to go buy and sell shares. Today, it's pennies to do that. In fact, it's less than pennies per transactions. Okay. What needs to happen is you need to be able to drive value through every element of transaction, and if you can do that, there's two components of revenue opportunity that exist. The very first happens to be a massive market in and of itself, and that's the application side of the equation. Right. Don't think about business networks as just the network side of the opportunity. Think about it as the network side and the application side. Right. Think about a company like Uber. Is it an application, or is it a network? Well, it's actually both.
That's what Concur is, that's what Ariba is, that's what Fieldglass is, and that's what every member of the business network family will be. Okay. There's a EUR 75 billion opportunity just on the application side of this equation. Today, I want to give you some sense of that. Today, Ariba is just modestly penetrated against this opportunity. Concur is less than 5% penetrated against its market opportunity. We have 23,000 customers in a universe of companies that should be measured in the millions. Fieldglass, an amazing company, is even earlier stage in market penetration. Right. If you look at just the application side of this, where we drive real value for our customers, where we drive costs down for our customers, there's a EUR 75 billion opportunity just on the application side of it. It's bigger, frankly, than where ERP is today. This is a huge scale opportunity.
There's also an opportunity around the network side of it. That opportunity is going to be monetized in multiple different ways. It depends on the transaction, it depends on where you're adding value in the transaction, and it depends on the sustainability of that value that you can add. Right. At Concur, we not only are able to drive value in allowing an airline partner or a hotelier to optimize their content for a particular individual, but we also allow folks to advertise in a very targeted model. Right. There's multiple different revenue streams, and you're going to see that apply to every single business network opportunity that exists. Does that part make sense? All right. Guys, look, this is our vision for the business network. It's a compelling vision, but it's compelling for a couple different reasons.
Not only is there a massive scale opportunity, we're also sitting in an amazing position today. Right. As I said before, we are the number one player in every single one of these markets. In aggregate, the business network component of SAP is a billion-EUR-plus revenue stream. It's a massive revenue stream. It's at scale with any other cloud computing provider. More importantly, it's growing at compelling rates. In fact, at as equally compelling rates as any other cloud service provider in the world. Here's the beauty of where we are. We have 8,000 people, more than 8,000 actually, that wake up every single morning, and you know what they focus on? They focus on Concur, Ariba, Fieldglass, and driving massive innovation, both at the customer side and the supplier side for the business network group.
The things that you're going to see, how these transactions ought to work, will become so seamless and so automated that you're going to see this and say, "Look, why didn't this work this way in the past?" Right. There's an example I tend to use, and that is go back to the payroll market. In 1947, when the payroll market was first established, payroll checks were cut by hand. Okay. Today, do you even think about how your payroll is actually deposited? It's automatically done for you. It's sitting in your bank account. This is where expense reporting is going. This is where procurement's going. This is where contingent labor is going. It will be done for you automatically. We're in an incredible position to make that a reality.
The other thing I'd just like to ask you to think about. I know that a few folks brought this up in the breakout sessions, that is the idea that cloud computing or that cloud computing services, whether your business network or cloud apps, can't be as profitable as licensed applications. I would ask you to think about this totally differently. Here's what's different. Cloud computing apps are focused on business verticals that couldn't even be automated in an on-premise model. There's a greater number of companies, because the cost structure of cloud computing is such, that you can automate this for a one-person company or a 300,000-person company. There's a greater number of companies that actually can benefit from cloud computing. The opportunity is larger, we spend more in the short term to go after those opportunities.
In fact, Concur, before we decided to start investing more in our sales organization, was actually sitting at 24% operating margin. There's a massive opportunity in driving operating margin, but at the right time. Okay? This is incredible business. It's an opportunity that we're very excited to pursue, that I hope gives you some basic idea of what the business network is and the opportunity that we're pursuing. Thank you so much. Whoops, did I do that?
Yes, thank you, Steve. I'd now like to invite Bill, Luka, Bernd, and Rob to join Steve here on stage for the final Q&A. We still need you, Steve. Also a quick reminder for everyone who is still awake in Europe and watching this event over the web, we take questions by email. Please send your questions to investor@sap.com. I would say, we will start with some questions here in the room in New York. I realize there are a lot of questions here already. May we start here with one question from Kirk Materne, Evercore Partners.
Thanks very much for your time today. Kirk Materne with Evercore ISI. Maybe Bill, I'll start with you on S/4. Can you just talk a little bit about the go to market, how you're thinking about that in the near term? Also maybe just to follow up on Steve's last comment about does S/4 actually maybe broaden the opportunity? Meaning now that you have the-- You guys are obviously known for running very, very big businesses, and you've had some folks on Business One and some smaller businesses. Does S/4 actually open up some opportunities for you guys in the SMB market that potentially you weren't going after before? The first question would just be on go to market and sort of the monetization around it over the next, say, 12 to 18 months. Thanks.
Sure. Maybe I could just start off with the SME question. Four out of five customers will run their SME enterprise in the cloud by 2020. I definitely think S/4HANA and B/1 on HANA in a cloud environment will squeeze the competition from both sides. I would count on that if I was you, because that's what we intend to do. On S/4HANA, Rob has an amazing rollout plan. In fact, I think you're leaving for Tokyo-
Right now
Right. Right after this. All over the world, we are launching S/4HANA in every corner of the earth with SAP people, our customers, and our ecosystem to make this what it deserves to be, the biggest launch that we've had in 23 years. We're going into the install base with a very nice story, and we're also going in to net new customers with a very nice story. I just spent a week after Davos in the Middle East. It was fascinating to see how many companies in the Middle East, that are not only existing companies, but non-SAP customers, that told me, "Wow, I only wish I could have gone SAP in the beginning, but you guys hadn't had a footprint in the Middle East. You went through a partner.
Now that I've gotten the whole download of the S/4HANA story, I not only really like it, but I would be willing to run it, including in a cloud, if you could put the data center in a location in the Middle East," which is why we decided to open one up in Riyadh in April. We already made that decision. We already accounted for that decision. I think you got a great chance here to upgrade the existing install base. We have made the pricing very pleasant for the customer, very fair for the customer, very in keeping with the HANA structure. It's not complicated. It's real simple. Then for the uninitiated, I think they're going to get to see a whole different way of consuming SAP in the cloud. Therefore, I expect a nice tailwind of growth out of this.
Rob, you may want to comment.
Yeah, I'll just comment. We've actually trained. Our field kickoffs took place two weeks ago globally around the world in Beijing, Singapore, Barcelona, Mexico, and in North America. 12,000 SAP employees completely trained end-to-end, 3,500 partners, 450 partner companies have been trained in the products. We've got legal, packaging, pricing, contracts completed. We have a landing page, saphana.com, where all the assets are there. The value propositions are in place. The articulation, we have the tools in place for that. We launch in New York City today, which we've done, I think, to tremendous applause in the market. Certainly, my Twitter account's on fire right now, mostly positive. Thank you. Simon Paris in Mexico City tomorrow. I'm in Tokyo Friday. In Beijing on Monday, launching, and we will have touched 20 major cities around the world. Jennifer Morgan's over here. She's got North America going through February.
We will touch.
We will touch every customer in SAP in the first quarter with the vision and the story, and all of the existing sales force that we have had for many years get this story, understand how to position it in front of their customers. I really believe now I have not only the TCO picture, but they have the business value discussion as well. That the business value discussion is being led by no one else than our CFO, Luka Mucic, who's actually very prominent in all the videos on how you receive that value.
Thank you. Take the next question here. I see Rick Sherlund, then you have Brad Zelnick.
Thank you. Rick Sherlund from Nomura. Bernd, I wonder if we could get some deliverables from you, the timing. The SAP Simple Finance first. When exactly is that in kind of which regions? If you give us a sense of scope and scale for that. Maybe a roadmap for, and timeframe for what's going to follow. In particular, I'd be curious on the HR side, you've got two HR products, what do you do for the public cloud?
Yes, thanks, Rick, for the question. I think in order to come with a roadmap and deliverables, we have to differentiate the consumption model. When we talk about public cloud, it's not just financials. We will have the core ERP modules available now starting February for public cloud SaaS consumption. Of course, when we talk about public cloud, I hope this was clear during today, we will leverage as well all our assets, which we have in the SaaS environment, in HR, SuccessFactors, with Employee Central, with the talent management, with the recruiting, the performance management will play a vital role. There is the second category of a managed cloud. When we talk about install base customers who are in process of changing their business, focusing on their key competency, and let the systems be operated by a cloud provider.
The current plan is that we will launch the full-fledged ERP enabled for S/4 at Sapphire this year. This is the current plan. This goes significantly beyond the core 43 roles which we just have launched today. There will be following quarters where when we talk about system-guided configuration as well, complete Fiori enablement. When we talk about 25 industries, there is an industry roadmap which we will share soon with you. You can expect that there is a series of industries already at Sapphire this year, and we will complete them as we go. You heard it several times, during the course of the day. In the old days, we would have made a roadmap, articulated it, presented it, and executed against it. This time, we make it customer-driven. We heard it from Alan today, from Shell. We heard it from BASF, from Dr. Engel.
We go customer first. Those companies who engage with us first for the brand new product, they will get priority. Depending on in which stage they are, we will execute in development, as we have completely changed the agility in development. It's not a one-year or one-and-a-half-year planning anymore. We will deliver every quarter, which gives us the flexibility to adjust. The third category, which is on-premise, nothing has changed there. We will, as I said today, provide all these innovations as well to customers who consume S/4 in the on-prem world. Nothing wrong with that. The only difference is that in the on-prem world, you need a physical shipment. You need a release, you need an enhancement pack. Current plan is in alignment with Rob, that we do it towards the end of Q3, beginning of Q4.
It is not possible in the on-prem world to go into a permanent delivery cycle. When I talk about quarterly shipment in the cloud world, this is major functionality. When we talk about Fiori, when we talk about new UIs, we can do this on a weekly basis. This is the big difference between providing value in terms of innovation in the cloud and in the on-prem world. In the on-prem world, we could technically do it, but customers would not be able to consume this massive amount of innovation in weeks or in months, as it is possible in the cloud.
Just to add to this, because you started your question with SAP Simple Finance. This is out there.
It's already.
It's already available. We have sold it plenty of times in Q4. We are using it ourselves live since April, other companies are going live, basically as we speak on this. This, as the nucleus of the on-premise solution, is already an SKU that we are quite busy selling.
Now Brad Zelnick from Jefferies. We take Raimo Lenschow from Barclays.
Great. Thank you. Brad Zelnick with Jefferies. My question is for Bill. Bill, seeing a leading company transition from selling largely products to now selling services and solutions isn't really something new. In fact, if you look to your career back in your days at Xerox, I think the company went through a similar transition.
Can you maybe share with us a little bit what you bring to bear from that experience and how this might be a little bit different or what the similarities might be?
Thank you, Brad. This is a very interesting correlation, actually. Back then, in the middle to the late '90s. The world had decided it had no interest in hardware. Essentially buying boxes from a customer standpoint was about as uninteresting as it got. What we tried to do is create a services business, very similar to what you see today, called the cloud, where you would provide the hardware, the necessary software and service and infrastructure to provide that value to the customer as a service. In fact, it was a ratable service, very similar to the way you consume innovation from the cloud. The big learning is never go against the market. When the customer wants it a certain way, don't fight the tide, go with it, accelerate it, hit the gas.
I guess the first thing fundamentally is SAP made a bold move going for the cloud, going for the network, and accelerating the push because it's in favor of where the customer wants to go, even though it meant the business mix in the short term changed. Therefore, we changed the way we look at the business from a rate to an absolute operating income, knowing full well in the long run, we'll create a great company that'll sustain the decades, not the quarters. That's the first thing I think is really super important. The other piece, just in terms of innovation itself, I believe strongly that over the last five years, we made the necessary decisions to get out on the edge of innovation, whether we were building it or whether we bought it.
It was really important to assemble those pieces so we could hit a climax moment with S/4HANA, the cloud, and the network assets around it. We overcame our Achilles heel, which was the user experience, by doing everything mobile first. I actually think because we went through the transition zone, we're now ready to come out and start accelerating with this innovation to really change fundamentally the way companies run. Finally, I can underscore that in the Under Armour video today with Kevin Plank. If you think about a fast growth company, they have to have a consistent core, S/4HANA in this case, where all the data is. Why is that data so important in that core system? Because that core system is crossing all the channels from direct to consumer, call center, wholesalers, retailers.
You got to have one system of record where all that data and all that content resides. At the same time, you've got to extend the business model to the consumer, who, oh, by the way, is not just shopping in channels, they're living in communities. They're participating in different communities that are very focused on athletics of all different kinds. Knowing that consumer, their likes, and their social behaviors is another aspect of HANA that strengthens the S/4HANA argument. I think back then, my business went from EUR 700 million to EUR 4.5 billion in a few years, and the company should have always fed the growth. I think we see the growth in the cloud and network, but I also think there's one difference.
SAP's core is still highly innovative. With S/4HANA, I do think you're going to see some growth in the core. I do think it's entirely possible to see some tailwind in the core. I'll tell you why. If you talk to the customers in Europe, if you talk to the customers in the Middle East, you talk to customers in different parts of the world, they want to own those crown jewels. A lot of them want it in their own data center. Depending on the industry or the geography, there's still plenty left to go in the core here.
Thank you. We take the next question from Raimo Lenschow. Then we would have Mark Moerdler from Bernstein Research.
Raimo Lenschow from Barclays. Hey, I wanted to stay on that subject with you, Bill. Also kind of bring it over to Luka a little bit. If you think about the private cloud, obviously, the investors all think everything goes through the cloud. A lot of guys want to still run it in-house, especially the complex systems. How do you think about the setup for your private cloud offering? On the one hand, we saw the growth margins that Luka pointed out. It's 40%. It's kind of because it's probably more an outsourcing business. How do we have to think as investors in terms of how successful that will be? The more successful you have people kind of transitioning over to you, the more growth margin pressure you get as a company.
On the other hand, you're very comfortable about your margin that you gave out to us. Does that mean it's more for some, actually the majority of the customers will stay on premise on these large, big ERP deployments? Thank you.
I'll start and Luka can build on it. I think first of all, we have a healthy ecosystem, and there's no reason why if the SAP S/4HANA architecture is being followed meticulously, that you wouldn't allow SoftLayer in the case of IBM and potentially others to run that in their cloud if they were providing that as a very good service to our mutual customers. The advantage there is it improves the overarching margin of the company because you're not getting into the infrastructure and a lower margin profile business. I think if you believe like I do that the cloud is a pervasive computing theme going forward, you would also believe that in the 1990s when systems integrators put these systems in, it's another logical step forward for the customer to put them in a cloud where it's a lower cost, easy to deploy.
It's helpful to our business model because we chose to stay a business software company. We didn't get into the hardware business, and we use the cloud as an advocate for the customer. I think that makes sense. The other thing is, look, we invested a lot to get these clouds all over the world because our customers expected us to do that. I also think with the recent well-publicized security concerns, many customers want their cloud domicile in a geography where they operate their businesses, and that's just the way it is. I think providing that choice is important to selling our software and making the customer happy. Finally, I think perhaps the best part about SAP, and you rightfully point this out. I have a lot of customers telling me, "Are you crazy? My ERP system is the heart and soul of my business.
That's my crown jewels right there, and it's not going anywhere. I put that infrastructure in my own data center, and I intend to keep it there. I want a hybrid world also, so I can consume your innovation in the line of business. I can consume your innovation, perhaps, in the SAP HANA Cloud Platform. I can consume your business network innovation. Now I've got what I believe to be my rendition of a Run Simple organization, where I have the crown jewels, and I get the best of all worlds on the things I choose not to do myself." I think that puts SAP in a unique position. The other thing is, I'll tell you right now, there's a lot of companies out there, based on the well-publicized security fiasco, that have no interest in going with small companies in California.
Now, two years ago, they might have been more inclined to gamble. I think now they're going for trust and security and well-proven business models like SAP that have been around four and a half decades.
Yeah. Maybe just on the topic around gross margins, as I tried to outline as well during my presentation, I think it would be too superficial to take a look at the merits of our HANA Enterprise Cloud business by only taking a look at the infrastructure as a service gross margins that we're driving with this. It's very important to understand that where customers are selecting to go with this offering in order to be able to more quickly onboard themselves towards our innovation roadmap. That typically, in most of those cases, they still prefer to own the license assets that are operated in that HANA Enterprise Cloud. That means we drive incremental license revenues from that, as well as ongoing support revenues for HANA especially, but also the applications on top of it, which you don't find in this business.
Don't assume just by the fact of the gross margins of the infrastructure as a service piece that this is not an attractive business for SAP overall.
Thank you.
Excuse me.
Thank you. We take the next question. The wake-up call. Mark Moerdler, then we continue here with Ross MacMillan from Royal Bank of Canada. Mark.
Microphone?
The microphone's coming.
Just one second.
Thank you. Mark Moerdler, Sanford C. Bernstein. Two-part question. How should we think, given historically that the SAP ERP solution had a long adoption curve, how should we think of that adoption curve changing with S/4? Then as a follow-up to it, how should we think about, for existing Business Suite customers currently under maintenance, what the monetization is if they move to S/4, for example, on-premise? Thank you.
Why don't you start off, Bernd, and then Rob? Oh, Rob left.
Rob will be back.
Okay, we'll pick it up for Rob. Go ahead.
First of all, with the option of offering that system as well in the cloud, we have the opportunity to unleash and show the value of the solution immediately to the customer. When I look at what many customers do these days, they start in our cloud, not necessarily to run their complete existing ERP and now their S/4 system in the cloud, but they do it for the project itself to experience with having the ability to have access to the latest innovation instantly. That might lead still to the decision that prior to go live, they take all that work and run it in their own data centers on-premise.
Which means, to come back to your question, with that ability to offer that instant access, we expect that the acceleration of adoption will really happen as customers see and get the benefits much faster compared to the old days, where they engaged with implementation partners, rolled folders of blueprints, of booklets, until they really get the value from the software. Number two, in line of businesses and in the integration of what we have in the public cloud, now enhanced with financials and the core logistics, we clearly see that this is an opportunity for decomposing the existing Business Suite and give access to the customers in areas where they have a need. Which means it is not that they take the whole system, but they take areas where they have the demand for innovation, where they clearly see the business case, and adopt this instantly.
With both of these aspects, we expect that the adoption curve of the innovation is significantly steeper than we have seen it in the past with our three-year ERP.
The one thing I would say on the customer front, all the models protect the core asset of our financial well-being, which is the customer support revenue. To migrate to S/4HANA, we're very fair with the customer on a loyalty level, where they get the credit for their existing system and pay a modest uplift, similar to the way we license HANA in the first place. Why do I like that so much? It takes complicated questions off the table, it demonstrates a unique eye on the customer and their happiness, and it gives us a chance to mass scale S/4 and HANA across the world quickly. Therefore, it's a virtuous cycle. Once they have that, and the innovation that comes, and the extensions that come from it, everybody is part of the innovation and the growth machine.
Most importantly, the customer is getting the value out of the system. We really thought long and hard about how we did it this time, and it's simple. Like everything else we're doing, it's simple. If it sounds complicated, we shut it down before we even go another step. If it's complicated, just stop talking. Just go away, leave us alone. It's got to be so simple that everybody gets it in the first blush. That's how we're doing everything at SAP now. Thank you.
Thank you. We take the question from Ross, then we have Michael Briest from UBS.
Thanks a lot. A few questions, one a product one, then one a financial one. Bernd, just on the public cloud flavor, if you will. Is that exclusively going to be positioned for a net new customer to SAP, or is there some reason as to why an existing customer would not go down that path? That's the first question. The second question is for Luka. It's a financial question. Very helpful to give us the gross margin, your view on gross margin progression for both cloud and for software and support over the next few years. Just on that, it sounds like it's going to be very back-end loaded for the cloud gross margin sort of expansion, or it's going to be more back-end loaded. What's your thought process around operating expense in the business as we move, let's say, past 2017 and onward?
Will operating expense growth change materially relative to revenue growth at that point? Thanks.
Yeah. Maybe I'll start with the product. No, it's not exclusively positioned for net new customers, while nevertheless, the sweet spot is for new customers, we see huge potential with that solution to capture market share, which might not have been in the sweet spot today if we did not have that offering. We will aggressively go into that area as we see in the market that others capture some of these opportunities, we did not play in that league so far. Clearly the sweet spot is net new customers. That on the other side does not mean that the public cloud offering with software-as-a-service is not an option for existing customers. However, it requires that these customers accept that with cloud, it is more than just a deployment option. It is a commitment of the customers to consume best practices.
If customers are open to that commitment, and I hear this more and more, they even tell me in one-to-one conversation that they should have avoided, in enabling process, this massive individualization, customization with a bunch of consultants. They even regret that they have done it in the past. For customers who have that kind of thinking, that is a great opportunity to get rid of complexity they have in their landscape today and run their enabling processes with best practices in the most simple way. As a best practice and a simple way does not mean it's less efficient, does not mean it's less mature. It is rather the opposite. It's more robust, it's more stable, and it's scalable and proven across industries.
Maybe on the gross profit and gross margin. I think it's all the time very important to understand that at least at SAP, not all clouds are created equal. Therefore, when you have the impression that overall, our expansion on gross profit or gross margin is kind of back-end loaded, that looks very different model by model. We have models in the public cloud and the business network where we are already operating at scale and where we have a pretty steady progression of the incremental investments, which of course still need to take place if we are onboarding thousands and thousands of additional customers. There is some incremental investment, of course, there, but it's more already on a maturing curve, let's put it this way.
There, I think you see a much more steady progression than, for example, in the private cloud, where we have been heavily investing in 2014. There is still incremental investment occurring as we speak, and there we will see basically a break even to positive gross margins in the future. Then, of course, reaching this long-term profile. It depends really a little bit on looking at each model by itself, and each one has a different profile there that in sum, so to say, then determines how we will progress on the cloud side.
In the on-premise world, we are also still seeing the potential, as I've shown, to improve not only on the gross profit and gross margin, but also overall, I think we have a couple of important levers across the organization that I think will bring down the relative weight of operating expenses as a percentage of revenue in total across all of the business models. One is that notion of Run Simple that we are expanding upon. We want to steadily increase our share of productive core resources versus supporting resources across the company. I gave you that example of the analytics and reporting functions across the company that we're currently consolidating because we have now the tools with S/4HANA in place to really enable the organization for a much greater share of self-service reporting.
The same occurs in other overhead functions that we are really optimizing this, simplifying processes to load off more productive capacity to sales and marketing, to research and development core tasks, which will certainly help over time there.
In the cloud, there is on top the effect that I just highlighted, that as you increase on the curve of renewal business as opposed to net new business, especially in the public SaaS cloud solutions, you naturally get an increase of the operating margin through the reduction of sales and marketing expenses as a percentage of the overall revenue. These are all factors that need to be taken into account. Of course, it's a question, when will this growth curve start to slow down? I hope only in many years in the future. Steve will work his butt off, definitely, to make sure that this is not happening anytime soon. As well as in the other public cloud solutions.
As soon as this happens, of course, you can expect, as Steve has also said, to see an exponentially incremental impact in the cloud business that will start to kick in.
Thank you. Now let's take the question from Michael Briest, UBS, and then we go to Philip Winslow from Credit Suisse.
Thank you, Stefan. In terms of the cloud business in 2020, can you say whether you expect the business network to grow faster or slower than the average? Or maybe what proportion of the 2020 total will come from business network? Secondly, Bill, I think you were asked on the Q4 call about the use of cash. Obviously, we've got some P&L targets out to 2020. Once you've paid down the debt, what sort of uses of cash do you think you have? Is it possible that you'll have a large acquisition between now and 2020?
Yeah. Do you want me to start?
Yep.
I think if you think about the opportunity around the business network, which is obviously just a component of the overall current opportunity at SAP, I think you're going to see that the growth rate around the business network section will be as compelling as the overall cloud opportunity. In fact, even if you know some of these businesses from prior to being a part of SAP, the growth rates that existed as standalone businesses, not only at the very minimum continue at that level, but actually accelerating. I think, as I think about what do I expect out of the business network group, I expect it to at least maintain the growth rates we're at for years to come. Which, when you think about the scale opportunity, that's a fantastic position to be in.
Just on the cash, just to put the cards on the table. We have a history of paying down debt quickly. We'll do that with regard to Concur. We have the assets that we need right now, so you shouldn't expect any large-scale M&A activity from SAP. We accumulated what we had to win. S/4HANA is the jewel in the crown, and with the surrounding assets, we got the arsenal we need to beat anybody any day of the week in any industry in any corner of the earth. Having said that, is it possible that we could do tuck-ins and small stuff? I think that's pretty much a matter of course for a company of this size and scale, but I wouldn't anticipate anything big at this time.
Yep.
Maybe to complement this, what I see as our primary uses of cash for the next, let's say, 3 to 4 years, clearly priority 1, bring down the debt level. That's an ongoing process. Apart from the Concur financing, we have ongoing financings out of the previous Eurobond tranches that we have done, the private placements, that we will pay down as we go. The second 1, obviously, is to fund organic innovation. This will be the absolute priority for SAP for the next years. We have the assets that we need to really, as closely as possible, integrate. S/4HANA will be the nucleus, as Bernd has said, to really rally all of our cloud and on-premise assets around a common platform. That's what we will focus on.
Clearly, we have every ambition to give back also the appropriate share of funds to our shareholders, both through raising dividend as we progress year after year, as well as possibly then share buybacks in the future. For the time being and in the short term, clearly the top priorities are bringing back the debt and being able to fund the organic innovations. That's basically what you should expect for the next three years.
Thank you. We move to Philip Winslow from Credit Suisse.
Great. Thank you. Just two questions, maybe, Bernd, starting with you. Just building on Rick's question about just this whole replatform process and the rolling release. I've been getting questions about sort of comparing, contrast this replatforming cycle with maybe R/2 to R/3. What's similar, what's different? Also maybe compare and contrast what Oracle had to do with Fusion. That obviously took multiple years. Hasso talked about how you shrink the amount of code, those 400 million lines, because like getting rid of the aggregates and developing just for HANA. It sounded like maybe using some of the code from R/3/ERP in S/4. Just how should we sort through the thought of that rewriting that 400 million, obviously, which it doesn't sound like that's happening.
Yeah. Good question. I think what's similar is the massive opportunity with the technology change. At that point in time, it was from mainframe to client-server. This time, it is not just the change from a traditional row-oriented, disk-based database to a column-based in-memory store, as well with a persistency layer. As well, having a platform which have a massive amount of libraries, which I showed you today. Predictive libraries is a key asset. Planning libraries, simulation capabilities, Fundamental things which seems to be boring, like currency conversion, unit of measure conversion, they are all existing functions within the platform itself, which makes the platform tremendously rich, and which is building on what Alan was reporting from Shell, that with that open platform, it gives an opportunity to innovate.
What's different when we say, looking back, SAP R/2, SAP R/3 now going from the SAP Business Suite towards SAP S/4HANA. The difference is that we have took our lessons learned. We have massively simplified the data model itself. With that massive simplification, the order of magnitude of business value is significantly higher. Remember at that point in time, why did companies choose to go for SAP R/3? It was that they have chosen SAP R/3 with a main purpose to drive efficiency within the company to set de facto standards, which have been introduced across countries, across regions, across line of business. This time, it's not about efficiency. It is rather about growth. It's about introducing new business models. It's a tremendous push across industries from business leaders to reinvent the companies they are in, even if we talk with market leaders. That is the difference.
The question for us is: What did we keep and what did we change? We on purposely decided that the move from the existing suite towards SAP S/4HANA is staying with that nucleus of the data model consistent. When we have financial documents, when we have sales orders, when we have purchase orders, they reside in the same data structure. There is no migration, nothing. It just stays where it is. We just eliminated complexity around it. That makes it attractive. This was different when we moved from SAP R/2 to SAP R/3. That was as well another product. It was as well another technology. We did not keep the data model stable. From that angle, lessons learned from the past.
If we look forward, we assume that with that attractiveness in driving down cost of operations, in having the possibility to consolidate instances, which have been grown like mushrooms in some of our customers, it is as well an opportunity to make a case for the bottom line. Top line and bottom line are addressed, versus at that point in time, SAP R/2 to SAP R/3 was mainly the efficiency driver.
Got it. Then just a follow-up question for Bill. If I think about SAP's sort of stated strategy over, well, really until May of last year was a timeless software, kind of not a lot of change in the core, innovation around the edges. Back in May, here today, we're talking about innovation back at the core, and obviously with what Steve's doing, innovation on the edges, driving back into the core. How has SAP Simple Finance and even just your conversations today with customers around S/4 changed sort of the sales pitch or what the value that people perceive of the core versus the add-ons? How do you think that affects the growth rates of the two? Does it lead to more stability in the core? Does it lead to increased adoption of HANA, the database licenses? Or how just does this change, actually replatforming the core?
Yeah, I think this puts the core as the main thing again, the main thing is the main thing. Now we're back in growth mode. I think the idea of timeless software, the idea of this innovation without disruption, this constant messaging around the core is fine. Just leave it alone. Could have put us into a little bit of a state of complacency on the core. Because at the time, we were going for HANA as a platform. We were going for the line of business cloud. We made a move into the business network, and that was really the main emphasis around emanate from the core, but it's the edge innovation that people were very consumed with in the conversation. With SAP S/4HANA now, it gives us a whole new chance to talk about the core has been reinvented because of the consistent data model.
You can transition to SAP S/4HANA without disruption. Make no mistake, SAP S/4HANA is a new product. The fascinating capabilities of the applications natively built on HANA can do things in these industries for these business models to change the way companies run fundamentally. Now you're into what can I do in your industry for your line of business? What is the business outcome you're trying to achieve, and how can we get you there? We're into growth mode. I do think we're in a different conversation. Rob Enslin wasn't flying to Tokyo to do focus on the core meetings, and that wasn't happening all over the world until SAP S/4HANA. We're in a different place now. We really are, Phil.
Thank you. I think we have time for two more questions. I see in the back Walter Pritchard, Citi, then I would have John King from Bank of America Merrill Lynch.
Hi, thanks. Just had actually 2 short questions, one for Bernd. I think we heard with SAP Simple Finance that there was a little bit of a adoption issue around the general ledger, and there's a new general ledger that customers had to get to to get to SAP Simple Finance. I'm wondering if you could kind of update us on that as a hurdle, and are there any other hurdles like that in S/4 generally that require a customer to kind of go through some work that they previously didn't want to? Then just a quick one for Luka on the, I think the only thing I hear from investors on the guidance for 2020 that may cause some questions as to whether or not you can hit is the CAGR of 30% on the cloud.
I think one thing that could get you relatively easily is if there is a larger conversion of the core base to cloud. Understanding right now, customers are doing the bring your own, but as you get out in the out years, they may do more subscription on the core. I'm wondering if you could help put that 30%, or help us out with getting to the 30% around any impact from core subscription.
Yeah, happy to start with the first part of the question. As well, thanks for giving me the opportunity to share with you that with the new product, we have as well an opportunity to get rid of redundant functionality that resides in the suite today as we have built it over more than 2 decades. What you mentioned with the classic general ledger and the new general ledger, by the way, which have been introduced into the product, 2005 or 2006, we can debate how new it is. It is just 1 example of massive redundant functionality within our products. With a new product, talking to customers, talking to user groups, they all advised us we should take leadership.
If we talk about simplicity, if we talk about we should enable customers to run their business in the most efficient, effective, but as well, simplest version, we need to advise them. That was a mistake we did in the past. The new general ledger introduced 2006 have significant advantages. Therefore, going forward, we will take this as the go-to solution, and in S/4, this is the only ledger solution. We have plenty of examples in our system that contribute to that massive simplification, that contribute to clarity, and that, as well, contribute to ease of use and ease of consumption. We as well take ownership in providing pre-configured systems, as in many cases, we know what should have been done. We just did not deliver the configuration content and relied on an army of consultants doing it for us.
Why not taking leadership and then giving customers still the choice, as I have shown very shortly in the morning, that it is an option still to change the configuration, you can start instantly. Luka, hand over to you.
Yeah, certainly. On the CAGR question, if you think about it, what does this require us? Overall, from a macro perspective, more or less to keep the pace that we have been going with for the last two years. We were actually pretty successful. We had similar questions. I remember very well when in January 2014, we gave out our guidance for the year. We had a guidance that was at the top end of 32% growth, that I was facing questions of how realistic is that to get to that. From an organic perspective, we actually even went a notch higher than those 32%. We have proven in the past that we can successfully scale already what we have. We continue to believe that in the assets around SuccessFactors, Ariba, Fieldglass, there is clearly a lot of organic growth potential.
As well as we believe that we will continue to be able to add additional incremental growth for Concur, which is part of our business case, clearly. That with the combination of the SAP global reach, as well as Concur's proven methodologies and go-to-market strategies, we will be able to scale this business exponentially. This is some incremental growth that will come with that. Of course, there is the S/4HANA opportunity, this comes with two flavors. One, there is a completely incremental net new opportunity that is, from my perspective, not at all connected with shifting traditional on-premise revenue streams to a cloud subscription model. That's the public cloud option of S/4HANA. With this, we are able to address completely new net, new customer segments for very easy onboarding, which is an incremental opportunity.
Of course, in our, let's say, more differentiated solutions, we expect that over the coming years, there will be additional customers which will select for subscription pricing as an option. Absolutely true. These growth rates do not, by any order of magnitude, depend on these shifts alone. It's really a combination of continued strong growth of the assets that we have, the additional net new opportunity of driving Concur incrementally, having the S/4HANA public cloud option, some incremental subscription pricing, which will come via the HANA Enterprise Cloud.
The only build I would have on that is the stability of the customer support recurring revenues, and the fact, as Luka said earlier, there's a lot of customers that view SAP as a capital or a strategic asset that they wish to own.
Yep.
When they look at the net present value of a perpetual license of a strategic asset versus a rental or a subscription license for something that they might view more transactional, they are going to still weigh in the balance what's in their self-interest. There are many customers, and I am in conversations with them all the time, where we have no issue if they want to subscribe to the software, because on a net present value, we make more money.
I have a feeling they must have gone to MBA school because they figured it out pretty quick. There's always going to be this balance, and I can only reinforce to you that the core is more stable and consistent than some people have given the share price of SAP credit for. As a very important thing to mention, with S/4HANA, Phil, your question and the focus on the core, let's see. There's a lot that I think we're going to learn, but I can tell you one thing, the conversations with the customers right now are more rich, they're more innovation-oriented, and they're more pleasing than they've been in my 13 years at SAP.
Yep.
That's a good thing.
Maybe just as a last data point, since round about one and a half years, a little bit more, we have a so-called extension policy program in place that allows customers to easily convert, if they wish to do so, from existing on-premise deployments to the cloud, get a partial termination of maintenance in exchange to then a cloud-based subscription contract. It's very interesting what happens with this program, we have now, let's say, six quarters of data about that. First of all, there is a constant volume of such engagements. Secondly, it's not really a tremendous flood. It's round about a mid-double digit million EUR amount of maintenance that is converted to subscription. The conversion factor is actually above 2x, we are adding more than double the amount of subscription that we are losing on the maintenance side. Why is that?
Because on the really core parts, the stickiness, as Bill has said, of the solution is given. The customers use those options at the peripherals, so to say. In doing so, we extend the reach of the applications in the cloud that we are then substituting the on-premise deployments with. That's very much back to a point that was made earlier, that a cloud-based deployment model allows you to scale, allows a customer to scale also the usage of the applications much quicker than in a traditional on-premise deployment.
Actually for SAP, even in those scenarios, we don't lose anything, not even only on the revenue side, but even on the operating income side because in such scenarios, we actually broaden the reach of the usage of the applications and are able to drive higher subscription amounts than we were previously able to do on the maintenance side.
Thank you. The final question from John King, Bank of America Merrill Lynch.
Great. Thank you. I've got a couple of questions, if that's all right. Just one first to Luka. On the cost base side of things, you've talked a lot about the gross margins. If I could just return to the operating costs that you have there. You made some interesting comments around S/4HANA, that it was opening up potential cost savings. Could you just talk to that perhaps a bit more widely? Do you think there's an opportunity over the longer term, again, to perhaps grow the operating cost a bit slower than the revenue? If you could just give your thoughts on that'd be great.
Yeah, certainly. At the end of the day, this must be the intention in the long run, to grow your revenues faster than the expenses. Again, in the cloud business model, the mechanics work a little bit differently, as we all know. In the end state, of course, you should return to this idea. How can S/4HANA help in this regard? We have now a lot of early experiences with this. Through, as I've said, simplification opportunities, therefore increased self-service opportunities that exist. Think about the topic of analytics and reporting, which we can really now bake again into transactional processes and transactional responsibilities and not carry it as a separate function, so to say, outside of the core process responsibilities. This will help us in reducing overhead. Also further automation opportunities.
If you have a system that allows you at the highest level of granularity of a single posting node to assign, as we are doing it now with Simple Finance, for example, all different types of attributes on which you either want to trigger flexible reporting or on which you want to trigger transactional follow-on processes. It allows you to increase the potential for automation in the processes tremendously. When I think about a closing process, for example, when I think about the opportunity to have when I post a software license contract to trigger automatically because I have all of the underlying correlation data, and I actually assign all of these attributes at the granularity level of a posting node. When I can, at the same time, trigger the maintenance accrual process, for example.
When I can, at the same time, trigger even the commission accrual for the salesperson that sold this contract. If I can, at the same time, because I have the license rate, trigger the third-party license sales commission accrual for any third-party software that is part of this bill of material. I can massively shrink not only the time that it takes me to do the closing, but actually also the capacity that I need to have on this process. These are just a few examples where of course, on top of all of the IT-driven simplification and therefore lower cost of ownership of the IT landscape, we can drive additional opportunity for improvement on the OpEx side of the house. It's really IT TCO data simplification, therefore data footprint reduction.
It's on the business level, the increase of operational efficiency through higher automation as well as, let's say, the ability to consolidate tasks that previously had to be worked around the system and repatriate them really into the system and letting the system do the job. Then on top of that, and that's even more important, there is the ability to really innovate at the business process level for greater collaboration and therefore the reduction of interface losses, so to say, that you have. Good example is the collection process.
Where we have now an integrated application scenario that connects the information that we have and that we do from a collection perspective in finance with the front-office roles that we have with the account executives that can then use the same information basically in a very quick to grasp and a very easy fashion in order to work with their customers to get collectible items into the house. That's something that helps not only on the top line but also on the bottom line.
You had one follow-up, I guess.
Just one more. Actually, was going to switch gears to the business network side. You gave a good presentation, Steve, as to how those businesses can really drive value individually. What's the synergy that we should be looking for here? Why are you bringing these assets together, and what is the kind of end goal to bring those three, I suppose, fairly distinct businesses together over the course of the next five years?
Yeah. Let's start with this. The number one focus right now within the Business Network Group is to make sure we're best in class on a sustainable basis in every single one of the components of the Business Network Group, Concur, Ariba, and Fieldglass. The opportunity for synergy, though, is very, very substantive, right? One of the things that's a huge value in the acquisition of Concur is we have one of the largest sales forces in cloud computing, right? I mean, outside of Salesforce.com, we're one of the largest organizations when it comes to distribution. We think that in year one, the focus is going to be right now just for that sales organization to focus on Concur.
If we think about what happens in 2016, 2017, and beyond, there's a tremendous suite of applications and services that are available in the cloud, starting with the Business Network applications and services that can be delivered through that channel. There's massive opportunity for synergies there. On top of that, I think there's a really interesting opportunity to drive synergies across core services that are common to all business network opportunities. Things like identity management, things like analytics. Everything that's required to identify who you are as an individual. Distribution synergies, product synergies that exist here.
Nice job. Well, thank you very much for all your questions. This was quite a long capital markets day.
Sure.
The Q&A portion of it is now concluded. We would like that some of you at least join us for the social hour and the drinks outside. Thanks all for joining us here today, and have a good day. Thank you. Bye-bye.
Thank you, everyone.
Bill.
Thank you.