Good morning. Welcome everyone to our investor symposium here in New York City. My name is Stephan Gruber. I'm Head of Investor Relations with SAP. I'm very pleased to see a full house in New York City, more than 100 people, well beyond my initial expectations.
And this is despite the tough weather conditions we had yesterday. And today, the weather is, I think, very good. It's the perfect investor symposium weather. So we haven't been doing these events for quite a while. We always invited people to come to our headquarters in Germany, Waldorf, in Newton Square, Pennsylvania, Palo Alto.
And we felt it makes sense given all the momentum we have in the company to put this all in a broader platform. And so the theme for today, I'm not sure whether you can see this here, but it's on the agenda, it's the customer driven transition to the cloud in combination with a very solid core driving the profitable growth at SAP. And so let me take a moment and walk you through the agenda for today. I think you have the handouts in front of you. The event will be started by a presentation, Bill McDermott, our Co CEO, talking about the strategy and vision for SAP.
Then we move to the innovation side of the house. Innovation is at the heart of any large cap technology company, but in particular for SAP, we have Doctor. Vishal Sikka, a member of the Executive Board, talking about the product and innovation roadmap. And he will be joined on stage by Bernd Leukert, who is in charge of application innovation as well as Sanish Mondkar, who is in charge of the LOB applications development. Then we have a short break, and we move on to the go to market priorities 2014, a presentation by Rob Enslin, the President of Global Customer Operations.
And I'm particularly pleased that we'll be joined today by a long term SAP customer, Mindy Simon, the VP of Information Technology from Konarkar Foods. She will talk about the strong relationship Konarkar has with SAP and about some of these strategic projects they did over the last years. Then to round up all the portfolio discussion, we have Sean Price talking about LOB Cloud Apps and Tim Minahan on the Business Network, which I think is an underappreciated element in our story. Hopefully, you walk away with much deeper insight into the business network story at SAP. Before we move to the final FAQ, we have Luca Lmutzic, our future CFO.
He will talk about the financial model and not only about the shift to the cloud, but also how SAP will drive a much higher share of more predictable and recurring revenues in the future. And for the final Q and A, we will be joined by Co CEO, Jim Hagemann Snabe as well as our CFO, Werner Frond. So this was the agenda so far. Usually for my introductory remarks, I have the housekeeping items and I have to look at this little piece of paper. So the Investor Symposium is completely webcast on the website.
As we are a sustainable company, no handouts of the presentation, but we will publish them on the web at 1 p. M. Eastern, 7 p. M. CET today.
And for those of you who are on the web, please send us questions by email to investorsap.com. We try to take some of your questions later on for the Q and A. And finally, it's a safe harbor statement. This is a long version. I have a short version here to move to the more important stuff.
Please note that except for certain information, matters discussed during today's conference may contain forward looking statements that 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 future financial results are discussed more fully in our most recent filings with the Securities and Exchange Commission. And now it's my pleasure to hand over to Bill McDermott, Co CEO of SAP. Thank you, Stefan.
Good morning. Good morning, everybody. Thank you very much, Stefan. I want to welcome you to this investor conference. It's great having you here.
4 years ago, Jim Hoggeman Snabe, my partner and good friend right here, the Co CEO of SAP, and I along with the Global Managing Board came up with the winning strategy for SAP. And it started with a winning dream. The winning dream was to make the world run better and improve people's lives. We felt that that was something we could do because we were global, we were in all industries, but we also wanted to bring technologies to the world that made people's lives better, made them more productive, made their experiences with our software better. And I think we've come a long way.
We made some bold moves. In 2010, as you know, we bet on innovation as our lead strategy for the company. If you look at what we have done, we've tripled our addressable market between 201020 20. And we come with a track record today, ladies and gentlemen. Let us lay that out for you a little bit.
We've had 4 consecutive years of double digit year over year growth. We have gained market share in all segments. We've grown the revenues of the company in the last 4 years by more than 70% and our share price has increased more than 80% and we've expanded our margins. But best of all, we have you in a great marketplace that is a $350,000,000,000 market opportunity. We did not sit on our laurels as the number one applications and analytics company.
We knew the world was going to go mobile. We knew database and technology would be a driving force with data doubling in the world every 18 months. So we invented HANA to completely change the game and we went into the cloud and where we did not have the assets we needed for the customer, we bought the best ones in the marketplace and we went for growth. And you saw this in our move with Sybase in the mobile platform. You saw this with SuccessFactors and Ariba and the story now continues as we go after this huge addressable market.
As we think about where we're at right now, we as a global managing board, as a leadership team know it is time to take our strategy to the next level. We feel that we are a beautifully positioned company because if you look at this world that we're in, it's a complex place. In fact, complexity is the most intractable issue of our time for CEOs trying to run companies and grow companies. So when I think about what customers are looking for and I talk to them every day as does the Global Managing Board of SAP, they are trying to get this complexity out of their lives. They're trying to simplify things so they can execute their plans.
The on premise model is still a growth model, but it's slower in terms of the customers' ability to consume innovation and adopt new technologies. So customers with the business and IT landscape complexity are looking for answers. They're looking for the company that can unify the enterprise, simplify the complexity and help them grow. I think this picture really underscores what simplicity means to SAP. Think about 5,000 customers going live within 24 hours.
That's what we did with the latest upgrade of SuccessFactors. Think about billings growth at the end of Q4 growing at 50% on a year over year basis. Think about 39% software and subscription cloud growth in Q4. And what's interesting, yes, I normalized for Ariba, so that's the real run rate number. Think about 35,000,000 users now running SAP Cloud Applications, more than any other company in the world.
And think about 1,400,000 companies, buyers and sellers trading on the Ariba Business Network. We are a formidable company in every capacity, but the cloud is where we're taking the company. Why are we doing this? Because it offers instant consumption, instant innovation and it helps companies grow. It simplifies everything.
And when we think about simplifying everything, we always think about the SAP Cloud powered by HANA. HANA is the greatest simplifier in the IT industry today. It radically simplifies the IT stack. How does it do that? It radically reduces the data footprint, the need for hardware and it simplifies the code.
You don't need so much unnecessary stuff And Vishal will take you through the HANA platform story today. We're moving our core business to the cloud on the HANA Cloud Platform. And SAP will take ownership to help the customers simplify their businesses. And we will focus on business outcomes for our customers. They really want to know what all this technology stuff is going to do to reduce their cost, make them operationally more excellent and then drive shareholder value.
And no company has the knowledge base and the domain expertise in this industry to deliver on that promise more than SAP. So we're bringing it. We're bringing it with everything we have. Now here's an example of how we're going to simplify everything, so we can do anything. If you look at the solutions on HANA, there's one HANA platform now, only 1.
We're simplifying our 5 market categories in applications, analytics and we're putting everything on to our future HANA. You'll see mobile everywhere and mobile is the preferred user interface and the user experience that we give to our clients because they're mobile and they're on the move. And we're focusing on end to end business solutions by line of business and industry. So we'll be able to talk to you about your industry and you specifically about your line of business domain in incredibly clear terms in ways that inspire you to want to do business with the market leader SAP. So the big question then is, if you go in so strong in the cloud, you're simplifying everything so you can do anything for me and you're going to put your core up in the cloud, what else are you going to do for me?
Oh yes, you can have it on a subscription basis. We'll give you the whole enchilada in the cloud and we're happy to have you subscribe to it. Luca later will take you through the pricing conventions and the modeling on this. And what I really like about this story is we'll still grow the core while we make the transition to the cloud. And I thought a lot about this from your point of view.
You tell me what other software company you've seen in the world that can still grow the core, make the transition to the cloud and hold the company ever profitable. SAP can. SAP will. So here's the picture I like. End to end cloud, public cloud for line of business executives, SAP Cloud powered by HANA for enterprises all over the world, HANA as the cloud integration platform, HANA as the new platform for applications.
And remember one thing about this business, In the end, the suite always wins, always has, always will. Now you're going to be able to unify these applications in a beautiful, ready to run, easy to consume cloud format. So when I think about examples of the suite always winning, I think about a call I was on yesterday with 1 of the big CEOs of 1 of the largest systems integration companies in the world. And he was actually in the process of shopping another company in the HR cloud space against SAP. And we got into this whole conversation about workforce scheduling and optimization.
And I said, well, how are you going to handle workforce scheduling and optimization? I get it. It's a nice toy and it's easy to use. That's fine. You got how many thousands of people and how many theaters around the world and you're trying to do what would the utilization rates and optimization in that workforce?
How are you going to do that? Well, I don't know. Well, you get the memo. They don't have that. And by the way, you're going to want to look at real time analytics to understand how productive these people are, right?
And what their margin rates are and what their billing rates are, right? Yes. Well, they don't have that. So, what we're going to do is we're going to assert our will. We're going to start letting people know what the other guys don't have, because we're right on it in the cloud.
And I think this is going to create complete havoc for the competition. So I think the future of the cloud is the integrated enterprise. If you think about our history at SAP, the beauty, the elegance of SAP has always been based on the integrated enterprise. Now the integrated enterprise move to the cloud. But if you have on premise software, which we expect most of our customers will continue to have, we can integrate that seamlessly into the cloud on the best platform in the world, HANA.
We like our position very, very much. So, when I think about the customer and the obsession we have with the customer, we're going to give the customer one digital experience. We'll know her or him and a universal profile when they come in as a prospect into our digital world. We will look at an end to end view of digital marketing. We'll give the customer the try before you buy.
And keep in mind, this one profile is pretty nice because today there's probably 1,000 of them out there to tell you the truth and that's going to get cleaned up. Simplifying the sales experience. As you know, we have a large sales force. We've also done some strategic M and A. We've now moved to a model where we have one face to the customer.
Rob Enslin will take you through this today. This includes our on premise and our cloud sales force. So when the customer deals with us, it's a very intimate relationship with shared values and common goals. The people that call on the customer care about the same things and they're paid the same way. So that objection is off the table.
We're multiplying our cloud DNA now across 5,000 salespeople And we have a one solution approach. We are not taking spare parts and falling into the hands of the competition who says SAP can't get their act together between the on premise and the cloud. No, no, no, no. We'll have one clear story. We'll lead with the cloud.
And therefore, when the customer sees SAP and the formation of SAP, there's no lack of clarity or intent. The delivery experience, we're simplifying the delivery experience, so we standardize the cloud delivery for scale. No company in the software industry has ever scaled the way SAP has scaled. And if you ask anybody, whether they're in Beijing or they're in Heidelberg, they'll tell you there's no customer support organization like the one Gerd Oswald runs. Now we're bringing that same bandwidth, that same support, that power to the cloud.
We're going to focus on the best outcomes for the customer and one service organization across SAP for on premise and cloud will drive that customer experience. We want that customer satisfaction, that loyalty and that net promoter score at an all time high. We're simplifying the support experience with consistent support contracts across the company for each of the customers. One single support experience. We're bringing industrial strength, SAP support to the cloud.
I talk to our customers, they love this. The fact that it's a seamless relationship, one contract and they get the best. And the HANA is our platform for support. Let there be no doubt, SAP HANA is our platform. We think it will be the de facto standard in memory platform for the world.
And Vishal is going to bring it today with a lot of passion to tell you why we believe that. And we're focused on growth. Let's be clear. SAP is a growth company and it is our intent to remain a growth company. When you think about collapsing the IT stack today $0.90 on the dollar goes to hardware and services.
Does that make any sense? Who here has met any CEOs lately that are looking for some more hardware? Anybody? No. Anybody meet any CEOs that are looking for more consultants running around ringing the cash register?
No show of hands. So we are going to collapse the IT stack on HANA, increase the share of wallet of SAP because we can actually get a much greater wallet share in each of these accounts. Today, if you look at our best customers, about 5% of their IT budget goes to SAP. Why not 20? And why not overall lower their cost, so they can invest something back in innovation, changing their business processes, connecting with their consumers, making more money?
So this is where we're going with the company. I want to make a special announcement today on B2B2C. Hear me out. Sales automation, that's good. Commodity, we've got it, they've got it, everyone else has it too.
The new world is omni channelecommerce. I deal with my consumer in any channel. They come into me through someone else's website or mine, I know who they are. They come into me through wholesale, through retail, I know who they are. I can build loyalty, I can build an experience, I can build unbelievable wallet share with every consumer I do business with And I can conduct e commerce transactions, which is easily the biggest and fastest growing market in CRM.
And I can fulfill in the supply chain and make my customers thrilled to do business with me. That's omnichannel e commerce. That's why we bought Hybris. Hybris is a runaway growth story. And we're going to bring our customer experience to the cloud with omnichannelecommerce and we're taking on all comers in the cloud.
And yes, we'll have the sales automation too, it's commodity. I had this dinner in Spain and my team said to me, you know, Bill, salesforce.com has decided that it's game over in CRM, that they talk to customers and they have declared that it's game over because they have all the references. And I thought it's interesting, I once was pretty close to a company that said the same thing that it was game over and that was before salesforce.com was in business. So we're redefining the customer experience and CRM in the cloud. It's omnichannel, it's e commerce and SAP is in it to win it.
We're going to focus on industries like never before. It's always been our strong suit. But in the last 4 years, Jim, we've been a little busy on other things in our portfolio. But we're back to basics. And when Bernd Leuker tells you about what we're doing in industry, financial services, retail, public sector, healthcare, obviously, Manufacturing and CPG and the traditional ones, but we're building new bridges and formations in the market with a lot of industry leaders in these industries to grow very fast.
And I want you to know in the emerging markets, if you say, well, how are you going to keep this core going, make the move to the cloud and stay on top of things? Well, if you think about the BRIC countries, if you think about Middle East, you think about Africa, ask customers. We are the standard. And those markets are going to grow a lot faster than the mature ones. So, if we can reawaken our purpose in industry, be the standard in the fastest moving markets, hold our strong position in the core and the established markets and reinvigorate growth in those established markets by taking the action to the cloud and changing the world to in memory and real time enterprises, we lack our position.
So in summary, our strategy has never been more clear. We have never been more passionate, more awake, more energetic, more ready to win than we are right now. We're transitioning this company to the cloud. This is SAP, the cloud company powered by HANA. We're confident on growing our core business.
We will focus on profitable growth. You saw our midterm guidance through 2017. We make all the transitions, we keep the place growing, get you to your 35,000,000,000 by 2017 and we give you a $3,000,000,000 to $3,500,000,000 cloud company by 2017. We are focusing on gaining market share. We are, as Kash Rangan said in his research report, the fastest growing mega cap IT company in the world.
We are also the fastest growing mega cap IT company in the cloud in the world. And we feel like we're just getting warmed up. So with that, I also want to point to the excellence in this management team. I'm deeply honored to work with these individuals because they deeply care about this company. And one of the things I think we do better than anybody I know is role model that affection for each other, the customer and the business.
I think we've done that beautifully at the co CEO level, but I also think there's been a tremendous, tremendous sharing of insight and intellectual firepower between Hasso Plattner, the Chairman and the Founder of the company and Vishal Sikka, the man I believe to be the great innovator of this generation. And without further ado, I'd like to welcome Vishal Sikka to the stage. Vishal? Thank
you, Vishal. Thank you, Vishal. Thank you, Vishal. Good morning, ladies and gentlemen. One of the great, great challenges in life is to follow Bill McDermott on stage.
And I have the privilege to do that. Thank you, Will. I Head Products and Innovation for SAP, so all the products, software development. Is fundamentally and pervasively reshaping the world around us. Nicolas Negroponte wrote about this in 1995.
He already saw it back then that atoms physical things are deconstructing into bits into digital And we see that in books to music, in online stores, in physical stores to manufacturing. In every industry, software is taking over and physically reshaping it. Some industries have completely disappeared. It was one of the somewhat shocking events last year was when the Washington Post was purchased by Jeff Bezos personally. And so media, content and other industries are merely being transformed.
And this is happening because of software. So we as a software provider have a very distinguished role in helping accelerate the reshaping of the world with software. Computing and connectivity, Bill already talked about the fact that people's personal desire or competence to manage hardware infrastructure is just not there anymore. Computing, infrastructure and connectivity are being delivered at a very at a massive scale around us and as a service. The big 6 cloud companies in the U.
S, consumer cloud company Amazon, Google, Facebook, etcetera, In 2011, we're 1 third of the purchasing of infrastructure by the telecommunication companies. Within the next 18 months, they will surpass the purchasing of all computing infrastructure by the telecommunication company. And this creates an unbelievable opportunity of simplifying delivery through the cloud and the economics of that delivery. And finally, technological advance always empowers end users. We look back all the way back to the Industrial Revolution or even before that, every meaningful advance in technology leads to an empowerment of end users, people do more.
There was a time not too far ago, not too long ago, when in order to drive a car you had to be a mechanic because the car could break down any moment and stuff like this. And now everybody obviously drives a car. As technology progresses, end users become more empowered. But as end users do more and more, their demand, their need to understand what is going on becomes even more pervasive. And therefore, the fundamental lesson that we have taken away, which materializes in the notion that Bill talked about of complexity, is that experience must be at the heart of what we do.
Experience over everything else, the experience of the customer, the experience of the end user must be at the heart of what we do. The overall experience, but experience above everything else. So when we look at the emergence of that world and our position on that, what are the unique things that SAP has that SAP brings that nobody else can. When I joined SAP 12 years ago, Hasso told me that we had just celebrated our 30th anniversary. And he had told me at that time that we had 100 or so customers Bayer, BASF, Rufthansa that had been with us for more than 2 decades and we hadn't lost a single one of them.
Some companies go out of business, but the ones that were still there were still our customers. And recently we celebrated our 40th anniversary and we have every one of those customers. It's still there now with us for more than 3 decades. So we have a 42 year history of delivering innovation, mission critical business innovation without disruption and being a distinguished provider of business software. So that principle of timelessness of delivering software in a non disruptive manner no matter how radical the innovation is, is at the heart of what we do and we do that better than anybody else.
You look at the adoption of other competing enterprise software and why that is not picking up whereas the numbers that we get to and you can see that in the reality. The second fundamental advantage that we have is the principles of design thinking. We always had that when SAP was around in the early '70s. Everything that we did was built on design thinking. And now we have a formal name for it, a formal methodology around it started at the Stanford University School For Design.
It's actually the Haswell Plattner Institute For Design. And Haswell is one of the great champions of this. And it is more than anything else a recipe for creation of beautiful innovation, purposeful, great business relevant innovation. And we deeply believe in that. And we deeply believe in that internally inside the company and outside working together with customers.
And Mindy will be here later. Will talk about an example of that. We believe that we are ahead of this and better at this than anybody else in the world. And the 3rd fundamental advantage that SAP has that nobody else has is ARM. The R in SAP's history was always for real time R1, R2, R3.
We always, Hasso and our founders and then later other leaders, always took the right technologies for their times to deliver a real time for that generation to the world. We believe that with HANA, we have the next real time for our times. The reason for that and this year in 2014, everybody in the database industry will all of a sudden wake up and start to talk about in memory databases. Many of them distinguished builders of databases for sure, but many of them first mocked us, made fun of what we were doing, accepted us. And they went through this very interesting cycle of Indian accepting and then following us.
And some of them for the first time in their history actually pre announced their products. I actually had not heard the phrase pre beta until Oracle announced this 12c thing. I don't think they ever did a pre beta, pre beta, solator, don't matter. So the HANA effect is that it is a natively designed in memory database that is designed to take advantage of the massive power of modern computing, Multicore Processors today, the new Ivy Bridge Processor from Intel has 15 CPU cores on it. On 8 socket machine, you get 120 CPU cores.
IBM just announced actually before they sold the hardware business to Lenovo, they had a launch in January of the X6 line of servers, which has 120 CPU cores on it. And that unlimited scale massively parallel natively in memory architecture of HANA, which inherently the other database vendors cannot provide, gives us an incredible advantage. And that advantage means that we can offer a single platform for analytics and for transactions. And you will hear this year other database vendors talk about how an in memory columnar attachment and even a real time in memory columnar attachment to a normal database is a good thing and that it is a good thing for analytics. And the fundamental point that they miss is that an in memory columnar database is not only good for analytics, it is actually even better for transactions.
And this point they cannot accept because it is fundamentally disruptive to their core business. HANA can be the single foundation for all data, transactional data, analytical data, structured data and text data, geospatial data, time series data, any kind of data. And it can simultaneously help us renew legacy landscapes and get into areas that are completely unprecedented as the world gets reshaped by unbelievable go to market machine headed by my friend Rob has meant in just about June 2011, Rob, so that is not even 3 years, 2.5 years since HANA went generally available. We have more than 3,000 customers, more than 1300 implementations, 1,000 additional ones on the cloud instance of HANA and the HANA one instance, tens of thousands of developers. Actually recently 100,000 students in China took the in memory class that Haso and I do.
And perhaps the most inspiring aspect of the whole HANA journey is the fact that more than 1200 start up companies are running their entire company on HANA, building their own products on HANA. Now you have when you are a start up company, you cannot afford multiple technology choices. When you make a bet, it is a more often than not a do or die bet. To have 1200 startup companies make a do or die bet on HANA and take us into really amazing uncharted territories is something that has been quite inspiring. And of course, several months ago, HANA already crossed €1,000,000,000 in revenue faster than any product ever in the history of enterprise software.
So what we have done is we have taken that success and taken that burden. I always joke about Hana being my little girl and she carries quite a big weight on her shoulders, is we have taken that over the last several months and turned it into the next generation enterprise platform. We have taken HANA far beyond the database into a real enterprise application platform. Now Werner and Luca and their team recently in August on the 8th August last year did an extraordinary thing. They we moved our ERP system, our internal ERP system to run on HANA.
So since the 8th August last year, 67,000 employees do their work on our ERP system, which is now running on HANA. And we made if I can switch to this thing, please. We made some very interesting discoveries. So our previous CIO used to tell me that the ERP system on DB2 used to run, it was more than 11 terabytes. And the first thing that we noticed, it runs on IBM's infrastructure and the memory utilization has never crossed more than 1.5 terabyte.
So this is about 7 times smaller than it used to be. But the really amazing part of this journey has been the fact that we can simplify the applications. Bill talked about this, the dramatic reduction in the code. Ben Leuker, who will join me on stage in a minute, and his team have been doing this amazing project to simplify the business suite, the most complex, most mission critical business application in the world and dramatically simplifying that. When we look inside an application like ERP or like supply chain management or CRM, We find tons of things that are simply there because the previous generation infrastructure was not fast enough.
Aggregates, indices, Hassel told me this back in the August of 2006, actually that's where the name HANA comes from, was not the database, but what the database could do to the applications. He told me, Vishal, I want to rewrite financials for the 4th time in my life back in 2006. And he said, because there are all these totals, weekly totals, monthly totals, quarterly totals, all these totals, aggregates that we do and that are physically materialized inside the application and then replicated in data warehouses and analytics and so on simply because the databases were not fast enough. And if you had a fast enough database, you would of course do things on the fly. You would do things just in time like every walk of life becomes just in time over time.
Application calculations, aggregations have to become just in time. So what we find with the simplification of ERP is that massive amounts of code, massive amounts of tables, massive amount of the footprint can be completely eliminated. And we expect that the ERP system will become more than 30 times smaller. And that means we liberate these systems. That means we liberate the users.
When you are working directly on the raw operational data, you can ask any questions that you can think of. You can find out what happened in New York, what happened to sales of a particular product in New York, happened to sales of a particular product in a particular part of New York at a particular moment in time and how that compares over the last 8 quarters. All these things can be done on the fly. And it is just amazing over the last couple of months, Bernd and I very closely together with Hasso have been rethinking the experience of financials. And I cannot talk more about this today, but hopefully in the near future we'll be able to share with you some extraordinary results of what this can mean to the very core of what we do, not only ERP, but financials.
And in parallel to that, our CRM system also runs and Rob his entire business as well as our service and support run entirely on HAMA. And when you see that today, we get the benefits of these individual systems or all the entire business runs in real time. But what we found was that almost 40% of CRM's tables data is in fact a redundant replica of what is in ERP anyway. It has to be whether no matter what system you run your CRM on, this data is a copy of things that are already in other systems and the simplification that we bring to CRM itself. So the CRM system will become a much simpler, much smaller part of the landscape and this entire thing becomes 1.
And of course, data warehouse, we use BW. For the last 18 months, BW runs on HANA. And in the world of HANA, once we achieve this simplification, actually the content in BW will be completely wiped out because it is all coming from these other systems. Only the models and the data that you have built up, the reports, the queries, the definitions stay. They simply point directly to the raw operational data.
So the simultaneous simplification and reduction in footprint and the dynamic nature of the resulting landscape is such an impressive opportunity, such an incredible opportunity for our customers that we are incredibly excited about that. And of course, that is obviously a tremendous growth opportunity for us. So based on that, we have been completely rethinking our entire landscape. When you look at the customer landscape today, we believe that all of this stuff will all be wiped out. The landscapes will become dramatically simpler.
Of course, all this other crap will go
away
and be replaced by HANA, which has become more than database. Of course, the database services are the core part of HANA, but the application services and all these libraries these abilities to calculate massively parallel on the fly statistics, text, geospatial stuff, all these the application libraries and now the application services, meaning the application server is inside the same landscape, gives us an incredible opportunity to simplify things. So we are moving all of our products, all of our applications on to HANA and that includes the cloud applications, the Ariba, SuccessFactors, Cloud for Customer, all of our applications move to HANA. In fact, this benefit of this incredible improvement in the footprint is something that is so promising that we merged our entire cloud operations, the cloud delivery operations into one team under the leadership of Bjorn Gherkin. The cloud of SuccessFactors Ariba, what is publicly available to customers as well as the enterprise nature of the complex system, the ERP, BW supply chain, all of this runs on the same physical infrastructure in 15 data centers around the world, all on the HANA powered simplifying real time dynamic infrastructure.
That is what we are doing to the application landscape. But the nature of Nihana as a platform goes beyond running the infrastructure and simplifying the landscape. Once you do things like this, people's imagination becomes unlocked. They do much more with their applications. So to extend the systems, to personalize the systems, we have brought these platform capabilities in the HANA Cloud Platform The platform as a service that becomes a single extension environment for all of our applications, so that customers, partners can attach extensions to these applications.
They can attach new views, UI, new analytics, new mobile interfaces, new mobile applications all from the HANA Cloud Platform as a Service. And this gives us an incredible opportunity to simplify the experience and to understand what customers do. When the systems become simpler in real time, we have a much better ability to personalize things, to reshape things, to reprioritize things for customers. In a world where we come from, where the experience that we have delivered has been disconnected from the end users, You deliver the software to the IT teams, the IT teams bring partners in. And by the time end users have touched your software, months, quarters, even years have gone by.
In the world of the cloud, we can completely get rid of that complexity and directly manage the experience of our customers. But that experience means that the experience of end users has to be addressed. And last year, Bernd and I delivered the first Bernd 190 or so of these Fiori applications true to the principle of timeless software. By the way, the gateway product that we launched, that was the first product I built at SAP now has almost 10,000 development deployments, productive deployments. And the gateway allows us to totally redesign the experience of the end users on top of these mission critical systems without disrupting the mission the ERP systems.
So we can completely rewire the experience of every product with the Fiori paradigm and that gives us more than anything else a great experience, but it gives us the opportunity to go into new frontiers and release that the investments liberate the landscape, achieve the savings so that customers can bring the investments where they really need to which is in these completely new areas. So that is basically the paradigm that we are after. This technology, this platform, this architecture that I just outlined gives us an opportunity to go into 5 totally amazing and exciting growth areas. The first one of course is HANA, the platform. We believe that there is a tremendous opportunity to deliver the next generation enterprise software platform.
I look at the world that is being reshaped by software and I find that there is no clear software leader anymore. Our lives are governed by more and more software, by apps and so on. And yet when you look at who built that, what platform was it built on, there isn't a clear leader. We believe that with HANA, we have the opportunity to be the defining enterprise software platform leader for our times and we are going after that. Just as HANA gets rid of batch processing in enterprises, actually software development is an ultimate batch process.
This can be radically simplified. Cloud services, I already talked about this. With the SAP cloud powered by HANA, we have an opportunity to not only manage the experience of our customers, but also achieve a significantly better share of wallet from our customers. And perhaps the most exciting opportunity, because it brings our entire installed base forward, it enables the evolution of our when we talk about the better part of the world's GDP flows through the through an SAP system somewhere in its lifetime that is going through our core applications. And the opportunity to renew to carry out a pervasive and massively simplifying renewal of this landscape of our core applications is just a huge opportunity and an incredibly exciting opportunity.
And to talk about that, I want to call on stage the architect of this renewal, my friend and colleague, Bernd Leukert. Bernd?
Thank you, Vishal, and good morning as well from my side. I think, Vishal, it was roughly 1 year ago, it was January 2013, when we launched the business suite on HANA And when the IT world doubted that we might be able to deliver a new innovation platform called HANA for analytics, But there have been questions in the world, is SAP able to build that platform as well for the analytical business? And 12 months, 1 year later, I want to share with you that the core of our growth business, the business suite itself has achieved great momentum. Actually, we have already more than 800 customers who are using the business suite on HANA and enjoy the value of that great innovation day in and day out. And while we launched it internally, we put it into general availability at Saphyr, which was end of May, beginning of June.
So since that time, we have now more than 50 customers already live. And I'm proud to share with you that the number of life system is accelerating significantly week by week. And in addition to that, the number of customers who start projects who rely their core mission critical business on that system is massively accelerating. We shared SAP is putting their business on HANA with more than 65,000 employees, but we have as well customers with more than 100,000 employees who run their mission critical business on Business Sweden HANA.
The
which is in the center of gravity as you can only grow in the edges if the core stays healthy. And we see that a lot of customer has built a HANA roadmap, where they innovate together with us, where they put their complete IT environment on a roadmap and bring it on to HANA. But not just the customer itself, as well the ecosystem, which was the main accelerator for growth in the R3 growth history is massively investing into that HANA capabilities, into building new application, into building not just additional add ons as well helping our customers to get the maximum benefit out of it. And we have more than 7,000 partners already trained. So the momentum is clearly visible.
And while we as SAP have the DNA, which is built on innovation and which is built on growth in the heart of how we work. I think in the last major breakthrough innovation, which was the introduction of client server technology and made client server enterprise ready, the next big thing is really that we make the enterprise cloud computing enterprise ready powered by HANA. And with that, we reach billions of users, but not just users. We reach machines. We reach communicating products.
We reach the digitally empowered customer, which is then what Bill shared with you, the driver for e commerce in the CRM business. So this means that we put the individual as the digital user at the center of our future investigations. And that next wave of innovation has been driven in the past by a standardization of business processes with the client server technology. And I would say the user stood at the very end of the process. It was more that the innovation was driven by business from business to channel, to markets, to customers and then to end user.
But that vector of communication has been completely changed. It has been reverted. And now the user is the driving force that requires a fundamentally different thinking from a passive consumer to an active participant of innovation. And the digitization of Complete Industries, Vishal was already talking about, it will lead to a data oriented business model, to a data oriented business model, not just at Apple and iTunes, I would say across all industries. And that data orientation will drive the transition into the future.
And if you consider that data oriented business model is the driving force for transformation in the future, Simplicity has to be in the core of the design of applications. Simplicity in structure, simplicity in surface, simplicity how users interact with the system. And therefore, the simplicity of our products is the driving force that makes us possible to bring our core business into the cloud, which means for us, it starts with a simplified user experience. It continues with massive simplification of individual applications, but as well with a massive simplification of the complete IT landscape. While in the past, SAP, but all the other vendors showed great innovations, but on the other side added complexity to the landscape.
With HANA, this is fundamentally changes. And the cloud allows us as well to simplify even individual customer systems, not shipping just a complete core business suite to the customer, maybe tune the individual customer systems based on best practices with industry flavors, with localization flavors of countries and so on. But let me start with the user experience. I think, we shall we started a project called Fiori and Fiori is not a product name. It's a new philosophy.
It's not about making the interaction of a screen nicer, putting some icons on it, changing the color like in fashion. This year it's blue, next year it's red. It's not that kind of change. It's a fundamental understanding of how the end user wants to interact with the system. What is the real task the end user wants to achieve?
And we have already shipped until end of last year more than 190 of these Fiori applications, which in individual customer situations covers more than 80% of the usage of an SAP system. And we will continue to drive that user paradigm into the way we work. But we continue to do that as well in parallel with that massive simplification of the application. All that what you saw on the drawing board, all that unnecessary waste, which consists of aggregates, which consists of indices, which are today coming in applications will disappear, which will lead to a massive reduction of data footprint. And you talked about financials and I can share with you that we measured on real customers the data footprint in a financial system of ERP and it was reduced by a 100 gigabyte system is now a 10 gigabyte system without taking away any functionality from the end user.
Can you imagine the ease of use, the ease of consumption, the ease of interaction of end users?
Unbelievable.
And only that massive simplification of individual applications then allows us to massively simplify the system landscape. There was no customer, there was no end user who was asking SAP or the IT industry to separate the analytics and reporting from the transaction of business. It was only a technical constraint that the IT industry decided to introduce Business Information Warehouse to replicate data, to build aggregates and to give executive reporting on these structures. But now with that technical capability, we can give customers the choice of a system consolidation. And of course, we will make use of that massive cost reduction as well in our SAP Cloud.
In addition to individually check what part of the systems are the customer really using, do they do business in Brazil, are they in automotive, are they in healthcare, are they in oil and gas, allows a further simplification, which is technically possible with a componentization of our suite. So all in all, it's a fundamentally renovated renewed business suite, where the user experience is the driving force, the user experience of the digitally empowered end user, which enables us then to bring the most comprehensive business suite covering 25 industries in the world into the cloud. The next question you might ask, how is this new simplified business suite getting in touch with our customers, what is the real benefit for the customers. And that massive simplification is only working if SAP can provide a non disruptive way from the current business suite into that lightweight simplified business suite in future. So allowing ease of move, allowing taking away the business risk of such a move is a fundamental thing which our customers are asking for.
And that's why Vishal and I decided to put the engineering challenge on all of the thousands of engineers in our company on more of 20,000 people. They have that engineering challenge on making this non disruptive move from a technical perspective, a disruptive move for the business with unleashing huge amount of value. But we not only renovate the existing core processes that would not be enough. And if I'm in conversation with customers these days, and if these customers accept that we have a data driven business model in futures, I always give them the advice that they should not fight tomorrow's war, tomorrow's competition with yesterday's technology, with yesterday's platform. So that would be a stupid thing if customers would do that.
So this is as well the message to you. The winners will be who fight tomorrow's war with the most modern technology. And this is an in memory based innovation platform where database services are a prerequisite, but are just the capability, which is enhanced by a lot of additional capabilities we use and which are necessary if you want to be a leading company in the consumerization of IT. On the basis of that simplified business suite, we are able to build new smarter processes. I would even say R3 defined the industry best practice across 25 industries.
It invented that way of working in many companies globally, in the biggest companies of the world. And SAP is reinventing how these core business processes run with Business Sweden and HANA these days in companies. It will allow to embed real time analytics and reporting into the transactional business. And it will allow to include the social connectivity. It will allow to grow and to integrate the accelerated volume of pictures of videos in these days.
And it will allow to accelerate to make use of the big data assets in real time. So we will continue to invest in our industry strength and especially in these areas where we see the biggest growth. And this is clearly in the financial service sector with banking and insurance. It is the consequence that e commerce and retail business is getting another growth decade. It is a logical consequence that transportation and logistics will be growing massively if we accept that there will be digitized empowered end user and not just companies who go into the shops here on 5th Avenue.
And as well, public sector and healthcare will be driving forces in our industry strength. But in addition to that broadest and deepest functional coverage of industries, we will build smarter business processes, leveraging sensors, leveraging smart machines, leveraging the predictive capabilities in HANA and allowing companies to simulate to make what if scenarios based on real data, based on changing small little parameters, all of that in real time, which ultimately will bring a new level of productivity into the business of the customers. And I think it's time to think of a better way to simplify IT, not to consider IT just as a cost factor, rather to consider IT as the driving force to meet or maybe even to exceed the new performance needs for growth and innovation in companies. Today, there are about €8,000,000,000 to €9,000,000,000 devices. It's mainly desktops, tablets, smartphones connected with the web.
In future, I read in an analyst report, it will be €25,000,000,000 to €30,000,000,000 devices even in hardware, in washing machines, in any kind of hardware equipment, which will be connected to the web across the industries. And SAP will make use of that connectivity of Internet of Things. I would even say with that HANA as a platform, we are an enabler and a driving force of the next of the 4th Industrial Revolution. And there are already examples today and Abdul is here with custom development, where we can unleash that tremendous value in individual customer situations in industries. For example, in oil and gas, the drills to explore an oilfield are extremely expensive.
So the most horrible thing which could happen that one of these big drills which goes hundreds of meters into the air gets stuck. And I mean Vishal and Abdul has one of these projects where they are able with a drill that has a sensor capability to in real time take the signals from that sensor and predict that if the drill will not be taken out of the hole, we will get stuck in the next couple of minutes. And that information alone is worth €25,000,000 for an oil and gas company. So this is the order of magnitude of business value and of transformation we are adding day in and day out with HANA as a platform. And there are many other examples I could share with you, examples in retail, in automotive, where we are in discussion with the leading automotive companies in the world.
We can be proud that some of them are in Germany. They dream of predicting a failure of a car in real time and you get that information as a driver. You might get an information just to park the car at the next exit and somebody gives you an alternative car and you continue your drive while they are fixing the problem in case it's a real serious problem. In case it's a less serious problem, they will offer you a service at the airport, at stations wherever you want to park next time. So that is massively changing the way end users and people interact with system.
And that is all built on the embedded HANA capabilities with predictive libraries, as Vishal said, geospatial data, as you need to know where the car is located. And it is processing not just gigabyte and sometimes even petabyte of data in real time. So combined with the simplified suite and the increased data throughput, the efficiency is growing significantly at our customer side. Next to the fundamental technology changes, and Luca will elaborate that as well. When we bring the core in our application business into the cloud, we as well have changed our monetization and pricing model, which is a full respect of the thousands of companies who have invested in SAP in the past.
We allow them to bring their own license and we can continue to manage their business in the SAP Cloud. They, of course, can continue to do that on premise, but we as well give customers the option to completely change to a subscription based model and that with 2 flavors. One is that they fully accept what is the standard in the cloud, a best practice of an industry and SAP will run that best practice for them. But they might as well ask us in a core mission critical business to add customer specific flavors into the cloud, we will do that as well. And that is that compartmentalization of the business suite, which is one hand over back to you.
Unbelievable. Thank you, Ben. Thank you. Bernd like that, ladies and gentlemen. So you saw from Bernd how we can fundamentally renew our core, move our installed base forward non disruptively, move it to the cloud and while doing so simplify it so that we can free up the investments for innovation in new areas.
When you look at the history of SAP, we always had core applications and we always had edge applications, new applications, next generation applications. In every generation, it was different. When we started, actually, it wasn't even financials, it was accounts payable and receivables and controlling and management accounting and these types of things were the edges. Later on when we had the full financials then sales and distribution and materials management, production planning these things became the edges, HR. Later on, when we had this whole thing under the bucket of ERP, then supply chain management and SRM and CRM and PLM, these things were the new edges.
Now we talk about all of this as the business suite and then you have talent management and sales force automation, omnichannel as Bill talked about. These are the new edges, purchasing networks. We have always had this dichotomy of the core applications and the edge applications. And the priorities and the parameters of success in the world of edge applications are very different than in the core applications. Recently, in addition to the organic developments that we have done in our line of business edge applications, we have had the great fortune to bring in the capabilities, but also the talent and the culture, the genome of the new cloud based line of business edge applications SuccessFactors and Ariba in particular as well as Hybris.
And it has been for me an amazing experience. In particular, the work that we see with the Ariba network and Bill talked about this 1,400,000 businesses on the Ariba network. We see that the a tremendous opportunity in not only bringing in these line of business cloud applications, but when you think longer term than that to continuously bring innovation in business, the next generation innovation, as businesses evolve, as people and their practices evolve, how do we continually stay ahead of that curve and continually bring that leadership in the edge into our genome on an ongoing basis? To talk about that, I want to call on stage Sanish Mounkar. Sanish used to run the development for Ariba products and recently has taken over all of the development for all the cloud and line of business applications.
Sanish, please join us. Thank you, Vishal.
Thanks. Since I have very little time, I'm just going to show you one slide, but I promise it's going to be a good one. So line of business applications, these are our public cloud properties, SuccessFactors, Ariba. Ariba, which is essentially our cloud for procurement and the business network, SuccessFactors cloud for HR and of course, the organically built cloud for customer. Now as Vishal mentioned, in each one of these areas, it's not just about how we are innovating or what we are innovating, but also how we are innovating.
These are basically our fast moving, very rapidly developed applications. That's what the market expects. These are architected as public cloud applications. Multi tenancy is one of the key architectural paradigms. And in each one of these applications, what I want to do is I want to kind of highlight the core innovations that we are undertaking currently and to give you a sense of what's going on as well as talk about how we are bringing the HANA Cloud platform that basically changes the fundamental nature of these applications and makes them into something far more powerful.
So some of the highlights are, firstly, starting with Business Network. As Vishal said, Business Network is something that we are very focused on. We believe Business Network needs to be applied to every single collaborative business process out there, not just in the world of procurement, but all the way when you extend to adjacent areas like world of supply chain, like world of logistics, all the way to world of CRM. Essentially, anything that has 2 companies doing some sort of a business process with each other, there is applicability for business network to come in and add a tremendous amount of value. And that's exactly what our road map is.
Now going further down, we are taking globalization across all of these applications. We are using the scale of SAP to bring all of these solutions to all the applicable markets in the world. And this is one of our predominant road map focus for 2014. Public sector is one of the great opportunities. Ariba was not very strong in public sector.
We are changing that this year, expect a lot of capabilities in the later half of twenty fourteen. For cloud for HR, which is SuccessFactors, there is a great approach that we are actually taking to the market right now. We call it Power of 1. So essentially, SuccessFactors has a suite of modules for solutions ranging from recruit to retire. Now all of those solutions will have the same employee central back end where there a single master data, single vendor I mean, single employee record and single organizational structure, which makes all of it work a lot better.
For Cloud for Customer, as Will said earlier, we are very focused on industry. And it's and for CRM, it's not just about sales force automation, it's about how you engage with all your customers through this omnichannel. Now when you think about that, each one of these solutions very greatly vary based on the industry and the industry flavor is not a go to market thing, it's actually a product thing. We have to build this in the product. That is a focus for Cloud for Customer for 2014.
For both the customer cloud as well as the HR cloud, we are focused on enabling a partner ecosystem. Why just be the only company developing innovative solutions when we have a lot of great partners and we just need to enable them even for our public cloud solutions. Iflow integration is something that we've already taken to market for cloud for customer. The whole notion there is there are prepackaged integrations between SAP CRM and Cloud for Customer. What does that do?
It enables a customer to take on the cloud journey at their pace and go module by module versus what our competitors come and tell them to rip everything off and go to the cloud in like one step, which is in most cases not feasible. And there is this, in my mind, more of a forward looking research kind of area that we call knowledge network, where we have a lot of business data and insights Ariba business network from years years of transactions. We are taking all that data. We are putting it we are applying the power of HANA to it And that would result in a tremendous amount of business insights that we can then funnel back into the applications and make all these applications not just automate business processes, but fundamentally smarter, right? So it's just this is just a list of sort of the high level innovation, I think, but this is only a part of the story.
The other part of the story is what we are doing on the platform side. So as Bill and Vishal mentioned, it's not just about moving all these applications to HANA, but we are also taking all of these applications and we are running them on the HANA Cloud Platform. Why is that important? Well, firstly, the HANA Cloud Platform will actually bring all these applications together. This was one of the questions everybody was asking us if you will, you got Ariba, you got SuccessFactors, how is everything going to come together?
This is how everything is going to come together. It's going to come together on HANA Cloud Platform. Not only will that unify the platform for these applications, but it will also achieve the massive architectural simplification that Vishal talked about. We will literally get rid of a lot of core that was all around data aggregation. It was about data access functions, the star schemas, materialized views, all that stuff will go away.
What we will get is a simple architecture that actually allows us to do analytical data on their transactional data and give us real time data access, right? In addition to that, HANA Cloud platform also gives all these applications a set of common services. So one way to integrate, one way to extend, common set of mobile services and of course, I talked about analytics. So this is a pretty big and a powerful step forward in the evolution of all of these applications as well as it unifies all these applications on a single platform. In addition to this, we are also very focused on driving our next generation user experience across all of these applications.
And this next generation user experience is not just about converging user experience or as Bernd was saying applying pretty colors, that's not what this is all about. It is about creating beautiful persona based user experiences across all of these applications so that there's consistency in the experience for our end users. Not just that, we fundamentally believe learning and social is an integral thread for the user experience for all applications going forward. We have 35,000,000 users in the cloud in these applications. And as we all know, today, all of us prefer to learn from our peers, prefer to learn from online communities.
And when we have all these professionals in our cloud, that's what they're asking for. They want us to connect to each other in context of enterprise social, in context of learning. So learning and social is an integral part of user experience for all of these applications going forward and we are absolutely focused on driving that layer across all of these applications. There's one additional thing I really want to
talk about,
which I'm personally very excited about, and this is what I call redefining what a true end to end means. So I used to run development and innovation for Ariba earlier. And for me, end to end was my little silo of SRM earlier, which is it starts with spend visibility, goes to sourcing, contracts, procurement, payment. I can imagine for someone like Salesforce, end to end is what happens in their own little silo for CRM. Is that really what end to end is in the real world?
End to end, the business processes don't stop, but the application boundaries stop. And we have an opportunity now to actually connect all these dots. And as Bill said, a suite always wins, and that's exactly what we are doing. Some examples, Temp labor that you acquired in a services procurement application for Ariba need to be onboarded and managed in the talent management application for SuccessFactors. That is a business process that where we need to connect the 2 dots, and that's exactly what we are doing.
Another example is a lead that is generated on Discovery needs to be managed and turned into a customer in cloud for customer application. Once that happens, it needs to be pushed back as a contract in the Ariba sell side contract application, where it will be managed on the buy side, on the procurement side in Ariba and on the sell side in Cloud for Customer. Again, real world, the end to end is far more continuous and it does not stop at application boundaries. And the right way to do this this is not an integration problem. The right way to do this is firstly to be focused on the experience.
The experience needs to be modeled after how these things happen in the real world where the same user goes from one silo to the other and expects consistency and expects the same kind of data. So that is a very critical approach to how we solve these kinds of problems. The second point is master data needs to be shared in all these applications. So we have an opportunity now to redefine what end to end means. And I think this is going to be extremely powerful, and it is something that the so called best of breed vendors really cannot come close to.
The final point here is about infrastructure. All of this will run on a single cloud infrastructure as Vishal talked about. This is why is that important? Because it completely normalizes the experience from an operational perspective. So single SLA, single phase of delivery, single way to engage with customer support, not just that, but it also leverages our global scale of data centers in a very consistent way.
So no more different language in contracts, etcetera, etcetera, based on which country you're doing business in. So all of this completely simplifies the experience of all of these cloud assets. So the in summary, the main point here is there are literally hundreds and hundreds of innovations and features and functions that we are actually executing on each one of these application areas and we will compete very fiercely in each one of those areas individually. But we believe the war is going to be won by a superior platform. And with Vishal's vision and the HANA Cloud platform, we definitely like the position we are in.
Thank you.
Awesome. Thank you, Sanish. Thank you, Sanish. Thanks, Vishal. Thank you, Sanish.
Sanish mentioned learning everywhere. We believe that that is at the heart of where we are going, the world that we are entering. As you can see from Varun and Tanisha's presentation, not only to bring the core forward, but also to totally innovate in the line of business edge applications in a way that nobody else can. But the last dimension of the growth and Bernd alluded to this is to go into new frontiers. When we achieve this simplification, when we achieve the reduction in the footprint, it has a liberating effect on our mindset.
It can create opportunities for us to pursue things that were never possible to go after before. That is something that I find really exciting. So Abdul and his team run the custom development organization where we co innovate with customers not just doing implementations and projects, but really going into unchartered territories. And that is something really exciting. The recently the Chinese government sponsored a Smart Cities initiative, a very bold massive scale smart cities initiative and we are the founding partners of this with the Chinese government to bring 200 of the largest Chinese cities and turn them into smart cities using technologies like HANA by 2025.
They will invest 100 of more than €100,000,000,000 in investment in IT investment to turn this city infrastructure, to make the cities living intelligent cities. Opportunities like that are the extraordinary opportunities of our times. And on a personal front, Bill always talks about purpose. I always feel that when we come to work there has to be a greater purpose that binds us all together. Recently something extraordinary happened.
Part of our team has been working with the scientists at Stanford who do research in diabetes, in Type 2 diabetes. My mom suffers from Type 2 diabetes. She has an acute case of this. And it turned out that when you look at the science of this disease, we know almost nothing about it. The biggest study that was ever done in diabetes was to take 12 variants, genomic variants associated with the Type 2 diabetes disease and apply those to 49 people.
This is a pretty small study. This was the largest study ever done by humanity to understand the genomic basis of diabetes. With HANA, these scientists did a took a 125 variants, genomic variants and ran that on 6 25 people. This is at least a 100 times larger study and already within minutes they found out some extraordinary things. They found out for example that contrary to popular belief, diabetes is actually not related to diet and lifestyle, but it is even more dependent on where we come from.
Different parts of the world have different proclivity to diabetes and this goes back 75,000 years to when people started to move around the planet. It's an extraordinary conclusion, scientific conclusion. And now they are doing a study on 2,500 people to further collaborate this and publish this. And you think about this, there are these great opportunities in front of us, extraordinary opportunities of our times. Software will help us lead the way into these.
We are still in the early stages of the software revolution. When we look at SAP, 42 years of building great software for the world, when you look at what we have in our hands and the world ahead of us, the journey ahead of us, we think we are just getting started. Thank you very much.
Thank you, Vishal, Bernd and Sanish. Now this took a little bit longer than expected. I think it was important as we have a great story to tell on the innovation side. I would say to make this really interactive, we take a couple of questions from the audience and I would ask the 3 speakers to come again on stage. I think we get some stools here.
Also reminder to those of you on the web, please send us questions to investor sap.com. So we have probably a couple of minutes left here and then we would have a coffee break. Just getting the team some time to get prepared. Exactly. Michel, Veron and Sanje, please join me here quickly for a Q and A.
And maybe a follow-up comment I have. We heard also some comments around the business model, around this new cloud subscription offer for the cloud. There is more to follow later on in the presentation of Luca Mutzic. So please keep in mind to focus your questions right now on the innovation side of the house. I will start here maybe with the first question from Raimo Lenschow of Barclays.
Thank you and great thanks for the great insight. Michel, one question on the new platform and the simplification. Where are you in that process? I mean, it's kind of you're taking lots of apps, lots of innovation from SAP over the last kind of 30 years and longer. Where are you in that process of kind of bringing that down and creating one platform?
Thank you.
So if you look at the business suite, we did in 2013, we did approximately 200 business scenarios, which we optimized for HANA. And we did approximately 200 190 plus Fiori applications. And these are non disruptive to the business of our existing customers. So the and we are massively, massively working on this day and night. We have teams all around the world working on further bringing the benefits of the simplification.
You will see that the key thing to realize is that this is all non disruptive, meaning the more we simplify, actually the data model, the system does not change at all. Even in areas where we simplify and improve the user experience, there are many areas where we have highly complex sophisticated usage of the system. There are, for example, in manufacturing or in finance where expert professional users spend hours in a day every day working on these systems. In these cases, we will bring every single capability that this user is able to do today will move to the new world. Nothing will be lost.
So that non disruption gives us the comfort that we can continuously bring this innovation and have the outer frame around us to carry that.
Okay. Thank you. I see your next question here in the second row.
Hi. Quadorange Capital. Vishal, a question about real time. I think the notion of real time today probably means things like Facebook. Need to know what's going on or I need to know what my sales contact is immediately, those types of things.
But if we go further, let's say, we take a car which has to make a decision in milliseconds, those types of things, where how do you see that type of real time? And where do you stand? And what are your thoughts on that?
The power of HANA is the if you look at its bottom line, HANA comes down to the ability to scan things, scan information. On the current generation Ivy Bridge Processor from Intel, it is 3,500,000,000 scans per second per core. This is the one statistic to remember about HANA. On Haswell, the next generation processor, it will get to around 5,000,000,000 scans per second per core. What that means is that if a car has to make 350,000,000,000 calculations to figure out what is going on with it, it can do this in 100 seconds on one core or in one second on 100 cores.
It is completely predictable. This is why high performance companies like McLaren for calculation of telemetry data during a Formula 1 race run on HANA. This is the only information processing platform in the world that is able to directly correlate the complexity of a business problem to the underlying infrastructure. This was never possible before. The layers, the caches, the moving spinning disks in the disk based database system would completely eliminate your ability to predict what is going to happen to a simple question that you asked.
This we get rid of. That power is unprecedented. That means that the burden is on us and Bernd talked about this to come up with the great applications that think about things like this And this is what we are working on.
Okay. I see a question here in the back, Brad Zelnick from Macquarie.
Thank you. Brad Zelnick with Macquarie. Vishal, I appreciate that HANA is this fantastic technology that unifies the platform from a data perspective. What is the story when we think about bringing everything together from a process perspective?
So in fact process integration is a part of HANA. The application services that I talked about on the core HANA database services include process integration. So the PI product that we had as a standalone product to tie processes together across applications whether they are from SAP or non SAP application. By the way, we have now 7,000 deployments of PI around the world. That PI services are inside the HANA platform now.
The rule engine, the messaging, the queuing, the transformation services that are necessary to convert the format from 1 to the other, they are all a part of the HANA platform. So the abilities that you need to connect systems up, we in fact showed in our TechEd conferences in the fall a great example of the work that DHL is doing to bring together operational process intelligence, which can only be done when the operational data and this process activity that ties it together is all together in one platform. So the process is one of the great ironies and I think actually sad parts of the whole big data hype is that we get fascinated by data. But when we step back and think about it, data by itself is actually dead. Without a process to connect there is no big data, there is no insight to be had unless you have a thread connecting it.
That is why applications have been so important for us in our history. And that is why without the process providing that outer context on the data, the data is just you are looking at streams of something that died when the data was generated.
Very good. Given the time, I think we have time for 2 more questions. I see one here from Kaes Rangan and then Adam Wood.
Hi, thank you very much. Vishal, question for you. As you look at this converged platform on the database side and the process side, clearly a customer looking to
make a brand new decision
a few years from now, I can see how this is going to be very compelling. How do you prioritize how you get your existing customers that are selling on old architectures to transition to the new platform? And how are you going to be directing your development priorities? Are you going to be spending bulk of development on the new platform versus how much on maintenance efforts?
Well, Bill, one of the things that Bill always says is, it is possible at the scale that we operate at to walk and chew gum at the same time. So I think the answer to your question is yes.
Okay. Next question here. Adam Wood, Morgan Stanley in the first row.
Thanks, Stefan. Just trying to talk about the difference between the platform investments versus the application investments. Obviously, the industry focus and the industry applications are a huge focus for SAP for investment through the 2000s. More recently, there's been a huge focus on platform development. Could you just talk a little bit about the expertise in the company?
Do you think you have still the business and industry experts out there within SAP to develop the applications you need? And how do you split the investments going forward between making sure the platform is functioning and you also come out with the exciting applications you've spoken about? Thanks.
This is a very important point. I think that there is a little bit of a push and pull effect. We have been as we see the transformation of the company, right now, a majority of our license revenue comes from technology. So we have decisively returned that. We used to be an entirely applications oriented company.
But the key for SAP's history to remember is that we always had a real time platform. In every generation, it had a different nature to it, but we always had that platform. Now over the last several years with HANA, with Business Objects, with Sybase, with the platform and so on, we have had a lot of commercial focus on the technology and the platform. But the need to continuously be ahead of the game on applications is something that is pervasive. We had in just before we took over Bill and Jim, we had a loss of certain mature experienced talent in especially in the domain expertise in many industries and we have been working
And What I said before, I think first of all you need to have a basic understanding of the industry processes, but it is as well important that it is not just bringing an existing process from an old platform onto HANA. It is co innovating with the leaders in banks with insurance companies and define the next generation of industry processes. It is not that there is a process and is knowledge at the university or in a book which you can take, learn and then code. This would be a fundamentally wrong approach. We would miss the point of defining the future.
And I think what we have done as a company perfectly well with the methodology of design thinking to engage with thought leaders in the various industries. We will hear later I think from ConAgra some insights on that. And there is I think our strength and that was our strength as well in the 90s. It was never that I would say SAP had thought leadership across 25 industries. It was always the thought leaders in the industries who co innovated with SAP.
Yes. That's how we
With that intellectual renewal of our organization, Vishal started that journey 3 years ago. And I would say we made great progress in that.
And If we don't do it, then we lose our relevance. And this cannot happen.
Okay. Thank you very much. This concludes the first part of our investor symposium. We now have a 15 minutes break and we'll continue at 10:50. Thanks so much for your attention.
Thank
you. Thank you.
So let's continue in the program. After this deep dive on our product and innovation roadmap, it's time to take a look at the go to market activities and the priorities in 2014. It's my pleasure to introduce Rob Enslin to the podium, the President of Global Field Operations. And he will later on be joined by Mindy Simon, the Vice President of Information Technology, Colabor Food. Rob, the floor is
Good morning, everyone. So it's Robert Enslin, President of Global Customer Operations, not Field Operations. And basically I am responsible for global sales, global consulting ecosystem and channel partners. Over the last couple of years, our job has been to really transform SAP's go to market model based on coming out of the financial crisis, the vision set by Jim and Bill in 2010. Moving to a 5 market category, we started to sell platform solutions.
We started to sell analytics, mobility and other products over the last couple of years. I would say in 2013, we set ourselves up for a different type of engagement model and we've been working on that for the last 12 to 16 months. How does that reflect? My job is basically to take what Sinesh and Vishal and Bernd bring to my producers products and bring that to market in a way that our customers buying habits reflect what they want to purchase and how they want to purchase. We do this not only in terms of a North American sense, but we do this in terms of a global morning visual.
In terms of a global business, so we look at it from multiple aspects. We look at from what's happening in the North American context, in the United States. We look at it what's happening in Middle East and Africa, in CIS, in Europe and in our growth markets. And so we are very, very focused on how customers are buying. What we see in terms of buying cycles, customers specifically CEOs are looking for really speed, they're looking for usability, they're looking for products that they can actually bring to market really quickly that help them with the immediate problems that they're facing.
We see a CIO that is struggling to keep up with that competition, who's struggling with CapEx, with OpEx issues and they're trying to fit this all into a cycle where they can deliver to their business really rapid solutions into the marketplace. So we have evolved our business model over the last couple of years to meet those needs, whether it be CapEx, moving to subscription, figuring out how to create infrastructure so that our customers can deploy solutions and maybe delay some of those massive capital investments till later. We actually started to really focus on how to get from the 5 market category that we had into a one solution selling approach, where we actually touch our customers based on areas like knowledge, people, customer experiences that they're going after, becoming much more efficient in suppliers, etcetera. And that's how we've evolved our business model. Going into 2014, we have moved all of our cloud assets that we had on the sales side and the consulting side into one organization, a line of business organization that focuses both on public cloud, private cloud and on premise applications and they're really focused on the solutions that define our customers and their buying cycles.
When you look at the buyers that we have today in a customer base, there are multiple decision makers and multiple buyers. You get the line of business buyers from the human resource professional to the marketing professional to the sales professional. Many of them in the United States are focused on cloud based solutions, quick solutions, etcetera. And then you get the CIO who's also covering infrastructure, how to deal with new technologies, where do they put their HANA platform, do they put it into the SAP cloud, do they take Suite on HANA and do it themselves or do they give it and outsource it to us to manage for them. So we have looked at multiple buyers in that context.
We've also looked at we also look at the buyers that are a little bit different than the ones we've had previously, the data scientists. So today we have data scientists as buyers where they start to connect the ERP transaction processing that they've had in previous years, the last 20 years of information and they start to connect that with machine to machine, social data and somebody as Vishal said has to connect the dots. So we have to get the linkage. So when we look at how we have evolved and many of you I've spoken to over the last couple of years, we've evolved from those 5 market categories, came back to industry, back to solution and driving that both in a cloud based environment. With the bringing together of the cloud sales folks, the presales folks, the solution consulting folks, we really got back to focusing on what we call one face to the customer.
How do we bring these solutions to the customer, whether they be a public cloud environment, how do we deliver this to the customer and how do we disservice that to the customer and that's kind of what's driving us. We're also heavily involved in Net Promoter Score. So driving a customer office to the level of what we expect our customers from a service point of view should expect from a public cloud, from a private cloud, from an on premise environment. The one thing that we have kept consistent over the last 18 months is our account coverage strategy and there we are really have been really working hard at driving productivity and getting leverage out of the huge amount of sales people we have in the field, including the cloud and the platform sales people that we've acquired over the last couple of years. We've also driven a customer segmentation model.
And I think this is important because you'll see it with Mindy. The top 400 customers we are co innovating with. We have a very, very specific special relationship with them. We cover them with account managers or what we call Global Account Directors where we'd not only look at it from a perspective of selling them software, but how can we innovate with these customers? How can we bring new products to market?
How can we create the next generation of applications? This has also meant that we've actually reduced the amount of accounts per account executive for the simple reason that we want to go broader and deeper in these accounts. With that, we've moved the coverage model slightly, but with significant impact in the partner area. So we've created what we call managed cloud as a service. We've actually signed about 100 of these partnerships in 2013.
We have a significant that we would sign. These are focused on service based outcomes. So these are our partners that operate in a certain segment, be it an industry or a solution set around analytics where they provide an end result to our customers. Managed Cloud as a Service is probably the one of the fastest growing partner models that we have at SAP today. Our strategic industry model which we started a couple of years back with Simon Paris Leading Financial Services has been a resounding success.
Last year, we added insurance to banking to create the financial services model. We acquired Chameleon to extend our footprint in insurance and we've had significant wins in the insurance space across the globe. We've seen the same results in financial and banking where we've had significant wins in our Australian marketplace, in the Chinese marketplace. So globally, we're starting to see those industries pay off. Financial Services has gone from probably lower than 10 a couple of years into the number 1 or 2 industry for SAP depending on the quarter.
So significant pipeline, significant opportunity in that space. We also added retail. So we added retail to the strategic industries under Simon Paris. Pat Patey leads that industry for us. We feel that there's a specific motion in retail that's very innovative, that's going to change the retail industry over the next couple of years and we've actually gone to market with that industry as well and that operating model that has been very successful.
The same is true for public sector and for telco. So those industries have very specific starting motions, They have very specific solutions that we take into market and we see a tremendous benefit in that. The other piece that we've done significantly, I think has been a resounding success for us is our engagement in China, the investments we made in China we've expanded into Russia over the past couple of years and that we've actually moved into Middle East and North Africa, so into MENA. And those growth markets, including Africa are paying significant dividends on a global scale to SAP. The growth rates are phenomenal.
These customers are we expanding into the whole of Africa, not only in South Africa, but expanding right through Africa. And we see the same is true for the Middle East, as I said, China. Our Chinese business is now a significantly large business, which is the largest business we have in Asia today. 5 years ago, it was nowhere near the largest business. So the speed of change has happened dramatically in those marketplaces.
If you put all of these together, the way that we look at this from a customer and the way that we integrate interact with customers is around outcomes, around value based selling. It's around utilizing design thinking so that we can understand how to connect the ERP information they have, plus the data that they have and how to create solutions that can change their business and make them much more competitive and much more strategic in the environment. And rather than me go through that whole process, I'd like to invite Mindy Simon up from ConAgra Foods, who just made it in at 11:45 last night. Mindy, thank you for joining
us. Thank you.
So we've had an amazing engagement Vishal, Abdul, myself with yourself and Gerrit in your company over the last 12 to 18 months. It goes back longer than that, but I think it's been incredibly intense since Vishal's baby came and Gerrit and yourself saw the potential of HANA. So why did you make this strategic decision for HANA versus other products in the marketplace?
We actually did a detailed analysis and prototyped in our data center multiple different solutions. And what we saw with HANA was flexibility. Thank you, Vishal, from having our entire analytics platform on HANA, which is a significant size, single instance, all 20 terabytes ever. And we are also in a co innovation with Vishal and his team as well as with Rob's team, where for us, again, accelerating something that exists isn't very interesting or transformational for the industry, but we're trying to really create new business processes. Looking for transformation and also anticipated that really speed P and L owners and our C suite.
And instead of just typically talking in ERP, which is really expected anymore, whether it's there or not, the business expects that it exists. We've really tried to transform what we're doing through an integrated Indian forecasting, and that's the transform what we're doing through an integrated and in forecasting, and that's the work we've been doing in the co innovation. Good.
So as I said, it's been 12 to 18 months of intense discussions. We've had significant developers flying into Omaha that could actually achieve that would be Hana. And so this is really a combination or shared arrangement with Vishal and ConAgra and the whole team. When you look at these
Yes.
And it's a radically different. And
Yes. It's erratically different. And in all candor, there has never been anything you guys have really done in weeks. And with the couldn't even hardly get here in a day, let alone. But in weeks, what we've been able to do with the HANA accelerators and using the Rapid Deployment Service with the Services Organization came out with, I think, a couple of years ago, is we've really been able to implement parts of our suite on HANA analytics platform on HANA, which is a significant size.
And so we know going into it the price, we know that in going into what the result is and the teams deliver every time.
And what's that what's amazing about that, I mean, learning from Conagra is when we look at taking things like human resources, learning people, employee central, connecting that to existing backgrounds
backbones of customers that have
had HR for 10, 15 years. We've actually created a complete integrated end to end stack with rapid deployments for our customers. So those that want to move can move
quickly, those want to move
It's enabled us to operate with our P and L owners and our C suite. And instead of just typically talking in ERP, which is really expected anymore, whether it's there or not, the business expects that it exists. We've really tried to transform what we're doing through an integrated and in forecasting. And that's the work we've been doing in the co innovation.
Good. And I think that ties back to what Bernd said. We don't necessarily have best practices
Moving up what we call the value curve from real time is interesting. It's kind of like, okay, it's what's happening right now, to prescriptive to where we can actually work with our customers to change the result, whether it's through promotion effectiveness or timing or with the nor'easter coming this weekend, and the cocoa is on the end of every aisle. Those are really what's radically changing our business.
And what's fascinating with the benefit arrangement with Vishal and Conagra and the whole team. When you look at these implementations, traditional ERP implementations or traditional implementations that you've had for the last 10 years, is this different, the approach that we've taken with Hana? Yes.
And it's a radically different. And in all candor there has never been anything you guys have really done in weeks. And with the couldn't even hardly get here in a day, let alone. But in weeks, what we've been able to do with the HANA accelerators and using the rapid deployment service with the services organization came out with, I think, a couple of years ago, is we've really been able to implement parts of our suite on HANA in 7, 8 weeks, and it's highly replicable. We've done it a few times, and it is also results based.
And so we know going into it the price, we know that in going into what the result is and the teams delivered every time.
And what's that what's amazing about that, I mean, learning from Conagra is when we look at taking things like human resources, learning people, employee central, connecting that to existing backgrounds of customers that have had HR for 10, 15 years. We've actually created a complete integrated end to end stack with rapid deployments for our customers. So those that want them 2 or 1 or 3
or 2 to 3. 2 to 3. Thank you. Sequium question here in the last row and then question on this side.
There's a question over there.
Hi, thank you. Just curious, when you were looking at transforming your business with HANA, and you looked at the timeframe that it would take to do this, what other products did you consider? And what other potential technologies do you think could come close to what HANA could do?
I mean, we looked at the obvious competitors. So without naming them, we did look at them all because we like to have choice, while SFP is a high partner of us. And really being able to redesign what we do. We're really but ultimately it is true. But ultimately, the innovation, we've looked for years and that's where probably I'd say the highest barrier to entry was opening your imagination.
So there's been things that the business has been asking for, for years that we've had to say no, no, no, no, we can't handle it, whether it's through promotion effectiveness or timing or with the nor'easter coming this weekend, making sure that Swiss Miss Cocoa is on the end of every aisle. Those are really what's radically changing our business.
And what's fascinating with the benefit And
transform how you run your business. So that's really where Hana was the only option that
could do that. Can you eliminate the existing databases now that you used to
have in
the past? Yes.
Okay. Thank you. Any other questions? Let me just see. You give us okay, please go ahead.
Specific use case where you were able to get way ahead in your business or where maybe the C suite was very happy about something that happened. I don't know without going obviously too long, but just I'd be curious to hear an example of what you're
able to do. Yes.
So for us, I'd say one of the more revolutionary things we've been able to do is really around material forecasting. So if you think of what goes into, say, a can at Chef Boyardee, you have steel that makes the can, You have wheat that and flour that makes the pasta. You have tomatoes that make the sauce. And for us, when you go we have 20,000 finished good materials, but then have bills of materials that go with that, that explode down into 4,000 raw materials that make up those 20,000 finished goods being able to do that dynamic calculation to then essentially aggregate and do what scenarios of if the price of beef goes up on the commodity exchange, what is that going to do for our margin and really be able to kind of do what if pricing is really the biggest thing that would say that we're having to build transformational. And the markets haven't been really volatile lately, but we expect that, well, I guess, the commodity markets have not been yesterday was not the best day, but the commodity markets have been relatively stable.
But as soon as that volatility comes back, it's really dynamic on our pricing.
Thank you very much. One question, the final one for this session, please.
I apologize if this was addressed earlier and I missed it. But what other who are the competitors that you evaluated against SAP's HANA? What was the differentiating factor? And has that carried through into actual implementation?
Yes. We looked at them all. So you can evaluate the catalog and that's really who we evaluated some again.
Question here in the last row and then question on this side.
There's a question over there.
Hi, thank you. Just curious, when you were looking at transforming your business with HANA, and you looked at the timeframe that it would take to do this, what other products did you consider? And what other potential technologies do you think could come close to what HANNA could do?
I mean, we looked at the obvious competitors. So without naming them, we did look at them all because we like to have choice. Well, SAP is a high partner of us. The more people in the industry, the better for us because we don't want them to be too proud of their product or we have to pay for that. But ultimately it is true.
But ultimately, there isn't products exist. And that's why we're doing the co innovation. We've looked for years. And that's where probably I'd say the highest barrier to entry was opening your imagination. So there's been things that the business has been asking for, for years that we've had to say no, no, no, no, we can't volume of data is too high or the processing is too long and you have to batch.
And batch then breaks up that thought and that decision making process. And now working with Vishal's team, we've essentially said there's no constraints and there's no time limits. So if you could do something real time like that, how can you transform how you run your business? So that's really where HANA was the only option that could do that.
Can you eliminate the existing data basis now that you said in the
past? Yes.
Okay. Thank you. Any other questions? Let me just see.
You give us Specific use case where you were able to get way ahead in your business or where maybe the C suite was very happy about something that happened. I don't know whether that's going obviously too long, but just I'd be curious to hear an example of what
you're able to do.
For us, I'd say one of the more revolutionary things we've been able to do is really around material forecasting. So if you think of what goes into, say, a can of Chef Boyardee, you have steel that makes the can, you have wheat that and flour that makes the pasta, you have tomatoes that make the 20,000 finished good materials, but then have bills of materials that go with that, that explode down into 4,000 raw materials that make up those 20,000 finished goods and being able to do that dynamic and really be able to kind of do what if pricing is really the biggest thing that I would say that we're having to build transformational. And the markets haven't been really volatile lately, but we expect that, well, I guess, the commodity markets have not been yesterday was not the best day, but the commodity markets have been relatively stable. But as soon as that volatility comes back, it's really dynamic on our pricing.
Thank you very much. One question, the final one for the session please.
I apologize if this was addressed earlier and I missed it. But what other who are the competitors that you evaluated against SAP's HANA? What was the differentiating factor? And has that carried through into actual implementation?
Yes. We looked at them all. So you can evaluate the catalog and that's really who we evaluated. Some again, we brought it actually in our data center and prototyped. And the difference with HANA was really being able to have speed across the horizontal process.
So it was highly flexible and enabled us to choose versus changing out an entire database underneath the platform. So it's really the flexibility and the performance that I'd say was a differentiator.
Thank you. I see there are still 2 questions here in the middle section, one from Chantra and then a colleague from Neuberger Berman.
Thanks. So as a tech expert, I guess you understand the advantages in moving to HANA. How difficult was it to pitch this case to your CEO or CXO? And maybe if you can say whether you faced any specific problem in this transition in those 7, 8 weeks and how you got past that hurdle? Thanks.
Yes. I'd say for when you accelerate pieces of the business process, the price is very, very competitive. And I wouldn't want to say that it's underpriced because that would not behoove me to say that. But really, I mean, the services work and the cost model with that is really the barrier to entry to get into HANA is not very high. So getting in is really what I'd say opened the door.
Once they saw the results of the performance and how you transform the business, that's then when you looked at the broader application of HANA that the conversation was much easier because they could see results. And had we not had that, and I'd say it probably would have been a harder pitch. But it's hard when there hasn't been things that could do this before. So you say, hey, open your mind, think different, and they've heard that before and technology really hasn't delivered. And this, I would say, is different.
Thank you. And the final question?
Yes. My question is on a similar topic. The economics around this has been very difficult for us investors to understand. So I was hoping how has the your valuation of total cost of ownership changed in a model where IT is no longer about stripping out costs, but about driving revenues in your business. And in memory technology is quite expensive, right?
The DRAM that's in there is quite expensive. So can you just help us understand how you think about that formula when you evaluate?
Yes. I mean for us, when you're investing in things that don't drive business value, you may have an OpEx and a CapEx that's flat, but then you really become the question, why are we spending any money at all? So I would say, again, when we had done the prototyping to show how you radically could change business where you couldn't before is really where that total cost of ownership conversation is still a conversation. But I'd also say with the flexibility of not having to replace an entire database, you can go in a little or you can go in very large. And it really enables you to get in and decide what can your business afford and is it going to be able to pay off for itself.
And that's where other databases, you're kind of either all in or not. And so that
Very good. Mindy, Ross, thanks a lot for your time. Thank you for attending to New York City. Thank
you.
Let's move to the next presentation on the LOB Cloud Apps. It's my pleasure to introduce Sean Price, the President of Global Cloud at LOB. Hello, everyone.
Good morning. Hello, Sean. Thanks, Steph. So I thought we'd start this discussion with a story about acquisition done right. And what a remarkable story it was.
Bill started this morning talking about a decision that was taken 2 years ago, ahead of the market, moved decisively and acquired a set of applications that just are very difficult to assemble today. And unlike many companies that I know you follow because I've read your sales side by side analysis on most of you in the room. And if you look at how other companies are acquiring, they're rolling this into the machine and it's a predictable outcome. What happens is that the talent, the very people that built it, that innovated it, that made that intellectual property valuable is gone. And what SAP did was something remarkable and I've been the beneficiary of that.
I just want to say thanks to the leadership team, brave, decisive. And when we run these companies, we run them for a period of time autonomously. And what that allows us to do is to start to rationalize processes across the operating groups. And I will tell you that our retention of our people and our attrition rate is actually lower post acquisition than pre, which means that the people that wrote the application, service the applications, implement and sell are the same. And the synergies are phenomenal.
If you're a recipient as I am to this synergy, it's unbelievable, right? Immediately, it's a trusted relationship that SAP has been running businesses for decades. You think about the installed base where the customers are in the midst of transition and they're asking for a prescription. I'm going to talk a little bit about our entrant into the core HR market in the cloud and the remarkable engineering support that made our entry and into being 1 of 1. The vast amount of strategic industries and content that we possess to make these vertical and modular, Our customer support globally and then our deployment options are all accelerants that we're the beneficiary of.
So when you put these together in this way, it's pretty compelling. There's no doubt in my mind that today this market is here. It's $107,000,000,000 wide. If you look at the latest research, 60% of acquisitions in that SaaS market will be driven through the line of business. And the growth is not just dependent on the traditional markets of EMEA in the U.
S. We're seeing enormous growth and uptake. And now why is that? Because the operating models are changing, the class of consumers that are acquiring in Brazil, Russia, India, China and others is different and the same old infrastructure doesn't necessarily fit. And we're also seeing one other transformation which is quite interesting which is the role of the of how outcomes and purchases are acquired.
It used to be the stronghold of the CIO, but that role is in contention. It's in contention between the fiduciary responsibilities of run and we're leveraging our stronghold of the CIO. What we've effectively done is 100% coverage model and we're facilitating the conversation because you look at some of the data that I look at, 400 CIOs in EMEA were polled recently in a Forrester study, 65% of them do not speak with the line of business. But then the most important point of view on this is that fully 55% understand that they have to talk to the line of business. So we have this unique market opportunity to take our stronghold, combine it with line of business SaaS applications and rationalize and who better than SAP.
So you've heard from Rob earlier about an alignment. We did something in July of last year that I thought was pretty revolutionary again in this vein of bravery. We actually took the on premise HCM business and combined it with the cloud in July of last year. So that we were then able to go forward not with a compensation plan perspective, not with what our particular focus at that time was, but with a focus of what is the right thing to prescribe to that customer at that time. And so this isn't a new thing on January 1.
30 seconds and kind of define an outcome, right? Mindy, want to take 30 seconds and kind of define an outcome, right? Mindy, I was sitting next to Jim when you described what would the impact be to your margin if the raw materials of your bill of material moved up or down plusminus and the corresponding effect to your market cap. That's a perfect outcome. In another company in Europe, they were traditional scanning company.
They sold massive hardware to do medical imaging. They did a financing package and then they sold maintenance on it. When they talked to their customers what they found out was the only important piece was protecting 1 metric revenue per scan. It turns out that you'll pay more to have a guaranteed level of service to support revenue per scan. And so they got rid of all the complexity.
They said we're going to guarantee it 92% uptime, 95% 99% uptime. We're going to charge you more for it because it protects your business model. These are examples of outcomes that are driving these acquisitions at an ever accelerating rate. Our customer engagement is also different. The traditional model of on premise with a maintenance revenue stream over time and how we service is fundamentally different in the cloud.
It's about customer centricity. It's about customer intimacy. It's about reinforcing that value throughout this lifecycle. And we've restructured internally to support that. And whether that's how we market to the line of business, whether that's the data that we consume as a byproduct of 35,000,000 subscribers that we can monetize or that's how we manage our data centers with SLAs with teeth that customer centricity model and intimacy isn't a new spot.
It's alive and well across all of our businesses. But Vishal and Bernd and the team have provided us with what I think is the most beautiful and comprehensive portfolio of applications in the space. If you look at our HR offerings, we are 10 out of 10 analysts the leader in talent. I'm going to double click in a moment on core HR in the cloud. If you look at procurement, this is an application and a company in Ariba that is 10 times larger than its nearest competitor and that's in the procure pay space before we start talking about network in our enterprise commerce.
In customer, Bill talked about a revolution moving from SFA to customer insights and finance. And what is interesting about this strategy is if you think about all of the contributors to the P and L, how do you implement these new and changing operating models and strategy? You need to put the right people in the right place at the right time doing the right things measured the right way. What is the biggest driver of cost? We heard Mindy talk about cost of goods sold, procurement.
How do we monetize through any channel anytime anywhere? HIRIS. How do we gain customer intimacy and understand what offer when and where? Through our customer cloud. We've wrapped all of this in social and mobile, but what's an important distinction here is that our social isn't a social ghost town that sits off in its own where we're trying to drive engagement and usage.
It does what no other social platform can do. It provides content and context from the application that drives engagement. And when you listen to Vishal's strategy about learning, this is the source of subject matter expertise to create Khan Academy esque type interactions. And so we've aligned the company thanks to our leadership and we've reimagined the customer lifecycle. We've extended through mobile and it's not just mobile first.
In many instances, we're doing mobile only. Simple applications in HR like touch base to managers aligning goals, mobile only. And we've extended that ecosystem into integration. I'm going to come back to integration, but I want to put a placeholder here. We will be and are unnaturally advantaged in our own family.
Every single one of these applications has a complementary coexistent point with an on premise application. When I change an organizational chart structure, it immediately reflects my P and L in the expense and cost center. When I purchase goods sold, it connects to my on premise finance. But I'll come back to that. I'll also come back to partnerships.
One point that we've been touching on though is about flexible deployment. And I think that it's really a disadvantage if you're a single SaaS best of breed and best of breed SaaS only. Because what customers are saying is I'm not abandoning these investments that I've made over the last decade. I'm going to coexist for a period of time. And so our deployment options right now I think are world class.
It starts with HANA Enterprise Cloud, private cloud, which might be a first step or an outsource or managed service with its own set of economic parameters. It's then public cloud. And this public cloud if you've watched, we've we're deploying and opening Brazil, Russia, India data centers that we've announced and I think we're up to 10 if I'm not mistaken from 3 at the beginning of the year and that's propagation. And then we have hybrid China. Thanks Rob.
Beijing. And then we have hybrid, right? I want to coexist with 1 foot on prem and 1 foot cloud. And lastly, we have the network. So take this portfolio, wrap it in social and mobile, give us distribution options and you've got a pretty good picture.
I want to double click on how powerful this is for a moment on HR. And if you look at HR, it is in the midst of a massive transformation. Our customers start out to solve a picture. They don't start out to solve a I have a recruiting problem. They start out to solve a picture called recruit to retire and they're looking for a blueprint on how to get there.
And it's as simple as this. Our approach unlike our competitors in the market is modular not monolithic rip and replace. And so our customers acquire based on 1 of 3 ways. And recruiting is an exceptional a really good example of this. Recruiting most companies think about is how do I capture as many candidates as possible and push them through the applicant tracking system.
So maybe I'm going to buy recruiting. But what we see is different. And when our customers ask us what do you recommend, we actually see 5 applications involved in recruiting across a common process. Recruiting doesn't start with applicant tracking. It starts with workforce planning and analytics.
What's the skill set cost? How much? Where are they? When do I need them? It then feeds recruiting marketing because you've got a talent shortage because every day 10,000 people turn 60 5 in the U.
S. Market and will do so for the next 19 years. So you've got talent and exodus of experience leaving. You don't have enough millennials to replace. So the war on talent has never been stronger.
And so it starts with recruiting marketing. How do I create a connection? How do I keep those warm pools of talent alive? And then it goes to recruiting management. Once I have it through the system and I'm about to make a hire, we bought a company 5 months ago for onboarding.
It then passes to the onboarding application and then social on top of that so that I can create a connection welcome to work. And so we're seeing our business evolve from a single point application into a number of applications and ultimately end to end start anywhere go everywhere. And our end to end, we have some pretty remarkable things happening around employee center. And if you want to have a picture of what this looks like at scale, look no further than one of the largest beverage companies in the world with more than 300,000 employees. What they have is a transformation.
The growth is coming from different markets and a new operating model. They are core SAP through and through in North America, but they compete in 83 different geographies. And what they did is they went full cloud stack including Employee Central in 83 geographies in 2014 starting in March. And in 2015, they're coming back to take out the core and upgrade all of that with core HR in the cloud. Now that's not core finance, that's not our ERP supply chain, that's not that's just one little piece.
But they've rationalized an approach and they started at that point. And we're seeing that more and more. We have a customer in Israel last quarter that actually has bought the entire cloud portfolio for the very reasons that we're talking about integration. All of this is enabled by value that our customers can express. There was a lot of value questions.
I really like the interaction with Mindy. But we have a community that we launched because of this reinforcement of value and it's pretty interesting. We're the moderator. We're putting topics in to discuss about value best practices and we've had about 141,000 uniques in the last month and the average duration that our subscribers spend on that site has gone from 20 minutes to 41. And so this reinforcement of value, this unlocking of best practices, this prescription is critically important.
HANA plays such a critical role here, because one of the big unsolvables in SaaS is that I'm building a multi tenant app that's for everybody. So how do I accommodate the nuances of your particular requirements? Well, I can put you in HANA Enterprise Cloud that's for sure. We can extend to it until we want. But what about things that I'm not going to acquire?
What about things I'm not going to build? How do I fill in those connective tissues? How do I fill in those gap applications between this recruit to retire? And so what HANA does is it allows me whether it's me to build a gap application, whether it's my partners, one of our partners just announced a payroll application, another partner built an application around Union and plug in these GAAP applications through HANA. And then we have a marketplace, so these are repurposed and today we have about 500 of these apps I believe.
In addition to the in memory computing, in addition to the database rationalization, in addition to the compression of the stack and cost that we described, So, HANA is that reconciliation force underneath all of this. When you run a subscription business at the scale that we do, dollars 35,000,000 in total and $24,000,000 in SuccessFactors alone, You get a tremendous amount of content and that content is a secret weapon and you can only gain the insights and predictability when you have scale of this magnitude. So every single day 24,000,000 people tell me what they like, what they don't like very, very clearly. Every day 24,000,000 subscribers tell me what they need to see and what they can leverage through anonymized data. So they can opt in, we can create 2,000 KPIs and benchmarks and you can subscribe to that index so that you can now start to meter and measure your business whether it's horizontally across a recruit to retire or it's in retail KPIs and metrics for best run retail practices for retention.
That content play is so powerful because the other thing it does is it drives our predictive HCM strategy. We've been looking in the rearview mirror for a long time and taking slices of data. We've been starting to segment that data population to get another look. But this volume of data allows me to start to draw together correlations that don't exist historically like management bench strength or engagement. So incredibly strong footnote.
I'd like to stop for a minute and double click now on Employee Central, our core HR offering in the cloud and our latest initiative. And there's no mystery here. The question that I had to contemplate was how do you take a talent company that's exceptional about end user engagement and fundamentally become aware and contextual about how to build what is a mission critical often once in a decade highly integrated partner dependent application. It's hard. It was a lot of the genesis of why SuccessFactors was acquired.
So if we take our on premise engineering horsepower and payroll and we marry that with cloud and we accelerate, you get what is employee central today. And I will tell you that Employee Central in 1 year we've gone from 30 to 300 customers. I shared with you some of our larger customers that are starting to deploy now. We're right in the middle of that cycle. We are unnaturally advantaging ourselves into our own family.
So if you're on premise HCM, there's a clear pathway, a clear productized integration on how to either completely transform or coexist in a hybrid scenario. And we need to own this employee record because it's the source of how we do performance rating. It's the source of how we do learning management. It's the source of how we pay people. And today I'm starting unnaturally advantaged with an installed base and on prem with an absolutely world class one of 1 core HR and I will tell you there's a lot of noise in the market about my principal competitor.
We are winning head to head in a majority of the engagements that we go to. We are now at a point where on a use case basis and product basis, we are at least at parity. And when our customers look at it, per Bill's point this morning, when they look at it and say, well, if I have core HR, how do I do performance reviews? How do I do compensation, succession, learning, etcetera? We're winning.
This is a product experiencing triple digit growth. It's available today in 58 countries, which is leveraging our synergies globally. We're seeing a huge footprint in our markets. We have 23 countries today live with payroll in the cloud. And so incredibly transformative and just think about what we're describing and how what the assets are that drive synergy.
And if you want to see something an additional element, to customer insight and engagement and best of breed isn't enough. 1.0 of CRM was about the transaction record and 2.0 is about the full lifecycle end to end. And our customers, it's not B2B or B2C, it's B2 any. And our customers are demanding to engage in new ways. And our customers need to be in control of the conversation, particularly in the cloud.
It's not about the push high touch. In many cases, it's about the customer in control. And so we want to visualize moving from prospect to promoter and every touch point in between. Imagine now with what we have in our portfolio for cloud for sales So I have a very robust strong on premise footprint from which to grow from. I have marketing, so that when a customer hits a website or makes an inquiry, I understand what segment, what offer, in what way do they want to connect.
I then pass that to the sales engine who then can assess what channel to fulfill. I can use sentiment management socially to understand what's trending and I can fulfill through Hybris with Commerce Anywhere. And so as you visualize this end to end, it starts with marketing, sales, service, social, monetization in one value chain. And like HR, you can acquire modularly and you unnaturally advantage in our influence or in our install base. There's also a beautiful opportunity here to take the industry knowledge that we know so well and apply it cross cloud.
In retail, how do I get the right people in the right place at the right time at the right cost? Well, that's an act that's a HR function, sold to the VP of Sales managed through CRM potentially. So you're seeing a blending of processes and use cases cross cloud. And we're getting enormous traction, 200% plus and huge companies like Nespresso who standardized on one view of customer so that they can service them and sell to them from a composite view. And we use it internally.
Every sales rep, all of our reportings, all of our analytics are all run today. And if we look at Ariba, this is a historic problem. Supplier 1.0 couldn't solve the invoice reconciliation across the enterprise, couldn't track spend, Compliance was questionable. The system spoke different languages. It wasn't about throwing it all in a database and looking in arrears because it was too big.
And in many instances, the actual cost of acquiring the good was more than the good being acquired. And so Ariba reimagined a new way with paperless transactions and touchless invoice processing. And like HR and like customer cloud, it is an end to end lifecycle. And it starts with 1 app, maybe it's sourcing or contract management or procurement and builds out to fulfill that process end to end on a single platform with a single interface connecting buyers and sellers. And so our customers are visualizing procure to pay.
And what's really remarkable about these technologies is the ROI. And I come back to that because I just heard a lot of interaction. Ariba's average return 100% is less than 9 months. The economics are staggering. Take T Mobile, 250,000 transactions on $30,000,000,000 in spend and we saved 75% to 80% in the time savings across 10,000 suppliers and the average productivity per FTE was up 3 times and was compliant out of the gate.
And that is a repeatable problem that is in every industry around the world particularly as the geographies through which growth is being driven is changing. And to put our market opportunity into context, the GDP across the Global 2,000 today is 12,000,000,000,000. Dollars The GDP that SAP touches is $8,000,000,000,000 The GDP that we touch with our Ariba network is $500,000,000,000 We are just getting started. We're getting started within our own footprint and we're getting started within the Global 2,000. And we're seeing acceleration from the synergies.
One of the areas that we've been able to accelerate instantaneously out of the gate with our strategy has been through our ecosystem. Think for a moment about the global SIs, the Accentures, the IBMs, the Deloittes of the world that have had multibillion dollar SAP practices for decades. And we walk in, in a privileged relationship and they commit. They commit to our cloud strategy. 1 of those 4 went from 100 consultants to over 2,000 in 1 year.
The 2nd largest global SI in that group grew over 500% year over year with us. And so we have an unnaturally advantaged footprint in our ecosystem that is leverageable off of pre existing relationships and their business is in transition. So our global SIs are not just implementation firepower. They're playing a vastly different role in this market. They are actually being hired as specifiers.
So remember that transformative blueprint, remember the prescription we're trying to provide? And SI gets hired in the middle to say, can you help me make sense of this? What should be in the cloud? What should stay on premise? Which geography should I go first with?
And so by having that leverage, our partners are not just implementation, they're also building best practices and methodologies and they're building artifacts and widgets to speed go live because the old model of get in stay and bill on a margin and utilization basis is being replaced with a model that says go live because it's the way to secure your ARR. Our channels is another prebuilt infrastructure. We have huge OEM channel, huge partnership channel and our BPOs where many customers are looking at do I acquire a subscription as a SaaS provider or do I go to a BPO as a managed service maybe for payroll is prebuilt. And so companies like ADP and Northgate Arinso and others have robust full cloud practices that offer a managed service in parallel. And this is so important in our global context.
So if you look at a best of breed player who's trying to come into this market and you try to replicate those synergies, that is a long road and we've just begun. We've really just started to flex our muscle. One other area that's tightly integrated in this ecosystem is the notion of technology partners. The cloud is defined by lightweight web services and subscriptions that we can compose and decompose at will. And so in some instances, we want to create a tight coupling so that it is transparent to the end user.
So if you're sitting in employee central to our core HR in the cloud And you are with Kronos who happens to dislike my competitor as much as I do because of the time and attendance encroachment. And we've built a tight productized integration that you can see Employee Central core HR on one side into Kronos and Kronos into our view of employee central and you can report. Every time we walk into an account that has Kronos, we're naturally advantaged in the integration. The same is true for ADP and many others. And so if you start to think about it in 3 or 4 dimensions.
The last piece I want to touch on is our integration strategy because there's a lot of noise about that and there's really 3 or 4 points I want to hit. 1, we are a naturally advantaged in our own family, not just on productized integrations to finance and to HCM and our supply chain, productized so you don't have to worry about it. But we're building methodologies and practices to ease because there is no pick and move. It's individual. What should I move?
What's hard? The second leg of our strategy is to pre build integrations to normal services. Our largest cloud deployment today deployed has 147 unique integrations hanging off of Employee Central of which almost 100 were productized and we call those Iflows. The 3rd leg of our integration strategy is what I just described these tight binding productized integrations to the Kronos' of the world. And the last is about extensibility.
So if I enter the Australian payroll market for example and I don't have a productized integration to that payroll provider, I'm going to give you 80% of the wire. All we'll do is API to API. That's the integration play that we're looking at. And so our strategy is working.
We have
35,000,000 subscribers today, which is the industry's largest base of cloud users. I have more than 30 applications. I have 12,000,000 subscribers, which is more than Chatter and more than Yammer. I have 1,400,000 companies connected, running a 500,000,000,000 of commerce through the Ariba network. My largest cloud deployment is 2,000,000 subscribers in 1 company.
And our annualized run rate as Werner and our leadership team and Bill and Jim have described is in excess of €1,000,000,000 a year. And so I really feel that it comes down to us making the shift to being the cloud company powered by HANA not losing our core and leveraging the strengths that are so clear and synergistic in this marriage. We've retained our people. We've really simplified it down to outcomes. We've made it predictive.
And candidly, I couldn't be more excited about this opportunity and we're just getting started. So with that, I'd like to say thank you very much. It's a pleasure. Thank you for your time.
Thank you, Sean. By way of introduction, I'm Tim Minahan. I head the marketing CMO and SVPS strategy for the cloud and the LOB. Also put that in context, Suneesh, who you heard from this morning and I were partners back at Ariba in which he led the product strategy for the business network and I led the go to market strategy. So we're both very excited.
I can speak on behalf of Suneesh to be part of SAP and see this strategy be infused into the SAP install base and accelerate the growth. Now as Sean just said, cloud is really about unlocking all new engagement models, extending the core your core applications to enable new processes, to gain new insights and to achieve new outcomes. Well, powering new engagement models is really the foundation of what business networks are all about. You see, over the past 40 years, companies have spent 1,000,000,000 and 1,000,000,000 of dollars to improve their internal processes and their information flows. I mean, that's why we're here.
We've already heard from Conagra, but the world's leading companies have automated and optimized their internal functions and operations on SAP, and that's why they're leaders. But outside the enterprise, as you see here, the business world still remains a mess. Companies have really created islands of efficiency that are often disconnected from the outside world. Today, still after all this automation, nearly 80% of all purchases, invoices and other business to business transactions still take place offline or in semi automated ways. That means lots of people.
That means lots of paper and lots and lots of inefficiency. So this is impacting every aspect of the organization from the plant floor to procurement to accounts payable and to treasury. By some estimates, all of this inefficiency between companies is costing business over $650,000,000,000 each year in missed sales opportunities, in higher supply chain and operating costs and in slower cash flow. Now at SAP, we believe that solving this inter business collaboration challenge is one of the biggest opportunities we have of this era. We intend to bring the simplicity, the scale and the integration that you're already seeing in your personal lives through personal networks like Amazon and eBay and Facebook and bringing that simplicity to the business world.
We're extending the blueprint for ERP and business applications outside the four walls. That's exactly what the Ariba Business Network does today. We eliminate the hassles, the costs and the risks of collaboration between businesses. And just like with Amazon, as a company now, you don't need to worry about integrating with your trading partners. You don't have to be concerned about how you're going to conduct that particular procurement process or find that new customer or settle out payment with the bank.
Ariba does this for you. We extend the value of the SAP footprint. We talked about innovation without disruption. This is a perfect example. We're delivering new and scalable way for companies to collaborate and automate their interactions with all of their customers and all of their suppliers through one single integration point.
But I don't want you to get the impression that the Ariba Business Network is just an integration hub, because it's not it's a thriving business community with millions of connected companies. One good example of this, of the companies that are connected and achieving new levels of efficiency is a large oil and gas company, a huge SAP shop that you're all probably pretty familiar with. This company like many leaders like Conagra had become a leader because they've optimized their internal functions and operations on SAP, But outside, they were struggling. At the refineries, they had no transparency into the supply chain. They didn't know when that repair part was coming in, and they were highly at risk and highly inefficient.
But they connected to the Ariba network. They connected those SAP systems and are now connected with more than 4,000 suppliers. 90% of their transactions now are totally automated, completely touchless from the time they emanate from an SAP system all the way through to payment. This is speeding their order processing cycles by 75%, reducing risk saving them 100 of 1,000,000 of dollars a year. But connecting companies and automating transactions is only the beginning, What gets really exciting when you have millions of companies connected and transacting at scale like we do now are the new insights and the new network services that you can deliver.
We're taking the 15 years of transactional, relationship and community generated content that's on the right to deliver the penultimate big data opportunity. We're converting this network intelligence now, as you heard from Suneesh, into information services to help everyone in that network, buyers, sellers, bankers and other partners make more informed decisions than they ever could before, all in real time. So for buyers, what does that mean? Well, that means we can recommend potential suppliers and we're doing this already today, not just on their own requirements of what that buyer needs, but on the buying patterns, the performance ratings of all the other buyers on the network. Think about what Amazon does when you go to buy a product today or Netflix when you want to rent a movie.
We're bringing that simplicity and that value to the business world. We're also introducing new services that will be impossible without a network at scale, services like new business discovery. So when sellers can be alerted to new business opportunities with the world's largest community of business buyers with budget in the buying cycle or new services like dynamic discounting that allows both buyers and sellers to use this intelligence on the network to either capture early payment discounts or accelerate payment as a supplier. And banks are using this information too to lower their risk, so they can invest in providing preferred rates and receivables financing to members of the network. So SAP is competitively advantaged in this new networked economy.
Sure, other vendors they've tried could technically build a network. But the real value of networks is not so much in the technology. That's the foundation. It's really in the connections, the relationships and the interactions that occur and that build up over 5, 10 or 15 years. Think about the personal networks you use every day.
With the scale of Facebook, why would you go anywhere else to connect with your family or to connect with your friends? Or think about Amazon, why would you go anywhere else with that scale to find a new book? So what differentiates them? Well, scale is one thing. No other business network has the breadth, the capabilities or the global scale that SAP does.
With 1,400,000 connected companies transacting over $500,000,000,000 worth of commerce in over 190 countries around the globe. That's 5 to 10x the size of the nearest competing network. And a new company joins the Ariba business network every 3 seconds. That's 1,000 per week. So when a new company joins, what does it mean the scale to them?
It means that 40% to 60% of their trading partners are already connected and already transaction. That means they can get up and running that much faster. So why would they go anywhere else? Another key value point for the Ariba business network is that it's open. Just like the Facebook wouldn't be as valuable to you if you could only connect and talk to other Mac users or only connect and talk to other PC users, a business network needs to be open to any application, and that's exactly what the Ariba Business Network is.
We're application agnostic. We provide standardized integration to any application. We have prepackaged integrations to SAP as well as open adapters to other major ERP and transaction systems, whether it's Oracle or PeopleSoft, Microsoft Dynamics or even QuickBooks. In fact, nearly 40% of all the volume that runs over the network today emanates from these 3rd party systems. The network is also comprehensive, managing all your trading partners, all your processes and all globally via a single standardized integration point.
So there's no need to handle your purchases over here like some platforms require you to do and then your invoices over there or your payment over here or your leads over there. Just like with Amazon in your personal life, connect once to the Ariba Business Network and automate the entire commerce process. Finally, the network and most excitingly is an intelligent network. This is not a dumb pipe just passing a digitized document from point A to point B. We open the envelope of every transaction.
We run business processes on the network itself, so only accurate data gets into your systems. And as was indicated before, you can truly automate from end to end. And as we talked about, we also are now leveraging the intelligence of this network to deliver new information services to help buyers, sellers, bankers and other members of the network make more informed decisions than ever before. The beauty of the model in a network model is a multisotted model. That means there's value in it for everyone, benefit for buyers, benefit for sellers and other partners.
The beauty of the model for SAP is that it's also a multi sided revenue model. Big buyers subscribe to applications that are connected to the network or they pay a subscription to connect their existing applications to the network. They bring their supply chain, and when the suppliers begin transacting at scale, they too pay a fee, commensurate with the value they receive, And this value is quite significant in the form of greater share of wallet with existing customers, in the form of faster payment, new business opportunities and lower transaction processing costs. Just two examples quickly and some of the value that some of these network members are receiving. At Sapphire in Orlando last year, a very large entertainment company, a big SAP shop gave a keynote and they explained how they're in SAP shop through and through.
They had optimized their internal functions and performance, but have compliance benefits. They cut their AP and costs in half and now they're getting the benefit of doing things like this dynamic discounting, capturing even more discounts and providing value for their sellers who get paid faster. And speaking of sellers, for those of you that attended an event like this for Ariba, the very last one, we had some very large sellers, sellers like HP, which use the network as their single largest selling channel or sellers like Staples that is also a large selling channel that they've been able to automate with more than 4 50 customers around the world. But it's not just for big sellers either or big buyers, it's for small companies too, companies like EASI, small maintenance building maintenance provider, who in Europe within weeks of joining the network, not only found new business opportunities, but was able to win business, a sizable deal with a global retailer that would have never known they existed before. So considering this audience, you want to know about the size of the prize.
What's the opportunity? Well, despite our lead, despite being 5 to 10x, our next biggest competitor, there is a huge opportunity of growth before us and Sean shared this. Today, dollars 500,000,000,000 of spend is going over this network, but the Global 2,000 spends $12,000,000,000,000 around the world. But it's not just for big sellers either or big buyers, it's for small companies too, companies like EASI, small maintenance building maintenance provider, who in Europe within weeks of joining the network, not only found new business opportunities, but was able to win business, a sizable deal with a global retailer that would have never known they existed before. So considering this audience, you want to know about the size of the prize.
What's the opportunity? Well, despite our lead, despite being 5x to 10x, our next biggest competitor, there is a huge opportunity of growth before us and Sean shared this. Today, dollars 500,000,000,000 of spend is going over this network, but the Global 2,000 spends $12,000,000,000,000 every year on goods and services with our external supply chain, And that's highly inefficient, highly manual and in need of repair. SAP alone touches 2 thirds of that opportunity. So $8,000,000,000,000 of spend is emanating from an SAP system.
We have a massive opportunity in the SAP installed base alone to connect that spend to the network and make it more efficient for the customers and drive new revenue growth for SAP. And how we're doing that? Well, we've already started. We're providing prepackaged adapters to the Ariba network from all of SAP's most widely used applications, ECCMM, Financial Management, SRM and Business One. So SAP customers can get connected and transacting in weeks
and get the value of
the network almost immediately. Just as SAP itself, itself earlier this year connected its SRM and ECC systems to the network. In a matter of months, it's transacting with over 1,000 suppliers, hundreds of catalogs and driving savings and efficiency to the bottom line. We're also then able to leverage the sales and scale sales relationships and the scale of the SAP sales order. We're adding customers in data centers as you heard in Eastern Europe and China.
And those sales won't just come from the SAP base, but also from the massive partner ecosystem, especially the BPOs who are now looking for that next wave of efficiency beyond labor arbitrage. A good example is the relationship we have with Accenture and how we're jointly servicing Deutsche Bank. And as you heard from Suneesh, we're also unlocking spend and new opportunities on the network with new innovations, new collaboration types, going deeper into direct materials and logistics and complex services spend, unlocking new categories like contingent workforce together with our friends at SuccessFactors, delivering new network intelligence offerings. So in addition to the supplier recommendations that I mentioned, predictive supply chain risk management to tell someone what's going to happen in their supply chain before they even know it. All of this will add more buyers, more sellers and more commerce to the network, providing greater efficiency for SAP customers and greater growth for SAP.
And we think we're just at the beginning. You heard how we're going to be leveraging hot end mobility to bring innovation and scale to the network. But we truly believe, as Sanish said, that every process that touches the edge of the enterprise can benefit from a business network. Together, we're leading the market to this new networked economy and we're redefining how business gets done. I thank you for your time and I look forward to your questions.
So thank you very much, Tim, for this insight into the business network. As I said, this is, I think, one of the underappreciated elements of our story. So, this insight was very valuable. I would like to now ask Luca Muthic to join me here on stage for a discussion of the business model with the transformation to become the cloud company. And I think we need just the little clicker to move the slides.
Thank you. And after Lukas' presentation, we have a final Q and A with all the Executive Board members and the Global Managing Board members. So Luca, the floor is yours.
Yes. Thank you very much. Glad to be here. And let me bring it home for you and conclude the formal presentation part of today's symposium with a few remarks around the financial implications of the great transformation towards the cloud that all of my colleagues have been talking about before. I know that, of course, you are all waiting for some inside out information from SAP on metrics and KPIs.
But actually, let me turn it around for a starter and look a little bit at the outside in view, why is the cloud winning with customers? And there are several angles why this model is attractive for customers, but let me cite 2 of them that for me are the most important ones. From a consumption perspective, the cloud is really all about agility and velocity for our customers. Getting hooked up to the cloud and start to consume value is not a matter of months or years, sometimes in the on premise model, It's really a matter of days or weeks. On the other hand side, the innovation agility that we can drive in a cloud based consumption model is much higher.
So we have rapid innovation cycles and our customers can really consume this innovation right away without lengthy update cycles and lengthy all about a low risk profile as you begin. You don't have a big license assets that you have to put on your balance sheet. It's actually an OpEx model. You pay over time without an upfront investment and you decide after a predetermined contract period, 3 years typically, whether you want to renew. That is very attractive as the customer knows that the supplier and the partner will need to hold up to this value promise that we entered the contract with.
And so let's take a look at how this picture then shapes up on the SAP side. To the left, you see here an example of a typical deal that we all know very well from our established on premise business. Let's say we have a €1,000,000 contract and we earn maintenance on that, so it's typically 22% enterprise support. The initial investment by the customer is booked upfront. We have a very decent margin of that.
Sales margin is typically around 40%. Then in the future, we earn ongoing maintenance money on that. And there, obviously, the margin is very high, somewhere in the mid-80s. So it's a very profitable model. But there is one big disadvantage.
Sometimes occasionally, especially in the last 72 hours of a quarter, it does not let us sleep too well. It even sometimes creates gray hair, as maybe you can see with Rob and Phil who's in this business for a long period of time and actually it starts happening to me as well. So it means as well that you run a risk when you are completely focused on this kind of business model, but especially at the end of the quarter where a big slippage of a major deal can make a difference between a good or not so good quarter that you give value away. And we certainly don't want to do that. So I think there is definitely a great value for SAP as a vendor to embrace a cloud subscription model.
And we've simulated this for you here as well on the right hand side. One important remark coming back to the notion of introducing cloud subscription option also for our core applications. You typically see in terms of the value that we are able to drive a correlation between an on premise deal of say €1,000,000 plus maintenance of roughly a €450,000 annuity that we are able to drive in a cloud contract for the same kind of applications. In fact, this is actually the conversion factor that we are applying when we are giving customers choice between on premise and cloud subscription options per the model that has been outlined before. So basically, if you extrapolate this to a 3 year contract in the cloud, we are able to drive 1,350,000 euros of revenues over a 3 year term.
Now the revenue recognition pattern in the cloud is completely different than in the on premise world. As we are not providing a goods, an asset that is basically turned into revenues as soon as we hand it over, but we are providing a service, We can only start recognizing revenue as soon as the customer is actually using the service and is going live. So this is fortunately not taking as long as sometimes in a complex on premise implementation, but still it takes a while. And then the revenue recognition kicks in and you catch up the deferred revenue for the 3 year period over the rest of the initial period. That's why you have in year 2 year 3 slightly higher revenue.
And then, which is very important, if you drive a renewal, of course, the annuity stream continues. The profitability of this model in the year 1 is actually negative because you don't yet recognize revenue, but you, of course, have your cost of sales already. However, already in year 2, the profitability is actually exceeding 70% from a gross margin perspective. And we get into renewals, we get into a very healthy mode, somewhere around 80%. So clearly, in striking distance with our classical on premise maintenance business.
The really nice thing, of course, about the cloud subscription model is that if we are successful in establishing an end to end customer lifecycle management, drive customer satisfaction and then get into a high level of renewals, this model actually in the long run is providing us with better returns. And that is true both on the revenue side as well as on the profitability side. We have simulated this. And dependent on different assumptions that you take for renewal rates as well as the discount differential between cloud and on premise deployments, which clearly in the cloud, we are driving a more disciplined model with less non standard discounts, the pure volume discount based model. You get to a breakeven point somewhere around 4 years on the revenue side.
And then if you renew further, of course, the NPV advantage of the cloud business model from a revenue perspective just accelerates over the time. Actually, the profitability, the net profit breakeven follows suit after roughly 1 year later than the revenue breakeven point. So this model is extremely attractive in the long run, provided that we are successful in upholding a higher renewal level. So there is good reason for us to go all in with the cloud and embrace this model. And we have high ambitions, as we have shared with you already around the earnings announcement.
Until 2017, we want to get to a €3,000,000,000 to €5,000,000,000 revenue figure in the total cloud revenue. That's roughly a 35% CAGR. Now you may want to ask, so is this conservative? Is this aggressive? I prefer to say, we have a plan and it's clearly achievable.
And why is it achievable? If you think about 2013, where we had on organic basis roughly 32% growth rate in cloud revenues. In the second half year, driven by the increased synergies of our tightly integrated go to market model, the fact that we could leverage those synergies and accelerate actually the growth in Ariba, for example, and hold up the high growth and success factors. We have seen that in Q4, we were able to drive a 39% growth at constant currencies. Even more importantly, when you take a look at billings as well as our backlog, we saw even greater growth there, basically both above the 50% mark.
And one factor is not yet in those figures. As we have outlined, we are going to establish a cloud subscription option for our core applications when consumed in the SAP cloud powered by HANA. This revenue stream will build up over time as we're just getting started, but it will clearly become an important component of our growth there. So if you bring all of that together, I'm very confident that we will achieve this growth trajectory. And I'm equally confident that we will actually also achieve our total revenue ambition, which is again just to remind everybody more than €22,000,000,000 in revenue by the year of 2017.
Now that's a 7% CAGR. And I know that some of you have concerns whether we will be able to uphold growth in the core in light of the strong growth in the cloud and whether there will be cannibalization effects. I will come to the detailed levers of our growth in the core in a minute. But to make it very clear here in a simple statement, a very decent single digit growth in software and support in our classical core is a safe bet for various reasons for SAP. We have the levers in the industries.
We have the levers in the emerging markets. We have the incredible potential of HANA. And there are some more that I want to mention in a minute. And we have, on the other hand side, a services business that we are optimizing more and more through the introduction of rapid deployment solutions for a fast time to consumption of the software solutions. That drives down the service to software ratio in our overall business.
Still with the high growth of the cloud and the stable growth in our core software solutions, we will be able to come to the 7% CAGR. And the nice thing about is the mix will develop very favorably in the interest and to the advantage of recurring revenue streams, both our classical support and maintenance as well as the cloud. You see here our projection, we will be roughly at 65%, given our projections in 2017 as a relative proportion of recurring revenue streams. All of them, the support that we know about today with a very high margin, the cloud as we have seen with a clear potential to progress year after year and increase the profitability there as we add more and more renewal business at very high margins. And that all in all, in sum, really leaves us in 2017 with a ton of confidence that actually also the 3rd commitment that we've given to you, the 35% margin will be met, if not exceeded.
So let me spend a few minutes on the key levers to achieve the core growth that I've been talking about. And I won't repeat all of those because many of them you have seen actually with some of our colleagues. I just want to mention 1 or 2 additional flavors. You have seen the incredible potential that HANA holds as a platform for all of our own solutions. Actually, there is an additional opportunity to have HANA as the industry platform for our partners, for our ecosystems, sometimes even our competitors to really base their product developments on HANA.
This will clearly also drive additional revenues for SAP. On the other hand side, we have been talking about Fiori. Michel gave this excellent pitch for the transformational nature. And I think from a commercial perspective, the beautification of our user experience has a very simple additional advantage and prospect that we can capitalize upon. It's the reach of our solutions to occasional users in a lot of mobile scenarios.
We've just been getting started in this area as well. On the sales and marketing side, as Rob has said, in our strategic industries, we have seen very decent double digit growth, and we continue to expect to see this growth over the next years to come. We are becoming the de facto standard in emerging markets. Last year in Q4, we saw 40% growth in China, just as an example. In many other of these emerging markets, we have similar comparable growth rates and this will continue as well.
And we have the chance to be the 1st there due to our global reach to introduce the cloud concept to that market, while at the same time harvesting the on premise innovations that we are able to provide in these countries, where, for example, transportation and logistics are very important elements as are certain other elements of our strategic industries. And last but not least, our ecosystem is a key asset for further growth in the core business as well. The service and support area, especially the It's the ship that carries us in a profitable way from our established business model into a combination with a fast growing cloud business model. Even if we were flat on on premise application sales, we would still see this business growing at 6% to 8%. And that's the nature of, 1st of all, very, very high renewal rates that we have in our classical support business in the high 90s.
So the customer satisfaction with enterprise support is at an all time high. We have extremely high choice rates for enterprise support between the 98% 99%. But we also have increasing success with our premium support offerings. So, MEX attention is a de facto standard at all of our major accounts. It drives value that is really clearly understood, and we have very high growth expectations there for the years to come as well.
And last but not least, we are also growing quite steadily in custom development, which can be a very useful option for our customers to extend the usage of our standard applications, but in a way that is really preserving their investments through clear paths to upgrades when you get them from SAP. And last but not least, a few words on why we will make the cloud business grow in the way we do, while actually extending the profitability as well. We've been talking about the platform paradigm a lot. One platform for all of our applications means synergies and scale effects as well. While we can integrate more easily, that's a seamless integration experience that my colleagues have been talking about, we can at the same time also rationalize development efforts and clearly gain efficiency scales.
We also need in the cloud world to be very clear and prescriptive about where we allocate investments. And so clearly, looking at the success of our solutions and getting lower as well as especially the global reach of SAP, which allows us to localize our solutions going back to a globalization organization that we have all around the world is giving us advantages in terms of scale that many of the best of breed SaaS players just don't have at this point. On the sales and marketing side, the one go to market model that Rob has outlined is already starting to show clear synergies. Not only will we clearly come with one recommended solution for a business problem and we'll not be biased what one part or the other part of the organization may think is best from an inside out perspective, but we really look at what is the best outcomes for customers that we can drive. But also we are gaining scale through a global workforce in sales that we have in all regions present that our competitors just don't have, especially not in emerging markets where we have a clear advantage to be first there in the market.
The subscription pricing option for the SAP Cloud powered by HANA is not built into our run rate. It's not built into the growth rates that we had enjoyed in the past. So it's a clear upside that we will definitely try to bring to play and to active outcomes over the next years. And not to forget, we also offer flexible conversion options from on premise contracts to cloud contracts under factors that again make commercial sense to SAP, but allow customers to redeploy investments that they previously made into the cloud And that's a win win for everybody and has received very positive feedback from analysts as well as customers. And last but not least, the support assets that we have, that was a remark that was also made already before, actually give us a tremendous scale in our cloud businesses to extend the reach of their support organizations under common standards, under best practices that we have been proving for more than 40 years are world class and market leading.
And at the same time, Gerd Oswald, who is also responsible for our data center operations and infrastructure with Bjorn Gohrke there in lead, has a huge potential across all of the application acquisitions that we did to standardize, harmonize, rationalize our data center infrastructures, our server farms to optimize them really for the biggest efficiencies possible. And this will drive a further progression of the cloud operating margins as well. So summing this all up and bringing it home and connecting it back to Bill's starting points. What is really the key success factor from all of the points that we have tried to make home? Let's keep it simple again.
I think it's back to simplicity. We have all the tools and all the assets, both in the on premise business as well as in the cloud business to be the undisputed leader in the market. What we need to do is bring them together in a simple operating model that is really centered around the customer, customer preferences, customer outcomes, is providing a consistent experience to the customer all the way from discovery back to fulfillment, is creating a virtuous cycle of customer end to end customer engagement life cycles. And we will structure our organization and the whole company around those principles. We are all fired up to make this happen.
We'll at the same time gain efficiencies for SAP. It will increase our effectiveness and most importantly, increase our customer intimacy, giving the customers choice and winning in both our core as well as in the cloud. Thank you.
All right. Very good. Thank you, Luca, for wrapping it up from a business model perspective. We now get 7 chairs on stage. For the final FAQ, I'd like to ask Bill, Jim Baerner, Rob Baernd and Michel to join me here.
And again, a reminder for those on the web, it's late now in Europe. It's already 6:30. Some people might still be awake. Please send us questions by e mail to investorset.com. And we also make sure we take some questions from the web.
And let's have a moment everybody to get find the seat here. And I think we start with a question here from one of the buy side attendees. Please go ahead.
Thank you. Elias Cohen from Neuberger Berman. First off, thank you so much for doing this today, especially in New York. That's great. You guys did a great job in terms of showing us your vision and innovation and the value proposition and so forth.
My question is on the economic impact of on SAP, especially considering that you've highlighted throughout the presentation the importance of HANA as a platform. The economic the curve that Luca showed towards the end there, How does the curve for the cloud that seem to be apps cloud apps, how does that curve change for ERP on HANA? If you take the 1 plus the 22 for maintenance, how does that look for Hana considering that the hardware component should be a much larger component of the equation? And should we think about it you kind of targeting a certain operating margin, the 80% and working your way backward to get to
that number? Yes. Just before Luca answers that extensive question, thank you for that. I just wanted to acknowledge, one of the great things about the leaders, they choose fantastic successors. And Werner Brant is well known as a great CFO of SAP.
But also, I think today, we've underscored the fact that the man can choose a successor, and we have a great future CFO as well as great CFO, again showing the power of executive leadership at SAP. So Werner, thank you very much for that. Well done. And Luka, thank you.
Thank you. Thank you, Bill. Appreciate that. So basically the model simulation that I've shown here is actually the one that is showing the trade offs between an equal on premise or a cloud based deployment model. So if we are looking at an SAP Cloud powered by HANA transaction with a customer, the customer will have 2 options.
Either he goes for the bring your own license model, then he pays the €1,000,000 upfront and has the ongoing 22% maintenance or we transform it into a subscription option. And that would mean that the customer goes for the $450,000 per year and then has at minimum a 3 year commitment. Actually, the mechanics of how this will drive returns on the revenue side are laid out. And it's actually exactly this NPV model that I've shown to you on the next slide. On the profitability side, in the profit that we can drive with this model, there is a lot of advantages that we can use utilizing HANA.
In terms of and HANA and Vishal can I think talk more in detail about that? But actually to rationalize the overall cost of operation of a system in our cloud infrastructure. Because as Vishal has laid out, HANA really allows us to collapse the overall application stack, get the systems footprint dramatically down. And of course, we as an operator of the system are benefiting from all of this. So actually what I showed you there was the attempt to differentiate between the same type of application in the cloud one time on the subscription option and one time on the license option.
The breakeven calculation of roughly more than 4 years, as well as the profitability breakeven on a year later is actually modeled exactly on this example. Okay.
Thank you very much. We take the next question, I think here on the right hand side from Ross MacMillan, Jefferies. And then we have Moe Morella from Goldman Sachs.
Thanks a lot. When you think out to 2017 and the 3,000,000,000 to 3.5 $1,000,000,000 target for cloud, do you have an implied assumption in there around how many of your existing customers will move core apps into the HANA alternative And first of all,
the core business, one all means. First of all, the core business, one of the points we wanted to make really clear today is very solid. And while we are offering the subscription in the cloud or the bring your own license, it has not been a prevailing theme in our customer relationships. And therefore, we did not overburden the revenue numbers on the suite of SAP moving to HANA in the cloud on a subscription model. That has a lot of upside in it if it takes off the way we think it can.
This is a very important distinction. Right now, this thing is very balanced and the customer relationships around the is really on the line of business and the HANA suite on HANA is really on the line of business and the HANA suite on HANA cloud coming through later on. I think
it's important to understand that the assumption that we are making is that the current maintenance space is not going to go down. We're actually adding to it every year. And when companies do that, we tend to get 2.5 times more revenue from the same customer because they buy more, because it's easier to consume. And we can innovate and deliver the innovation to them faster. So this is really about scaling the growth of new sales, you could say, either to new clients or expanding our footprint and installed base clients where they will more and more prefer the cloud option, which we now give them also for the core.
And I think one of the things to Jim's point that hasn't been fully vetted out yet is we just took all the objections to SAP off the table today. I mean, this is like the competition's worst nightmare because all the traps they had set up for SAP on their initial sales call and all their plans have just come off the table. So how many more transactions will we do as a company as a result of taking all the objections off the table? And I think the guys did a great job of showing you the technology advantage that SAP has and our great client did a fantastic job of underscoring business value and business outcome on HANA, which is breathtaking.
Okay. Thank you. I think the next question comes from Momo Wavana here in the middle section.
Thank you. Can you talk about this potential footprint expansion from these new line of business applications within the installed base? Clearly, that's a very big asset you have. And it was alluded in one of the earlier presentations about the large beverage customer that you had and the ability to just cross sell that just related to that one for Rob is in terms of the investments needed on the sales side or is it just a case of incremental productivity improvements you're betting on to achieve that?
So, both into the model is some ability to scale some of the sales resources in markets where we don't have cloud resources. So that's built into the model specifically in APJ and in areas like China, which is brand new coming up from ground up. In terms of and the first question was regarding
The opportunity, maybe I can
The billings opportunity, I mean, Luca laid out what we expect from a billings opportunity going forward into next year, this year actually. Yes.
And strategically, the opportunity to bring the line of business applications to our customers is enormous. If you just look at the Ariba network and Sean and Tim talked about this and Sanish, one of the largest SAP customers in the world is BHP Billiton, a large mining company in Australia. They when Sanish first met me and he told me that 10,000,000,000 dollars worth of purchases every year goes through the Ariba network. And we knew, I mean, Jim, you have been working with BHP for decades. We were just thinking that the opportunity to bring this same network effect to thousands of other customers is just massive.
Maybe I can
explain what typically happens at a client. If you run an ERP client, right, then the conversation is there's some pressure to go to the cloud. They do that on the edges. So they come typically and add on HR. And good or bad, but we only have 40 percent of our customers using our HR in the on premise world.
Now we can upsell the 60. And many of those who have our HR would want to extend to the cloud, not just replace what they have to go into learning. Then they have a procurement conversation. So why couldn't I procure easier? And you saw the business case for procurement, they're very, very nice.
Then they go into CRM. Now because these are all integrated to the ERP, they get the family effect, I think Sean followed, and the pre integration from SAP. And then finally the conversation becomes, well, I need to bring my ERP on HANA. They do that and then suddenly you can bring the whole thing into the SAP cloud, which runs on HANA. And they can run end to end cloud if they want or they can find a combination, let's say, preferred.
Yes. Maybe even SAP is a good example in the area of Ariba. Tim has alluded to this a little bit. It's actually very easy. We have for years been running our own on premise SRM solution.
And like many other customers, we would look not look at ripping this out in the short term. However, our Ariba Cloud solution portfolio is extremely complementary and is adding additional value. So we have chosen to deploy very soon auctioning functionalities that our procurement can now use to actually run supplier bids among multiple vendors in a very efficient manner. And we are utilizing the network to really automate the whole invoice handling with our suppliers. With a massive success, basically 1,000 suppliers onboarded still in the last year and savings that are really tremendous.
So I think that's a story that will find a lot of imitation and repetition with many of our customers.
I think one of the things to build on this you got to think about from your point of view is now that procurement and the Ariba business network is on the table and you can all decide how big that is in a $12,000,000,000,000 market. You also have to say to yourself, is human capital management or cloud growing really fast? And is CRM ready for a next generation? Is it? Because I think CEOs are tired of talking about the sales director sales and you think about our installed base in Europe, which is where all these companies have to overinvest now in sales to get into the SAP install base.
And you think about the emerging markets, whether it's the BRIC, it's Middle East, it's Africa, where we have unbelievable footprints already and we just turned 5,000 salespeople on to the cloud as their primary mission, you then have to ask yourself, SAP against and what might be the ramifications to the others. That's really what we're getting up in the morning to do. We're getting up in the morning to win. And we're going to win in Europe and we're to win in Asia and we're going to win in the BRIC and we're going to win in Africa.
Thank you. I think we now take one question from the web. Ishi Goro, Hermes' Fundamentals in London. HANA is differentiated by the enterprise databases have a high switching costs due to its business criticality. How can you lower migration costs for ERP customers?
And the second one, will HANA support other non SAP Software as a Service applications on the HANA Cloud? Vishal?
So the second one is easy. It already does. We have many non SAP Software as a Service applications already running on the HANA Cloud, built by others, built by companies like Accenture, Wendavo, SaaS. Out of the 1200 startups, at least 500 are running software as a service applications. So this is already something that we have done extensively.
In terms of the differentiated enterprise databases and the switching costs, yes, it is true that all these software systems very sticky. However, if you look at the landscape of enterprise IT, application systems are much easier than database systems. That is one key thing. Business processes are much more difficult to disrupt than technology underneath the business processes. And what our experience has been is that if we can help our customers move improve the experience of this migration, improve the experience of implementation dramatically, the move then becomes a non issue because the business value then prevails.
So we have seen Mindy talked about this at Conagra, at John Deere, at McLaren, at major customers where move ERP system, I mean our own system that Werner and Luca have done internally within SAP. These are all examples where the benefit to the application system on top prevail over the stickiness of the database.
And I think Vishal, the customers are not migrating only to replace the enterprise database. They're replacing they're getting significantly more business process value to get rid of batch processing or other aspects. So and the footprint is dramatically low plus the data footprint. And if they want it, they can have it in a cloud based environment, so we can worry about the hardware cost at a later stage if that's needed.
We actually asked ourselves how can we make the switching cost easier, right, given the migration. And so remember when we launched the HANA Enterprise Cloud last year, that was the reason for that. I had an experience with a customer, a fashion company running SAP. And the CEO says, listen, this fashion industry is going so fast now, I need to be real time. But I don't see myself moving my business warehouse to HANA because IT says that takes 10 to 12 months.
And so I called Vishal and said if we did it for them, how long would it take? And Vishal says, well, 10 to 12 days. And I
think we're below that now. Yes. We did that one
in 180 hours. So by offering it as a cloud, besides the fact that the business model of that is highly attractive because of the logic that we showed that Luca showed, it's also a way for us to accelerate the adoption of HANA add clients and take the migration problem away from them because we do it for them in 180 hours instead of 10 months.
Next question here, Rick Sherlund. And then we have Phil Vince.
Just a follow-up first on Ross' question earlier. I didn't make sure I'm clear on this. So the analysis we saw was on premise versus SaaS. That was for a new buyer. If you've got an existing Business Suite customer that chooses to deploy on HANA in the cloud or on premise, what first, I guess, what's the economic differential to SAP in that scenario because you have a huge installed base that may migrate.
So I'm curious what the economic model is for that? And then second for Vishal, I'm trying to think that as you go to HANA Cloud Platform, you've articulated a couple of interesting things, one of which was the size of the footprint of the application shrinks a lot. And I'm not real sure what the value of that is to me as a consumer versus you as a service provider. But also to the degree that we're looking at SaaS applications enough that you can now develop new processes that is leverageable, so you can do processes that others haven't been able to do, doesn't that allow you to leapfrog, I guess,
is what I'm
saying in terms of differentiation going forward?
Absolutely, absolutely. Maybe I can do the second part first. The value of this the value of simplification is enormous. It goes far beyond our saving of our operating cost in the case that the customers move to the cloud. It is when you sit in a Tesla the first time, you notice that the car is completely empty.
It is like that. Great liberating technologies always create room and simplify things. We have seen that example with HANA where the shrinking of the system, the reduction down to the raw operational data enables the end users to ask any question that they can think of because the particular aggregates that were defined for you by the product people who wrote the application are not there anymore. That means you can not only aggregate what was there before but any other thing. You can ask for customers in Hamburg who have purchased certain things in the last 60 days more often than in the 60 days of the year before and then suddenly jump from Hamburg to New York or whatever.
That opportunity to expose this openness of the system directly to the end users is enormous. And that gives us an opportunity to do completely new business processes, whether it is in financials, Sanish was talking about this connecting HR and people to the performance of people outside of your company's boundaries and into the ecosystem and so on. So the experience of the end users and the opportunity to create entirely new business processes and Mindy's example was one of these to manage costs across the entire enterprise. Don't know if you got the example that she gave, but it adds up to something like 36,000 times faster performance. But we never once talked about 36,000 times faster performance because you would never wait for 48 hours or whatever the time was before in what you can do in 5 seconds now with HANA.
It was just not possible before and now it is there. So that gives us the opportunity to build these things out.
And maybe on the first part of the question, I think there are 2 conceivable scenarios. On the one hand side, there may be an installed base customer who wants to get into a cloud based deployment with SAP on different solutions that he does not have today. But he has a demand, let's say, that has not been fully deployed on the on premise side. There we offer conversion options, as I've said. There is a conversion factor on top of that that makes sure that this makes commercial sense for SAP and is a net positive.
And actually, we have seen cases where customers have used this conversion option that we have introduced in August last year. And actually the typical conversion factors are far above the ones that we would need to make this a net positive business for SAP. So this is one of the options. If you want to take exactly for us. That's the bring your own license model that we have.
And we will then do the application management, the hosting, and we will charge a subscription fee for that as well.
And then if that customer wasn't on HANA before, we either sell the HANA license now upfront or has a subscription model in the cloud. Yes.
Okay. Thank you. The next question is from Phil Winslow.
All right. There we go. Just two questions, one for Luca and then one for Bill. Luca, you got the one for Bill. Luca, you gave that 7% CAGR guidance through 2017.
I wonder if you could help us with sort of the shape of that. Obviously, you gave 2014 guidance. But when you get to the back end of that 2017 guidance, I'm assuming you'd expect me to be growing above the 7% CAGR over that time period. Just maybe just help us through sort of the shape of the revenue growth, shape of the profitability. And then for Bill, I mean, obviously, we're pivoting towards a cloud first model, R and D and go to market.
And particularly on the go to market side, if I'm a sales guy walking into Credit Suisse, what are my incentives to pitch Employee Central 1st versus SAP HCM? Are all those incentives aligned? Thanks.
Yes. So generally speaking, if you take a look at the 3 big components of our business that we have, that's on the one hand side our cloud business on the other hand side our classical on premise product business, so software plus support. And that's on the 3rd side, the services business. That my assumption going into 20,007, team would actually be that we will see relatively flat development on services up to a small decline, because again, it's our vested intention to make the consumption of our solutions easier and easier. That's why we go with preconfigured services with rapid deployment solutions and so on.
So the growth will really come from the 2 sources, that's the core. And on the core, we will see, as I said, decent single digit growth that will be driven both by our emerging markets, strategic industries, solution areas like HANA, which will continue to grow tremendously. And then on the other hand side, it will also be growing via the support revenues that is very predictable, has a very high renewal rate. So this will be a single digit revenue that will remain stable in terms of the growth profile. Then we add up on the cloud.
And on the cloud, you have seen the growth rates that we can drive in our classical LOB, public cloud solutions. Now you add to this the potential that we have from the SAP cloud powered by HANA. We can also run our core applications now in a cloud setup for our customers and can drive subscription. This will clearly be a built a revenue stream that will build up over the next 3 to 4 years. We don't expect a big contribution from that in 2014, for example.
But then we will see a pickup there, which will get us clearly to where we want to be.
And Phil, just a couple of points I wanted to make and some of it's touching on what Sean said. Other people buy companies to consolidate things, harvest margins and tell a story. When we went into the cloud moves with SuccessFactors and Ariba, we really were determined at that time to be the cloud company. And as you rightly said, Sean, we left these companies alone enough that we infused that DNA into SAP. And once SAP had the infusion of the cloud DNA, which we do, we were in a much better position to integrate our story in front of the customer and of course lead with the cloud, but also never forget the importance of giving the customer choice.
For example, I was in Davos and I made a call on the CEO of 1 of the largest banks in the world and I was talking about the customer experience in the cloud. And he had just thrown out a well known SFA company because they couldn't manage his sales information and data in an encrypted secure cloud, which opened up a whole new opportunity that in some way will be a hybrid that are indifferent as to whether or not the customer choice should be the cloud or should be on premise. It's up to the customer. But we lead with a solutions approach. And when you talk in HCM, you're talking customer and you're talking procurement, it's the cloud.
And then when you're talking net new install, a customer that's trying to get to innovation quick, create new markets, midsize large company trying to get there in a hurry, we go with the suite on HANA in the cloud, SAP Cloud powered by HANA. That's the lead story of the company. Fact is, we have an unbelievable install base and Werner is always quick to remind us in Board meetings that in different parts of the world customers behave differently. You're not going to go into China. You're probably not going to go into the Middle East, certainly not Africa yet and be in these or Russia and be in these fast moving cloud conversations.
So I think to have the levers to give the customer what they need to not bias the sales force economically toward one model versus another and to have the guts to get in front of you guys and say, we're a company that's protecting the core, growing the cloud and keeping everything profitable. And I don't know if there's been one this size and scale that's pulled it off to the extent we plan on pulling it off. That's why we're all here. That's why we're coming to work in the morning. I hope that answers your question.
Thank you very much.
Next question here, Kai Korschliet and then Michael Breeze.
Thanks for the question. I had 2. The first one was on the on your license revenues. I think it's a quarter of your revenues right now. And the implicit assumption seems to be that you can keep that broadly flat over the next few years.
So my question is, is that not a bit counterintuitive to the accelerated migration in the cloud because you're essentially assuming the new business for your on premise new on premise business that level stays the same as it has been for the last couple of years? My second question was then, Luca thanks for sharing the economics between cloud and on premise with us. Just wondering do you have a practical example how a hybrid solution would work in terms of maybe an existing customer or new customer? So when you're offering a hybrid and a cloud solution, how would the economics or revenue economics compare to the two models that you showed us? Thank you.
I guess I'll start this one because I want to look at this from the customer point of view. And this is no different than the conversation at SAPPHIRE last year or even the year before as it relates to SAP's perpetual licensing business. Most companies that invest in SAP view SAP Software as a capital asset of their company, one in which they put on their balance sheet, they depreciate it over a long period of time and they hold on to it. What's great about the subscription model versus the perpetual is the perpetual over time will give the customer a lower cost. And therefore, the customer has the decision whether they want the lower cost alternative over a longer period of time or they're in a tight squeeze on CapEx, they need to be in OpEx and they're willing to pay a slight premium for it because that's the way they want to run their business.
Also as Luca said, it keeps the vendors honest in terms of doing a good job. So when it's up for renewal that customer has a vendor that's committed and at the table. The good thing I think that we're putting on the table is we're giving the customer choice. So far that customer knows that they have the choice. We have not seen like this massive move to the subscription conversation.
It's been very balanced. As Rick asked a good question, some of them have their managed get the managed services and all the things, no problem. So I think that we kind of let all the air out of the balloon. And I think it really did kind of bring a big thud to Silicon Valley because I don't think a lot of people expected SAP to put it all on the table and go for it this way. I think it's really taken the pressure out of that conversation with the customer.
Maybe I can add a few reality checks. So we call this conference customer driven move to the cloud and for a reason. And I spent a lot of time in Q4 in Asia Pacific. And I can assure you that most of those conversations were not about cloud. They were about how do I run my business more globally and how do I get the software installed on premise very rapidly.
And I think we have the benefit of being a very global company that can balance these moves out. When it happens in North America fast, we're ready. When it happens in China later or in Japan later, we're ready. And we get this nice combination. I always said we need to be a big cloud company before the whole world moves to cloud.
And we have been able to do exactly that.
Yes. That's a great point.
And I mean from a commercial perspective, you see the same at the individual customers. You clearly have many, many cases. My finance department is engaged in these cases, because we need to make that the revenues are segregated between the cloud and on premise. So we have hundreds of cases in which customers really go for hybrid contracting in some areas in the same deal for an on premise portion and other areas where they again want to gain advantage of the fast agile model in the cloud as well as let's say the OpEx capabilities of the cloud, they go with cloud. So you see the very same topic that Bill has outlined, the choice for the customer, not only from a portfolio perspective, it's not black or white, but the customers themselves are still making their choices and are still as we speak buying into both on premise as well as cloud.
That's why I'm confident as well for our core business.
Thank you. So we have Michael
Briest. Great.
Thank you. Two questions from me as well, if I can. Bill, I think on the call for the Q4 results, you talked about primarily organic growth strategy for the cloud. And I think everyone expects SAP to be acquisitive. Things like Crossgate would certainly fit into the tuck in definition for me.
But when you look at your cloud targets for 2017, if you were to do a larger deal such as an Ariba type transaction, would that lead you to update those targets? We want to understand if that is 30% plus organic
growth? We always had a framework whether it was 2015 or 2017 that allowed for some tuck in acquisitions. If you were to do a big one such as the size and scale of Ariba, I think you would expect us to provide an update. But I do think as a normal course of business, Michael, you're going to see tuck in here and tuck in there. But I think you distinguish the difference in your question aligning it to a big one, right?
And yes, I think that we haven't really factored any big ones into that number.
That's great. And secondly, just in terms of the change in the go to market this year, I think you're coming out with new pricing formulas, new options for customers. What risk is there that it's a very back end loaded year as you have to restart sales cycles, reengage with customers, retrain the sales force through the first half. So seasonality wise, should this be any different from other years? Sure.
So Michael just we are we came out flying at our fuel kickoffs globally in China, in Beijing, in Singapore. So we have territories assigned, compliance data. I mean we are ready to go already the 1st week of January. So I don't see any of that having an impact at any point this year. I think we've never been in a better position to execute than we are right now.
And that includes our go to market business together with the general SAP sales organization.
I agree to that.
I do too. And if I may just make one observation. You see Sean here today. You saw Tim here today. You see some very big executives now at SAP that came from companies that we acquired especially in the cloud.
Werner appointed a woman named Jenny Dearborn to be the Chief Learning Officer of the whole company at a SuccessFactors. So I think what you have inside SAP right now is a pretty motivated inspired company. We've done well in terms of the kickoffs and the pipelines in the company, but the place is like excited. This is like excited. And one thing about SAP, there's a lot of smart people and they know a good strategy from a bad one And they really like this one.
And we had to refresh it just like we had to for you to let them know, okay, what's the next gear? And we started on January 10 as a global leadership team speaking to the whole company. Then we took that to the field kickoff meetings and we have been on a mission the whole year telling our story. And I tell you this strategy has people within the company very inspired.
I'd like to just confirm that. I felt like in 2010. So February 2010 is actually almost 4 years ago exactly this week. We came in and we had that strategy moment and then we set the course for the company. And so we came out really hard and very strong with the next story around simplicity.
And I love the idea that SAP would be the company that simplifies everything.
Thank you. I think we have time for 2 final questions. I see one from Neil Steer, Redburn Partners and then Gerardus Voss from Barclays.
Thanks very much for the question. Bill, you touched upon the potentially the answer to the question we're about to ask, which is that the perpetual license model as customers have the option to move to a subscription pricing model effectively their total cost of ownership over the long term is actually going up, which sounds rather bizarre given that you've been spending the last decade or so telling us that the total cost of ownership by your solution is actually reducing for the customer. The customers are fairly sophisticated purchases of IT. What do they want in return for the total cost of ownership potentially going up? I know obviously they avoid the capital expenditure upfront, but are we going to get into a situation where without penalty they can turn on and off the usage of SAP as they themselves go through cyclical downturns in their own businesses in the future?
In other words, what variation could we see on those subscription revenues as we go through cycles in the future?
Yes. I think you made the best point of all, which is it's not whether it's a perpetual or it's a subscription. That is one small piece of the overall puzzle. The overall puzzle is why are you automating your supply chain? Why are you changing your routes to market?
Why are you developing an omni commerce an omni channel e commerce strategy for your consumers? In other words, the license is one piece of this. What we're doing whether you go for perpetual license or you go for a subscription because everything is on hunt, we're collapsing the IT stack. So on a TCO basis, we're radically lowering your overall cost because we're clobbering hardware, we're eliminating unnecessary code and instead of a 5:one ratio of services to software, we'd like to take it down to a 1:one as fast as we possibly can. So whether you rent the software or you buy the software, the software is only one picture within the solution.
And that is what the customer buys, what is the business outcome. And in most cases, frankly, the software licensing model only comes in as a method of evaluating the overall return on invested capital. Gee, how are we doing it? We're renting it versus we're buying it or the CFO wants the deal. They want to get the business benefit, but they're at a CapEx.
So the OpEx is a lever that they can pull on to get the process going. Either way, the customer wouldn't do it unless they lowered their total cost of ownership pretty dramatically or they were getting a much better return on their invested capital. That's the real story.
Yes. You need to correct your assumption here. It's very important. The TCO of the customer doesn't go up in the cloud. The license part, yes.
Slightly. Part, the cloud delivery model in particular on HANA gives us the opportunity to collapse the total TCO. And don't forget, today they pay 5% of their total TCO to software. And we're expanding that twice. Once, because we now cover everything from the bits and bytes in main memory in a column to the user on a mobile device.
We only had ERP before. And secondly, because with this cloud transformation, we can now be part of a recurring revenue stream, which yes, is higher than the perpetual one, less risky. But the total cost of the customer goes down. So you ask yourself, I had that question saying it's better for the customer and it's better for SAP. So who's paying?
Right. Well, the hardware companies and the services companies are paying. And one of
the things that Mindy I thought did a great job on, I mean she wasn't talking about whether she rented or she bought software. She was talking about the end to end business process and how she's using technology to change the dynamics of their business and their business model. And that is the beauty of SAP. Like when we get in the elevator, we're heading to the top floor. Okay.
Most vendors, if there's a 10 story building, they're off on 3. We go into 10 because we're telling the story that changes the way you run the company. That's why the best run businesses run SAP. So that is the heart and soul. And I really want to make that distinction because I think this little tactical thing whether you rent or buy software got to be a big deal probably because we just never said, okay, well, let's rent the software too.
And now that that big deal is off the table, I think everybody is going to want to talk about how am I going to run better, What's my returns? How can I win in my marketplace? What's the next generation of what I can do for my company? That's where we want to play.
Thank you. So the final question, Gerardus, last hand back please? Yeah.
Yeah. Thank you. Just a question for Bill. I'm just trying to square the kind of growth rates for 2014. And if I look at today was a very compelling story about why customers would revert back to kind of SAP to end to end kind of solutions more to kind suite.
We've seen very strong kind of cloud billings. We've seen an acceleration in Q4 and Q3 actually. The product suite looks better than ever before. And still if I look at the guidance for 14% on the cloud, it's implying between 25% and 32% I think correctly. Is there reason to believe that we should not see an acceleration in Q4 numbers, which was around kind of 35%, 37%?
First of all, thank you for the compliments on how well positioned the company is. We must have had a good conference here today. Thank you. I think Luca summed it up best. We have what we believe is a good plan, an open transparent conversation with you.
Are our aspirations always bigger than our plans? Of course, they are. You wouldn't want a management team that didn't think big. But you're on a bigger base. We have to execute in the marketplace, but we have every reason to believe we've given you a good plan and one that the management team is up to delivering.
Keep in mind also, I mean everything's in the run rate now. So you're looking at basically SAP numbers. And if you think about that as the baseline with no Ariba on top, you have a much bigger company than you had and you have similar growth rates to what you just concluded. And you have a company that now has transformed itself to the cloud company powered by HANA and really going after creating that big $3,000,000,000 to $3,500,000,000 hockey stick by 2017. So let's see how it goes.
I think there is a back end loading of the Suite on HANA consumed as a cloud. Because Suite on HANA was just released, channel available May last year. We have 800 customers, which is beyond my expectation. We should never underestimate the opportunity on having the suite on HANA available in the cloud, but we need to get used to teaching the market what that means. But I think this will not come in Q1.
And the revenues, of course, in cloud, if they go for the cloud, they come later.
The fair thing also is we really didn't spend much time on the partners today. We really didn't. But here's the situation. When you think about their clouds, there are major brands all over the world from China to California that are setting up their clouds on HANA. This is incidentally not limited just to the high-tech manufacturers.
This is also services companies. And they are really building their franchise around SAP. One of the things we really should say more of, we have 67,000 employees in the company. We have 2,100,000 employees that are non payroll based in the ecosystem. We'd like to take that to 5,000,000.
And with our move into the cloud, HANA as the de facto standard in memory platform, we think we could do it. Again, we have every reason to be confident in the company.
Well, I see one final question potentially. As we are New York City today Elias Cohen, I think you opened the Q and A. Let's take this final one.
I want
to close it down. Exactly. So just to follow-up on this, this is the reason why I
was asking this question to Mindy on TCO that I appreciate that the customer wins. As $0.90 of every dollar is hardware and software goes away. You guys win as you capture more software as a percentage of spend, but you're also capturing some of that hardware and services spend, which is lower margin, lower returns. So just from a math perspective, how does this not dilute the returns of your core business as you take on this hardware? So we
are not reselling hardware. We when we go in the cloud and offer our services instead of selling the software, we win when the cost of hardware collapse. And that means we're comparing ourselves to another cloud vendor who doesn't have the benefit of simplification that HANA brings. And we compare ourselves to the landscape the customer can do on their own. So how can we be cheaper?
Well, the customer could also install down and collapse the cost of infrastructure. So why are we cheaper than even that? Because we can with the same data center provision many companies. It's the first time in the business of hosting that you have exactly the same infrastructure for every single customer because they all run on hand. And that is a major opportunity for leverage.
So think of that whole thing. And now I want to bring back what Bill said very nicely that we are very partner friendly. So we don't plan that all the hosting of SAP systems run at SAP. We want to be the benchmark. We want to be the trigger point for
and one of the things in our strategy, okay? We gave you the first version of it in 2010. You got a major adrenaline shot in that strategy today. One of the things we did not do is we did not go into the hardware business. We stayed true to our core as a business software market leader.
Yes, we expanded that core into other areas including the cloud and mobile, but we stayed true to that core and we told you that we would. Others went into hardware and they are paying the price. Other big ones are now shedding some of the hardware assets that don't seem to make sense. We kept the ecosystem open, kept things very vibrant, stayed a very solution centric company. And I really think that's starting to pay off because as Jim said, all the vendors that are core to that business are lining up with lower prices by the day to provision those offerings to our customers.
Well, thank you very much. This concludes our investor symposium for today. We hope you can join us for lunch. Outside, we can continue with some of the discussions and all the slides will be published on the website. Thank you very much.
Bye bye.