Good morning and good afternoon, ladies and gentlemen, and welcome to today's SAP conference call. Following the opening comments, an interactive Q&A session will be available. I would now like to hand the call over to Christoph Liedtke, Head of Corporate Media Relations. Please go ahead, sir.
Yeah, thank you very much. Good morning and good afternoon, wherever you are. My name is Christoph Liedtke. Thank you for joining this call on such short notice with our Co-CEOs, Bill McDermott and Jim Hagemann Snabe, as well as Dr. Vishal Sikka, our Executive Board Member for Technology and Innovation. We also have with us Bob Calderoni, CEO of Ariba and President of Global Cloud Operations, and a member of our global managing board. We will briefly discuss the organizational and executive board changes we announced just an hour ago. The call is scheduled for 30 minutes. We will start with brief remarks from our Co-CEOs, followed by the questions and answers from you. With that, I would like to turn it over to Bill.
Well, thank you very much, Christoph, and thanks, ladies and gentlemen, for joining us. SAP is taking the next step on our journey to reinvent the business software industry. Of course, you know our ambition in the midterm is to be more than a EUR 20 billion company by 2015, with expanded margins and over a billion people using and loving our software. Perhaps those of you that were with us last week have recognized that SAP Sapphire Now marked a key milestone, where we clearly demonstrated that SAP HANA is the innovation platform for the future, and SAP is the cloud company. We now have an industry-leading portfolio of line-of-business public cloud applications. We have the world's largest business network, and we have the SAP HANA Enterprise Cloud.
With our market leadership in mobile and our commitment to a world-class user experience, we are delivering on our vision to make the world run better and improve people's lives. Today, we've made some key announcements, among them, Vishal Sikka taking over all innovation for SAP so we can unleash the full power and potential of SAP across the world and operate in a seamless and highly productive fashion as a company. I think of all the things, that's huge.
I think it's really good that Lars Dalgaard, while he is pursuing another ambition in his life, remains a strategic cloud advisor to SAP, and ever loyal to SAP, as we also complement that with Mr. Bob Calderoni running the line of business cloud solutions for the company in full harmony with Rob Enslin, our field general, that today calls on all of our customers in all industries, all geographies across the world. Bottom line, there is zero business disruption. On the contrary, we're accelerating the pace, and you might have noticed that in some of the announcement on earnings deceleration for other cloud people yesterday.
Thank you very much, Bill. Jim?
Well, thank you very much. Bill, you said it right. We are clearly at a milestone in our journey to not just reinvent SAP, but the entire industry. We're using this situation to take an acceleration on exactly that opportunity. Before making further remarks, let me just thank Luisa and Lars for their contribution to SAP. Luisa has lifted the people agenda for SAP to higher levels, and not only worked hard to get our diversity right in all aspects, moving very strong forward, but also really brought the Design Thinking to the company, which is key, and that's how we now engage with customers in Design Thinking sessions to deliver value. Lars, as you all know, has been the inspiration for the company to become a cloud company, and we feel very strong about him advising us as we go forward.
Now, great leaders have two characteristics. They deliver great results, but they also build great leaders below them, and therefore we feel good about the opportunity to now take SAP to the next level. We come out of a Sapphire where two things got very transparent. One, HANA is the platform of the future, and everything will be based on HANA. This announcement today on the simplification of the board of SAP is one that accelerates us to that future right now. Number two, SAP is the cloud company. Not the old tired cloud, but the new cloud. The one where pieces fit together, the one that runs in main memory. Our customers are consuming our cloud like never before. Again, the announcements today with Bob and Vishal, and the cooperation with Rob Enslin is a clear indicator that everything is now cloud.
Everything is now in memory, everything is now cloud, and we are ready to bring the beauty to business software like you have seen it in consumer software. That's really the essence of what we're doing, starting the next phase of our journey. After three and a half years of strong execution, we feel good about where we are and where we're going. Thank you very much.
Thank you very much, Jim. Now we're happy to take your questions.
Thank you, ladies and gentlemen.
Operator, why don't you open up the line?
Thank you, ladies and gentlemen. If you would like to ask a question, please press the star followed by the one on your telephone. To cancel this request, please press the star followed by the two. There will be a short pause whilst participants register for a question. Thank you. Our first question comes from Raimo Lenschow from Barclays. Please go ahead with your question.
Thank you. Hey, first of all, congratulations, Vishal, to the new role. That sounds very exciting. My question is more for Bob and probably Jim and Bill. Bob, you've been through a transition of a company from on-premise to a SaaS model. Can you just help us a little bit? What can you bring to the table from the experience that you've been through there, and how can Jim and Bill help that transition? Because obviously, it's a big step. The big risk is innovator's dilemma here. Just help us to get comfortable on this move. Thank you.
Well, first I'd say that with the acquisition of SuccessFactors and Ariba, SAP now has two outstanding great companies in the cloud that's part of its arsenal. With that comes hundreds, thousands of people that have tremendous experience in the cloud and have tremendous products. I look at the combination of those assets with the core SAP, which has thousands of customers and amazing relationships with the CIOs in all of those companies. I think when I was an independent company at Ariba, I coveted those relationships with the CIO, but we had great relationships with the functional leaders. I think, as I'm inside SAP, I see the complete opposite, these great relationships with CIOs that covet the relationships with the functional leaders. We've got great assets, and the combination of Ariba, SuccessFactors, and SAP, I think is unprecedented opportunity here for us.
To your question, being an on-premise software company and migrating to the cloud takes more than just having cloud products. It really changes a lot of the things in an organization, in the business model, and in order to execute, it really requires tight alignment from top to bottom, including internal processes, compensation systems, so that you can take some of that friction out of the organization, and you can get the most out of these assets that I talked about. Ariba went through that. I believe, still today, we're the only company that ever migrated from on-premise to the cloud at scale. We learned a lot along the way, I think one of the things I'm going to focus on is helping SAP go through that transition so that we can do it without any missteps, and we can get the opportunity that's in front of us.
Absolutely. Raimo Lenschow, this is Bill McDermott. I also want to mention that SAP fully embraces leadership in the cloud. As we detailed our strategy early on, three and a half years ago, as Jim Hagemann Snabe and I have stated, we said we would go for the cloud, and we knew it was happening at the line of business level. That explains the moves that we made. I think we really surprised the world when SAP out-innovated everyone else with a complete suite of applications on HANA. We further surprised the world when we took that complete suite of enterprise applications on HANA and put it in the cloud. Now you can not only count on SAP to take care of all the functional line of business executives, as Bob Calderoni said, but let's take care of the CEOs out there.
Let's let them run their entire corporations on HANA in the cloud. That's where I think we now created SAP, the cloud company, and candidly, we think this could be the moment where it's game, set, match. We're not going to let compensation, coverage models, or any lack of cooperation get in the way of our pursuit of the opportunity to make SAP the de facto standard business software company in the world.
Perfect. Thank you.
Thank you. Our next question comes from Annika Trost from dpa. Please go ahead with your question.
Hello, everybody, and thanks for taking my questions. Actually, I would like to know who you see as successor of Lars Dalgaard. When he joined the company, he put a strong emphasis on his ability to, or his spirit and his ability to make SAP kind of a startup company. Who do you think will take this role in the future, or will it be enough to have him as a counsel?
Well, first of all, this is Bill.
Yep, understood. This is Bill McDermott. First of all, as Jim said, we thank Lars so much for bringing the cloud DNA to SAP. That's why some time ago, it was one of the more attractive relationships we had developed in our 41-year history as a company with Lars, and that's why we're really ecstatic that he remains the cloud advisor to the company. Having said that, the cloud DNA is now embedded across 65,000 minds and hearts, and it's now become the soul of SAP. We are the cloud company. While it's nice to have one evangelist for the cloud, it's even better to have 65,000. Therefore, with Bob bringing that adult experience to the cloud and how to innovate business models, we also have, at the same time, an experienced enterprise company that's been moving business software for a long time.
I think it's the combination of these forces that gives SAP the differentiation in front of the customer. We'll continue to lead at the line of business and for the entire enterprise. Jim, you may want to add something to that from your point of view as well.
I think what really happened in record time is that we went from being a startup in the cloud to being now one of the largest companies in the cloud. Lars took us from EUR 20 million in revenue to EUR 1 billion in terms of runway in the cloud. We are no longer a startup.
I think the big change is that we needed a dedication when it was about creating a cloud, but now it is about scale because everything is cloud. It is a very different situation to be in now, and I think no other company has gone through this transformation so fast. This literally has happened in 12 to 15 months under Lars' leadership. That is where we are now, and we feel very good about it. Then having Lars and his energy and passion to guide us from an advisor point and the leaders below Lars, who are now stepping up to the plate, I think it is a great combination. Thank you.
Thank you. May I just ask another question? Will Werner Brandt now remain in this role, or will you be looking for another head for the workforce, for the labor affairs?
Thanks a lot, Annika. With Werner's role, he will represent HR on the board. He has done it before very successfully. We have a great plan. We put people in front of everything we do at SAP, and Werner and, again, the great leadership team we have in HR will be able to take that to the next level.
You won't be looking for another board member for HR anymore?
No.
I would like to add to Jim's combination of comments because if I was in your shoes, I would feel really great about young, innovative, entrepreneurial people coming up and rising in SAP like never before. At the same time, you have the stability of a business executive like Werner Brandt with that kind of cachet and followership within the company to continue to take us forward and develop the next generation from within. I think that's one thing you should count on. We're developing the next generation from within. We have a very strong bench in the HR department, and I'm sure Werner will bring out the best in all of them.
Actually, to comment on that, Bill, great that you mentioned it. We're actually promoting two people as well to the global managing board. Bernd Leukert, who's been running our suite development, who put the entire suite, the most comprehensive business application software in the world, on top of HANA, he has been promoted to the global managing board of SAP. Congratulations, Bernd. A great recognition of his leadership and innovation skill. Luka Mucic, who will be helping Werner on the finance side, who is promoted to global managing board member. With that, leaving Werner the necessary time to take very good care of our HR side of the company. Thank you.
Thanks a lot. Our next question, please.
Thank you. Our next question comes from Cornelius Rahn from Bloomberg L.P. Please proceed with your question.
Hello, guys. Thanks for the information. Can you tell me a bit about how long this has been in the brewing, and maybe talk a bit more about the background of the changes? You said that a lot has changed within SAP in the last 12-15 months, with the cloud getting to people's minds. Can you tell me a bit more about the background of Lars becoming an investor and staying an advisor is interesting. He was definitely seen as a very dynamic force within SAP, even maybe beyond the cloud expertise that he brought in. Also, of course, it's a pretty big shakeup of responsibilities. Bill, you said there's zero disruptions from this change. Is this the team going forward for the next one and a half, two years, at least? Can you never be certain about that? Thanks.
Thank you very much, Cornelius. First of all, I think it's important to point out that we're executing the same strategy that Jim, myself, and the executive board announced three and a half years ago. We're right in the heart of a strategy that we announced and are in full execution mode on. Nobody inside of SAP is going to react to one change or another because we've constantly been changing. Innovative entrepreneurial businesses need to have the agility and the dynamism to deal with market dynamics. They'll continuously change, and we always need to take advantage of those changes. As it relates to Lars specifically, Lars has been working on this for some time and has had open conversations with Jim and I, in particular. He really did want to do something more on the investment side. We respect that.
At the same time, he loves SAP. He loves being a spokesperson for the cloud. This is the nicest balance he could find in his own personal life. We were happy to accommodate him because we think the world of the guy. Jim talked about building a billion-dollar cloud business. We love him. It's all good. What I also think is very special is having a guy like Bob Calderoni, who has been a publicly traded CEO, built a great company, has the largest business network in the world, and still thinks SAP is the coolest place to work at. We're coming at it from all ends. The bottom line underneath all of this is the Vishal move, because now you've taken what I believe to be the innovator of this generation. Of this generation.
Aligning all these pieces to make SAP the cloud company on the platform of the future, HANA. We're ready to take advantage of these moves. Nobody is slowing down in SAP.
Thank you very much. We'll take our next question, please.
Thank you. Our next question comes from Jürgen Frisch from i.s. report. Jürgen, please go ahead with your question.
Hello, everybody. This is Jürgen Frisch speaking from i.s. report. My question is, what does this change in leadership mean for SAP's transition to a SaaS model? I'm particularly thinking of the licensing model that is not clear to every user. You have some modules that users can rent in a SaaS licensing model and some other modules, particularly HANA, where you follow a Bring Your Own License paradigm. Is there any change on that?
Well, let me start, first of all, what this does clearly is move us from cloud to be a division of the company, to be the core of the company. What that means from a technological point of view is massive simplification for customers, faster value delivery, and scale. We have proven we can, and now we can accelerate that. When it comes to licensing models, we've always had multiple, and we shouldn't confuse delivery model with licensing model. Maybe, Bill, if you would comment on that so that it gets very clear why we have chosen the Bring Your Own License for the HANA Enterprise Cloud, where customers want to stay in control.
Absolutely, Jim. When you think about the HANA Enterprise Cloud, you're talking about running the major operations of corporations. The software component of that investment is a very small percentage. Yet at the same time, it's the capital asset, it's the innovation layer of IT that executives value the most because they take the capital asset, they depreciate it, and they run it for decades. Who would want to rent that? Because that's how you run your company. On the other hand, with regard to the hardware and the services that have disappointed the market for too long, now they want to get the best value for their money by leveraging hardware in a cloud and getting all the deployment services done by somebody else at a much lower rate than they can do it themselves.
They can focus on their core business and focus on their customers while someone else is running the operations. This is the perfect balance. Now, the line of business executive has had a propensity for the rental model with the software licenses, which we fully support. The best part about SAP is we give choice. What I've learned from customers over many years now is I want choice as a customer. Well, SAP is letting you have it your way.
Thank you.
Thank you. Our next question, please.
Thank you. Our next question comes from Stefan Paravicini from Börsen-Zeitung. Please go ahead with your question.
Yeah. Hi there. I have just three short ones, if I may, for clarification. First one, Bob Calderoni, will he be part of the executive board as of end of June or 1st of July, respectively? Secondly, could you shed some light on the plans of Lars Dalgaard with respect to his investment plans? Will he be an investor on his own behalf? Will he join another franchise? Could you give us some details on this? Lastly, with regard to Mr. Mucic, could he be a candidate to succeed Werner Brandt in 2014, or is that way beyond? Thanks.
First of all, on the executive versus the global managing board, inside of SAP, we don't differ between the two. We have a global managing board that makes the decisions for the company. In Germany, we have a legal setup with executive board, but that's for a legal purpose. With that, Bob has always been a full member of the team.
Okay.
When it comes to Lars, you really have to ask Lars. I hope he will invest a lot in SAP. Lars has a strong strategic mind. He's a very strong startup-focused person, and I'm sure he will find companies to invest in that have future and probably will be building their stuff on HANA, who knows? When it comes to Luka, he could certainly be a candidate, but that's a decision from the supervisory board of the company.
Right.
Thanks a lot.
We will take two more questions. The next question, please.
Thank you. Our next question comes from David Meyer from GigaOm. Please go ahead with your question, please.
Thanks. I just wanted to ask, with the streamlining of development under one chief, does this mean we're going to see a streamlining of the portfolio down the road? I was writing the other day about SAP Visual Intelligence being renamed SAP Lumira and then saying, "Oh, it's very close to SAP BusinessObjects BI OnDemand." There's a lot of near duplication in the portfolio. Is that going to go away?
Yeah. Maybe we should let Vishal. I think he's also available for comments. Generally spoken, we have a lot of commitments to our customers, and we're a company who stand behind our commitments. Of course, we'll use this opportunity to bring everything we have on HANA and leverage the cloud and get beauty on every single product we have. We innovate more than we change names of products. Vishal, do you want to comment on that?
Yeah, exactly. Thanks, Jim. Hi, David. Yes. What we see is an opportunity to not only consolidate the portfolio and streamline it, but really bring an incredible focus to our efforts going forward. We see an opportunity where we can not only take every one of our products in our portfolio and transform that with the power of the cloud and the power of HANA, but also an opportunity to get into areas that are truly unprecedented, that are applications for new industries that were never possible before, in amazing new ways, in healthcare, in banking, in oil and energy, in extraordinary new applications that are in our reach now and that were never possible before.
We see the integration of all of development into one organization as a tremendous opportunity to bring an unprecedented focus and passion to all our work that we do going forward, and have it be transformed by the power of cloud, by HANA, and by mobility.
David, if I could add one remark to Jim's and Vishal's, it would simply be, if you think about SAP the company you covered in 2010, we were participating in $110 billion U.S. dollar market opportunity. With our strategy to go into new categories like mobile, like cloud, like database, led by HANA and in-memory, we expanded on top of our application heritage to a $220 billion U.S. dollar market opportunity. For the record, this grows to a $350 billion U.S. dollar market opportunity by 2020. To align all of the innovation cycles in the most agile, dynamic way possible, so you understand where the market, the customer is going, and you can build your portfolio ahead of the puck. Wherever it's going, you've been waiting for it. That's how you grow companies. That's how you become the de facto standard in the business software industry.
That's what we're doing here.
Okay. Thank you.
Thanks a lot. We will take our final question now.
Thank you, ladies and gentlemen. We have time for one more question. Our last question comes from Rick Sherlund from Nomura. Please go ahead, sir.
Yeah, thanks. Just a couple of questions. First, I guess the concern being that Lars was obviously a high energy, high voltage advocate for change. I wonder if you could talk to the management team of SuccessFactors, how many of that leadership change, other than Lars, are still there?
I can do that. What we've seen is that Lars' energy for change and passion for customers in cloud has translated into the direct leaders of him, and we have a very strong leadership team there, who will all be empowered now in the new situation to accelerate their innovation capacity as part of Vishal's team and strengthen their go-to market and value delivery to customers through Bob's team. I see that happening in every management change you make, is that new leaders take the opportunity and grow, and we have great expectations for the leaders that were inspired by Lars and see the opportunity to leverage SAP as the cloud company, not just as a separate category.
Rick, I would build on what Jim is saying. Go ahead.
No, you go ahead. Sorry.
No, I was just simply going to build on what Jim is saying by letting you know that, we've spent some time on this cloud discussion together in California. There is now 65,000 hearts, minds, and souls that beat with the cloud. When you take Vishal Sikka, you want to talk high voltage? Man, we're talking high wire act here. Incidentally, this management team, we're not leaning on our heels. We're on our tippy toes, and we're leaning forward, and we're ready to get the job done. I think it's a culture that is in the move to the cloud, and one of the interesting things that you should also know is we're not letting Lars go. He is still our strategic cloud advisor. His office is in San Francisco, the same place it was when you came to visit.
We're not turning off his email, and he can keep his PC. We plan on continuing what we've been doing, and I think that's very positive. The other piece that I think you should know, and nobody knows this better than you, actually, is we're already making major inroads on the line of business cloud providers out there. When I look at their results, and I look on a year-over-year basis, their billing is going down 100% on a year-over-year basis. I say to myself, "Wow, with SAP focused on the line of business, plus the enterprise with the suite on HANA cloud, this could be really interesting in the next six to 12 months." We're fired up, and I want you to know that. Everyone that's listening, we are just getting started here.
Bill, the leadership team that lives and breathes talent management remains at the company, is that correct?
Absolutely.
Absolutely. As a matter of fact, Rick, we just got them a new office, got them a whole new sign on the building, and they're excited, and they're pumped up. After all these calls are over, we're doing an all-company meeting today. I have the distinct pleasure of being with Mr. Calderoni and Mr. Dalgaard on stage in front of the whole entire company. Jim would be with me, but he's involved off with our German team. We are going to be swinging from the chandeliers. Nobody is losing any enthusiasm for the mission. In fact, on the contrary, this is our moment to redouble it. I've never been more excited in my career.
Thank you very much.
Thank you.
This concludes our call. Thanks, everybody, for joining on short notice, and look forward to seeing you. If any questions, reach out to my team and be in touch. Thanks, everyone, and goodbye.
Thank you, ladies and gentlemen. That concludes today's SAP conference call. Thank you for your participation. You may now disconnect.