Let's get started. Welcome to the Financial Analyst Conference here in Orlando. Welcome to all of you who made it to Orlando. This is a very unusual setting. We are SAP's customer centricity at its best. Welcome also to those who join this event on the web. If you have time, by the way, later on, we have a ton of demos out there. That's the unique opportunity to test drive many of SAP's solutions. Let me take a moment and walk you through the agenda for today, and I probably have to press the green button, then we get the slide. Perfect. We start today with an update on our cloud strategy, and we have two of our senior cloud leaders on stage later on. The presentations will be kicked off by Shawn Price.
He's already with me here on stage, the President of SuccessFactors. He runs the people's business within our cloud unit. We have Jeff Lautenbach talking about customer money and the suite aspect of the cloud. The next chapter is the Ariba Network story. I would say it's an increasingly important element in the SAP story, and the presentation will be done by Tim Minahan, who is the SVP Global Network Strategy and the Chief Marketing Officer of Ariba. To wrap it all up for the first session, we have Rob Enslin, who is the President of SAP and a member of the Global Managing Board. He will give you an update on the go-to-market strategy. We will have a short break, we close the event with an executive Q&A session. You see the list of speakers.
We have Bill McDermott, the Co-Chief Executive Officer, Jim Hagemann Snabe, Co-Chief Executive Officer. Our CFO, Werner Brandt, will be on stage later on. Vishal Sikka will be on stage later on. Vishal Sikka, our technology leader, as well as Bob Calderoni, the CEO of Ariba and a member of the Global Managing Board. I have a couple of housekeeping items before we start. I want to remind you this evening, we have an investor reception at the Ritz-Carlton at the Norman's restaurant, like last year. It starts at 8:00 P.M. We have shuttle buses running from the Hilton Hotel starting at 7:40 and 7:50, so it's a 10-minute journey. Secondly, I'm asked to remind everyone this conference is being webcast on the SAP Investor Relations website. For those of you who are on the web, please send us questions by email to investor@sap.com.
We try to take a lot of questions from the web as well. Later on for the Q&A here in the room in Orlando, please use one of the roaming microphones so we make sure everyone on the Internet can understand the entire dialogue. The usual safe harbor language. This is the long version, and our security lawyer told me I have to read the short one. Please note that except for certain information, matters discussed in today's conference may contain forward-looking statements, which are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. The factors that could affect the company's future financial results are discussed more fully in our most recent filings with the Securities and Exchange Commission. Keeping items, I think we should now move to the first topic, which is the cloud.
The cloud is a very important strategic initiative within SAP, I'm very pleased that we have two of our cloud leaders on stage today. Both of them recently joined SAP, they will give you a little bit of background on the cloud strategy, a background why they decided to join SAP. As you know, I've been with SAP for a long, long time, I'm always pleased to see how the company is able to recruit new talent. Shawn is the president of SuccessFactors, he is within SAP Cloud. He has a long and successful track record with many high-growth Silicon Valley companies. I don't want to hide another piece of information from you. When he's not driving momentum in SAP's cloud business, Shawn is known for winning the 2005 Rolex 24 Hours at Daytona International sports car race.
He got the distinction of being the top rider from the Americas to complete the world-famous Paris-Dakar Rally on a motorcycle, which means you have to ride more than 7,000 miles in the African desert. Shawn, the floor is yours.
Thank you.
For approximately 10 minutes presentation, we do Q&A.
Thank you, Stefan. I wasn't expecting the motor sports bio, but we can reserve those questions for later. It's a pleasure to be here with you today.
Hey.
I thought I'd start with a little bit of a discussion about how the integration is going between the acquisition of SuccessFactors and some of the synergies that we're seeing. Clearly, this is a market that is here, and it's in demand in a very broad context. What we've really benefited from is a global reach of SAP running businesses for companies for decades. The data center and the globally around integration and how we coexist with the on-prem world and the emerging cloud world, the vertical integrations, let's face it, SAP knows process better than anyone else. While in the early days, the organizations struggled a little bit to come together, I think if you look at our Co-CEOs messaging of lead with cloud, those have largely diminished, we really are starting to put a one SAP focus and footprint to our customers.
We have three major macro trends that are driving the adoption of cloud, in particular, the HCM business. Right now in the U.S., we are in an unparalleled position where our workforce is aging out. Every day, more than 10,000 people turn 65 and will do so for the next 18 years. That creates a number of challenges. The first, of course, is how do I preserve the tribal knowledge or experience in technical and leadership functions that are leaving the organization? The second is, how do I attract a small pool of millennials that in no way can fulfill or fill all of the talent gaps? The first major shift is the millennials in the workforce. The second is the way we work has changed.
It's no longer okay to have social and mobile and the applications that we use as an afterthought of ease of use. With 25 million subscribers, we get feedback pretty quickly about how we're engaging, and the cloud business is fundamentally about consumption, this shift from enterprise to consumer and usage. We have this thing called a renewal, our customers tell us pretty quickly whether they like what we're doing or don't like what we're doing, and it creates a very rapid co-innovation environment. The other thing that's changed is how we work. If you look at the number of iPads, the cell phones in the audience, we're a highly connected environment. Today, the processes and the latency in those processes is moving incredibly fast.
If you look at a retailing application, for example, what was determined was that the people that are hired in the retail location often shop in the retail location. The old school paradigm might be, let's fill out an application on a website. The new school is, let's take a QR snapshot, apply within the store, and get a response and an answer and an SMS to the manager to interview the individual on site. At peak periods in the retail sector, we see that demand. The world is changing how we work and the way we work. What our customers are expressing to us, though, is that they're trying to fulfill both a near-term and mid and long-term vision of what cloud transformation looks like, and a blueprint for as it relates to HR in particular. They may start with.
They may start with one application in that life cycle, whether it's recruiting or learning. What we've seen is a transition, not just to best of breed, but to suites end-to-end. That adoption curve is moving faster than I think anyone expected. If you look at our applications that we sold last year and how many applications our customers are buying this year, it's a very significant increase in what they're looking for. When you contrast that against the best-of-breed vendors and how you would ever assemble an end-to-end recruit to retire, because that's the endpoint. These are not just simply vertical processes. These are horizontal, interconnected processes running globally. If you were to look out in the landscape and say, "What are my choices?" You can either go in a best of breed manner, one vendor for learning management, one for recruiting, one for core.
What has started to come back as demands in this market is that the user interfaces need to work in some way, shape, or form, in a similar fashion across the applications. The process rules between the applications have to co-exist. The data has to increment. As you add recruiting, it starts to build the profile for when you add learning and performance and goals. Probably most importantly, we are now running companies, businesses, 24 by 7, and the support function of an integrated end-to-end is critical. Our clients are also looking for the maximum choice. How do they preserve their investment in on-premise, and how do they coexist? What we're seeing is three distinct deployment models.
The first deployment model is the customer who has a centralized or even decentralized SAP on-premise HCM, who's now looking at our innovation in the cloud and the journey that we're taking them on, and adding talent to those applications around that recruit to retire, keeping the core HR in SAP on-prem. We're seeing a hybridized or coexistent approach also emerging, and you've seen Pepsi on stage today with Jim. What that's looking like is they're saying for our core operation, for example, in the U.S. market, we're going to maintain our on-premise because we want to preserve the investment. It's highly interconnected across an ecosystem of benefits, payroll, and time and attendance. For our growth markets and for many of our customers, growth is coming from non-traditional markets of U.S., EMEA. It's actually coming from Brazil, Russia, India, China.
For these satellite or subsidiary or tertiary operations, there's a definitive move to deploy an entire end-to-end stack, including core HR and Employee Central. The third market, which is emerging, is around end-to-end cloud from the very beginning. We're seeing all three types of deployment options emerging. It's about choice. It's about maximizing the value of the investments. Our latest initiative over the last year has been to build out our core HR. If you're a talent company migrating to core HR, which of course is mission critical and highly interconnected, you have a number of dependencies. The synergies between SAP and SuccessFactors and our overall HCM offering are extensive and many.
The first area was to take thousands of engineers who had context about the on-premise HCM market and all of the relative use cases, move them into the core HR for the cloud development initiative. That way, we were able to collapse what would have been a four or five-year development cycle to reach leadership in that market segment in a one-year period. The second decision that we took was to enable our partners in two dimensions, the application infrastructure and the delivery infrastructure, because at our scale, we need to build and enable that group to work seamlessly with our core HR offering. What you've seen is us reach out to the incumbent ecosystem of what our customers own around time and attendance, where you may have a footprint across multiple deployments where we're interconnecting or around payroll.
Actually, payroll in the new cloud context is defined really in five derivatives of payroll. It could be a U.S. provider, it could be SAP on-prem, it could be our new cloud payroll offering, it could be a managed service, ultimately, you may need to build connectivity to payroll providers that we may not commercially support. We've integrated this extended ecosystem, in addition to that, we view this market, particularly as customers are building this transformative blueprint, as our requirement to add expertise. Running 25 million subscribers, we capture an inordinate amount of data. That data tells us what are best practices by segment, what are some of the KPIs that we should measure our business against, that's what we generate organically.
There's an inorganic element to this ecosystem, that inorganic element is our major systems integration partners, you've seen a massive movement in this regard. Our partners are not just delivering implementation firepower, but they're building best practices around it. By a byproduct of deploying so many applications, they're building artifacts that speed deployment. If you think of us surrounding Employee Central, we have this unnatural advantage with our own family ecosystem in SAP and this beautiful coexistence story of where you choose how to deploy, when you want to deploy, on-prem, cloud, combined social mobile. This burgeoning systems integration channel that's now delivering expertise in governance and change management beyond what we might, this ecosystem of application providers. I want to leave you, so we have enough time for Q&A, with one comment. Today, I run 25 million subscribers in the cloud.
I have 184 countries across 6,000 customers. This is not a geographic phenomenon. This is a market that is here and now. I truly believe if you look at what the market requirement against recruit to retire, and the fact that we moved early in our acquisition cycle, and the scarcity of assets to complete that picture for our customers, we're in a truly unnaturally advantaged environment, and the market is expressing demand as you're seeing. Those conclude my prepared comments. I would like to open the floor to any Q&A that we may have. Stefan?
For the overview, let's have a quick Q&A. I see one question here from Carl first, then there would be a question from Rick.
Yeah. Hi, thank you. Karl Keirstead at BMO. On the question of EC versus Workday.
Yeah
Could you give us some fresh metrics to get us comfortable that EC is holding its own?
Yeah
against Workday? To the extent that you would admit to any functionality gaps, where exactly are they? Thank you.
Yeah. I think if you look at head-to-head core HR, Workday versus Employee Central, I will tell you that what the market is reflecting is that at a minimum, we're at parity. Because the market is actually looking beyond core HR as an island application and looking at it in the context of core HR without recruiting, core HR without onboarding, core HR without learning management and succession and planning and how these interoperate, I think we are truly in a category of one of one. In terms of progress that we're making, you've heard of companies like PepsiCo that were discussed today that are betting 34 deployments globally across 240,000 customers who are unlocking and leveraging the advantage of the SAP install base on-premise. I would also tell you that on an integration basis, another customer that has been here, that has been announced is Timken.
Our co-innovation is remarkable. That application alone has 146 integration touch points of which we productized 70% of those. If you look at the definition of what the market's demanding, you look at this portfolio of application to fulfill, you look at the rate of innovation, and you look at integration, and then the ecosystem support, we are making tremendous progress, and winning a disproportionate amount of engagements than we're losing.
Thank you.
Pleasure.
Hi, it's Rick Sherlund. Shawn, we're chatting with integrators who are telling us that the pipeline looks pretty rich with much larger deals perhaps than you've been accustomed to in the past. I'm curious if you could comment on whether you've seen a bit of an inflection point now, whether the work you've done for product integration or perhaps it's just the quotas and engagement with the SAP SC is whether you're seeing more traction recently in the market.
I think there's tremendous synergy between the SAP field and the SuccessFactors field and how we present one voice to our customer. I think if you look at what the market is demanding, they may not be buying end to end, but what they want to do is they want to build a roadmap that says, "If I start with recruiting, I want a pathway to onboarding. From onboarding, I want to go to core HR." What we've seen is an increase from the purchase of maybe one point application best of breed to now multiple applications to fill in that picture. Is it all end to end yet? In some circumstances, global multinationals, certainly. By far, we're seeing an increase in the number of applications.
What's driving that is this premeditation around this unnatural advantage in the SAP ecosystem and our install base on-prem, and the completeness of that solution end to end. You hit a very important point. These are not vertical processes that stand alone. These are integrated end to end. The market has had experience. They've bought an LMS provider, and they've bought a recruiting vendor, and they've bought a core HR, and they start to work amongst those disparate applications. What breaks is they have no alignment of process, no data strategy for how they evolve that blueprint, and they break particularly around support. When you add global multinational into the context, that's the other inflection point that we've seen. SAP, of course, has been running businesses for decades.
We're the beneficiary of all of those data centers and the rigor that comes around having to run a company's core HR. Yes, I think we've seen that, and I think exactly as I described.
Okay. I think we can take one more question. I see one direct from Ross MacMillan.
Thank you. Ross MacMillan from Jefferies. Can you just talk about the scale of PeopleSoft installs within the SAP base? When you're knocking on that opportunity to potentially replace that PeopleSoft
or SAP customer, is it Employee Central that you lead with, or could it be on-prem HCM from SAP?
I think the lead for us is what does the client want, and where are they in their maturation and their adoption curve. To us, it's about what is the priority. Certain industries, based on their initiatives, if they're in growth mode, may be looking at talent acquisition as the most important thing. Industries that may be flat are looking at how do I preserve the real meat on the bone around the talent that's going to get me out of that hole, and those in decline are rationalizing. Companies are trying to connect their business strategy with their talent, and they may choose to start anywhere, but they're trying to fulfill this vision of what their endpoint looks like.
We see customers coming in from PeopleSoft saying, "We would like to look at potentially a coexistent where you connect core HR on-prem and preserve it, but we do want to use Employee Central remotely, and we want to increment that with talent across the board." We think that if you look at the relative strengths of the companies against that market demand, it's pretty impressive in terms of that product lineup, particularly against Oracle or Workday or any of the best-of-breed vendors that exist.
Great. Shawn, thanks so much for your time.
Stefan, thank you.
Thank you.
It's a pleasure. Nice to meet you all. Thank you for your time.
I'd now like to invite Jeff Lautenbach to join me here on stage. Jeff is responsible for the customer and suite offerings within the cloud. Hello, Jeff.
Hello, Stefan.
Interesting part, he joins us from salesforce.com, and he brings us tremendous knowledge, not only about the CRM space, but also about the effective go-to-market in the cloud. Jeff, you have a couple of minutes, prepared remarks, and then we go again into Q&A.
Perfect. Thanks, Stefan. Appreciate it. Great to be here, as Stefan mentioned, I spent a couple of years at Salesforce, but before that, I spent 18 years at IBM, I have a little bit of IBM behind me, too. A little bit of dichotomy here between Salesforce and IBM, but probably helps me transition into SAP here. I think there's a lot of complementary skills that I've gained throughout my career in both those areas. I want to spend some time with you talking about our cloud business, specifically the My Customer and the My Money. I'll start off with My Money and spend probably the lion's share on My Customers. We have a lot going on there.
Obviously, the My Money part of our business, we have Business ByDesign, which is a product that many of you guys know, I'm excited about Business ByDesign in terms of the lift that I'm seeing right now. The customers coming to us and saying, "Look, you guys have finally figured this out. We love the user experience. We also like the idea of how you're positioning it in terms of a tier 2 ERP system, an enabling ERP system, an ERP system that will allow us to enable distributors, it will allow us to enable subsidiaries." For our enterprise customers, that's a nice play because it really fosters what the cloud's all about, right? Speed. You really want speed, and you don't necessarily want an entire suite to enable these subsidiaries and distributors, if you want. It also integrates into ECC 6.
In the money portfolio, we also have a travel and expense application in the cloud that's actually moving very well. We're seeing a lot of velocity with that product and solution area, a great uplift. It's been around about a year, it's an exciting play as well. The final piece of it is sales and operations planning, which is a little bit of a combo product, if you will, somewhere between a financial application and a supply chain application built on HANA, if you will, in the cloud. All three kind of give us a rich portfolio of money products, if you will. From a customer perspective, a My Customer perspective, CRM is what I've been doing for the last couple of years at Salesforce.
What I can tell you is we've come a very long way with both our cloud play, I'm very excited about the opportunity to also take advantage of the rich capabilities and functions we have from an on-prem perspective. That said, let me kind of back up and say, look, you got to have a vision here. Where we're going with this is the idea of going from, for our customers, prospect to promoter. I think you guys would agree. Look, the buying cycle's changed, right? I mean, how people buy product anymore has changed dramatically. We know that around 60% of the buy cycle happens before a customer reaches out to a given vendor. Right? There's ways to interact with them in that 60% of time, but that's the reality of the situation.
This is no longer a direct sales kind of play, if you will. With that, all manner of industries are being turned upside down if they think about how their buy cycle has changed. On the other side of that, you might say, "What do you mean by promoter? Is that like net promoter score? What are you talking about?" The idea behind promoter starts with that concept, but really is you want advocacy, right? At the end of the day, it's not good enough for your customers just to say, "Hey, I had a great experience." You want them to advocate you, because the idea is, and Facebook kind of created this, is you want a network of promoters, right? Your network of promoters. Maybe that's an industry thought, too, because every industry is going to have its own network of promoters.
Caterpillar, who's a B2B company, it's going to be much different when you think about their ecosystem with distributors and all manner of channels that they go to market with and end customers. It's going to be different than, let's say, a Best Buy, who's really thinking about a B2B2C sort of solution, if you will, and how their networks of promoters is going to change. That concept is something that we feel like there's a lot of opportunity with when you think about, again, the game changing, right? This is not just about Salesforce automation and customer service. This is about a broader buying experience, and that's where CRM is going. It's going to change dramatically. You might say, "Well, how does it lend itself to benefit SAP?
What are you guys doing here?" If you think about that as a broad buying cycle, what's going to happen? Insight's going to become a key piece of this thing. We feel like predictive analytics and insight are going to be key components of the CRM cycle even more than they already are. What I feel really confident about is I walked into SAP thinking, "Wow, are we behind salesforce.com?
The answer I found out from user experience was no, we're not. We've got a very rich user experience here in SAP, and what I use every single day, my dashboard, you guys maybe won't be able to see it so well, but I'd have to log in. Anyway, it's a very rich experience and very exciting as I look at it compared to what I have with Salesforce. I can tell you that there's parity there. That as much as I had in terms of my own personal dashboards at Salesforce, I have with SAP and my customer insight product. That's really exciting to me. Moving beyond that, we know that user experience is also very important. We also know that integration is, because in that buy cycle that we were talking about before, what else do you need to know about?
Well, you need to know about your orders. You need to know everything about your back office system. You need to be able to integrate back to all these components. That's where we really have the benefit of our cloud plus our on-prem. We're talking about lead with cloud, leverage on-prem, because when I was at Salesforce, the one thing I didn't have was I didn't have really a great integration story to order management, and I lost a couple of deals that way. That was very painful. Shawn mentioned this iFlow concept. This iFlow concept's pervasive across our products. The cool thing is that I've got iFlows as well. They're already built out. Newell Rubbermaid's a great customer, who's already leveraging it, and Newell said, "I have to understand orders in terms of both sales and service.
It's absolutely essential to me." From that perspective, again, we feel like we're uniquely advantaged in this CRM space when you think about integration. The final piece is industry. Where do we intend to go moving forward? What I saw in my experience at CRM was maybe industry clouds are the next dimension here, and we already have a tremendous amount of subject matter expertise and business process knowledge at SAP. I dare say that we've got an incredible amount of assets like direct store delivery, trade fund promotions, et cetera, in the CRM space that we're leveraging today. What's the next frontier? Maybe it's industry clouds. I saw an incredible company named Veeva really disrupt Salesforce, even though they were built on Salesforce in the pharma space. We believe that that's a great opportunity, and that's a direction that we're headed in terms of industry.
Those are kind of the four components of differentiation we'll build out, and we're going to build it out across the CRM landscape. You guys know that as I was talking about this prospect to promoter theme, it starts with marketing. You're probably saying, "Okay, so what do you have in marketing?" We have a tremendous amount of on-prem assets, but that will be an inorganic play for us in marketing. Sales and service, we have tremendous technologies both in cloud and on-prem, and we feel like, again, we've kind of crossed the chasm from an adoption perspective because of the user experience that we've already built out.
Again, with all the knowledge and expertise, we have a service-on-demand product, and we're doing some really, I think, cool things that are going to be valuable to customers in terms of integrating back to Syclo, which is our field management solution, an acquisition that we made. Again, you look across this continuum, and SAP has really got a great opportunity moving forward in terms of what we have right now that we're leveraging and the momentum we're seeing from a customer perspective. Also, the opportunity to fill out this broad area as we think about prospect to promoter, and we think about marketing, sales, and service across the CRM continuum. You think about it, again, from a B2B perspective and a B2C perspective, because those are what's really mattering to customers moving forward. I think I would also mention one other point.
We know what's happening today. It's kind of the consumerization effect. This B2C thought will really allow us to get, I think, more innovative in the B2B space moving forward. As we're starting to see these consumer analogies move quicker, we can apply those back to our B2B opportunity as well. With that, I'm pretty well, I think I've got the vision laid out.
Very good.
We can probably move to questions, if we want to.
Great. Thanks, Jeff. We have time for two questions to Jeff. I see one in the back here, Kash Rangan, and then I would say Gerardus Vos.
Thank you very much, Jeff. Kash Rangan at Merrill Lynch. On T&E and CRM cloud, can you give us an update on how many customers you have today and how that's grown over the last, say, six to nine months? Thank you.
On customer on-demand, we have just over 150 customers in that space. That's our broad customer on-demand product line, if you will, sales service, and our social media analytics solution, too. That's over the last six to nine months. These are new products, if you will, for us. As you know, these are just over a year old, I kind of put it in that continuum. Travel, I believe it's just shy of 50, somewhere between 40 and 50.
Okay. Thank you. Next question was here from Gerardus.
Hi, it's Gerardus Vos from Barclays. Thanks for taking my question. Hey, Jeff, you talk about kind of extended CRM around kind of marketing, sales, and service. What are you guys doing around social?
Great question. I mentioned that maybe briefly, and thank you for asking. We have a social media analytics solution today. We're partnered with a company called NetBase, and this is an exclusive partnership that we're in the listening and engaging space, if you will. This is one of our customers that I'll actually be introducing. T-Mobile is our latest customer that just onboarded with us. A great ask of you, that's element number 1 is social media analytics. There's another piece of that solve, which is social customer engagement. Which is bringing what you're seeing and hearing from a customer service perspective back in-house in terms of your own customer service environment as you're listening and engaging to this out with the social media analytics. The third element of it is the SAP Jam solution we have, which is social collaboration.
We have SAP Jam integrated into our customer-on-demand products today, and that's a pervasive strategy. As you know, SAP Jam came from SAP SuccessFactors. We already have it in HCM. What you're going to see with SAP Jam is it's going to be integrated not only in our cloud products, but in our on-prem products as well. We'll have a social layer and social collaboration built in to our products moving forward. I want to give a timeframe. Obviously, that's a kind of a strategy moving forward with all of our products, but it's there today with both SAP SuccessFactors and our customer products.
Okay. I see one question still in the back from Kirk Materne, last row, and then we let you go, Jeff.
Thanks, Jeff. You mentioned marketing very briefly. Your former boss is spending a lot of time discussing how marketers are going to become a much more important purchaser of IT going forward. I guess, how do you guys feel you're positioned for that? Or is that something that we should watch for you guys to be building out over the next year? I guess, do you believe that, too, I guess, would be the other thing. Do you think that we're really starting to see a shift in how the marketing aspect's playing into IT purchasing? Thanks.
Yeah, great question. Good to see you again, Kirk, too, by the way. The answer to your question is yes, we definitely think that marketing is an excellent frontier. I think Salesforce has made some interesting acquisitions there. I think that they've missed a big aspect of it, starting with marketing automation. We think there's tremendous opportunity. As you know, the landscape of marketing is very rich when you start thinking about the whole digital space, from web analytics to social media analytics. This is a broad continuum, and marketing's probably changing the fastest and represents the greatest amount of growth. We absolutely intend to change our portfolio and invest very richly in marketing moving forward.
Okay, perfect. Jeff, thanks a lot for the overview.
Definitely.
Good. See you later on today. Thank you. Bye-bye. We move on to the next part of the program. It's the Ariba Network story. We'd like to invite Tim Minahan to join me here on stage. Tim is the Senior Vice President of Network Strategy and the Chief Marketing Officer for Ariba. Hello, Tim.
Thanks.
Welcome.
Hello.
In his role, he's responsible for defining the strategy behind the Ariba Network, which is the world's largest and most global business network. Tim, do you have?
I do. I do have some slides.
Exactly.
Considering we're talking a little bit different, about something a little bit different here today. It's not just about software to run your internal business better. It's really about extending your existing investments, your on-premise investments, your cloud investments to enable a new level of inter-enterprise collaboration. Collaborating better with your customers, connecting with your suppliers, facilitating settlement with your banks. When I was thinking about that, I was thinking the best way to help you understand that a little bit is to talk about you. You think about how the personal networks we use every day have massively transformed the productivity and efficiency of our daily lives. Just five years ago, you were doing things much, much differently. Today, when you want to go and research or buy or sell, you're running your lives on personal networks.
I mean, the beauty of Facebook is little to do with its news feeds feature. It's really that it's amassed the world's largest network of personal connections. The magic of Amazon has very little to do that it offers the best prices on books. It's that it has amassed the world's largest and most convenient network for personal shopping. What do these networks all have in common? Well, number one, they're all cloud-based. You can access them from anywhere, any device, at any time and have the same experience, whether you're here in Orlando or whether you're in Ottawa. Number two, they all, at their core, are networks, communities of people and merchants and banks all built in to help facilitate more efficient interactions for you.
The third part is they're harvesting the intelligence from these networks to help you make more informed decisions, whether it's buying decisions, whether it's connection decisions, whether it's business connection decisions. If you think about Amazon, for example, you can access Amazon from your Mac, your PC, your mobile phone and have that same shopping experience. When you go to Amazon, you buy a book or a blender, you don't think about how are you going to integrate with that back-end merchant. How are you going to integrate with the bank, American Express, Visa, Mastercard, PayPal, to settle out. It's all built in. All those connections are built in.
The third part is because there's such a massive amount of interaction going on between all those connections, you're getting new insights, expert recommendations based on your buying patterns and what's going on on that network, making recommendations of folks who have bought this product, have also bought that product. Peer reviews and ratings, that this product did really well on these two features, but not so well on the third. When you look at the business world, a different picture emerges. Now we're here because businesses have spent the past 40 years automating and re-engineering their internal processes, investing in systems, and building their business on SAP to run even better, to reach new levels of performance and insight within their four walls. Outside the enterprise. The secret of business is that it's still quite a mess. It's paper, faxes, phone calls, emails.
In fact, 80% of business-to-business transactions today, purchases, sales, invoices, payments, still take place on paper or in a semi-automated way. That means lots of paper, lots of people, and lots of inefficiency, and by some estimates, as much as EUR 650 billion is wasted each year due to the poor collaboration and poor connectivity outside your enterprise. Let's talk a little bit about where Ariba comes in. Ariba eliminates all the hassles, the phone calls, the faxes, the emails that are inhibiting effective business-to-business collaboration today. We provide a single integration point from any system to the network, you can connect with your customers and automate your interactions with them. You can collaborate with your suppliers at new ways. You can link and settle out automatically with your bank. The first component is we're open.
This is an open network, that's part of the reason SAP acquired Ariba, because if an individual company has to challenge managing multiple systems, when you think about their supply chain, it's massive. It's a totally heterogeneous environment, a network needs to be open. The second component is the Ariba Network's comprehensive. There are other networks out there, other business networks. They're either process specific, I'm going to manage the invoicing process, and but then you need to go collaborate with that customer or that supplier somewhere else around purchases or around discovering new business. The Ariba Network covers the full spectrum from source to settle, every aspect of collaboration, both for buyers and sellers. The other aspect of being comprehensive is that there's actually a lot of activity going on there. There's more than 1 million companies in 190 different countries already connected.
Our typical customer, when they come to the network, finds that 40%-60% of their trading partners are already transacting there. That means they can get up and running much, much quicker, get value that much faster. The last part is the network is intelligent, meaning we're not just taking a document and digitizing it and moving it from point A to point B. That solves a purpose, but when you consider one in five business documents has an error, an error in price, an error in ship to line, et cetera, it really only moves the problem from the supplier system to your SAP system.
By being intelligent, the Ariba Network opens up the envelope, if you will, and has business logic to match the PO to the invoice, to the contract, and route that if it is within certain tolerances, route it directly into your SAP system. If it doesn't, take it back to the supplier for reconciliation. The massive improvements in efficiency that companies can get by fully automating a true end-to-end process. Now, the other way the network is intelligent is the new insights you can gain. 15 years of transactional information, relationship information, and community-generated content, things like supplier performance ratings, things like understanding how much a given buyer or supplier is doing business with other buyers or suppliers on the network to help you make more informed decisions.
The last part is there's not only massive scale and connectivity, but volume going through the network, nearly half a trillion dollars worth of commerce. Yesterday, I'll just build these out from a process standpoint. If you look at the four key value levers that companies, buyers, sellers, banks get from the Ariba Network, it comes in four flavors: reducing costs, improving process efficiency, optimizing working capital and cash flow for both buyers and sellers, and increasing sales. Yesterday, we heard how Disney is now taking its SAP environment, has plugged it into the Ariba Network, has been on the Ariba Network now for seven years, connected with more than 2,500 suppliers, and transacting and collaborating with them in a totally automated way. Totally touchless.
No need to touch the document from the time it is initiated in the SAP system to the time it's transitioned to the supplier, all the change orders, advanced shipping notices, and invoices back into their system. It's also allowed them to do things like optimize their working capital and take early payment discounts, so they're actually reducing their cost of operations. You've seen others, big SAP shops like Caterpillar, solving this issue. Not only did they automate their invoice and payment process with more than 4,500 suppliers around the world, they were able to reduce their AP costs by more than 70%. This is a two-sided model.
You have suppliers ranging from the IBMs and HPs of the world that view this as a major sales channel, major e-commerce channel, in fact, one of their largest, down to small and mom-and-pop shops like this MarkMaster here that's driving 20% year-over-year revenue growth by being exposed to new business. You always want to see the size of the opportunity. You will be surprised because when we look at any four business networks, we don't look at it from a revenue standpoint. We look at it from a, "What is the potential of commerce that we can touch?" Well, the Global 2000 spends $12 trillion on goods and services with its supply chain today. As we talked about, 80% of that is still a mess, totally manual, lots of paper and inefficiency. That's where we can go and attack.
When you consider that $8 trillion of that $12 trillion of those transactions are emanating from an SAP system, you begin to see the power of putting SAP together with Ariba. The ability to automate that process, to finally give SAP customers a full end-to-end process automation platform within their enterprise and beyond. Today, it's a greenfield opportunity because only about half a trillion dollars of that commerce is going through the network today. We see a lot of greenfield. I'm kind of getting the wrap-up here, but I want to discuss how we're going to take advantage of that. We talked about how we thought we were smart putting the companies together. Our customers were far smarter. For more than a decade, SAP customers have been leveraging Ariba. Well, since then, we've developed standard adapters, out-of-the-box integration adapters based on NetWeaver.
SAP's most popular systems, ECC materials management, financial management, plant management, SRM, and now Business One, can connect to the network and get up and running and transacting with their trading partners in weeks. We've been able to harvest a lot of the innovation in SAP HANA and mobility and analytics and bring them into our applications to introduce new solutions like services, procurement, and invoicing, which brings the convenience of the cloud, the connectivity and insight of the network, and the power of HANA to bear together. We've been aligning with their go-to-market thrust, both around industries as well as geos. In emerging markets like Brazil and other areas in Latin America, where we can bring this networked economy to them as well. With that, I wanted to open that up for questions.
Thank you. Thank you, Tim. We have time for two, three questions, I would say. Let's start here with Raimo Lenschow and then Adam Wood. One in the back, please.
Thank you. Raimo Lenschow from Barclays. Tim, Ariba was relatively successful already on its own, and it has built a really big network. Can you talk what you've seen ever since you joined SAP in terms of reaching more customers and getting that network effect even bigger than it was before?
Absolutely. When you think about the SAP customer base, as you indicated and it was told on stage yesterday, nearly 75% of the world's business transactions emanate from an SAP system. Traditionally, we would go in to an SAP environment and try to explain to them how we could augment and extend their investments. We have the opportunity to not only go in the front door and have those conversations at the right levels, but importantly, we are getting full support in developing deep integrations into those systems, into more systems than we ever had before. We can capture more and more of that spend, enable more of those transactions, and obviously, from a revenue standpoint, generate more revenue for both companies.
Okay. I think the next question here from Adam Wood, then we have the final one in the back.
Thanks. It is Adam Wood from Morgan Stanley. Shawn before from SuccessFactors talked a little bit about the pains of putting the two companies together and the teething problems that you have. Could you maybe give us a little bit of an idea about where you feel you are in that process with SAP? Are you past that now and focusing very much on the execution? Then could you talk a little bit about the comp plans that you have between the two sales forces or SAP account executives being comped around Ariba and how you are finding that process developing? Thank you.
Yes, absolutely. To answer your first question, our integration and interoperation with SAP has gone very smoothly in the sense that we have been largely agnostic to the application delivery model that is used. Our success is dependent upon getting every system connected to the network so we can facilitate those transactions, so we can begin to generate not just software revenue, but network revenue. Secondly, I am sorry, your second question was around-
About the comp plans.
Oh, the comp plans. Yes. Obviously, we want to motivate the account executives as well. We've handsomely compensated them, not just for the application revenue, but also for the network revenue. Because when we look at our business, there's two aspects to it. One is the sell in. I want to sell new stuff. I want to sell new software. It could be SRM, it could be Ariba in the cloud, and that's great. The other is the sell out. There are 75% of the world's transactions that we don't want them to buy any more software. We just want to connect that software to the network. We've organized a compensation package that incentivizes the account executives and the services organization to look for both of those opportunities.
Okay. Thank you. The last question.
Thank you. Yoon Kim from Janney Capital Markets. Can you just talk about the recent announcement you made with Discover regarding the financial settlement process? What is your plan there? How aggressively are you planning to target that market opportunity? Do you plan to go through the partnership route, or are you actually trying to build up particular settlement process? Thanks.
Yeah. Thank you for asking the question. Last week at our version of Sapphire, Ariba Live, we announced that we were attacking that last mile of the procure-to-pay process by automating the settlement. We've done so in conjunction with a partnership with Discover. This is not a card product. This is riding settlement transactions on the rails, and it shows the power of bringing those two organizations together. We offer up, because we have 1 million connected companies, because we know an invoice is okay to pay, rich and deep remittance information. 10 years of history on the buyers, the sellers, et cetera, that the banks need so that they can facilitate payment. The other secret when you get down to payments is that 65% of business-to-business payments today are cut by paper check. Totally inefficient. 90% of that remittance information I just mentioned, totally rekeyed.
We're going to market as an extension of what we've been offering, but also we think this is net new for companies that don't even do transactions over our Ariba Network can still begin to take advantage of this payment solution. We think it's a big growth opportunity for us.
Well, Tim, thanks so much for your time.
Thank you, Stefan.
Appreciate it.
Appreciate it.
See you later on. Thank you. Let's move on to the last presentation for the first part. I would like to invite Rob Enslin to join me here on stage. Rob is the President, Global Customer Operations, and a member of the Global Managing Board. I have one interesting anecdote to mention about Rob. It's your 21st Sapphire, I believe.
My 21st Sapphire.
21st Sapphire and both routines. The floor is yours.
It's a little bit bigger than the first one. Good afternoon, everyone. Global Customer Operations means I'm responsible for the ecosystem, the channel sales, and consulting at SAP across all the regions of SAP.
Good.
I guess I got to do this work now. I have two slides. I'm just going to quickly take you through how we go to market, why we go to market the way we do, how we see the opportunity, open the floor for questions and answers. Today, in the last couple of years, we've been going to market or go to market by 5 market categories. Applications, which is our ERP, supply chain, SRM businesses, analytics business, our mobile business, our database and technology business, which includes pieces of HANA, and the cloud business. When you look at the SAP sales organization, consulting organization, and ecosystem and channel, we cover all aspects of that business. The question early on about the compensation model, I could have answered that one as well.
To answer the compensation model, we compensate the existing sales organization on cloud revenue and on on-premise revenue, basically compensate them on a solution approach to the marketplace. The reason why these 5 market categories are absolutely important is because we sell in 2 dimensions. If you sell value, and you're selling value, you're typically selling it at an industry-based level where the competitive advantage is really driven by the industry. We have to also sell smaller pieces which are technology-driven. We sell into the technology department, we sell into the line of business departments, and across that whole sphere. It's a matrix model. We moved consulting under my organization in the beginning of the year so that it became really customer-focused, where all aspects of the customer were at the region or where the customer was located.
That brought together the consulting organization and the sales organization, it gives us a little bit more scale in each of the market categories. If you look at the regions that we have at SAP, we have Americas region, combination of North and South Latin America into one region under Rodolfo Cardenuto. We have a Middle and Eastern Europe marketplace under Michael Kleinemeier, which covers the Eastern European countries, Germany, Switzerland, and Austria. That allowed us to get significant scale in that marketplace by utilizing the significant resources and market opportunities that we had coming out of Germany and our base in Germany, we've obviously seen significant and tremendous growth in the CIS marketplace when it comes to energy, oil, and natural resources in that space. We continue to have our EMEA marketplace under Franck Cohen and APJ under Steve Watts.
All aspects of our business roll up into those market units. Those presidents have complete control over how they operate in the customer base, how they sell to their customers, and how they drive the customer environment. We also go to market by just to give you another dimension so you can get a feel for it. One of the important aspects is when you look at those five market categories, we're obviously innovating with HANA on top of all of those market categories. We're bringing in applications and innovation by industry based on HANA, into a different marketplace like financial services, for instance. We started banking under Simon Paris, which is a separate unit. We've seen tremendous growth in banking. In the last two years, it's been a phenomenal success for SAP.
We, in the beginning of the year, included insurance, so we became a financial services marketplace, and we acquired a company called Camilion to extend the insurance portfolio, which now includes disbursements, claims, and policy management, and we're starting to see significant uptick in that business as well. We also made the announcement that we would take the other pieces of strategic industries, which are very focused industries like retail and public sector, and move that under Simon Paris' organization so we can have a dedicated and focused go-to-market play in that space as well. This has also allowed us to extend our ecosystem and channel business. This morning, we made the announcement with CSC, where we would actually jointly go to market in the banking space. As many of you know, CSC have a presence in banking, which is pretty significant over multiple years.
SAP and CSC will jointly go to marketplace in banking to focus on core retail banking and to change some of the dynamics in that market as well. We've done a similar process with Accenture, where we've actually looked at HANA and customer insights and saw a marketplace where we think our partners could drive these markets as well. One of the aspects of our go to market, which is slightly different this year than the previous years, we've extended our go to market with our partner with ITO type models, where our partners have certain aspects of the marketplace which they drive and which they own, which really is extending the leverage and scalability we have with partners in certain marketplaces. An example could be, if you think about moving into Latin America in the retail segment.
We now have a partner in the retail segment in Latin America that actually drives the complete real estate, which means managing property, building systems, and taking that to market for us in this marketplace. This is the way we are extending our markets. If I remember correctly, I think one of the questions I got asked, Stefan.
Yes
was, are you getting more leverage out of your sales force? Going on to the compensation question, are we getting more leverage out of our sales force? We have expanded, and we hired significantly in 2012. This year, it's all about productivity. The areas where we hired a significant amount of sales folks was in the emerging markets, China, CIS or Russia, and the Middle East and North Africa, and we are starting now to see the productivity of that investment paying off this year, and we think that's going to pay off for many years to come. This is where we're going. I think we're pretty excited by what the innovation that's coming out. We've built the plan and the go-to-market to be able to go to market across all aspects of SAP, whether it's SuccessFactors, [Ensured], or the Ariba piece.
We know how to introduce new companies into SAP. We know how to bring our customers into that discussion. You've seen it with BusinessObjects, with Sybase, and what we've done with database and technology, and how we brought HANA into the market. Roughly, we've sold over 1,300 HANA customers. I love it when I give a number. Everybody starts writing.
It's a special experience here.
It's been fantastic. We do believe that HANA will be the renewal of the application business, and we've actually seen that with Florida Crystals and with John Deere. The ability to take John Deere's 15,000 users from an existing ERP system onto Suite on HANA in six months, the productive system, and they are fully productive today, and tomorrow, you'll see Derek Dyer, who runs that project for John Deere, articulate how successful that has been. Florida Crystals is an even better story. In a couple of days, we moved them from their existing ERP system onto Suite on HANA in a HANA Enterprise Cloud environment, fully productive and very happy.
We do see that the application space will be significantly revitalized over the next couple of years with what we're doing with HANA, not only in standalone but also in the application space and in the analytics space. Should I slow down and ask for questions?
I think maybe you have some final remarks, and we go directly to Q&A.
Let's have some questions, and maybe I'll do a summary at the end.
Exactly. Very good.
Thank you.
Thanks, Rob, for your time. I'm sure people got your numbers.
Michael
We have a whole lot of questions. I think let's start right here with Michael Briest, then we have a question from Mohammed Moawalla.
Thanks. Hi, Rob.
Hi, Michael.
In terms of the partner business, I think we've seen some good progress with partners generating more of the business, but I've also heard that the size of deals that they can chase down on their own has increased. What's the thinking behind that you're letting the partners pursue potentially quite large clients? Secondly, SAP's had a great two years, really, I guess, in terms of selling large deals. There's been a lot of success, and obviously, the economy is quite challenging. What do you put that down to, and do you think it's something that is sustainable, and we should see that continue to improve?
On extending the partners This doesn't go backwards, does it? No. We decided that to gain more leverage and gain more traction in the marketplace, we needed to actually allow our partners to be more successful in areas where we jointly agree that they should be successful. We have expanded the partner territories to go after more opportunity where they can offer customers a solution which is different than ours. In the sense that they offer the end-to-end solution, they don't offer an RFP approach, and they're not selling licenses, they're selling a solution. That model has extended the partner's capability dramatically, and we call that ITO, information technology outsourcing with partners. There, the partner has to have an end-to-end solution. It cannot be that they're selling software. They're selling a solution which includes services, hosting, the whole approach.
We've extended that dramatically, and we tested that in Latin America last year with tremendous success. Now we're extending it globally, and we manage it extremely carefully. We also moved the partners to a general business segment, so basically, roughly below EUR 1 billion. We applied our inside sales organization that we'd built over the last three years. I think, Michael, you know how we built that organization to scale the transaction business when 2008 happened. Now we're utilizing the inside sales organization to also help drive the partners' business in scalable sections around what we call general business, which includes things like HANA Mobile and all the other application areas that we drive. That is in the early stages.
We've seen some results in Q1, and we're looking at what will happen in Q2, but we think that could actually help us drive significant volume as well in the bottom end of the marketplace. The partners really like the model because they feel comfortable that the territories are actually well protected and that they can execute in that area. We've got to make certain that the execution happens to the same level that we expect at SAP, and we think that will happen. Your second question is the large deals, what's happening in that space, and is it sustainable? I think what you see here, you've all been here now for a day. Hopefully, you got to see the keynote yesterday. There is a buzz in the air around SAP right now.
I think the innovation story is really paying off, whether it's a combination of cloud together with analytics or CRM on HANA with a cloud-based front end. What customers are actually seeing is they're seeing that we are able to provide them both the full integration piece in the back end, which they spent significant amount of energy on, and we've able to give them speed. You saw Nespresso today, and able to put up a CRM on top of a customer sales on-demand front end, where their salespeople are driving rapidly, and they're able to utilize all the information in the back end that they've had, and built over on the transformation project. We believe that there's a renewal in terms of how customers are thinking about speed and innovation with applications around SAP, and it's not to do with any one of these segments.
It's the combination of all of these segments that is paying off. One of the reasons why we moved to the five market categories is initially, we were selling in each of these categories, and over the last 18 months, we started to pull the development organizations together to start providing solutions, which are really generating competitive advantage by industry. Financial services, you can see it with Bank Analyzer, risk management, and these type solutions, which are brand new and kind of a new portfolio for SAP, but high value and quick integration.
Good. Thanks a lot. We move to the second question. It comes from Mohammed Moawalla, Goldman Sachs.
Yeah. Hi, Rob. Can you talk about two things? Firstly, if you think of the consulting capacity in some of your high-growth markets, do you feel that you have sufficient amount there? Secondly-
No
you've done a number of-
No
reorganizations within the sales organization. We've seen some in the U.S., some more in Asia. Are you done with these, or should we expect more for the rest of the year?
First question answer is no. We don't have enough capacity in emerging markets when it comes to consulting organization or consulting thing. We have to build capacity. This does not mean it's SAP's building capacity. We're building capacity with local players. We're actually doing a ton of work with universities and graduates in certain places like Kenya, for instance. We've got 500 graduates going through a university program, we actually helping train them on SAP, then we move them out, actually into customer markets and into our partner markets, SAP takes some of their employees on as well. We've got a complete ecosystem process in all of these mega marketplaces to bring new millennials, new players into the marketplace and grow these marketplaces.
We've been doing this now for, I guess, for a couple of years in a really effective way in the Middle East, Africa, China, based on models that we've had in the U.S. and Germany. That's on the first question. We haven't had any reorganizations on the sales organization. We've had some leadership changes. When you look at the go-to-market model and how we go to market, that model has been pretty much in place for the last 2 years. We've made some adjustments, like extending the Simon Paris financial services from banking into insurance and taking retail. There's no real organization changes. It's really a construct of how we go to market. In terms of the Americas market, under Rodolfo, I think it makes a ton of sense. Rodolfo Cardenuto is an existing SAP. He had a tremendous track record in Latin America.
Extending him into North America makes a lot of sense. We get scale and leverage in North America. Both sides get to benefit from, whether you're driven cloud-based in the north part of America, you're getting the benefit of all the knowledge going south. We see that as a leverage model. In APJ, we've just filled the position of a couple of managing directors, so I expect stability in Asia Pacific as well. There have been no reorganizations of the sales organization.
Okay. Thank you, Rob. I think we have time for one final question. In the first row, Charles Brennan from Credit Suisse.
Thanks. Can I just go back on the partner story?
Sure.
Firstly, can you remind us how much of your business is going through the channel at the moment?
36% through partners.
Secondly, they're perhaps slightly less quarter-run focused than software companies.
Yeah
In terms of deal closures. Are you finding that impacting your closure rates or your ability to forecast short term trends?
It doesn't impact because we actually know what the run rates are for our partners, and we've known that for many years. I think it's a fair point to look at the closure ratios with partners. What we've made certain is that we put the leaders that actually run the general business inside the SAP environment are sales leaders, that actually know the cadence of a quarterly business. They know how to run a significant amount of channel business. We hold them accountable for the partners number. I feel totally confident that we can actually figure out exactly what numbers are being driven and what kind of expectations we are driving through the partner and through the channel.
Thank you, Rob. Maybe some final remarks from your side-
Yeah
before you leave the stage.
Just answering a couple of the questions around the cloud and bringing all these aspects of acquiring companies into the SAP fold. The one thing I would tell you is that we know our customers. We know exactly how to operate on the customers. We have phenomenal relationships with the most senior people in most of the customers, and we have the ability to bring the Ariba SuccessFactors and the combination of both to provide solutions to the customers. The issue of whether it's cloud or whether it's SAP, from my point of view, it's only focused on the customer. That's the only point that we have, and it's basically a solution discussion.
We think there's a huge benefit to how SAP is driving the cloud because it allows us to provide speed and access to the customers at a different kind of level, together with everything we've done in the core and expanding the core. I think it's a plus-up for everybody, and we're delighted with the approach of driving a cloud business. I think pushing out the HANA Enterprise Cloud basically makes a statement that SAP has validated the cloud and has validated that the in-memory capability of HANA can change the application industry. I'll leave you with that, and thank you, and enjoy the rest of your Sapphire.
Thanks a lot, Rob, for your time.
Stefan, you're welcome.
Thank you.
You were in the same time as this.
See? Almost a corporate identity.
It's corporate for Stefan.
Thank you.
Any show?
We have a show right now. We need to get some additional chairs on stage, and we continue-
Yeah
With the Q&A session. Just a short break.
These allow them to collaborate more effectively with their partners. Now everyone has access to the same information. This has speeded up the design process, and now everyone is jointly responsible for the board's success. By becoming a best-run business, John is not the only one doing things faster than ever before. SAP. Run better.
Direct Relief is here today at the Ryan NENA Clinic on the Lower East Side of Manhattan. The local residents of this area were really hit hard after Hurricane Sandy. Thousands of residents here lost power, heat, hot water. We're here today on behalf of Direct Relief to distribute personal care packs, nutritionals, and food supplies to the residents of this local community. Folks that have been affected here on the Lower East Side really need help. We're going to try to help every person that we can today, and we're going to just keep sending out shipments from Direct Relief to the clinic. The power of the network enables us to help a lot more people.
Kofi lives in a remote part of Africa and likes to know his money is secure. Whether it's buying food, transferring funds, or being able to pay a bill, Kofi likes to know his money is protected, yet available when he needs it. Since they started using SAP, Kofi's bank is now able to provide him with easy access to his own bank account. You see, SAP has allowed the bank to extend its reach to millions of new customers in non-industrialized areas through the use of mobile devices. This gives the population secure banking, but also more individual purchasing power, and has resulted in economic growth throughout the region. By becoming a best-run business, Kofi's bank not only helps him feel secure, but also to empower to make the right financial choices no matter where he is. SAP. Run better.
We run over 30 programs outside Australia and around the world working on endangered species. Our staff have lots of skills in working with animals, working in education, scientific researches and things. None of that works unless the systems supporting them are efficient. In the end, we as humans understand now, I think, quite clearly the value and importance of protecting habitats and the value importance of wildlife. We're part of a bigger picture system. Our role as an organization is to secure a shared future for wildlife and people.
I want to be a part of something bigger than just myself. I want to be able to say that I impacted a community. I helped someone grow. I helped someone graduate. Our core business at the university is taking in students, teaching them something, and getting them out with a degree. The more involved they are at the university, the more likely they are to stick around and graduate. We're really starting to move more towards analysis. We decided we have to do this. Let's step back and let's take a look at what we're trying to accomplish and see if there is any technology platform out there that can help us realize our vision. We're helping students be successful. They're improving themselves. They're graduating with a degree. As a result of that degree, their lifetime revenue is going to go way up.
The likelihood of their children going to college, way up. It's really gratifying work knowing that we're making a difference.
What we just said. Hey, Jim. Is Kevin finding it? Yeah. Hey, Jim. I'm always having fun. How are you, man? Any way you want, man. Thank you. How do you like the rabbit? What's that? Did you get the rabbit? Yeah. There's seven more. Cool. Yeah. I have one after another now. As long as they end up in all these things. 30 a day. 30. Unbelievable. Unbelievable. Very good. We'd like to continue with the Q&A session. I know some of you walked out to get a coffee, give you some time. It's not a bad idea. Not a bad idea. Exactly. Exactly. Let me introduce to you the panelists of today. Next to me, Werner Brandt, our Chief Financial Officer, Bill McDermott and Jim Hagemann Snabe, Co-CEOs of SAP.
For the first time on such a panel, Bob Calderoni, the CEO of Ariba. Welcome to the SAP family. Our technology leader, Vishal Sikka. You've seen some PowerPoint presentations today. You learned a lot about the Ariba business, about cloud. We heard Rob talk about go-to-market. We just decided we keep this strictly a Q&A session. All of you are probably very familiar with the SAP strategy. I'm sure there is no shortage of questions. Before we start with taking questions from the room here in Orlando, I also want to remind the participants on the internet to send us questions by email. I know it's late in Europe, 8:30 P.M. Let's hope. The email address is investor-@sap.com. It's not working time. We're on a safe. I like it.
Let's start probably with a question here in the room in Orlando. I would like to kick it off with Phil Winslow from Credit Suisse.
Hi, Phil Winslow, Credit Suisse. Just a question to Jim and Bill. Obviously, there's been a lot of focus this week on HANA, mobile, and cloud. Just wanted a question on the core business. What are you hearing from customers about the core, kind of in the context, too, of all this innovation that you're doing kind of around the edges? What are you hearing about the core from customers? Thanks.
Well, one of the things we learned a long time ago about the core, Phil, is that innovation awakens the core. We have a very good core business, but we think that the HANA Enterprise Cloud could be the next reinvention, actually, of the core business because it so radically simplifies the time to value and the cost equation for the customer, and it leaves them a lot more left over to invest in software, which obviously is our business. I think that's one aspect. I wouldn't worry too much about the core because I know we're talking a lot about the cloud and a lot about HANA, and I know you guys are sitting there like, "Are they still focused on the core?" The answer is, yeah, we are.
Maybe I could-
All right
Just add one thing. If you look at the core, what we've done and the three things we're talking about is we've reinvented the platform that the core sits on with HANA. We've reinvented the front end of it through the mobile device and the new user experiences, and we've just simplified it dramatically through the cloud on the HANA enterprise. All of these three will boost relevance of the core.
Okay. Thank you. Let's take the next question here. It's hard, too many people raising their arms. Ross MacMillan in the back from Jefferies.
Bill, I promised Stefan I would ask this question last night.
Nice
Here goes.
Say more.
I was here yesterday for the keynote, you had James Brown, you had a lot of folks from the sporting leagues, the message I think was how SAP's starting to focus on the consumer, maybe indirectly, but this B2B, B2C concept. It's interesting because you never really focused on consumers before, but I'm curious to understand how you think about the monetization model. Is it still monetizing consumers through your corporate clients, or is it actually thinking about monetization models at the consumer? If you could talk to that'd be great.
Well, for now, I think it's only fair to say that it is business to business to consumer, but we're monetizing it business to business. We're really focused, though, on the ultimate consumer, and I think that's getting us really relevant to our existing customers because they have to serve their customers, and they have to innovate their business model to help their customers, and they have to grow in new and innovative ways. HANA, as an example, gives us a myriad of opportunities. What do we have, the 450 VCs now, Vishal, building innovation on top of HANA? I wouldn't be surprised, though, especially with Bob Calderoni, if you think about the business network. That's a whole new way of creating new revenue streams on transactions and transaction volume going through a network.
I wouldn't rule out that someday the consumer and how they interface with our software could invent new business models, and it could be direct to consumer. To be fair, today it's B2B2C, it'll be that way for 2013. Maybe Werner will have something else to do on 2014 guidance. We're working on it. Right, Werner?
Maybe I can add one thing to that.
Can you hear me okay?
Yeah.
Can we get the microphone for Vishal?
Yeah.
Just try it out.
No, I think he might be.
Can you hear me okay now?
No. Maybe.
Maybe.
Here you go. Use this one quickly. Sorry for that.
Maybe I can add one thing to that.
It doesn't work for some reason.
We just need to switch on the microphone, please.
Just stop cheating.
I think I'm in the wrong seat.
You need to make.
We need to put that on HANA.
Yeah.
This one works.
Can you come on out?
This one works.
There you go.
Now you're on?
There it goes.
Yeah.
Is it better? Thank you.
Oh, perfect.
One part of this is, if you look at the opportunity to do a real-time business across boundaries, today you have these gaps between the time the product is manufactured and the time it shows up in the hands of the consumer. Real-time is not just inside a business. Real-time is something that could go across the entire chain all the way to the consumer. There is no reason why something that happens in the hands of the consumer-
Switch that
should not make its way all the way back through the retailer, the logistics companies, the warehouses, the distribution, all the way back to the manufacturer. The Recalls Plus application that we made, which was the first consumer application, was done because one of our largest CPG customers told us that recalls is a problem that is worth hundreds of millions of EUR per year for them. They had a recall somewhere in the world once every three weeks after they spent half a billion EUR fixing the recall process. At the end of the day, even though the consumers see a beautiful Recalls Plus application, what it is really doing, it is helping the manufacturer, the CPG company, getting a handle on this. The other part of it is the consumers are the ultimate users.
The whole world is shifting towards empowering the end user, empowering the consumer, we see a tremendous opportunity. I mean, the fans that Bill talked about yesterday.
Yeah.
The CEO of Burberry told us that every one of their customers, they want to be a fan. The fan experience is something that impacts the consumer experience, the customer experience for every one of our customers. These are things that are fundamental to the way the world is
heading to, and that this is why it is so important for us to do this.
Thank you. Before we move to the next question from the floor here in Orlando, actually, there is a hardworking analyst in Europe, Kai Korschelt of Deutsche Bank. He couldn't make it to Orlando, unfortunately. His question is, you continue to grow at double digits with many exciting new growth drivers. Your 2015 revenue target was issued before your two major cloud acquisitions and seems conservative.
Yeah.
When will you consider updating this, we'll say, revenue guidance? I think a question to Werner.
Kai?
Yeah.
We seem to have issues with these microphones. Can we get a second one?
Kai, good evening.
Musical mics.
Yeah, it works. It's okay. That's a fair question. If you have listened very carefully, what we said consistently over the last quarter is for 2015, not EUR 20 billion, more than EUR 20 billion. You can take this seriously, and we will update our top-line guidance over the next quarters for 2015.
Good.
Okay. Thank you very much. Let's continue here in the room. I have one question right in the middle here. Which one?
I understand you're not going to update the revenue estimate, but can you talk a little bit about just the earnings and from the standpoint of capital allocation? Over the last five years or so, you've spent about 120% of your cumulative earnings on acquisitions. Is that a model that you think is, one, sustainable and likely to persist?
First of all, thank you very much for the question. We've had this one together a couple of times. I think it's fair to say that when you invest in a company, you need leadership that understands markets and gets companies into categories that they have to be in. I think we did a lot of the heavy lifting with Sybase because it complemented our invention, HANA, we had to get into the line-of-business cloud. We went in for EUR 8 billion in doing that because without that, we wouldn't have really had the multi-tenant public cloud for the line of business executive. What would the cost have been of not doing that?
Having said that, we've done a lot of the big stuff, I think we're getting more to an organic growth story, especially with HANA, more of a tuck-in situation than big ones. It's not that you ever rule it out, if it's in the interest of the shareholder, we'll do it. Right now, we've got a lot of weapons in our arsenal to make customers happy.
What we said in the beginning when we presented our 2010 strategy for 2015, we clearly said we would do acquisitions, would acquire if it accelerates the implementation of our strategy, and we did this in specific areas. I'm sure we will continue if we find these targets, which really would help us to make progress with regard to the implementation of our strategy.
I think that's a key point to understand. The model would not be necessarily sustainable if it's all about buying an installed base for the maintenance stream. We've been very successful in a very different M&A, which is about top-line growth because we can accelerate the synergies between two categories. That model, I think, is very sustainable both for SAP, but in particular for our customers.
Thank you. I think next question, start in the first row with Daud Khan, and then I would say Stacy Pollard.
Hi, I'm Daud Khan from Berenberg. A question maybe for Werner. In terms of SAP is now consuming all of its acquired technology, and organic technology in terms of HANA. Are you able to put a figure in terms of how that's changed the operational run rate cost of the business from a point where you didn't have these technologies to the point where you are now? Just to give us a feel for what the operational leverage has been from doing that. Thank you.
We cannot provide any figure today because we just started the journey a good year ago when we first brought our Business Warehouse on HANA. We have now CRM running on HANA. We will now bring our ERP system, the Business Suite, actually on HANA in the middle of the year. We have a lot side-by-side scenarios, which are very powerful and provide a lot of business value, additional business insight, fast reaction. If you look to receivable management, for example, this has a huge impact in the process of collecting money from our customers and has a very positive impact on working capital. However, if you ask me today, what is the overall saving we have? It's much too early, and I cannot answer this question. If you look to, for example, to the CRM system, in terms of the usage of hardware, it's down to 10%-
10%
of what we actually need in order to run our fully fledged CRM system.
There's a significant TCO reduction when we moved our own systems onto HANA. One of the things you may have an interest in is what we've learned in terms of running SAP better on our own technology and the application of that to the HANA Enterprise Cloud. I think there's amazing leverage when you take internal best practices and you make them available to customers. That's where the real leverage comes in. We run better, but we share the news with the customers.
I think that's Come on That's a very important aspect. If I look four to five years back, we hadn't this very close collaboration, for example, with the finance organization within SAP and the development organization under the leadership of Vishal. Now we have this, and I think also our first customers always benefit from the experience we have because we constantly give feedback to development, how to improve the products before they come to market. Now we go on roadshow with regard to a lot of product which was developed in the last two to three years, whether it's Dispute Management, whether it's Closing Cockpit, or whether it's other finance-related applications.
Even Ariba.
That's right, yeah.
Adding the Ariba Network to SAP makes us procure cheaper.
Yeah. We are live since some days now.
Yes.
Thanks a lot. The next question is from Stacy Pollard, JP Morgan.
Thank you. Just two questions on the Enterprise Cloud, please, or HANA Enterprise Cloud. First of all, bring your own license model. Will it always be that way? Why not go to a full subscription option, especially for new users, and/or will that come? That's the first question. Second one, to what degree are you building out your own data centers? Any impact on CapEx, and/or is most of that going co-location with partners?
Maybe I'll start with the licensing question. First of all, what's fascinating is when you look at our customers, they spend about EUR 0.95 on a EUR 1 on everything but the software. Think about the hardware, think about the services, think about the people implications of supporting these systems. Then there's EUR 0.05 left over for the software. Fascinatingly enough, that's the asset that lasts for decades. We have no issue with the bring your own license because the CEOs that do business with us regard SAP as a capital asset they want to have on their books because they want to carry it forward for a long period of time. Could there be new business models? Could this evolve? Of course. Everything can evolve. Right now, that will not be the limiting factor to our growing the HANA Enterprise Cloud, A.
It also holds together the business model story you've grown accustomed to, B. When you have the line of business multi-tenant cloud story, that is absolutely a SaaS story in terms of the competitive face-offs we're up against. I think it's a very nice blend of choice for the customer, confidence for the shareholder because we hold the business model together, the customer is certainly not reluctant to invest with us, again, because of the strength of the software asset. Vishal?
What's going on with this mic? It's unbelievable.
In terms of the business models, for a lot of the startup companies, for example, that offer applications on HANA that are in subscription pricing, there is nothing stopping us from offering that in the HANA Enterprise Cloud, as long as the application on top, the third-party application and so forth, is not in a perpetual license model. Whatever the license model is on top of the Enterprise Cloud, that makes sense.
Yeah.
In terms of building out the infrastructure, yes, we are building out our infrastructure. Don't forget we have a massive data center footprint already with our own, with SAP's own footprint, with Ariba, with what Bob has done. The Sybase 365 messaging service runs something like 50 billion messages per month across five network operating centers around the world, the SuccessFactors data centers, and so forth. We have a large footprint already in the data center world that we are leveraging for this. In order to understand the Enterprise Cloud, you have to keep in mind, we keep a cloud frame, a cloud cell, which is physically about six or seven racks wide, where today we can run 1,400 CPU cores and 32 terabytes of DRAM in one cluster.
We are building this out in some co-location facilities around the world, we can also do this in our customers who have very large data center expertise already. Some of them are the world's biggest companies. They have massive data center expertise. We can install a cloud cell or multiple cloud cells in their data centers where they can take advantage of this, the price elasticity, the performance, and pooling of resources across systems that come from operating mission-critical systems in a cloud environment. I think you have to also keep in mind that if you look at our top customers and the SAP landscape that they run, which we aspire to run in the Enterprise Cloud, each one of these landscapes is by itself bigger than the entire salesforce.com. salesforce.com does, I don't know, a few hundred million transactions in a day.
We have customers that run massively larger volumes than that. Our aspiration is over time, obviously, that many of these customers will individually run landscapes in the Enterprise Cloud, in the HANA Enterprise Cloud, that are in that scale or bigger than that.
Can I? Hello?
That works.
It works? Yeah?
Yeah.
Vishal just mentioned that there's no need to build up additional data centers. For the capital expenditure for this year, that's covered by the budget we have because we anticipated this announcement of today. From that end, don't worry.
Okay. Thank you. Next question here in the room. I see here in the second row, Amit. Just need to get a microphone. Charlotte, row number two. No more mics.
Hello. Amit Harchandani from Citigroup. We saw in one of the earlier presentations on Ariba that right now you have about half a trillion of transactions going through it, and the SAP install base in total has nearly 8 trillion transactions, and the global volume is 12 trillion. Given these numbers, could you maybe help us understand how we should think about the growth for Ariba over the next 2 to 3 years in terms of what your targets are for the transactions that go through the Ariba Network? Thank you.
Is my mic on? I think the best way to think about that is, as an independent company, we had talked about our network growing 20%-30% a year, in terms of revenues. I think as we're part of SAP now, we have access to start to connect that network into more and more systems. We'll get there quicker than we would have independently. I think over time, we should see the rate of growth go perhaps above that 30% range. It's going to take a little bit of time before we start to see a lot of that traction in there. Probably for the near term, I'd stick to the same kind of thinking as when we're an independent company. Once we're here for a year or so, we'll start to see that start to ramp up from there.
Just keep in mind, the one thing to build on what Bob is saying, we're all behind Bob and making sure that Ariba is part of the family, and we have every single salesperson across the world engaged in the business network sale. What we have learned is not only does it take cost out of the procurement equation, as Werner pointed out, too, very nicely, but it's also being used now as a front-end CRM system because they can sell into the 1 million-member network. If you're a small company like Mediafly, for example, and you're used to selling to mid-size companies, now all of a sudden you have a global Rolodex of 1 million you can go after with your service. That really does purport Ariba in a whole new way besides cost takeout.
We've got a business network of 1 million partners we can sell into. There essentially is no limit to that EUR 12 trillion opportunity you're talking about. We're going for it. It's just a question of how much we can get and how fast we can get it.
I think maybe the best way to think about that, as an independent company, we thought of the network as a bridge. If you own the bridge, you'd want to have a lot of traffic on your bridge, and you'd put a toll on both sides of it, like they do in New York. The next part of your strategy would be, how do we connect more roads to that bridge? Ariba, we were busy connecting roads to the bridge, and we were doing a reasonably good job at it. The part of SAP that I found really exciting is SAP has thousands of roads with trillions of EUR of traffic on it. For us, it's just a matter of us working through that install base and starting to plug the network in. It's an amazing opportunity for us.
I'm really excited about that. It is frankly, though, the part of Ariba that's most different from SAP, and that's the reason why I give a little bit of caution about in the near term, let's stick with the kind of growth rates we had because this is the part where I think it's going to take a little more integration with SAP. SAP was a software company only. Ariba is a software company and a network, and that's where our differences are greatest. We're going to get some tremendous uplift from it. I just want to keep expectations in check in the near term, as we're working through the integration on that side.
Thank you very much. It's good to see you.
Yeah.
As next question here, I think one in the back. Thank you. Right here.
Thanks. Derrick Wood at Susquehanna. There was a question about the core earlier, and clearly we've talked about mobile and cloud and HANA, but I feel like we haven't heard a whole lot about the BI and the BusinessObjects product line, which has got to be a multi-billion EUR revenue product, probably your second-largest product line. Maybe if you could speak to the growth dynamics in that business, maybe the competitive dynamics, upgrade cycles, and then how HANA and some of the innovation could impact growth out of that business line.
We are super excited about BI. We are really super excited about BI. We had a little bit of a hiccup last year. We were recovering from a very large integration project that started in BusinessObjects to bring the various acquisitions that BusinessObjects had done together. It's now long behind us. BI is back on a massive growth track. We see multiple dimensions of opportunities in BI. One is HANA. HANA is making our curiosity for data, this insatiable appetite that we have for transparency and visibility, is just feeding that, and it's creating this massive growth opportunity for all the way from big data to simple scenarios for line of businesses and so forth. BI is just riding on that incredible wave that HANA creates. The second one is in end user business intelligence.
All our BI products obviously are open to all databases, but they are really optimized for HANA and just do miracles on HANA. Today we saw a result of a company, one of the largest companies in Europe, that does something 400,000 times faster on HANA with BI on top of it. It is just extraordinary. The second trend that we see is, again, because of these end users becoming empowered, consumerization of information, and people having an insatiable need for data and information, is the end user business intelligence. Here we have a great product that we just launched called Lumira. SAP Lumira, it's right back there. You can go and see what it is all about. You can get productive with it in five minutes, and I would encourage you personally to download the product.
You can buy it on the SAP Store for EUR 995. You don't need anybody's permission to use the product. You can connect it to anything that you can think of. It's just amazing how beautiful it is, and there are some great scenarios that you can do with all kinds of financial models that I'm sure you are interested in running. We believe that this end user BI is a tremendous opportunity. The third dimension of that is this data science
As the normal mortals, people like us, are getting excited about data, the more advanced analyst types are getting into predictions, into forecasts, simulations, statistics, things like this. We see a tremendous growth opportunity in predictive BI, and we have a great product in this area with the predictive library inside HANA and the integration to the R package, with the predictive front end on top of that for statisticians, mathematicians, and stuff like that. You can see that right on the other side of the Lumira booth. In all these three dimensions, we see tremendous growth opportunities in. Just because HANA, my little girl, sucks out all the oxygen in the room, this is something that is still quite an extraordinary opportunity for us.
Vishal, maybe on the go-to-market side, just to build on what you're saying, keep in mind database and technology and all the products that you mentioned in the portfolio have been held tightly together in one go-to-market stream under one very strong operator in the field. We go to market with industry, line of business, database, and technology, and there is strings of go-to-market forces that do this in combination with the general line people in the field. It's very carefully crafted, and every scenario is mobile. Everything is mobile. Now, I just want you to know, they're quoted on that stuff, they need that stuff to hit their number, and they understand what we expect of them.
Thank you very much. Let's take the next question here in the room. I see one in the first row, Adam Wood from Morgan Stanley.
Thanks, Stefan. I just had a question, sorry to come back on HANA, also related to the reintegration of the core. You've talked a lot about the VCs that are working on project. You've obviously got partners and your sales working on innovation. Could you just help us a little bit understand how quickly you can bring new applications based on HANA to market, how close some of those VCs are to having product that can actually be sold? Maybe talk about the one or two products that you've got in the labs that you're most excited about and can make the most difference for SAP over the next couple of years. Thank you.
Maybe I can do that. We have doubled the size of our HANA venture fund, we have 450 startup companies now building their products on HANA. Out of these, about 25 are already selling their HANA-based products. We have already revenue that is coming from many of these startups, these are far away from the normal SAP world that we are familiar with. These are companies doing forecasts of epidemics. These are companies doing price analysis. These are companies doing natural language interfaces and complex predictive stuff for changing manufacturing lines. Really extraordinary, amazing stuff that they are doing. It is really inspiring, it's probably the most inspirational part of the whole HANA journey. We are really, really excited about that. In terms of the new application, SAP has built 72 applications already on top of HANA. Many of them are totally new ones.
The one that I would say that I am most excited about, there are several of them that we are working on in new industries. The one that is other than the one that Bill talked about yesterday with the fans and the new industry in sports, I would say, is healthcare. We are going after totally rethinking the experience of the patient, the personalized medicine, all the way from the time that After the genome is sequenced, it is all information. People are becoming much more aware of their own health. We are sort of living in the dark ages today, that we have this idea that once in a year, we go to a doctor, they do a blood sample, based on this, we determine what is happening in our bodies.
This is a completely archaic model that doesn't help us with our health at all. If we could take the genomic information, the proteomic information, we could take the patient's ongoing vitals on a real-time, regular basis and combine that with all the information about the disease. We really see an opportunity to bring together doctors, lab technicians, researchers, people who are experts in individual areas, together with the patient, and bring this promise of real-time, personalized medicine to life in a way that was just not possible before. We are already compressing the genome analysis time down by a factor of 420 to 450, compared to the best known genome sequencing time. This is something extraordinarily exciting for us. It is just great.
Yesterday, we were talking to Varian Medical, and they are working on how you can do planning to do treatments on people for tumors and things like this, where you point lasers at individual tumors, but you don't want the laser to damage normal cells. This kind of thing, it takes eight hours to plan for an individual treatment. In HANA, this could happen in minutes. It's really game-changing kind of scenarios like that we are really excited about.
Could I mention two more apps that will have a big impact? The Business Suite on HANA and Business One on HANA. I mentioned that they're the opposite kind. What Vishal just said was the innovation that redefines.
Yeah.
Those two apps run companies. What is it? 73% of world transactions run through these systems. There was a very important announcement today that there's general availability of the Business Suite running on HANA, which means the functionality that we have created this company on now runs in main memory.
Yeah.
It's hard to express how important that announcement is. Again, I want to reiterate my thanks to Vishal. You put that kind of complex application on HANA, that's not so easy. I often get the question, how far ahead are we on competition when it comes to HANA? I've always said we're at least two years ahead. Now all our transactional systems run on HANA. Well, that gave us just another
quantum leap of being ahead, because even if you had a database like HANA, if your applications don't run on it's not the same value. We can actually extend the gap to competition
Yes
by keep adding stuff that runs on that.
Exactly.
Thanks, Vishal and Jim. Thank you. Looking to my watch, I think we have time for two more questions here in the room, I'll try to make this as balanced as possible, looking around here. I think there's one question here, we take Michael Briest as the final one.
Thank you very much, Brad Zelnick with Macquarie. Bill, it seems your success is about much more than just having great products and great customers, but it is about being really smart and finding new market opportunities. This last earnings call, you talked about sports and entertainment becoming the 25th vertical.
If we look forward to a year from now, next Sapphire, I know Vishal spoke about healthcare, what are some of the other markets that you are nurturing and investing in that we might come back and see are having that kind of impact like we are seeing in sports and entertainment?
Thank you very much for the question. First of all, I am completely convinced that Vishal is right on. I think healthcare is massive. It is massive on the personalized medicine side, also that ties us in the business to consumer realm, which is where we want to play ball. We think that is a huge market opportunity. Also take healthcare on the public service side and take it on the insurer side. There is so much inefficiency, fraud in the system that it is actually mind-numbing, we can get right in the middle of that with HANA. I think healthcare personalized at the insurer, at the public sector side of the equation could be huge. I think government. Government needs to wake up. There is so much inefficiency. Budgets are getting cut left and right. Silos are going to have to get broken down.
Government is going to have to start running like a best-run business. We made a move with a major PR player in our communications plans because we want public sector, not because it is going to be the same in all parts of the world, because the orchestration of best practices from one part of the world can be easily replicated in another. We want to orchestrate that much better. Next year, clearly you should expect to see those two things for sure bolted on. The other thing I think SAP needs to do better, we take ownership for this, is not leave our industry story for SAP people. We got to make sure that we continue to communicate to the market that we are in 25 distinctly different verticals.
What we did is we took the industry, the solution people, the people that actually work with the customer each and every day, our value engineering people, and our business consulting people on an end-to-end basis to constantly keep innovating, get that feedback loop going back to development so we don't lose our mojo in communicating our industry-specific message, because it's always been a differentiator for SAP. That's a little bit.
Could I add maybe financial services? It's been a fastest-growing industry now for three years in a row. The banking industry is going through radical change because of the financial crisis, the new regulation, and the need for real-timeness with a possible competition from technology providers like Google on payments, et cetera. Here's a massive opportunity, and we bought Camilion, an insurance policy management solution. These two verticals will continue-
Yes
to grow faster than the SAP, which is already fast-
Yes
continue to be very, very important in our portfolio.
Absolutely right.
Rob mentioned the partnership with CSC.
Right.
Well, thanks a lot. The final question, Michael Briest, UBS.
Thank you, Stefan. A question on margins. I guess if we were to do a sort of mid-year school report, you are obviously doing a great job on the revenues on the EUR 20 billion and the EUR 2 billion in the cloud for 2015. But in margins, we are back up probably this year where we were in 2011. I can understand how the cloud acquisitions have impacted that. But Werner, can you sort of say the step from, say, 33%-35%, where did that come from? Is it gross margin? Is it OpEx? Bill and Jim, in terms of the ownership of margin across the group, is that something that is more concentrated at the regional level? So Michael Kleinemeier, for instance, is very heavily incentivized on that, or would it be Rob Enslin running services globally, for instance? Thank you.
You want to go first?
Michael, it is important to realize that the cloud business is becoming profitable quarter over quarter. You have already seen a big difference between the fourth quarter in our segment reporting to the first quarter of 2013, and this will continue. Of course, it is a matter of fact that our investments in the cloud, all the acquisitions we did, decreased our margin, which we realized in the on-premise world. I can turn this around. It shows that we have a lot of potential in our on-premise world at SAP in order to increase our margin out of this part of the business. That is exactly what we do. If you combine both, it is operating expenses which will bring the leverage to achieve 35% in 2015.
On the cascade of the 35%, I think it is important for you guys to know we are all tied in to the 35% by 2015. The managing board of SAP cares a lot about EUR 20 billion-plus and 35% operating margin. That has been cascaded out to the Enslin level and the regional presidents, and every employee in the company has operating income on their mind and operating profit on their mind because their annual bonus is tied to it. We are committed to that target. I also say this, if we did not make some of the strategic moves that are differentiating SAP and creating the buzz that you see here, if we did not do that and we just harvested the margin and told a margin story, we would be an also-ran. We would not be a growth company.
I think it's a delicate balance between being a growth company and doing it really smart and still getting you the margin. I think we can do both, and we planned it that way, and everybody's bonus depends on it.
Maybe I can add a final comment on that. We've been very systematic on this. We started in R&D already three years ago. You've seen the R&D ratio to revenue go down every single quarter since 2010. Every single quarter. We continue down that path, and we're now broadening this program. Werner and I are actually teaming up around a company-wide efficiency program on how do we every quarter improve the organic efficiency of the company. We saw some of that play already in Q1 this year. Last year, we over-invested deliberately because we had a higher growth opportunity, and we're taking the benefits of that now, and we will continue our efforts to constantly lean this company, because we get faster with our customers.
What is really amazing, if you look to the R&D ratio, the outcome is much higher than in the decades before the last three years, and that's thanks to Vishal and his efforts on the technology side.
Well, thank you very much. This concludes the executive Q&A session today. Thank you all for joining and all your questions, and hope to see you tonight at 8:00 at the investor reception. Thank you, and bye-bye.
Thank you, everybody.