Silence. Good morning, everyone. Welcome to the SAP Capital Markets Day 2019. Thank you for joining us here in New York City. A warm welcome to everyone who is following this event over the web. We have very strong attendance, over 120 registered attendees. It's huge. Thank you for your interest in the SAP story. My name is Stefan Gruber. I run investor relations at SAP, and it's my pleasure to walk you through the agenda for today. It's a big agenda. We'll see this in a moment. Here you go. Our CEO, Bill McDermott, will kick it off. He will talk about our strategy and vision, and Bill will be interviewed on stage by my colleague, Nick Tzitzon, who runs marketing and communications at SAP.
We move to the innovation side of the house, and we have our newest board members, Christian Klein and Juergen Mueller will talk about how we deliver the Intelligent Enterprise. There will be a coffee break afterwards, and I know there is a lot of interest in our CRM story, and we have Alex Atzberger, who will talk about the C/4HANA story in SAP, an important leg of our growth story. A Capital Markets Day agenda would not be complete without having strong customer representatives here. We are honored to have Verizon and JetBlue on stage, and they will be interviewed by Jen Morgan, who is the President of Global Customer Operations. To close the series of presentations in the morning, our CFO, Luka Mucic, will talk about the financial model of SAP, and we have Q&A.
You will see from this agenda, I will continue in the afternoon with breakout sessions. The idea is to split this large group into three groups. You might have wondered what the little color dot means on your name badge. This is your group assignment to the breakout sessions. We cover topics like Qualtrics, like digital supply chain, and our spend management portfolio in the breakout sessions this afternoon. There's something else about this badge. You see on the backside, there's a little code here. You can scan it, and I'm happy to announce it's Capital Markets Day survey time. This technology is built on Qualtrics. We encourage you, please go to your iPhone or whatever device you use and make sure you give us feedback, real-time feedback to the SAP story. Growth versus margin, Qualtrics, and all these topics you're very familiar with.
We might have a chance, if we get enough feedback, to share some feedback with you in the course of today. Finally, this is the moment where usually I slow down, and after all these years, I wasn't able to learn this by heart, you know what I'm coming now at. It's the safe harbor statement with regards to forward-looking statements. This is the long version. This is the version which is the short one for me to be read. Please note that except for certain information, matters discussed during today's conference may contain forward-looking statements which are subject to various risks and uncertainties that could cause actual results to differ materially from our expectations. The factors that could affect SAP's future financial results are discussed more fully in our most recent filings with the Securities and Exchange Commission.
With all that, I think we are done with the housekeeping items. It is my pleasure to invite our Chief Executive Officer, Bill McDermott, to the podium. Thank you so much.
Thank you. Thank you very much, Stefan. Thank you very much.
How are you?
Great.
Morning.
Good morning, ladies and gentlemen. Bill, maybe before we start, there was some breaking news this morning. It is relevant to SAP. The Commissioner of the NFL, Roger Goodell, actually announced already next year's Super Bowl halftime act, and it will be Stefan Gruber reading the safe harbor statement, so.
Stefan, I only have one piece of advice for you. Please don't take a page out of Adam Levine's book.
Take notes.
Okay? Just be you.
It's excellent advice. Bill, maybe just today, start big picture. I want to take you into the weeds on questions that I know this audience has, and then I want to take you back up to big picture on the strategy side to end.
Sure.
Maybe we bring up the first slide I pulled. Sometimes I think we forget to put into context the journey of the company as we talk about where it is. In your words, now in your 10th year as CEO, where did the company come from, and where is it today?
First of all, thank you everybody for coming here. I know many of you came from all over the world, and you're the best at what you do. I have enjoyed reading all your bios prior to today, and I deeply admire your skills, your professionalism, and your interest in SAP. It's a great honor to have you here. Thank you so much. We've come a long way. In 2010, we said we wanted to help the world run better and improve people's lives, and we became a purpose-led company. I think we did a good job of allocating capital to the right M&A moves. For example, we started out with Sybase and quickly moved the company to SuccessFactors, Ariba, Concur, Fieldglass.
Most recently, we've made additional bold moves in the C/4HANA realm with Gigya, with Callidus, and many other things have happened on the organic side, including HANA, S/4HANA. HANA has become a revolution in the enterprise. As you know, we're in the database business. We're in the apps business. We moved the company to cloud, to network. As Jerry Maguire would say, Qualtrics completes us. We see a massive category, 100 billion category, in the realm of Experience Management, and I think this really does complete this bold vision to take the customer to places that no other company in the business software industry can.
Last week in announcing the full year 2018 results, you said, among other things, that SAP has only good businesses and that SAP, all key strategic assets are growing. I see Barry Padgett there, SAP Ariba and Spend Management. Hala Zeine is there, Digital Supply Chain. S/4HANA, C/4HANA, Business Networks, SuccessFactors. Are you worried about the macro environment? Because those are bold statements.
Look, no company is completely insulated from the macro environment. I can only tell you that, and I'm just coming off of Davos as many of you are, the feeling on the part of people that are running companies is much more positive than the day-to-day news headlines that you read in the "Financial Times" or "Wall Street Journal". Companies are digitally transforming their business. We are at the highest point in the value stack of re-engineering, redesigning, and rethinking the way business models are innovated, the way they are changed, the way you either take costs out or you drive revenue up. Of all the companies that will benefit from digital transformation, there's no company better positioned than SAP. We are not worried. The pipelines look fantastic. Our team is the best in the business, and we're fired up, and we're ready to go.
Let's drill down, like I said, on a few of the key topics. I don't think anybody questions at this point the top-line growth prowess of SAP, there still are questions on the bottom-line side of the story. Two questions, and I want to bring up a slide, we sort of sketched it out a little bit on the back of a napkin here. If you look at the competitive set from a margin profile perspective, from an overall business model perspective, what does this picture explain?
Yeah. This is, to me, the essence of it. Since 2010, we've tripled the company. What we've also done is we've made SAP the fastest growing cloud company in the world at scale. If you look at our peer group, and you look at the bubbles, basically SAP is the fastest growing one, and SAP is now chasing after companies like Salesforce in size. Fastest growing came from zero in 2010, and as we are in 2019 now, we see incredible future for our Cloud business. On the right side of the equation, when you think about large scale peer group companies, you look at an IBM, you look at an Oracle. On one hand, IBM is not growing. On another hand, Oracle is almost not growing. Oracle has very good margins. IBM doesn't have as good margins.
SAP is kind of in the Goldilocks spot, where we're giving you really fast growth in the cloud, faster than anybody. Our core business is rock solid, our margin profile is much higher than the cloud players, much higher than a big one like IBM, not quite as high as an Oracle, on a risk-adjusted basis, I would defy anyone to say, "Why not SAP?" This is the company best positioned in the Goldilocks spot to give you recurring revenues at really good margins and improving, and growth in the cloud, and no sign of slowdown in sight. We'll talk about that today.
Let's switch gears and talk about the management of the company, because I know that you and the Executive Board colleagues who will speak today are focused on all parts of the business, but on shareholder value creation, to put it very straightforward. The guidance is out. We're not changing the guidance today. I want to bring up the next slide. I know this is internal. Stefan said I could show it. In terms of the key messages that you've given to the management team and the company that the Executive Board has endorsed, what should these steps say in terms of how we're looking at extracting profitability?
Sure. We're taking the SAP company, and we're going to triple the size of the cloud between now and 2023. This is a runaway, juggernaut growth story in the cloud. Check that box. We're also very focused on bending the margin from that 30% rate up, because we know that our stakeholders and our shareholders would like to see the leverage come out of an ever solid core business and a very fast-growing Cloud business. You start to see the leverage come through in the margin. We get it. Let me take this opportunity to make a few things clear. We just announced one of the most spectacular years in the history of a technology company. I call it a pentafecta, where we grew our Cloud business like 38%.
We grew our core business in double digits, our order entry in double digits, the total revenue of the company in double digits, and the operating income in double digits. Under any normal circumstances, we would have been doing high fives in Walldorf, Germany together. At the same time, we announced a restructuring of 4,400 people, and many of you, on a day where earnings is happening, hear restructuring, and you're like, "Hey, do they need to take 4,400 out to make their numbers?" The answer is absolutely not. We call this a fitness program because our businesses are growing so fast in the cloud, in the business network, in areas like C/4HANA and S/4HANA and Leonardo, and now of course, our marquee jewel in the crown, Qualtrics.
We want to get the headcount where the fastest growth is, and we want to early retire and move our workforce that might be on older things and ready for early retirement. We want to give them a chance to do that. Because we are a market leader and a happy company, we have to do that in a way that's pleasing to people emotionally and also to the culture. To be clear, roughly 95,000 people are in the company. 4,400 people will take advantage of this program. That's a roundabout number. Then we told you we'll finish the year, this year, with somewhere around 105,000 people. Roughly right. Here's the message we're giving you today. You understand the accounting treatment that you benefit from on a restructuring. That's why we did it at the same time we announced earnings.
I don't think we'll need all 105,000 to deliver the growth numbers that we gave you. The key message is we're retooling, reskilling, and hiring for our fast growth businesses, even as we treat our people with respect and offer nice programs to move them out as we move the company forward. We're a growth company. We'll actually have more jobs, not less. They'll be in the right place, and we might not need every single one that we allocated in the storytelling on earnings day. We'll get into some detail on that. Finally, as you think about this margin scenario, let's just talk about keeping the promise, which is what we have done. We either meet or exceed our expectations, and consistently we've done this. Right, Luka? You're going to tell them about this today. Increasing cloud growth, our gross margins at SAP is low-hanging fruit.
We have a lot of opportunity to get 800 basis points in the next years on increasing cloud gross margins. We're going to get that done. The team is fired up to get that done because we know it's low-hanging fruit. We are going to be very disciplined in our hiring. If you put an eight-eye principle or a four-eye principle on every single hire, depending on the level in the company, you're going to get the best people. You're also not in a rush. We won't settle, which means we're not just putting headcount in there. We're watching everything we're doing to make sure the margin comes through, but also the people are the most productive in the business. With the 17th most valuable brand in the world, we can afford to be a little bit selective. There's good news in that for the shareholders.
On the hyperscalers. The hyperscaler leverage is key. If you look at Alibaba, Amazon, Microsoft, Google, these are examples of companies that are big-time partners of SAP. We have already taken our reference architecture, our S/4HANA, our C/4HANA, and various other solutions and gotten them ready to go into the hyperscale environment. This'll help us on the CapEx side because this is the year the CapEx stops going up and in fact might even go down. The more hyperscaler business we do, the more channel reach we get, and the more our operating margins go up. It's a real simple story. If you look at higher margin services, we have an incredible ecosystem at SAP. Yesterday, I met with the CEO of the most valuable consulting company in the world, and basically, they all want a bigger share of the SAP franchise, which should make you very, very happy.
We made an internal decision to actually slow down the hiring and services to give more to the ecosystem who wants it badly, and to be the high-value, high-price provider in the market, even higher than today, to ensure that the margin performance comes through. Also that the ecosystem effect takes full form in 2019 and beyond, again, driving the margins. If you change the mix, you change the margins up. On the ecosystem in general, it is clear to me that we have the pole position in the business software industry, whether it's the infrastructure as a service providers, the large SIs or the entrepreneurs everywhere around the world that want to create value and drive performance, they know that SAP is the standard.
This is more and more clear to me because others in our industry, well-known names that you're familiar with, have chosen not to have the IaaS platform providers as partners. This has given us a unique window and a unique opportunity, and we're running with it. Finally, I want you to know, in high respect for you, I want today to be a day where we reckon the scoreboard. I want to clear up the IFRS versus the non-IFRS performance. Okay? I want you to know that the revenue growth is coming through and we're steaming forward. We're a sensational growth company, and I want you to know that I have unanimity of purpose on the Executive Board to drive the margin whilst we also drive the revenue. This is not at the sacrifice of market share and cloud growth.
It's just good leadership, thinking about new ways to be creative to do both. Now, that's what we are doing. I don't come here today to tell you this story without the buy-in of all the colleagues on the Executive Board, without the manifesto throughout the level- one managers in the entire company to integrate SAP, to drive growth in SAP, and to drive performance that is also profitable for our shareholders. I want to be the shareholder machine this year.
I don't want to lose the forest through the trees, but while we're here, let's hit you on two quick ones. Are we paying too much in stock-based compensation?
It's a very fair question. I give you two pieces of information that are important for you to know. One, you will have complete visibility and transparency from SAP on our stock-based compensation. We need to do a better job at making it clear to you what it is, so you don't have to read through documents. We'll give you the proper call-out every quarter on what's going on with stock-based compensation. Number one. Number two, we did the benchmarking. As a percent of revenue, we were actually lower than all of our peer group competitors in 2018. In 2019, as we take on Qualtrics now, we will be still about half the stock-based compensation of salesforce.com, about a third of Workday, and relatively consistent with the Oracles and the Microsofts. A little less than one, slightly more than another on a percentage basis.
We're right in the sweet spot. Incidentally, Luka will take you through the nuances of stock-based compensation on Qualtrics, which added a EUR 300 million bogey to stock-based compensation. It was also in the EUR 8 billion price. I don't think that people actually understand the nuances of that, so we will explain that in Luka's presentation today. Bottom line, you're going to get full transparency. We're absolutely not overcompensating in stock-based compensation, and we have the data and the benchmarking to prove it. Okay.
Let's go to the next slide. I want to talk about Qualtrics. We have Jared Smith, who's the co-founder of Qualtrics, and Zig Serafin, who's the president. Guys, why don't you come up here, and I'll ask Bill a question while you're en route? Bill, went back, looked at the track record and your comments on M&A over the past two years. SAP will only do tuck-ins unless a transformational opportunity presents itself. Let's set the record straight first on forward-looking M&A. Are we making any more big M&A transactions?
First of all, let me really be clear. I want to explain the timing on Qualtrics, and I want to make a hard commitment to you today. On Qualtrics, when I said, unless something was totally transformational, got to remember, we were having a fantastic year in 2018. It did not escape me that if we were to do a deal of the size and scale of Qualtrics, that it would be something that would require a lot of explanation. Anytime you have to explain things and you're having a great earning season, it just drags out the story a little bit. I knew. I knew that this company was totally worth it, and it was absolutely the transformational move to finish the job on C/4HANA as we revolutionized the end-to-end CRM story, which you'll hear today from Alex.
At the same time, we would capitalize on a new category called Experience Management, and Qualtrics was by far the de facto standard and the market leader. I knew from being in this business long enough that this was the next big thing. This reminds me of CRM before people even knew Siebel, and I was at Gartner writing research on it. Then Siebel hit the scene and took off like a rocket. Then others came in and simplified it, and they also took off like a rocket because it's a huge market. If you combine that market and Experience Management with Experience M`anagement being the higher idea, and let me just tell you why it's the higher idea. There's EUR 1.6 trillion in economic value that gets forfeited every year from companies losing the customers they already have.
It's five times more costly to get a new customer than keep the customer you already have. Every company of size and scale that can apply a 5% improvement in customer retention can improve profitability by 95%. That's a heuristic that's very consistent. This is a big, big deal. Every boardroom, including ours, understands that you have to have high retention rates, low cost of sale, and you have to print margins as you go based upon the loyalty effect with your customers. CEOs want their products, okay, to become obsessions. They want their customers to become fanatics. They want every employee to be an ambassador of goodwill that represents their brand. Of course, their brand is their absolute essence and purpose, and the value of that brand is a massive issue.
If you cannot control in real-time the sentiment, the feel, what's going on outside the company, how can you possibly inspire the people inside the company to be focused on the right things? Therefore, Qualtrics is the biggest idea in the information technology industry today, and the biggest, boldest, and smartest M&A move we have ever made. I therefore introduce you to my dear friend, Jared, and Zig. These guys are unbelievable. Good to have you with me, buddy. Thank you.
I'm going to put you guys on the spot. Bill, I have one quick follow-up. Any more big deals?
Give you my word today, just so there's no question about it. If you remember when we did Concur, we retired the debt on Concur, and there was quite a waiting period before we did another big one. We are in that exact zone today. We will not do big M&A until we retire the debt on Qualtrics. Even after that, when I think about the completeness of our vision and the completeness of our portfolio right now, we don't need one. In fact, in a certain sense, we got to rationalize and execute on the story we have today for some time into the future. Therefore, no big M&A, certainly not until the Qualtrics debt is fully retired and perhaps even some extended time beyond that, which is consistent with what we've done in the past.
Furthermore, if you do see us do an M&A, it'll be a tuck-in, and it'll be de minimis in terms of the overall impact to the financial picture of SAP. Relax. You won't be surprised. You don't have to worry. We got everything we need to run away with this marketplace.
Thank you. Jared, Zig, congratulations. Welcome to SAP and your first Capital Markets Day for us.
Good to be with you, man.
As usual, I've lost control, by the way, of time management, so we're going to need to make it a little bit efficient. Take us into Qualtrics headquarters. An amazing company, and high energy, an oversubscribed IPO, destined to be the biggest IPO of the year. What's the discussion about basically coming to SAP instead of going that route? Take us through that calculation.
I can give you this morning's discussion. I had a phone call with my brother, and I was saying, back to the why not the IPO, I said to him, "I thought we did an IPO so we'd never have to do an Analyst Day." The truth is that Qualtrics has always been a very unconventional company, and I'll walk you through some examples of that. We did go public. We just chose to do it in a different way, just like our approach to Silicon Valley was a different way. If you start with, we are one of the fastest growing, hottest tech companies, but we weren't in Silicon Valley. We worked to become one of the few successes that happened outside of Silicon Valley. We didn't raise funding.
When Bill was talking earlier, I was reminded that when we were looking at this deal, SAP's a company that doesn't function like most tech companies, where it's burn cash, go unprofitable, and grow at all cost. We raised money at EUR 30 million in revenue with 60% profit margins and over 100% year-over-year growth. Why would anyone do that? When we sat and talked about it, we said, "This is irrational to sell part of the company when you're sitting on top of that." We did it to get the right partners at the table to help us build a better company to go the distance, and that's how we ended up with Sequoia Capital and Accel, who never do deals together. It was how do we attract and bring the people in that can make us build a great company.
As we built it, we never cut a corner. We built it to keep, w e were talking about stock-based compensation. We did not give stock to the employees until six years ago. When we did it, we knew we were putting ourselves on a path to have to go public because those employees would need liquidity. A father who's 70 years old, a brother with five kids who really didn't want to be on the road, and then myself, a product guy who just wanted to build cool stuff, it wasn't something that really ever attracted us to go do, but we had that obligation to the employees. Bill showed up. Incredible. This deal never would've happened if it wasn't for Bill, and managed to convince us that there was another way to go public and to realize the benefits.
Even down to bringing us in this room and giving us the opportunity to ring the bell with the employees, which was really important to us. I know we talk a lot about X and O, and I worry that we do it in the abstract. Let me explain it a little bit, and then I'll come back around to why SAP made so much sense to Qualtrics. I don't know if you remember it, this came into my mind last night as I was thinking because of the Wall Street hype, but in December 1994, Delta Air Lines put out a press release. The press release, they were very clever about this. They waited till everyone had bought their Christmas holiday tickets. It said, "Starting January 1st, all of our flights are going to be smoke-free." They put it out there.
Wall Street gets a whiff of this, the stock tanks. Absolutely tanks. How could they do this? They're going to alienate the customer base. Wall Street thinking short term, Delta thinking long term. What no one knew and what Delta even underestimated, this is back before the internet, their call centers got overloaded. They could not handle the volume of calls coming in to book the airline tickets. For years, all airlines had focused on was cost reduction, becoming more efficient, route planning, all of this clever stuff that, frankly, SAP sold most of it to them. But what mattered was the experience. If you think back to those who were flying in the 1990s, it was, are you in an aisle, a middle, or a window seat, and how far are you from the smokers?
Qualtrics today can tell you that the smoking thing is a problem. We can't tell you how big of a problem. The systems inside of Delta knew that 95% the most prized customers that were spending the most money, who they were. When the O data of these people hate smoking got correlated with how important are these people, the decision became very clear to the management of the company that if you want to make more money, if you want to be a pioneering airline, what you do is you mix those X and O together, and you get to the unconventional contrarian decision that says, "This is the way forward. This is how you differentiate as an airline, and your business will grow." That's the power of the X and O data together.
Two quarters of earnings later, when Delta shot through the roof, every airline in the U.S. banned smoking on their planes. That's how right they were from combining that data. If you look at business today, we have been optimizing cost and becoming more efficient in every single industry. The problem is everyone's done that. It was a race to the bottom of bring the margins in line, figure all of this out, where the businesses that are being sustained and the ones that are growing and the ones that are disrupting have done all the cost-cutting like everyone else, but they figured out how to fundamentally change the experience on top of it, just like banning the smokers to bring that in.
If we look at the Qualtrics business, the only way forward for us was to figure out how to integrate with that O data, because data is only valuable, and you know this as analysts constantly looking at companies, when it's compared and contrasted. We needed to hook up with SAP anyway, and it was the business risk to Qualtrics going forward, was how are we going to form these partnerships? How are we going to work with these integrators? How are we going to sit on top of the largest ERP and accounting systems in the world to mix that data?
Then Bill walks in and says, "We can completely de-risk the product strategy. We can get all the affinities of putting the business. We can deal with your headache of going public. Together, we can realize that dream that you have, the dream with the employees, and build something great." That became the thesis of putting this whole thing together. The more that we worked with it and Bill and the team, we cared more about actually being right and delivering that product strategy. My whole career, we come up with these strategies, and then they fail on execution than anything about being a public company. That's what took us in that direction, and that's the journey that we're going on.
If you look at the charts that Bill showed up in the Goldilocks scenario, that bottom right or bottom left corner is called the laggards and the dogs. What all of those people have in common is they optimize and optimize. They didn't change their experience, and they're no longer growing because everyone else has done it. It's not an advantage. That's what also made SAP very special when we looked at it. They ran the company like we ran ours. It felt like the right place to be, and they got that without growth in the tech industry, you are dead, right? If I came and I said, "Invest in a social networking company, but its user base is not growing," all of us know how that plays out. It's the same in enterprise software.
I'm going to replace Clive Owen with you, just for the record, because you're fantastic.
True.
No doubt.
Zig, I want to get you in real quick, and then Bill, I want to let you close this conversation out. Zig, you know the industry really well. You look at the competitive set, you look at all the ways that SAP goes to market, HCM, ERP, CRM, supply chain management, spend management. How do you look at the strength and the competitive differentiation that Qualtrics together with SAP can bring to the market?
Two things. First is, if you take what Jared just described, no question, we will take the Intelligent Enterprise strategy to a whole another level. And the combination of taking operational data, understanding what is happening, infusing that with the experience data that we have, which is why things happen, and truly understanding the human ingredient in the way that people make decisions. And you take that and you put that across the SAP portfolio, it changes the course of how you think about what people should expect out of business software. We have seen this. I've been at Qualtrics for two and a half years. I came to Qualtrics from Microsoft after 17 years. And in the last two and a half years, we've seen this starting to play out in every single industry that we've been a part of.
The fundamental requirements for how people look at what they expect out of business software and the way they've been connecting Qualtrics to systems of operation, is changing how people think about that entire equation. That's point number one, is it will change and increase the competitive edge that SAP has already been leading with In the Intelligent Enterprise using Experience Management.
Point number two is the scale and reach that we're able to achieve. When I was at Microsoft, we could only hope that we actually could have the level of connection and brand respect that SAP actually has for people who are making mission-critical business operating decisions on a day-to-day level. There's no company that actually has that. Frankly, I always thought, "One day I'll work at SAP," because of the respect that I had for what the company was doing. If you take what SAP has in terms of 400,000 customers, a partner network, 25 different industries in which the company is operating in today, the speed and capability of actually bringing the combination of our operating functionality combined with what SAP is doing, it will accelerate what Qualtrics has been doing in a significant way.
We've had high growth as a company, but as an example, only about 20% of our business has been international, and SAP is a global company. The combination of the reach and the enterprise capabilities around the Intelligent Enterprise combined with the Qualtrics Experience Management software, we think is going to change the game around how people think about the cloud leadership that SAP has in the business software space.
Good. Bill, let me ask you to wrap things up. I want to go to the final slide here. We said we would start big. We went down into some of the details. We talked about the unique strategic opportunity here. Again, an internal slide that we sort of asked for permission to use. How do we motivate the company? How do you and the Executive Board motivate the company? What's the big story here, and how will the Executive Board members coming up continue to articulate the priorities for the business?
Sure. If you think about the top 10, I think this is a nice way of summarizing really succinctly where we're at. Jared and Zig told you about X plus O and Experience Management meeting the Intelligent Enterprise. We think that this is the most formidable strategy in the business software industry, bar none. I'd like to remind you, we are very good at allocating capital and choosing the winners. If you think about Apple when they got reinvented on a new operating system called NeXT. If you think about EMC getting reinvented with a company called VMware that they allegedly spent too much money for, and now it's a EUR 60 billion asset in the portfolio of Dell. If you think about Instagram being purchased for EUR 1 billion with 30 employees and no revenue, and now having a market value of what's assumed around EUR 100 billion.
Qualtrics is that to SAP. X plus O is the defining formula for the 21st century enterprise. Secondly, next-gen CRM. Alex Atzberger has been working with me now for a good 15, 16 years. Okay? He doesn't miss. S/4HANA is an end-to-end demand to supply chain solution. It doesn't really help if all you know is the demand signal. You need omni-channel, you need e-commerce, you need configure price quote. You need all the information for the sales professional to understand what they're doing and how they're getting paid. Ultimately, you need to configure a product, ship a product in the right price, in the right form factor, in the right location, because geospatial is everything with HANA. Ultimately, you have to have a world-class supply chain that fulfills the promise. That's end-to-end CRM.
Alex will give you a picture of our five clouds, and we're way beyond, okay, the market share slide from the 1998 era that you see in The Wall Street Journal, and they exclude so many of the clouds that we now have and so much of that revenue and data. We'll straighten out that situation. When you add on Qualtrics on top of that picture, we think we have the most defining end-to-end CRM or Experience Management solution in the information technology industry, hard stop. I know because in New York, I'm getting calls from every systems integrator, to Jared's point earlier, and Zig's, that want to build massive practices around our XM.
What used to be an interesting run for the roses with companies predicting they're going to be EUR 35 billion and EUR 20 billion, and all they talk about is themselves and their buildings and everything. Good luck with that strategy. We're humble. We're hungry. We have an empathy for the consumer that is unmatched, and we're ready to go. Industry 4.0, this next-gen manufacturing and supply chain. Hala will spend some time in the breakout session. I think you know us very well in this space. We define this space, and we have lots of very interesting things with predictive analytics. Leonardo actually composing a supply chain and a manufacturing process with great companies like Ansys as an example, that does 3D engineering and simulation that can't wait to be a part of our ecosystem effect. Get a lot on that. Automation and augmenting humanity, SAP Leonardo everywhere.
For us, AI is in the sidecar. Machine learning is in the sidecar. It's embedded into the application, which fundamentally changes the business process and the automation and the productivity curve. I think you'll see Juergen in action today. It'll be very interesting. New skills, flexible workforce. Look, total workforce management. How many CEOs do you think have a handle on their shadow workforce, the temporary workforce? Very few.
It's the combination of all employees that have a badge that serve a brand. We are the leader in this regard with Fieldglass and SuccessFactors, and also now putting predictive into everything we're doing. What is our growth ambition? Let's put some money on the table today. The number one experience management company, the number one end-to-end customer experience company, the number one cloud ERP company, the number one in cloud workforce management, and the number one in business networks. I see people like Barry Padgett here today, and I think about how he works with a Christian Klein as an example, where Barry's thinking about spend management on travel and expense, on procurement, and on workforce management.
He also knows that the true power of all of this, and the EUR 3 trillion that we have running through our networks, is really manifested in an S/4HANA strategy where everything integrates into the core. You can have a digital boardroom as a CEO, and you have a complete handle on the end-to-end business, on the business networks and the partner channels, and how they're working or not working for you, and ultimately, how the experience is going with every single client or constituent you do business with. We have to create culture-changing companies. When you can activate employees and they become completely in service to everything going on outside of their building, you know you got a business that's going to win. This is what we're going to do. Let me just conclude finally by saying this.
You're going to get super fast growth in the cloud. Our core business is rock solid. You saw that in Q4. You saw that on a full year basis. There's no reason to believe that trend will not continue. You will see an SAP that will be very clear with you, with IFRS. You know some of the constraints in IFRS. We've already told you about them in our guidance. We'll give you clear non-IFRS. You'll have clear view of stock-based compensation, and you'll see that the operating margins in the company, even with all the fast growth in the cloud and the core, are going in the right direction. We have a desire as an Executive Board, okay, in the way we manage the company, to go beyond expectations in the margin performance of the company.
I have never seen SAP more ready, more ready than we are right now with the completeness of vision and a workforce that is inspired. We have 93% of the people in the company saying they're proud to work for SAP. The employee satisfaction indexes on the internal measurements and Glassdoor in every country that's measured is in the highest 90s. We're ready for this, and the ecosystem is ready for this. Jared and Zig, I would like to thank you. It's an honor to run into the future with you. These guys know very well that we did this on trust, we did this on friendship, and we did this on a common belief that we would be the ones that could change the game for the world. The world economy will get better because of SAP and Qualtrics. Remember your X's and O's.
It's the winning formula for the 21st century. Guys, it's an honor to run into the future with you. Thank you so much.
Thank you very, very much.
Thank you, Nick.
Good job.
Thank you, Nick.
Thank you very much.
Good job, buddy.
Thank you very much.
We'll invite my colleague, Chief Communications Officer Nicola Leske to the stage, along with our executive board members, Juergen Mueller and Christian Klein. Good luck following that. Just kidding. You'll do great.
Hi. Good morning, everyone. My name is Nicola Leske. I'm the Chief Communications Officer. It's my great pleasure to converse with our two newest board members today. For those of you who don't know them yet, you'll see a lot of them in the future, mind you. Juergen Mueller, our newest one, joined the board in January. He's our CTO and responsible for technology and innovation. He's been on the innovation path for quite some time. He was a Chief Innovation Officer before that. He's worked with the SAP Innovation Center Network, SAP Labs, and last, but certainly not least, closely worked with Hasso Plattner, who we all know is the most brilliant man.
Good morning, everyone.
Good morning. Christian Klein, our COO, has extended his board area and since being on the board for about a year now. He's been in Controlling and Operating for a long time. He actually joined SAP as a student, and look what that got him. Why don't you two just say what your responsibilities are, like in an elevator pitch. We're here in New York, skyscrapers. You got about one to two minutes. Juergen, you want to start?
You have high skyscrapers here. To be very quick, we combine all technology assets in SAP in this one area, technology and innovation. Here we target four markets with a total market size of $95 billion this year. These are data management, these are cloud platform for integration, extension, building applications. This is analytics. It is Leonardo, machine learning, IoT, and so on. With this, we target three customer groups. We use them ourselves. We provide those technologies to customers and to a large ecosystem of partners. With that, we drive business results. It's not technology for the sake of technology, but always technology for driving business results. That is what I do.
Beautiful. Christian?
Thank you, Nicola, and also good morning from my side. After one year as CEO and board member Hasso and Bill decided that my two jobs of having a two-year-old son and transforming SAP into an Intelligent Enterprise didn't keep me busy enough. They both decided now to extend my responsibilities and include now the development of our digital core applications. Look, seriously, as the CEO of SAP, I'm always also the first customer of SAP and, trust me, Nicola, I'm probably the most demanding customer of SAP.
Oh, we know.
I would like to use this insight now to make sure that we are developing the Intelligent Enterprise from a customer perspective. I guess everything what we develop has to have one focus, and this is our customer success.
All right. Let's go a little deeper into that. As you all know, hopefully by now, strategy is to deliver the Intelligent Enterprise of SAP, and you two have a big part of that, as does Rob Enslin with Cloud Business Group. Why don't you explain how your parts fit into the strategy? Who wants to start? Christian?
Yeah. When we talk about the Intelligent Enterprise, it's important to highlight three key pillars of the plan. The first pillar, in the digital economy, it's the case that the customer's demands and experience is changing. In today's world, it's all about experience. When you then today look into how customers changing their behavior, it actually starts with marketing, where existing customers and new customers expect to have very personalized information with the right content across all channels, including social. When you then hand over the customer to sales, the journey continues, then it's all about quoting the right solution with the right value, with the right price. The journey does not stop at the front office. When the customer signs the order, the invoice has to go out, also he has the expectation that the supply chain guarantees you a next-day delivery.
All of the supporting functions like the spend management, HR, and finance, they have to be connected as well, because we are running mission-critical core processes of our customers, like order to cash, like hire to retire. This is the promise of the Intelligent Enterprise. The customer experience can only happen if a company is able to run their business processes end- to- end. Only SAP, with the broad and the most innovative portfolio, can really make this happen by integrating the business processes across the value chain based on one model. Second pillar is clearly innovation. As I already mentioned, the world is changing, and artificial intelligence will continue to redefine the business models and processes of our customers. When you look now at SAP Leonardo, we have the technology at our hand now to help our customers to grow and scale.
We have over 14 years of experience of running the world's most critical business processes, over 25 industries. Just this week, I was sitting together with Nestlé, and we were talking about how can we automate, with the help of our innovation roadmap, their complete transactional business in a shared service center. This is massive scale, and the business case for S/4 becomes a no-brainer. Talking about innovation, Juergen-
Yeah.
Maybe you can-
I can.
Do a little deep dive.
Yeah, I can give you a few examples to make it tangible. What does that mean applying Leonardo in business applications? One area where a lot of routine work is happening is accounts receivable. People pay you, but you have to figure out, did they pay in full? Which invoice is to be reconciled with this? We developed, together with the finance team, a Leonardo machine learning, deep learning algorithm that is doing this with more than 90% accuracy. You can imagine that this work can be invested, and this resource can be invested somewhere else. The second highest task in the finance area, where you have repetitive work, is accounts payable. You actually have to pay. Some companies do hire us. They send us their invoices, and we, with SAP Concur accounts payable, take care of that.
If you look at different studies, it's roughly $19 that you save when you do these kind of invoice processing automatically compared to doing it manually. $ 19 per invoice. At Concur now, with these machine learning algorithms that we have running, we process more than 1.2 million invoices per month. You can do the math of how much value we create for our customers. We have other senior customers that run S/4HANA. They have 50,000 invoices per month. 92% of them now being completely automated with machine learning. Again, the return on investment is pretty clear. This we do throughout all processes where it makes sense to apply machine learning. As we have so much data, as customers run end-to-end SAP or third party, where it makes sense, we can include that data as well. We can really make an impact.
This is what I mean when I initially said using technology for the benefit of business. If you want to classify cat images, then we are the wrong partner for you. If you want to have impact on your business, then we are the right partner for you.
Got it. Okay. Do you want to get to the rest of the third point?
I'm very passionate about the third point. This is the power of SAP HANA and real-time steering. All of our customers are doing thousands of decisions every day across all levels of the company. They should not do these decisions on isolated data, only looking at CRM data or HR data or finance data. The promise of SAP HANA and Analytics Cloud is really to bring the data together to make decisions based on a comprehensive view of the business. The second pillar is predictive analytics. Looking at Chen, for example, we have now in sales, very smart algorithms, which predict us in a very accurate way, how the outcome is of our order entry at the end of the quarter.
We analyze millions of data, past pipeline data, current pipeline data, and we are so accurate in the meantime that we really can take action on the fly. The same in the financial forecasting with Luka. 80% of our financial forecast is actually completely automated. Smart algorithms will predict us how we're going to end up against the market expectations. Then third, it's about planning. A financial plan should never stand alone. A financial plan has to be integrated. A financial plan has to be connected to the planning of sales, to the planning of HR, to the planning of the procurement, because only then you can make sure that really the things are fitting together. Again, it's not about only having CRM data. That's not a 360 view of the business. That's the promise of real-time steering with SAP HANA and Analytics Cloud.
Deeply embedded, of course, into our core applications in our portfolio.
Let me add one number to this as well, because I think for me, when people ask me what is important to you, Juergen, I say three things. First thing is financial results. I studied business and computer science, so there's a business sense in me as well. The second one is adoption. Of course, only that's the engineer in me. If you create something, you want it to be used because that is actually customer value. This leads to the third part, which is customer satisfaction. It's also like what plays into this. Here we do now talk a lot about adoption. We have an unfair advantage. At SAP, we now have more than 185 million cloud users using our software. Of course, all the technologies that I mentioned, we embed into all the applications. That's why we have a very unfair advantage.
For example, in this year, we have more than one million analytics users that use our Analytics Cloud product as it is embedded in all the different applications.
Let's talk about something we talked about earlier before we started this. We talked about cloud and being all in, right? Yes, we have a lot of cloud users, but we've got the competitors nipping at our heels. How do we deal with that competition, and how do we get our customers to move?
Talking about the transition to the cloud of our portfolio, it's very wise to take a look at this from a customer perspective. Of course, there are industries like professional services who are almost completely in the cloud. We just signed the biggest S/4HANA public cloud deal ever with a professional services customer serving over 5,500 users. Of course, there are LOBs like HR, CRM, no news. They are moved to the cloud. Also in finance for S/4HANA Finance Cloud, we have seen now accelerated growth in Q4 because CFOs are becoming less and less concerned about data security. On the other hand, there are industries like automotive or manufacturing with very complex business processes. They are heavily investing still in S/4HANA on-premise and with a lot of good reasons.
There are other markets in the world where laws are enforcing our customers to keep the data locally. This is also places where we still see very decent S/4HANA on-premise growth. For me, I'm really convinced that also in the long term, we see hybrid landscapes, and that's actually part of our plan, of our strategy, and customers love that because we give them, we show them a path to the cloud to move to the cloud in a modular way, keep other functions on-prem, and the promise of the Intelligent Enterprise, which we will keep together with Rob and Juergen, is to bring all of this together in an integrated way.
Okay. Juergen, you want to add anything to that?
Sorry?
Do you want to add anything to that?
Maybe I add the hyperscaler strategy to it because it goes in a bit similar direction. We offer customers choice. They can run in SAP's data center, that is fine. We do see that, of course, they also partner up with an Azure from Microsoft, with an AWS from Amazon or Google Cloud Platform. We work together with them to provide them, to be honest, the best of both worlds. When it is about massive scale of commodity infrastructure, this is where we can bet on them. Then you have the domain expertise, industry expertise, the area of context. What does this data actually mean to my business? How do I steer my business? That is all with SAP. That, to be honest, also will help our margin significantly because we can make use of all this deployed infrastructure.
Beautiful.
Maybe Nicola, just to put also a smile on the face of Luka and just to back up what Bill said. The move to the hyperscalers also has financially an impact. It allows us to really disproportionately grow our CapEx spend, which is also very important when we look at some of our financial metrics. It helps us to improve the TCO on the infrastructure layer, which then also automatically results in some cloud cost margin improvements, which we also have committed here to the market.
I can see Luka smiling, so well done. I just go back to something you said before, S/4HANA. One of the questions we get a lot from the financial analysts and also from the media is S/4HANA adoption. Where are we at and where is this going? Is it going at the pace we want it to?
We have seen very strong growth rates in 2018, there were actually two growth drivers behind. First, our install base is very excited to move to S/4HANA. After three years, we are now at over 10,000 customers. When we look at the adoption, it's even ahead of the adoption we have seen for our suite back there after three years. The second is our net new customer share is over 40%, they are not only small deals in. Big, large customers made the decision to move greenfield to S/4HANA. Because of why? They see the industry capabilities. They see the innovation path. I was personally involved in some of the deals on the telco side. We have market-leading capabilities to serve big telco companies in their way to offer more subscription usage-based business models. You need new capabilities.
This is exactly also the functionality we bring continuously also on the roadmap for S/4HANA. Second, also on the cloud side, we have seen accelerated cloud growth. I'm very confident also for 2019 that we see very strong growth. When you look at our winning plan, we have committed to build the Intelligent Enterprise, the most comprehensive modular suite in the market. Our 30,000 engineers in Rob's organization, in Juergen's organization, in my organization, are lined up to keep the promise. This will be an Intelligent Enterprise at scale, also talking about our cloud gross margins. The second thing is we have to embed AI, Leonardo, in all of our solutions. This is game changing. Third, when you're running the world's most mission-critical business processes, you have to strive for operational excellence.
Zero downtime, giving our customers the highest security standards is a must. Fourth, we have to continue to drive the S/4HANA adoption. We are continuously investing into new tools to drive adoptions, to make it easier for our customers to adapt to the new simplified data model and to the new business processes which are offered in S/4HANA.
Okay. I think that's convincing. Juergen, you said in an interview one time that you're always trying to keep on top of what's happening in technology, obviously you have the right job for that. Explain to us how AI and ML are so vital to SAP and what you are doing to move that forward.
Yeah. Data management is one of the areas where we are super strong. With SAP HANA, we do offer the best solution for data at rest, and be able to query that in real time. We also are very good for data in movement, so if we need to move data. What now happens with these huge scale data sets is that data governance becomes more and more important, also because of laws that are being applied. You want to push the operations to where the data is as much as possible. That's why also for this, we build solutions to help customers. More than 80% of companies say they are overwhelmed with the data they now collect, and they actually don't really know what to do with it. There we can help.
To give some examples of what we do there, we have a conversational AI technology, meaning that you can chat, that you can talk to a system. Every day, for example, in a French bank, 5,000 conversations are being monitored and either automatically being handled by our chatbot or being routed to the right agent. Again, talking about experience, how often does it happen that you end up with someone and that person cannot help you and then has to forward you to someone else, and then the call drops and so on? Now people in total for these 5,000 conversations a day, save 50% of time. In more than 90% of the cases when an agent needs to come in, it's exactly the right agent that can help you. These kind of things you can do when you do analyze data.
Another one is robotic process automation. We did one of these small tuck-in acquisitions, and in the first half of this year, you will see a GA version of SAP's robotic process automation offering. What can this do? The company we bought, Contextor, very nice people, very good technology. For example, helps in a bank to onboard a customer. You are sitting in a bank, Christian, can I have a bank account? This conversation would take 25 minutes because Christian would have to go to nine different systems and get all this background data from you. Now what we do is Christian enters my basic data, and in the background, a machine is basically doing all these mundane tasks. Coming back to Christian saying, "Hey, this is what I found about Juergen," and the score is hopefully very high.
This conversation, on average, goes down from 25 minutes to five minutes. We always deploy technology for the sake of the end user, for the sake of either making more revenue, saving cost, or having a better experience.
This makes me want to have a long conversation about automation and the impact on society, we won't be doing that today. We're going to talk about something else. Two more things before we close. Integration. Another thing that customers, they don't care who does what, they just want things to work together. How are we helping them there?
On the integration side, the strategy around the Intelligent Enterprise is really, really fascinating for our customers because as you said, Nicola, everything has to be connected. Yes, we did some acquisitions in the past, starting one year back, we really now are aligning our data models. We are harmonizing our business services to make our customers one end to end. This is what customers like. Customers don't like to buy another third-party integration platform, building point-to-point interfaces, which are error-prone. Error-prone sometimes in processes which are very mission-critical. The supply chain has to be really, really strongly fitting together to the front office. This is the power of SAP. Look at this picture. We have the broadest solution portfolio, and we will bring it together.
There is no other company in this industry who can run the world's most mission-critical business processes end to end, and that's the biggest asset we have as SAP.
Wonderful. Thank you.
We don't need to shy away from that challenge. We do have actually MuleSoft, last time I checked their website, it's like 1,600 customers. On cloud platform integration alone, so the same what MuleSoft is doing, we have more than 5,300 customers live. On process orchestration and workflow, we have more than 10,000 customers live. There's no need to be afraid of anything. SAP is perfectly positioned to take on this.
You're saying the numbers speak for themselves.
Yep.
I have one last question for you, Juergen, before we close. Innovation, how important is it to also secure the financial future of SAP?
It's super important. I had the Chief Innovation Officer job. Together with Bill, together with Luka, and the whole board, Christian helped a lot. We established, should say, two modes. One mode is improving what we have today and delivering the Intelligent Enterprise with all force. The second mode is more like an, we have SAP.io. I'm running that together with Deepak. I saw Deepak Krishnamurthy, our Chief Strategy Officer here earlier. This is more like an internal and external accelerator. We do work with internal teams and fund them like a VC would fund them from three to five people, EUR 650K to EUR 2.5 million for 12 to 18 months. They create completely new businesses for us.
For example, one is, it's running for almost two years now, in the area of getting rid of emails because a lot of the work around our systems happens in email and in an unstructured way. They went from zero to 11,000 customers without any marketing spend and so on within two years. Or we have Brilliant Hire from India. They do screen the market for applicants and make this application process much more efficient. We do have these two modes in place, which I think is super important as well. For example, if we wouldn't have established that, we now could not credibly talk about the Intelligent Enterprise because we would not have embarked on the machine learning journey. I'm very happy that we did this, and I think it pays out for our customers, for our shareholders, for our partners, and for our employees.
All right. Thank you, gentlemen. With that, we'll close, and I believe we've got a break coming up. Thank you very much.
Thank you.
Thank you, Nicola.
Thanks.
Thank you.
Thanks a lot. I think we have now a 10 minutes coffee break. We continue with SAP S/4HANA. Thank you.
[Break]
Ladies and gentlemen, please take your seats. Our program is about to begin. Thank you
Ladies and gentlemen, please take your seats. Our program is about to begin. Thank you.
Okay, let's continue. This coffee must be excellent. I mean, that's the longest coffee break we ever had at a CMD. We heard a lot about the core and the Intelligent Enterprise strategy this morning. I think one of the most interesting angles of the SAP equity story is our bold move in CRM. It's my pleasure to introduce Alex Atzberger to the podium, and he will share with you the latest on our C/4HANA strategy. Alex, the floor is yours.
Thank you, Stefan.
Thank you.
Thank you so much. Good morning, ladies and gentlemen. The largest addressable market for enterprise software today is CRM. The simple proposition I have to you this morning is that this market is about to change. There's a seminal change going on in the CRM market, which allows for the redistribution of market share and gives SAP the opportunity to capture significant growth. Why is that? It's because we live in an experience economy. You heard this morning from Bill, from Jared, many examples of why the experience economy is different, driven through customer experience. There are two other factors that play into this as well. One is the factor of trust, and the third is the factor of integration. Talking about experience first, customer experience. Today, customer experience becomes the defining line for companies and brands to be successful.
A 5% increase in retention of a customer causes a 95% increase in profitability, and 80% of customers are choosing other brands because of a poor customer experience. That's a massive opportunity. At the same time, we are in a world where we have a crisis of trust, from public institutions to brands, to businesses. Some analysts see this as a EUR 2.5 trillion worth of loss of economic opportunity because of this loss of trust. The third big topic is obviously the money that companies are spending on integrating their experience across the enterprise. The market for CRM solutions today is north of EUR 50 billion, and there's another EUR 30 billion-EUR 40 billion being spent on the integration. Why is that? It's because sales force automation for the last 20 years was able to sit on a silo because you managed salespeople.
Today, if you want to really address the customer experience, you need to provide an integrated experience, and that's obviously core to the Intelligent Enterprise. Ultimately, legacy CRM that was built up for the past 20 years does not fit the market needs of today's customers at an architecture level, at a process level, and at a data level. Data needs today to be consent driven. It needs to be protecting the privacy of customer information. You all read this every day in the newspaper, if that's not the case. You need to combine the operational and experience data. The opportunity data alone on a customer is no longer enough. You need to connect all the silos that exist in a company to provide a full customer experience. Then obviously you need an architecture that is agile and gives you the speed.
The force ain't with this one. Why? Because ultimately it needs to be microservices-based with open APIs to connect and give companies agility. We took those elements as we designed the future of CRM with C/4HANA. We designed C/4HANA to have the customer data at the core, not just a sales opportunity. We designed C/4HANA to provide end-to-end integrated processes to help customers through the entire customer journey based on one unified customer profile. C/4HANA is made up of five clouds, for Marketing, Sales, Commerce, Service, and Customer Data. Each of these cloud solutions by itself are mature solutions. Each of them by themselves are market-leading solutions. The power comes through the combination of them to actually address the full customer experience. We have clearly defined seven attributes that make up the customer experience suite that C/4HANA represents.
We have a clear roadmap in delivering this to customers today. Probably 60%-70% of our customers today buy one of the five on the top, and then over time expand. Then 20%-30% of our customers are all in right from the beginning. Now we follow a strategy which we call Best of Breed and Best of Suite. Best of Breed means that each of these clouds by itself are recognized market leaders. You take, for instance, customer data, identity management, was an acquisition we made of a company called Gigya. This is today the customer data cloud. We invested in that solution to not just cover consent, but also identity today and profile. Absolute complete market leader, top right corner. You take Callidus Cloud, which we acquired in last March of 2018. Callidus Cloud is the leader in sales performance management.
Let me talk to you for a second about sales. Do you really believe that the sales experience improves because you have a better salesforce automation system? Does anyone believe that? No, it doesn't change. Sales experience gets better when you manage salespeople differently, when you incent them differently, when you actually give them the tools to spend less time on internal configuration of proposals and more times with customers. Today, we have the market-leading solutions for configure price quote for sales performance management. Obviously, customers are no longer just interacting with salespeople. They engage digitally. For that, you need the leading commerce platform. We have, with the beautiful Hybris solution, which is our Commerce Cloud, the leading solution for both B2C and B2B commerce. That's the power of each of these individual solutions, clearly recognized in the marketplace. That's not all.
It's also about the Best of Suite, this is the completeness of C/4HANA. If you compare this in the marketplace, there should not be a doubt in the audience that today, SAP has the most complete suite to address the full customer experience. This is not just about the five elements that I mentioned before. This is also about how companies collaborate internally, how they train their employees, obviously about the platform itself, the integration, the industry-specific capability. Today, through the partnership that we formed with Microsoft and Adobe, we are defining the standard for customer data. In two to three years' time, if you are not part of what we call the Open Data Initiative, you are not going to be part of setting the standard for customer data. Some companies are not part of this future.
Then, there's the combination of Experience data and Operational data, which obviously you heard this morning so well from Jared, Zig, and Bill about. This, nobody else has. Think about it. Should salespeople only be compensated based on their sales results? Maybe they should be compensated based on how a customer feels, how happy a customer is. If you want to bring in that Experience data, you can do with Qualtrics. You think about the abandonment of shopping carts, the number one issue that online retailers struggle with. Imagine you understand the why a shopping cart is being abandoned. All of that power comes through the entire suite that we provide to our customers.
Clearly, when you look at the market share and when you look at where we stand today with our capabilities in the market, our solutions are number one in the categories that actually define the future. The future of CRM is now, the future of CRM is not evenly distributed. The distribution of the future plays to SAP's advantage. I think it fits very well to what Bill laid out on the structural incline of the company, SAP. We always invested in the assets that actually made companies more future-ready. Today, the future of customer relationship management is not managing the relationship of the customer. It's the customer taking control of the relationship. This is done through Experience Management, through digital commerce, where SAP is the market leader.
What has happened over the last year since we launched C/4HANA at Sapphire last year, is that the market has been responding. The market has been responding in terms of customers that have decided to put their future of customer experience and CRM with SAP. These are some of the logos we provide on our quarterly results. We've also decided to break out customer experience as a separate segment in our quarterly and annual reporting. What you have seen is that over the past year, we have grown the cloud subscription revenue for the CX segment by over 170%. That ambition for triple-digit growth is what drives us forward, that the brands we do business with inspires us. Companies like Armani and Prada, high fashion luxury retailers. They think about how their brands now need to actually connect over digital channels, but also the in-store experience.
We cover both worlds. It's not just about the experience in the store, it's about is your supply chain connected to that experience. This is why these companies go with SAP. It's not surprising that some of the logos you see are companies that are strong SAP customers who have spent and obviously have been customers for a long time to SAP. That's obviously the first market that's exciting for us to go after. It's also the international opportunity. If we take, for instance, Expo 2020 in Dubai. Expo 2020, their entire customer record is based on SAP's technology. If you take, for instance, Douglas, which is the Sephora of Europe, the perfumery chain. They selected SAP over our competition. If you take a company like NetApp, they threw Salesforce out and replaced it with C/4HANA.
We see more and more of those cases, we also see many cases where our portfolio is completely additive, and we have wedges of our solutions inside our competitive and competitors' landscapes. We are occupying the spaces that are actually determining the value and the future of those companies. That is exciting for us. We think the progress has been tremendous around 10,000+ customers today that use one or multiple of the cloud solutions I just covered. We believe that the opportunity is so much more broad. Not just in the 400,000 customers that are part of SAP's installed base, but also in our competitors' landscape. Including, by the way, also our own CRM on-premise customers that we can move onto C/4HANA. We are obviously very excited for the momentum that we have in the marketplace.
In combination and summarizing this, there's three factors that give SAP an advantage in the market. The first one is, again, the experience across all channels, connecting the why to the what, and giving everybody in the customer-facing organizations the ability to react in real time to the experience that customers have with a brand. That is the first thing that only SAP can provide with a combination of Qualtrics and C/4HANA. The second piece is everything around trust. How do you instill trust as a brand again? This is a key driver. Companies spend billions on this today. GDPR compliance is becoming a global standard, if companies are not GDPR compliant, you see the fees and the fines that are being installed on them. It's that single view of the customer that actually, that unified customer record across C/4HANA and S/4HANA, that gives us differentiation.
Finally, it's obviously the integration of the Intelligent Enterprise and the demand to the supply chain. That is so critical today. If you think about the experiences yourself that drive you away from a brand, it's oftentimes that a promise is made, but the promise is not kept by the brand. SAP can give companies the capability to make the promise and keep the promise. This is the SAP advantage. The beautiful thing about customer experience, and obviously the future of CRM, is that it's passionate, that it's emotional, because it's about touching and feeling customers and brands. I have a little surprise for you today to share with you one of those brands that amplifies and exemplifies what a real experience looks like, and why the legacy CRM of the past can't keep up with the future needs of customer experience.
Let's play this video.
In 1920, one family took a risk to bring craftsmanship and innovation to headwear. It was a gamble on the Gatsby that led them to baseball. They made history and turned a homegrown cap into baseball's cap, from the minor leagues to the major leagues. In the 1950s, theirs was a pioneering spirit that crafted the legendary 59FIFTY fitted cap, and a revolution followed. A revolution in style, a revolution in color. What began as a uniform for sport became a symbol for self-expression. As iconic off the field as on the field. What began 95 years ago with a passion for workmanship, craftsmanship, and partnership, is now a cultural icon.
I'd like to introduce to you the CIO of New Era, Lorenz Gan. Lorenz, come and join me. Awesome.
Hi.
Thank you.
Good to see you.
Thank you, Lorenz.
Thank you. My pleasure.
I watched this video. I don't know how many times I've seen this video, but it gets you. You know?
Yes.
That is what experience is about.
Can I tell you a little secret?
Yes, please.
I'm not ashamed to say it.
Yes.
I watch that video every morning before I head into the office.
That's it.
I know.
That's it.
It sounds cheesy, but I do.
Bill, we need that video for every employee for SAP. You know. That's fantastic.
Yeah.
Lorenz, you're CIO of New Era, but you call yourself a digital strategist, and I love that.
Yeah.
Just share with the audience why digital strategist?
Sure. I'm actually not comfortable with that moniker, the CIO. For me, it has connotations of the legacy, the past. The back office. Now, the back office is critical absolutely. I consider myself, and I've used the term CIO 2.0 sort of the modern CIO, and that's more of a digital strategist, that I think about customer experience first and then the tech stack to support it, secondary. Now, my CIO peers know what I'm talking about when we talk about, well, what tech stack am I going to build to service the end user? I always start my discussions with, what are we trying to do? Now, what you saw from there is a glimpse into the world of sports, which unites a lot of people, divides a lot of people. I understand there's some caps that were given out during the break.
Yeah, under some chairs, you might find a little surprise.
Yeah, there might be a surprise under the chair.
Let me just double-check. Anybody? Is anybody. Yes, you found something? Okay, good.
There's Yankees caps, but if you're a Red Sox fan.
Oh, wow. Look, we have some here
You found a Yankees cap.
Okay.
Yeah.
Okay.
There might be a visceral reaction to the cap that you received, depending on what team you support.
Yes. We might have some exchange and trades happening.
Yeah.
We might need the Ariba marketplace to help people trade, the caps.
Well, that just shows you how customer experience, you can either get it very right or you can get it really wrong.
Yes.
That's the challenge that we have at New Era right now is, when I came on board a few years ago, was the challenge to go direct to consumer, which was new for us. Coming online and creating that brand voice, because everyone knew us as that brand behind baseball, and that's how we came up. But we had to have a clear voice to our consumers and offer them that personalized experience that if you're a Yankees fan and you want to come to New Era, we're going to show you a Yankees type experience, as opposed to a Red Sox experience w hich you might not want.
Yes. When you think about, we spoke a lot about this morning in Bill's session already around experience, around obviously what Qualtrics brings with experience data, connecting this to operational data. You think about experience and trust. How does New Era engage with customers across the digital channel and the non-digital channel, and what does this really mean to you in the digital era?
Sure. I mentioned earlier that we just came online direct to consumer, which might surprise people for a brand that's a little bit dated. We're a 99-year-old brand this year, next year's going to be a great celebration. To only go direct to consumer recently is a part of our history of being largely a wholesale distributor of our product. The challenge to go direct to consumer, I told the board, I need speed and scale, right? Which is why for me, the CX suite worked for me, the Hybris product, because I wanted to go global, I wanted to go multi-channel. It was direct to consumer and B2B.
All of these retailers that have been purchasing our products for decades now shop like you or I would as a direct to consumer. Why should B2B be treated any differently? My online strategy was to tackle B2B and B2C concurrently and t ransform both of those channels. In the Asia Pacific region for New Era, where we're seeing tremendous growth, there is a brick-and-mortar presence. That's something that our customers demand of us there. We feel that we are represented in brick-and-mortar in North America, but our focus is that online channel. We know that's where the growth opportunity is.
You mentioned B2C and B2B. I think this was also one of the reasons why you chose the Commerce Cloud from SAP to cover both. That's also linked then to your supply chain-
Correct
Obviously as well.
That's for me. If I talk about CIO 2.0 and 1.0, that supply chain, the fact that we are an SAP ECC customer, an ERP customer, we are a Concur customer. We are a Hybris customer. Now, I am not deliberately purchasing the suite. The suite makes sense. That's where the penny dropped for me and my peers.
I looked at your slide previously and sort of chuckled to myself. I see the Gartner Magic Quadrant, the Forrester Wave. These are important things. CIOs, we make decisions amongst our peers. We talk to each other about our experience and our enterprise. How did you tackle that? How did you tackle this? I knew that SAP and Hybris and the CX was best of breed. I had a unique challenge. I don't want to manage different platforms to different channels. I want one single code base. I want to run everything on that. Who can scale with me as I grow? That's been SAP.
Awesome. Now, Lorenz, when we connect, we normally talk about speed and agility. You run a business that's moving very fast. You might be 99 years old. You can outpace a lot of other companies out there. We want to give you the tools to do so. Tell me, when you wake up in the morning after you watch that video, do you think about CRM?
In the traditional sense?
Yeah, in the traditional sense. What does CRM mean for you today?
Now I'm thinking in the CIO 2.0 headspace about how we need to engage with our customers and keep them coming back. Loyalty and authenticity with our brand is something that we're trying to establish with our customers, that we are the destination that you can come and get our cap. Yes, you can go elsewhere, but there's something about nurturing that relationship with them. We're doing that via the digital channels. We need connectivity across social platforms. We need to homogenize everything. CRM for me, I think that acronym needs to be retired really, because it has hang-ups from the past. That's not how I look at, and our sales force don't look at it that way. I'm excited to hear more about Qualtrics today. I've been having a lot of aha moments listening to where X and O can join us.
Specifically, if you look at our core customer. That 13-24-year-old male, very discerning. Don't underestimate how astute your customers are. Their brand loyalty, what they demand of you from an experience every time across all channels, everywhere you go. If you see that New Era brand or whatever your brand is, they demand consistency. Some of which you can control, some of which you can't. For me, I don't wake up and think about CRM in the way that most CIOs might think about it, but it starts from the experience on down.
The experience on down.
Yeah.
That's exactly it. One of the experiences that you have innovated on our commerce platform through with the SAP Cloud Platform as well, is the personalization and how you personalize all to your caps. Talk a little bit about that.
Yes. Don't I have the most fun CIO job in the world?
Yeah.
I think about that every now and then. Customizing apparel and accessories is massive, right? We know other brands that do that very successfully. New Era, our product, our core demographic loves the unique feeling of customizing a cap, but we were never able to offer them a great experience doing that online. It's still to be launched at some point this year. I can't give too much away. What that has done for us, building a three-dimensional custom cap configurator on the CX Cloud, has enabled us to provide the users exactly what they want.
They want an immersive experience, that they're in control of the design, they've got the authentic product, the back end supply chain is all seamless. That's where I saw the opportunity with the ERP integration and the SAP cloud solutions, where the synergies This isn't one of those projects that you have at your office and you think, "I'd love to do it, but we can't do it because of X, Y, and Z infrastructure. Excited to launch that to B2B and B2C towards the end of this year.
That's fantastic. I was obviously somehow personally benefiting from this. With this cap that you made me. Just to tell the audience, how long does it take to build a custom personalized cap?
The amazing thing about speed and agility is something that has to permeate throughout your organization. I said, "No, I'm meeting Alex. I'd love to come with a token. I'd love to come with a gift." I got the logo approved by SAP. That's what the hold-up was. The rest took 90 minutes. The rest took 90 minutes. I came back from a meeting, and the physical cap was on my desk, and I said, "There can't be another company in the world that can turn product that quickly," which is why New Era is such a global success. Now we're putting the foot on the accelerator on digital, which is why we're so excited about where the brand can go for the next 100 years.
Yeah. It's fantastic. I mean, that personalization that you ensure that the Red Sox fans don't see the Yankees logo when they go to the website. Then co nnecting the digital to the physical is absolutely amazing.
Yeah.
Yes.
It is.
Lorenz, thank you for sharing the story with us. Please give a round of applause to Lorenz.
Pleasure. Thank you.
Lorenz, thank you.
Thanks.
Thank you, Stefan.
I got to say, yeah. Thank you, Lorenz and Alex. To make this a little bit more interactive, you spend five extra minutes to take some questions from the audience. A quick reminder to those who follow the event over the internet, please do send us questions to investor@sap.com. There will be a longer Q&A session at the end of the event. I think probably there are questions in the room here in New York. I'm looking around. This has never happened before. I'm sure you have questions. The content was so overwhelming. Bill, you have.
Bill's got a question.
[audio distortion] Obviously where the margins are even better. How do you think you are now positioned strategically to hold off anyone that might want to be you a lso to advance the market share cause in your space, based upon this architectural advantage that you now have?
Sure. Great question. This wasn't part of the deal, me getting questions, but I love that. No. This is something that when I look back at the short time I've been there, three years, and an executive board that absolutely understood the opportunity here and has paved the way for us to go through direct to consumer and B2B transformations in multiple regions quickly. There's a part of me that thinks, "I don't care what the competition is doing.
I've got to have a laser focus on what our strategy is." I'd rather not spend my time looking behind me at who's approaching, but who's looking ahead. That's not being naive into saying what we're doing is very unique and very forward for a brand to do. We have under-penetrated in digital. We know that. I think there weren't alarm bells that the board said, "We need to do it now," but the time is now. Let's not procrastinate and wait any longer.
Our business is healthy. We're growing. No. This is an opportunity that we need to maximize. We're in a unique position of not having to be concerned too much with market share, because we have that market share, but we need to maintain and keep that by leapfrogging and putting everyone else in the dust. That's more of an aspirational, let's leave them in the dust, as opposed to they're nipping at our heels. What are they doing that could be unique that we should be doing? It's not a copycat, it's take the lead.
I think you waking up thinking about the customer experience every day, that will keep you up ahead in the market because you start with the experience, and then everything else follows.
Yeah.
Yeah.
Indeed.
Yeah.
Yeah. That's good. Thank you. I see one question here from Philip Winslow.
Do you have a mic here for him?
Hi. Just a question. You mentioned that you're also an ECC customer, and you weren't necessarily purposely buying the suite, but you sort of created a suite. You mentioned Hybris, maybe you kind of made the choice because of B2C and B2B, but how much did sort of the back office or the back end sort of potentially influence that order management inventory? How much did sort of the back office potentially also influence that choice of Hybris on the front end?
If I give you a top-level answer, I would say that the B2B and B2C and global aspirations to roll this out very quickly were outweighed the fact that we were an existing SAP customer. Bear in mind, I was new within the organization, and my established relationships that I had with ECC and the SAP team were in Europe when I was with Burberry. It was basically a clean slate. I did the evaluation. I spoke to some of the U.S. peers that I knew about commerce solutions, and they said, "Lorenz, what you're describing, Hybris makes sense for what you're doing. Added bonus, you are an ECC customer. Your integration's going to be easier." Cherry on top, I'd say, but not a determining factor.
Phil, I would say in most of our deals and customer engagements that we see, customers expect us to be Best of Breed in the areas that we covered, be it in sales, commerce, service, marketing. At the same time, obviously, we see increasingly that the CIO becomes part of the conversation as well as obviously the head of marketing or let's say the head of sales.
That combination really helps us then to really chart out the future. This is why I think Christian and Juergen's comments before, it is about the customer experience, how can you deliver that end-to-end customer experience, but you need to have Best of Breed. This is why we follow that strategy of Best of Breed assets plus Best of Suite. It needs to deliver on both.
Yeah.
Yeah.
Very good question.
Thank you. Now the third question from Kirk Materne.
Thanks very much. I realize it's still early, but given the world's going sort of more direct to consumer, I was curious if you have any technology like a Qualtrics that sort of allows you to measure your brand identity, customer satisfaction. Maybe if you haven't, say, taken a look at Qualtrics particularly, what do you think about the sort of X and O sort of combination going forward? It seemed like a brand like yours, it'd be really important to understand how people are thinking about your brand and then adjusting your business kind of on the fly.
Absolutely. I think I mentioned it at the top of our conversation here is when I was listening to Bill upstage here talking to the Qualtrics folks, that resonated very closely to me, and that's something that a deeper exploration is warranted for us. It would be so applicable to our business. I think I have to choose priorities right now. We are still in our relative infancy with direct to consumer, 18 months under the belt in North America, and we're rolling out to a few regions. We're learning about our customers now. We're learning what works, what doesn't work. I think actually this is probably the right stage to have something like Qualtrics come in and help us on that journey. I am interested in it. It's, again, on the priority list. How do I tackle that? Sure.
I think we are meeting this week.
I think we are. I think this afternoon.
This afternoon. Okay. We're not losing any time here.
No.
Very good. Very good.
We have one final question here. Mark Moerdler.
Thank you. Mark Moerdler, Bernstein Research. You selected the product. You moved quickly, obviously, to bring it online. Can you give us a sense of, A, the time and the complexity it took to be able to implement, where you are in that process? Where do you go from here? Where are you seeing efficiencies? Any of that could be helpful. Thank you.
Sure. It's a remarkable story, actually. The board, maybe in their naiveté, gave me six months, which, for anyone who's implemented an e-commerce platform from scratch, six months for a robust minimum viable product, something you could be proud to stand up for your brand to consumers, we achieved that in six months. It was a partnership with an SI and SAP, but six months from the first discovery workshop to launching, that's what the board demanded. They demanded that Mexico and Latin America came online three months after that, then we kept building that out. It is a six-month period from inception to go live, which we're very proud of. That set a standard from which subsequent development should occur. They did ask me why the ECC implementation 10 years ago took much longer than that.
These Best of Breed in the cloud offering me that flexibility, I told them, "I don't want to develop an internal team that supports all of these things on premises." I couldn't make the justification for that. I don't want to be concerned with that. Let SAP worry about my infrastructure, worry about the availability. For me, six months sounds like it's a very quick turnaround. Five years ago, it would. With these solutions in the cloud that are best of breed, it's not that complicated. That's something that I will stand by and say that every organization is different in terms of their own complexities, but we're a complex business when you're 99 years old. You've got inherent systems and integrations and things like that, they can all be overcome. It's been successful.
Lorenz, thanks for keeping pushing us. I know you are pushing on the time to value always.
That's my job.
Also thanks for inspiring us with your brand.
Pleasure.
I watch the video now almost every morning when I get up from now on.
Good.
I just want to say, I think the future of CRM is CX.
Yeah.
Yeah?
Yeah.
Awesome.
Thank you.
Thank you so much.
Thank you.
Thank you, everyone. Thank you.
Well, thanks a lot. C/4HANA, that's a great segue into SAP's own Global Customer Operations and the view from the field. It's a pleasure to introduce Jennifer Morgan, President of Global Customer Operations, to the podium, and she will kick it off with a short presentation.
Thank you. Thank you. Good afternoon. It is great to be here and get a few minutes to speak with you. This segment is important because we always want to make sure that we explain and show SAP through the eyes and the voice of our customers. I look forward to welcoming Alex and Sara to the stage in just a couple of minutes from JetBlue and Verizon. I thought I would take, on behalf of my partner, Adaire Fox-Martin and I, a moment and just punctuate three areas of focus for us. We do a lot of things. We have a really big portfolio, which is fantastic. I wanted to cover three things that I think are very critical to us as we continue to grow and to increase our productivity.
Bill talked about this a little bit earlier on around our move to S/4 and accelerating the move for our customers to S/4. Being out in the field, I spend probably 70%, 80% of my time out in front of customers. Our customers have a lot of priorities. There is a lot of voices around their table. We realize that two of the big areas of focus and considerations for our customers right now are the following. They are looking at S/4 to transform, to grow, to improve efficiencies, and at the same time, they are looking at moving to the public cloud. They are making decisions around moving to potentially Azure and GCP. Many of those decisions are happening, and what we saw is those decisions were kind of happening and being discussed separately. We realized those priorities are actually perfectly aligned.
When customers are looking at a move to the public cloud, that is the perfect opportunity and time to talk about transformation and have that become a move to S/4 onto the public cloud. When we are talking about S/4, the conversation typically always moves to cloud, and that many times allows us to continue a conversation about moving to the cloud with S/4. We knew that our customers needed one journey to take advantage of both of those movements, both of those forces. We teamed up. Over the last year, we spent probably the last nine months working very closely across all areas of our organization, whether it be development, whether it be finance, with the hyperscalers themselves. We have created what we call market-approved journeys. They have a focus on a couple of things. One is they are very industry-focused.
We can talk to our customers about the best move of SAP S/4 for retail on Azure as one example, or GCP. Our customers had asked us for a prescriptive journey. How do we do this? How do we lift, and how do we accelerate that move? That is the reference architecture that Bill talked about a little bit earlier. It does two things. One is it makes sure our customers understand the most efficient way to make that move, and it also makes sure that our SAP Cloud Platform, which is very critical to our customers, is placed and has the appropriate services available by hyperscaler to ensure that everything SAP about integration, extension, orchestration, happens through our cloud platform. Because that is going to fuel additional growth. It is going to be available to new partner ecosystems around those hyperscalers, around SAP.
That's very important to us, and we see a lot of great feedback. We worked with our top 100 customers as we put this together, and I'm happy to share more about that at another time. We've also simplified the sales motion. Last year, we had a lot of different offerings for our customers. We wanted to bring them choice, which is a wonderful thing, but sometimes with too much choice comes confusion. We've consolidated S/4 to the cloud into one sales spec, so our customers can understand very quickly the business value of S/4, and they can take the deployment option of their choice. We can listen to the customer. That's going to allow us to get more scale because our sales teams are going to have more breadth in their bags.
We're going to be able to cover more, and we're going to be able to focus and accelerate the conversations right onto the customer's business and what they're focused on doing. In the end, we created this interdependence, right? It's not just collaboration with the hyperscalers, but a true interdependence. Both of these companies, SAP and the hyperscalers, there's a massive mutual incentive in place for both of us. Their growth that you see, the double-digit growth, the deep double-digit growth you see on their platforms, is multiplied by SAP systems. For them, moving SAP S/4 into their infrastructure is a really good thing for them. For us, moving over to the cloud accelerates S/4 for our customers. We've got incentives in place across both sales teams.
You're going to see, for example, Microsoft Azure and their account executives will be compensated for moving SAP onto their cloud. That's one example. We're doing that across all the hyperscalers. We see this becoming a flywheel that's going to really help us accelerate the growth of S/4 and take advantage of those forces that are happening around our customer and turn them into a tailwind. We see this as a win-win-win. Second priority I wanted to talk about is the predictable, profitable revenue growth. You heard in our earnings call, the share of our cloud revenue is now exceeding our core on-premise revenue, which means that that ongoing predicting revenue becomes more and more important to us. There's three areas where we've really focused this year on making some changes in our customer-facing organization and the supporting organization with SAP. One is going upstream.
When we sell to our customers, we are making sure we're putting the right behaviors in place. We're ensuring that our sales executives are putting in place multi-year contracts. Luka talked about how we've increased that duration to 3.8 years. There's incentives for our customers and for our employees to make sure that we're talking about the business value, the use case is strong, and there's a long-term commitment. We also have technology now that when our sales executives put in their quotes, they can actually see the margin. They can see the profitability of what they're putting together. We have incentives in place for them, a lot of carrots, to make sure that they are putting together good business. Good business for SAP, good business with business value to our customers. We believe that's going to help our margins.
Across all the leadership team, we are continuing to ratchet up the share of their compensation around renewals, around that predictable revenue. That's on the sales side. Downstream, once that booking happens, once the customer decides to move to SAP and the different cloud properties, we're making sure that we are really aligning our resources. We have a lot of great executives who are what we call customer engagement executives by different product line. That's wonderful. The beautiful thing is our customers are adopting the entire Intelligent Enterprise, which means they have a lot of our products. What we were seeing is we had great customer executives within our customers, but they were too narrowly focused on each of the individual products.
We said, "How do we take a step back, make sure we look at the customer's holistic business success, scale our resources more effectively, and allow our customer really to have one view and one support system into SAP, leveraging all the expertise across the different lines of business, but using it more effectively?" We call that our Customer First organization. We put one of our top leaders in the company, Martin Mrugal, to lead this, and we think that this is going to really, really help our customers and again, help us focus on continuing to grow that predictable revenue. Finally, becoming an Intelligent Enterprise ourselves. Qualtrics is going to be so key to this organization.
We are going to, immediately upon sale, be able to really engage with our customers in a new way, make sure that we're getting ahead of making sure they're deploying, they're using, they're adopting the software. We've got a lot of technology. Christian and his team have been great about rolling that out to our field. We have real-time view into what we call our Customer Success Platform. We can look all the aspects of adoption, use, any issues that might be out there, so we can become proactive. We're very excited about taking this approach upstream, downstream, and becoming the Intelligent Enterprise. Finally, the third point I wanted to just touch on is Qualtrics. I'm really excited about this.
I went out and I spent quite a bit of time with Ryan in December with his team, on day one, we were ready to go. We're taking a little bit of a different approach with this acquisition. We're really excited. We took a team of some of our best leaders out of the field, and we've literally placed them in Qualtrics from across all the different regions, keeping it small, keeping it tight, kind of a SEAL Team Six type of approach. They're immersing themselves in the technology. They're that first line to our GCO field sales force in terms of enablement, in terms of making sure we focus. We want to focus on our enterprise customers. We want to talk about experience as a platform, not just within one or two lines of business. It's pervasive across. I want to give you one example.
Earlier this week, I met with a CEO of one of the largest retailers in the United States. As we were talking about their business, one of the things that I'd read before I went to meet with him was, in their investor call, in their quarterly earnings, the investor was asking about their SG&A. They said, "Well, you had a nice surprise here. I see you had a couple hundred million. Where's this coming from? How can I expect this going forward?" The CEO went on to describe that for them and the turnover in their industry, if they can keep their sales associates on the floor to six months, they start to really see the productivity. They train them. That's when the productivity kicks in. At that point, they give them education credits, EUR 3,500 for education or for English as a second language.
That allows them to keep that person there another 12 to 18 months. In that time, they've avoided two to three turns of those people on the floor. They've driven productivity, and you can see it showing up on the income statement. That's where experience actually shows up on the income statement. I thought that was a great story because again, experience is pervasive everywhere. It's not always discussed as experience, but this is exactly what he described when he answered that question. Just to summarize, as we call our customers up, our organization, GCO, we're really proud of it. We've got a lot of great talent across our entire sales force. We've got the right combination of making sure we have a focus across our holistic customers, of having that specialization across all of our different cloud properties.
We work really well together, we're very excited about the growth. We'll see continued productivity gains. We have a track record of execution. We're going to continue that, we're going to continue to focus on the best talent and the best retention. I'm very proud of that, and I think that's what makes the sales organization what it is. For what you are here for, let us now welcome two incredible leaders and customers of SAP to the stage. I'd like to introduce Alex from JetBlue. Alex. Sara Orr from Verizon Wireline. Have a seat. Thank you for being here with us today. When we talk about the discussion we wanted to have, really wanted to talk about your business, right? Your business and many of the imperatives that are being driven and supported and enabled with SAP.
Alex, maybe I'll start with you. Congratulations. I mean, JetBlue, I think before people even talked about this concept and category of Experience Management, I think all of us, that's one of the first memories I have of a company that really defined themselves as focusing and differentiating themselves on experience. You've been incredibly successful. Tell us a little bit about the plans for JetBlue.
Sure. Just to give everyone, I'm sure everyone's mostly familiar with the airline. We started in February of 2000, was actually when our first flights took off. We're rapidly approaching our 19th anniversary and looking forward to our 20th on the year after. Looking forward to great things. We've been on a great journey. I think when the product first came out, it was pretty innovative. People took a look at the aircraft. They said, "Well, wait a minute. There's TVs here. What's going on? Why are there TVs? There's leather seats." This is something new. We haven't seen that before.
Yeah.
Ever since then, the core of JetBlue and what we've been built on has really been around the customer experience, the value proposition. How do we make it better? Let's face it, customers have limited dollars to spend. At the end of the day, you want to be top of mind. You want to be top of mind for the travel dollar f or their wallet, they want experiences. I think in this day and age, we're at a point where we spend so much time on our devices. We spend so much time answering email, looking at devices that we kind of miss that customer service aspect.
At JetBlue, we don't view ourselves as just an airline. We actually view ourselves as a customer service organization first that happens to be an airline.
I love it. I want to come back to this because you are a Qualtrics customer, so we're going to come back to that.
Sure.
Sara, tell me a little bit about Verizon. I have to say, our executive teams met yesterday in our Hudson Yards office, and obviously, I know Verizon, I'm a customer of Verizon. Our companies have done a lot together, but I was really amazed when you and your leadership team took us through your business plans for growth and where the company's heading with 5G. Tell us a little bit about what's top of mind for your growth story and where Verizon's heading.
Well, we had a good year in 2018. We had strong revenue, and you saw our operating cash flow at EUR 34.3 billion, which was a EUR 10 billion improvement year-over-year. We took a leadership position in 5G. We actually brought 5G to customers' homes in four cities. As we look into 2019, we are laser focused on the customer and the customer experience, whether it be consumer, business, public sector, first responders, and just delivering the best service on the most valuable network. Of course, we look to continue to be a leader in 5G, and that's a lot about the discussion we had yesterday.
Let's talk about visibility and the insights into the business. Alex, if you could talk a little bit about industry and SAP. You've heard us talk a little bit today about industry, and we've always really put a focus on building products and solutions that really address industry needs. It's always differentiated us. I think now with Qualtrics and with Experience Management, really understanding those inflection points by industry of where it makes a difference. You and I were talking earlier, and you mentioned we were talking about industry, and you've got several things that you have to respond to, whether it be regulatory, whether it be the leasing.
Talk a little bit about that engagement with SAP and kind of how critical that is for SAP to be able to kind of see around the corner on your behalf.
Yeah. No, I think it's absolutely critical. There's so many things that come at us on a daily basis, whether it be weather, whether it be regulatory, whether it be federal government shutdown, that we can't always anticipate what's going to happen. We can look three months out, six months out, one year out. We can have a generally good idea.
There's always a new technology. There's always something that kind of comes out of the woodwork that surprises you. We need a partner who's looking around the corners, and we need a partner who's not only looking around the corner a week from now, a month from now, six months from now. I really need you to be looking a year down the road and coming to me and saying, "Hey, did you think about this? This is what we're seeing. This is what's coming." If I have to come to you and say, "I need XYZ in three months," A, you're not going to be able to build it. B, it's probably not going to be of any use to me. C, I'm probably going to be looking for a new partner quite frankly, at some point in time.
We really rely on our business partners. We've had a relationship since 2004. JetBlue was four years old in 2004. Now being 19, we're a bit impetuous. We're kind of like that teenager that thinks they know everything. It's nice to have a business partner like SAP who can come to us and show us the things that we don't necessarily know. That as we make business decisions, as we're making investment decisions, we're making it with all the information that we need.
Yes. Sara, talk to me a little bit about when. Obviously, Verizon has a lot going on, a huge growth agenda. Why SAP? You just made a pretty significant investment and decision to move and further your journey with SAP. Why? Tell me about how that's relevant in context of the overall plans for Verizon.
Well, one of the key things we have on our agenda is transformation, really the end-to-end transformation from the front office to the back office to the front office. SAP was really able to relate to our needs. They got to know us. We had several engagements. There wasn't one experience in and of itself. They came to the table, they learned our business. A lot of it had to do with trust.
We trusted SAP. We had several SAP platforms and integrations in the past, now we're really talking about how do we transform into the future. We had a long list of requirements, SAP just didn't work off those requirements. They also offered other insights into what if you did this? What if you did that? I think that trust and that open dialogue was how we came to say, "Hey, we want to really move this relationship forward.
Do you all feel that with technology today, it used to be technology supported whatever the business strategy was. Right? "Here's my strategy. Come and tell me how you support it." Is that dynamic changing, where there's an expectation, right, that the technology provider and the partners coming to the table with actual ideas on how technology drives new business models, different ways to look at things, being more prescriptive? Is that what you're expecting, and is that something that you're describing right now?
Yes, absolutely. SAP's provided visions for us that we're like, "Hey, if we could actually execute on that we could cut costs, we could improve the employee experience." We talked about that, you just mentioned it. It's so important for us to make sure that we're cutting the clutter out of the day-to-day the work that needs to be done. When employees are happy, and they get an opportunity to innovate, that's when you're in a really good place. You deliver a great product to your customers. That's how you win in the marketplace.
Yes.
Yeah. I have to say, I think we're undertaking a lot of the same journey that you are at this point. We are laser focused, really, on our cost. We always have to be. We're a low-cost carrier. We're a 5% player in a rather big industry. The only way that we can continue to grow is if we keep an eye on the ball and keep an eye on the costs. We're looking at everything right now. We announced a structural cost program back in 2016. We've made some pretty robust commitments to our investors, our analysts. Those are commitments that we want to deliver on.
EUR 300 million a year in OpEx.
Absolutely.
Doubling your EPS by 2020.
Yeah, absolutely. They're ambitious targets. The only way we're going to get there is to reexamine everything we're doing, whether it be from a process standpoint, from a technology standpoint. Keeping in mind that we want to continue to build upon the customer experience. We want to continue to build upon the crew member experience so that our crew members want to come to work every day. They want to have those interactions with our customers. If we can remove some of the complexity in the back-end process, it gives more time for our crew members to spend with our customers, and in essence, we can turn transactions into interactions. It's much more dynamic. It builds customer loyalty, and at the end of the day, we benefit from it.
I want to build on the loyalty statement. Earlier, Jared gave an example of Delta Air Lines in the early 1990s. Right? Some of the bold decisions that they made that turned out to be spot on based on the insights from the X and the O. Talk to me a little bit about the experience aspect of your business and where you see some of those inflection points around where it's making a difference, where it's showing up on the cost savings or on the growth aspect, as an example.
Yeah, I think, look, customer experience has been at the core of JetBlue, really since we started. The founders of JetBlue, David Neeleman, identified a real opportunity. He was looking at air travel kind of in the country, not really happy with the state of air travel, and said, "Wouldn't it be nice if we could do this differently? Wouldn't it be nice if we could offer the customer more, give them more value for a lower price point, and in essence, build that loyalty and build the JetBlue brand?" Over the years, we started out really looking at the customer experience. We had a provider that, quite frankly, couldn't scale with us. Couldn't scale, couldn't grow. We ultimately found Qualtrics. We partnered up with Qualtrics in 2013.
To tell you the truth, that's been a bit of a game changer. They've given us the opportunity to really look at, from end to end, how we serve the customer. We use their platform, we survey our customers, at the end of the day, we can slice up the experience into basically 100 different attributes. We collect millions of data points in a year as to how we perform. How does the website perform? Is the experience decent? When they call customer support, are they getting what they need from the customer support representatives? How do they feel about the price of the ticket? Really, as you go through every aspect of the travel ribbon and every aspect of the experience, you begin to realize how many different data points there are. What's important to the consumer. Sometimes, what you think is important isn't necessarily what the customer values.
Giving the customer the seat at the table, letting them have a voice, helps our decision-making, helps us drive commercial decisions. We're a capital-intensive industry. We make multimillion-dollar investments, just having that extra data point, having that extra insight, means that you're more likely to make the right decision as opposed to wasting a lot of money on a decision that isn't going to add value for the customer.
I love it. Sara, tell me a little bit about 5G, because obviously that's really driving. You all are first to 5G. It's driving your growth. Talk to us a little bit about your plans for that, the new business models, and how SAP fits into that.
Well, we are very focused on executing our 5G strategy in 2019. As you're aware, it opens up an entirely new set of capabilities. When you think about the business model having to change a little bit, so one of the ways that we were successful in getting our launch out in 2018 was closely partnering with technology partners, handset, chip manufacturers, to make that happen. If we really want to continue that pace in 2019, we also see a close relationship with SAP. The way that you look at the enterprise and Intelligent Enterprise.
What you have a successful history of is helping businesses expand their capabilities in the back office, the supply chain with software. At the same time, we integrated them physically. You marry up those two with the brand-new technology and the capabilities of 5G, and you can really offer the opportunity to just harness that data and unleash new things that, quite frankly, couldn't be done before. Ultimately empower new business outcomes for our joint customers and our new customers.
When I think about the world today, it's all about data, it's all about data analytics. To the extent that when I think about JetBlue and our operation and all the frontline crew members we have with boots on the ground, facing the customer every minute, every day, to the extent that we can push more information to them, that we can push more data to them on where maybe the operation is not performing like we would expect, I just think it's powerful. You, in essence, get to the point where you can adjust on the fly. You can make better real-time decisions. You can fix problems before they actually end up being much bigger problems.
You are a big customer of Verizon, JetBlue is as well.
Yeah.
Right?
Yeah.
Last question for you, Sara. Talk to me a little bit about Verizon 2.0 and what you're doing with finance and supply chain.
With network transformation and the integration of the common core infrastructure. It really offers us the opportunity to reorganize. It's the right time for us to organize into a business and a consumer focus. Today, we operate as Verizon Wireless and Verizon Wireline.
You're going to see a shift now because we can. It's the right moment, and it's going to be great for our customers. I think it's going to be an awesome opportunity to show up as one customer for an enterprise, one customer for consumer. We're super excited. With that, when you're shifting and pivoting, you have responsibilities in terms of how you report to the street and the SEC and guidelines and all that, and being compliant, and that's where SAP comes in again to really be by our side and making sure that, hey, you're helping us understand how we can shift and pivot and make sure that we've got the underlying reporting infrastructure lined up to succeed, because the stuff that happens behind the scenes is also really important.
Exactly.
Very complex.
Yes.
Exactly. Well, I want to thank you both so much for giving us a glimpse into your business, what's headed for you in the future, and for the trust that you place with SAP. Thank you so much for sharing today.
Thank you.
Thank you.
Thanks for having us.
Thank you.
Thank you.
Hey, Bill. Over to Luka.
Yes.
All right. Thank you very much, ladies and gentlemen.
All right. Hello, everybody. I hope you're having a good time here in New York. I can tell you I had an awesome week here so far because on Sunday evening, just when I arrived, my team, the New England Patriots, actually won the Super Bowl. It's kind of a history repeated because two years ago when I was here, they did so as well. Back then, I was talking a little bit about some of the commonalities that I see between SAP and the Patriots. Just to be clear, I don't mean the amount of sympathy that we enjoy from outside of our fan base, because on that one, I think we are different. I mean that the Patriots actually have, over the course of the last many years, can I move to the next slide? They have successfully managed to constantly reinvent themselves.
Bill Belichick, their coach, has been very successful in integrating new young talents, new players, and making them play better together, as well as with the established team. I think that is something that SAP in the last 10 years has achieved as well. We have transformed substantially as a company. We started out 10 years ago, if we are serious and if we are honest to ourselves, we were an European analytics on-premise company. Nowadays, we play on so many other different fronts of the technology industry. We are a leading database company. We have branched out into the cloud with successful organic innovation, but also we have successfully integrated a myriad of acquisitions, and I would argue have made them stronger along the way as part of an integrated solution portfolio. As part of this, we have transformed our business model as well.
We are now one of the leading cloud companies in the world, and certainly are growing fastest, as we have heard from Bill. Another important commonality, defense wins championships. We have seen that on Sunday night as well, and we have materially increased our defensive qualities. When the financial crisis hit in 2008, we were just above 1/3 of highly predictable, sticky, recurring revenue sources. Nowadays, we are already at 2/3 of highly predictable revenue sources. Of course, as we have outlined, we will be approaching 80% by 2023. A lot has happened at SAP, and we've come a long way, and we believe that this is setting us up for delivering three things that matter highly to you as investors, and that I want to talk about today. One is continued predictable performance above and beyond stated expectations, which remains our ambition.
I want to talk about that. I want to talk about cash matters, because I know that cash matters to you, and against some prejudices, it also matters a lot to us. I want to talk about our cash flow performance and what you can expect going forward. The last thing is obviously profitability. You've heard Bill loud and clear this morning that we are absolutely committed to providing increasing profitability as we march along and continue our business transformation. I will show you how we will do this as well. Let's talk first about predictability, because predictability is increasingly important in a time where volatility is increasing. You have learned to know that SAP has been, over the course of the last five years, hitting or exceeding any one of our stated guidance metrics. This is very important to me personally.
When I came on board as a CFO in mid-2014, I have been responsible together with my colleagues, to set the guidance for every year since 2015. We had a very successful and, most importantly, predictable path in achieving those targets. In 2018, you obviously know that we have been exceeding our top-line targets. We have also been hitting the high end of our operating profit guidance that we have stated at the beginning of the year. It is true that we would have expected at the beginning of the year, and you have expected certainly as well, that we would make even bigger progress on the margin front. We have made progress on the margin front. We have stabilized the margin after four years of decline in 2018. We have not really been increasing it.
It has been for the right reasons, because we saw increasing momentum in our business, in our services business, which has gone through restructuring two years ago extremely successfully and now has been growing in double digits with a very high profitability for a services type of business. Of course, still slightly dilutive to our company-level margins. We have bigger and faster than expected growth in our Cloud business. I'm not sorry for that reason. I would be sorry if we would have declined in our gross margin performance. I am confident that we will see from now on only one direction for the margin starting in 2019. That is upwards. I will talk about this later on in the presentation. Another aspect in this predictability paradigm is that we have given a midterm ambition all the way out for five years in 2015.
There is not a lot of technology companies out there that do this. SAP has done it, has raised this midterm ambition a couple of times, purely organically between 2015 and 2017 along the path. In 2018 or 2019, we had the first two larger acquisitions since when we put out this 2020 ambition in 2015 with Qualtrics and Callidus. Even if you put those out of the equation, we have across cloud, total revenue, and operating profit, been increasing our ambition level along the way. Of course, SAP does not stop and does never stop, as in the past, at an ambition to just meet those stated targets. We want to do our utmost to either exceed them or at least end up at the high end.
If there are any concerns or any question marks in the room on why do we have this, that, or the other range, why have we adjusted this, that, or the other way for acquisitions, let me be very clear. We are extremely confident in our business momentum. We have every ambition to meet and beat this ambition wherever we can. I think it is set in the right way that is making this readily possible. That is very important to keep in mind when we talk at the end also about the 2023 ambition. Let me talk about cash. As I said, cash matters to us. We are well aware that the cash flow progression is a material influencing factor for the valuation of the company and therefore also for the stock price.
Let's be also very clear, the way how cash flows are coming together are influenced, first of all, by the way how you construct the input factors. It can either be cash flow or non-cash flow-relevant. Your classification choices, as well as, of course, they can be very volatile based on one-off effects. I want to dissect this for you, including also what you can expect going forward in terms of some of these influencing factors. First of all, when you compare SAP's cash flow performance with others in the market, you know that in our industry, we generally don't have a cash flow problem. It is a cash flow-generating vertical for sure. You need to take into consideration that SAP's share-based compensation is not equity-settled, but that it is cash-settled. Now you might ask, why are you doing this?
Why are you outlining? Well, we have analyzed this very hard, and actually, cash-settled programs have some significant advantages. Not only are they easier to administer, but actually they are also tax-advantageous, and therefore from an EPS perspective, there are clear advantages to cash-settling equity programs. It's also the more honest way of depicting the impact of share-based compensation. Because while it is, of course, when you are cash-settled, an operating cash flow-relevant item, even if you are equity-settling, at the end of the day, someone is paying. You're paying through the backdoor, through dilution of the shareholders. If you counter the dilution through share buybacks, then also cash is leaving the door, just not in operating cash flow. That's very important to note. Share-based compensation as a cash flow item has been increasing over the past few years.
We have never really talked about this transparently, but I want to do it here now. You see the impact of stock-based compensation payouts over the course of the last three years on our financial results. As Bill has said, in terms of the relative comparison of how large this item is for SAP, I think we are absolutely in line and very reasonable compared to industry benchmarks. It has been an increasing item. Now, in 2018, a number of, I would say, unusual effects came on top of this rising tide of share-based compensation, which by the way, we believe as of 2020, will basically normalize and will plateau. One was incremental tax payments coming from international taxes in particular. You have seen probably that in 2017, we had an unusually low effective tax rate, which has been increasing in 2018.
You cannot one-to-one compare the tax rate from a cash outflow for taxes. Clearly we had in 2018, almost EUR 400 million higher income tax payments than in 2017. We actually expect that in 2019, there will be another unusually high tax-related cash outflow of around about EUR 700 million. Another EUR 300 million more than in 2018. On the other hand, we had, of course, a big impact to cash flows from the currency movements. It's very hard to quantify it. We had in 2018 also impacts from additional insurance payments for the time credits of employees who have been leaving in the past under our restructuring program. In 2019, we have the restructuring impact from our big company-wide restructuring. It's going to be somewhere between EUR 550 million-EUR 750 million in terms of a cash flow impact.
Good news for 2020 is, we will have only a very minor cash flow impact from this restructuring program that will still be relevant for 2020. In addition to this, the share-based compensation cash outflow in 2019 is going to be, for a last time, significantly higher than in 2018. That is going to be about 300 million EUR higher than in 2018. This is entirely based on the addition of Qualtrics and their share-based compensation that we are taking over. On the positive side, it has been reducing the purchase price that we have been paying. We basically sent over $7.1 billion of cash in January, where the purchase price was $8 billion because we subtracted basically for those share-based compensation entitlements. We have a couple of benefits that are working against those significant additional cash flow impacts that we expect for 2019.
One is IFRS 16, and the reclassification of cash flows from payments for leases, which in the past basically were showing on the operating cash flow line, now are going down to financing cash outflows. That is a positive impact of EUR 300 million-EUR 400 million that we expect in 2019. The other one, which we have not reflected in the kind of rough outlook that I want to give you for 2019, is any improvements of DSO. However, I see a clear potential on the DSO side to improve, because we are still at round about 70 days. I have a clear expectation, which I have also given out to my team, that an improvement of four days year-over-year should be readily possible, and this obviously would have an, as of now, unaccounted positive impact on operating cash flow. How are we moving on from now then?
Taking all of these puts and takes, and I appreciate that this is a long laundry list into account, we believe that operating cash flow in 2019 will remain broadly stable from the situation that we have been seeing in 2018. From then onwards, we expect a significant increase in operating cash flow. I will share in a minute what this means to free cash flow as well. First of all, from further DSO upside potential, to be honest, we were already at below 60 days, I see no reason structurally why we shouldn't get back to this level in 2020. Secondly, because the restructuring impact will fade out, and therefore the improvement in profitability, which normally otherwise would flow through to operating cash flow, will really move the needle and lift the operating cash flow up.
We do not expect any large-scale tax-related outflows anymore as of 2020. Now, taking the same conversation to the free cash flow line, it is first of all very important to talk briefly about the impact of IFRS 16, which is the new lease accounting standard under IFRS. It will lead, first of all, to a balance sheet expansion, because like in the current rules in the U.S., under US GAAP, leasing becomes an on balance sheet item where it was previously off balance sheet. For SAP, this will result in a balance sheet expansion, roughly EUR 1.7 billion-EUR 1.9 billion, a little bit more on the liability side than on the asset side. This will be balanced out through a slight reduction in equity.
On the operating profit line, because the interest payments move again from operating profit lines or from the operating expense line to the finance expense line. It results in a small bump of significantly less than EUR 100 million to operating profit. Having said this will be countered by the starting headwind that we get from IFRS 15 from the amortization of sales commissions. We don't expect a net positive effect out of those items for SAP. The most notable item is the operating cash flow increase by EUR 300 million to EUR 400 million. Which with an unadjusted definition of free cash flow, obviously would flow down also to the free cash flow line. However, we have decided to adjust our free cash flow definition to not only take into account capital expenditures, but actually also the principal payments for leases.
Because ultimately, this is also something which is a stated cash item and should not be seen as free cash that is available. That makes also then the results absolutely comparable with the previous years, and brings it in line also with our U.S. peers, which don't have a change in this respect. That's important to note. When you then make the math, we have an unchanged operating cash flow line. Very importantly, we are keeping the promise that capital expenditure across the group will not increase anymore. We have seen that last year we have been guiding to less than EUR 1.6 billion in capital expenditure. We have ended up basically at EUR 1.5 billion in 2018, so kept that promise, and we are confirming and reconfirming that in 2019, we will stay at that level, even including Qualtrics and their respective capital expenditure needs.
It means that on our previous definition, we will see a broadly unchanged free cash flow performance with the adopted definition, including the lease outflows. It will go slightly down. From that point on, as of 2020, it will follow the strongly positive development of our operating cash flow, in line with the increase of our profitability. Now finally, let me talk about profitability, because that has been a recurring item on our agenda for this meeting. You know our 2020 targets that are out there. They basically consist of three main pillars. One is continued strong organic growth in the cloud of roughly 30%. Now, frankly, I believe within a EUR 500 million swing for the 2020 targets, there is certainly an opportunity to optimize our performance, and end up with a result that might be very reassuring to our investors.
Suffice it to say, our Cloud business will become a absolutely dominant force of our absolute revenue growth through the next two years, which has actually already happened in 2018. From a total revenue perspective, we are now charting the path over the next two years to reach close to EUR 30 billion in revenues. How will we do it? Of course, first of all, through the continued strong growth in the cloud, which, as I said, will be the biggest absolute growth contributor. Also through a continued, very resilient core business. That's sometimes an unrecognized figure. We have been growing our combined software and cloud order entry in 2018 by 14%. For the first time to a number higher than EUR 10 billion. We have a substantial opportunity to positively influence not only our total revenue, but also our profitability.
If the assumptions that we have baked from a prudence perspective into this guidance, which implies mid-single digit declines in licenses, as in the past few years, don't come true, we are able to do better than this. I think we are perfectly in line. We will see a continued resilience of our combined software and support business, which even at negative software licenses, as you have seen it in 2018, where we posted 5% support revenue growth, despite the fact that we had a decline in licenses, is absolutely rock solid. The one aspect that will not contribute to the same extent to growth in the next two years as it did in 2018 will be our Services business.
It will still grow, but as Bill has said, we are really focusing it on the cream, so to say, level of the market on high-margin services, that will bring those growth rates down while we have an opportunity to optimize the margin performance in that business. Even above and beyond the already market leading levels that we have achieved by now. That basically will set us up for translating this total revenue growth into superior operating profit performance. Actually, when you make the math, that of course means that over the course of the next two years, we expect indeed to see margin improvements year- over- year. The key lever for achieving this, though, is our efficiency in the cloud. This is the single biggest lever that we have to significantly bring up the overarching operating margin performance.
You need to recognize that in our Cloud business, we have, I would say, three very different types of solution sets. We have three assets with SuccessFactors, which is still our biggest Cloud business, Concur and Ariba, who are operating already at full scale. These are solutions that are at or above the EUR 1 billion mark in revenues and continue to grow nicely. In these businesses, we will have an opportunity to increase despite the fact that they are operating at scale, the gross margin performance quite significantly, because two of those assets, SuccessFactors and Ariba, are currently weighed down by the impact of the platform conversions process where we replace third-party databases underneath those solutions by HANA.
That work is virtually completed and basically will result as of Q2 2019, not somewhere in the distant future, but now in significant cost benefits and therefore also gross margin improvement potential, even on that right-hand side of the equation. We have solutions which are already approaching scale. C/4HANA is certainly one of those. Qualtrics, obviously. HANA Enterprise Cloud has by now become a roughly mid triple digit million EUR business. In those businesses, we see already great improvements of the gross margins, in some areas, absolutely leading gross margin levels. Qualtrics has a cloud delivery margin in the high 80s, for example. C/4HANA has improved the gross margin performance a lot. HANA Enterprise Cloud is a business, as it has been discussed before, which we don't expect to grow strongly anymore.
We need it and will use it for strategic engagements with our customers, which we can also command for this Infrastructure-as-a-Service piece of the market, a very nice margin. However, that business is one that we want to drive in partnership with the hyperscalers to drive our SaaS PaaS business with the SAP Cloud Platform and S/4HANA, which is for us, certainly the superior approach. Therefore, in HANA Enterprise Cloud, while we will make progress on their delivery margins, it will become a smaller piece of the pie. We've discussed this last year already, and I will show you how this will play out over the next few years. Then we have a set of ramping cloud solutions, which are now reaching scale, which are reaching somewhat the EUR 100 million mark or above, and are, of course, scaling much faster.
They are the second big lever next to the platform convergence to improve our cloud margins dramatically, because in this ramp-up phase, they have, of course, large-scale targets to improve cloud gross margins year-over-year. What will this lead us to? First of all, absolutely to a large-scale cloud margin increase from 2018, where we already saw increases across all of our business models in the cloud to 2020. In SaaS PaaS, we want to reach 70% gross margins by 2020. In business networks, we will exceed 80% gross margins already. In both of those areas, mainly spurred by the growing scale in our ramping assets as well as the platform convergence, which you will see in the numbers as of the second quarter of 2019.
HANA Enterprise Cloud, which has a long-term gross margin target of 40%, due to the lower scale and the lower revenue growth that we see, will end up somewhere between 30%-35%. However, its relative share of the pie will continue to go down. We have already seen in 2018 that the new bookings growth rate of HANA Enterprise Cloud has started to trail the new cloud bookings growth in our SaaS PaaS and business networks business. Therefore, we continue to expect that we will end up at a 71% blended cloud gross margin by 2020. In addition to this, if I can go to the next slide, I believe we have conservatively planned in our financial aspirations, the projection for other gross margin line items. For example, for software and support, we expect a roughly stable gross margin.
If we are able to do slightly better on the software revenue line than what is in our implied guidance range, actually the benefits that we get from lower third-party license sales commissions because we are growing our HANA-based business and are not selling any third-party databases, for example, anymore as part of our business, should give us an opportunity to perhaps do better than this. The other area, as I said, where we see an upside potential still is in services. When I was standing here three years ago, we had a stated target for 20% on services margins. We have already by far exceeded this. Actually, in 2018, our gross margin in services has been increasing at a constant currency basis. These are the nominal currency results. We don't expect in our midterm planning an increase.
However, there is clearly upside through the focusing of our services organization on high margin services. I wouldn't be surprised if we were able to do a little bit better than that. Next to that, in the expense ratios, there's continued opportunity to optimize our sales and marketing ratio, which has been trending nicely down in 2018, and we certainly have an ambition to continue this. In G&A with artificial intelligence, what Juergen has talked about, accounts receivable, for example, we are using this ourselves. There's certainly an opportunity to continue to go for moderate improvements as well. To close this out, what does that mean for our midterm ambition? First of all, it is to us a base case that we feel extremely confident we will hit.
If we only do this, as Bill has said at the beginning, our Cloud business will be 3x the size of today. Cloud will become the dominant revenue source for SAP, overtaking even support revenues for the company. From a total revenue perspective, we will be a more than EUR 35 billion company, still growing at superior rates to all of our classical peers, and still growing our cloud revenue faster than the pure-play cloud companies. Very important to note, we have said that our more predictable revenue sources will be approaching 80%. Ladies and gentlemen, the weighted average gross margins of these highly predictable revenue sources actually will significantly exceed 80% between support and cloud revenues by 2023.
We are looking at an opportunity for SAP to not only deliver superior operating profit progress, where we're targeting up to double-digit CAGR going through 2023, but actually optimize the performance across our different business models in a way to continue to outpace the market at an increasing predictability. Now I want to close with a positive remark, and that is when you take a look at the strategic fundamentals of our business, how we see them, and how you, the financial market community, see them, we actually think the same thing about our business, which is very reassuring. We believe that we have a very strong and resilient portfolio that we have built. We believe that we have a high strategic relevance to our customers, which drives stickiness and drives continued predictable returns.
We believe that we give our customers choice, as Jen has discussed, for example, across cloud, on-premise, as well as hybrid deployments. We believe that we are making the right steps to build sustainability into our business models and make us fit for the long-term which we have to do in our vibrant industry. You concur with all of those points. The one thing I think that we have to prove out to you guys still is on those important levers around cash and profitability that we have discussed, that we can follow through on the commitment and that we can see it through together with you and provide superior returns. I want to close with the Patriots statement.
Two years ago, the Patriots won in the overtime, and I was talking about the fact that SAP will also be strong in the overtime after 2020. This year, they didn't need the overtime. They won in the regular season. We have every intention in the world to win the game on predictability, on cash flow, as well as on profitability, not in the overtime somewhere going into 2023, but now starting on the profitability level in 2019, then on the cash flow side in 2020. Thanks for your trust. We're now looking forward to the discussion with all of you during Q&A. Thank you.
Thank you. Thank you, Luka. At this point in time, I would invite all the Executive Board member colleagues to join Luka here on stage for the Q&A. Also, warm welcome to Rob Enslin, President of Cloud Business Group. Let me see. I usually have a housekeeping items list. Let me just see where this comes up here. I will talk later on again about the color coding on your name badge. Just to make sure you get to the right breakout session. We give the board members time to take a seat. Usually I take questions from the audience, but this is the experience and feedback time. I'm happy to share with you some of the results we got from you on the survey this morning. We had lots of discussion, the competitive environment.
We had Alex talking about C/4HANA. We gave you a list of the potential competitors for SAP, Amazon, Google, IBM, Microsoft, Oracle, Salesforce, Workday. Those who participated in the survey said SAP's most challenging long-term competitor is salesforce.com. Maybe Bill, you want to address this directly.
salesforce.com. Don't forget the dotcom part. Look, there was once a time where Siebel Systems was unbeatable in CRM. You remember that? How's Siebel doing now? That was a nice solution to have rental, cloud-based SFA, ease of deployment. The big ones weren't fast enough to the market with the CRM. Salesforce capitalized on it. Good for them. They did a great job. We're in a new world now. We're in an end-to-end CRM world where the demand and the supply signal go hand in hand, they must be interdependent in an integrated format. You add Experience Management on top with Qualtrics. We have the front office completely connected to the back office in a way that no other company can. 77% of the world's transactions run through an SAP system. That is the O data. You have the Experience data, 1.8 billion already.
Customer interactions in the experience realm of Qualtrics. X plus O data equals the defining formula for the 21st century winning company. If I look at SAP today, just put the cards on the table, and you look at the 2023 projections. This company, just using the heuristics that are out there now on what cloud revenue is worth and what core revenue is worth, especially when you factor in increasing operating margin environment, this company is the most undervalued asset in the IT industry today. That's it. Just simple math. I think that Salesforce as a point solution, is a relevant point solution, will handle them, will handle all comers in workforce areas, nobody has our connected Intelligent Enterprise and Experience solutions. That's what we're banking on. Incidentally, I thought Jen did a great job today of pointing to the ecosystem effect as well.
You can't just do anything in isolation anymore. You have to have a brand that's admired by the best companies in the world, too. I give high praise for the IaaS providers. When you think about Google and Microsoft and Amazon and Ali all teaming up with SAP, all running SAP, all deploying these solutions in their cloud that are SAP solutions, I think that's a statement for all of you to consider. What is the flywheel effect of that strategy that we've put in front of you today? We worry about everybody. That's what we get paid to do. We're the leader. We will be the winner. I guarantee you, we will win.
Thank you, Bill. Another topic, Luka closed his remarks with winning the game predictability, cash flow, profitability, we surveyed you on the classical growth versus margin debate. Basically 6% said, "Not sure." That's an interesting feedback. 34% said, "Focus more on revenue growth.
Stefan, we should have said, neither of both, it would have been more difficult.
Neither of both. 59% said, again, this is based on your feedback, 59% said SAP should focus on margin expansion. Maybe Luka, if you want to elaborate on this.
Of course. You can interpret everything the way you want, but what I would say you read out of this is, SAP has been doing an extremely strong job on the revenue line, so therefore, you should make sure that the margin gets the same, if not more attention, because, you've proven out the capability to scale the company, so let's now see the leverage. That is right, absolutely. Let's be clear, the results of SAP on the margin side have been, for a number of years, skewed by the business model transformation. We have been focused on running the company in a way that looks at optimizing the individual business models in terms of their respective contribution. That work is starting to bear fruit now, and you will see a big progress on the cloud line, in particular, over the next two years.
We are at the point where the dilutive impacts from the revenue mix shift effect can be overcome actually by the increasing efficiency that we are expecting to generate. Therefore, the expectation is well taken. We are clearly as committed as you are, in terms of your expectations clear, to continue the positive turnaround. We have stabilized the performance in 2018, and we will take it from there and increase the margin as of 2019 and going forward.
Thank you. Then one last feedback topic, it's the Qualtrics acquisition. I remember, Bill, we sat in investor meetings, and investors told you, Bill, Qualtrics was your boldest move ever. Again, based on your feedback, the question was, do you understand the rationale of the Qualtrics acquisition? 34% said, "Not sure." Again, interesting camp. 22%, "No." 44% said, "Yes." The data was surveyed before we had Jared and Zig on stage. That's an interesting one. I think, Bill, your goal is probably bringing this to at least 50, 60%, if not more.
I really have no doubt about it. I remember, if you go back to the Concur acquisition, we actually had a leader in the industry, a manager of another company with a financial background, saying, "Why didn't they just buy Dairy Queen," which is an ice cream business, with Concur? I thought that was very interesting. It actually inspired me. Now, many of you said, "Why'd you pay so much for Concur?" We proved the theory right, that it's not what you pay for them, it's what you do with them once you get them. In the case of Qualtrics, of all of them we've ever seen, the upside for this one is by far the greatest. Concur, incidentally, has now been recognized by all of you as one of the more stunning moves we made, as well as the business network.
This one is the biggest leverage of all of them. What I love is we're on the right side of the market. We're on the right side of the customer and their customer. That's always been the winning formula. Other companies have benefited from that in the past, but they don't have the back office and the full supply chain of value in 25 industries in 193 countries in the world. Of all of them, I am so confident in this one. I'm so excited about this one, and I'm really so proud of my dear board colleagues because when we first processed this together, we were at the Heidelberg Haus, and we had Ryan come in on video. Literally was sitting around this U-shaped table. Everybody's doing low fives and high fives and chest bumps.
We took the show to Provo and just saw what Ryan and Jared and Zig and Scott had built and the culture that they have and how wonderful they fit into our culture. Now we have our whole leadership team of SAP, the top 250 in the world, going to Provo to be with Qualtrics because they're the standard. They're the ones that have the future in their hands. They're the ones that saw this market before anyone else. I think the one thing we've tried to do is be very authentic and very humble about what we know and what we don't know. If we knew everything there was to know, there'd really be no room for anybody else in the room.
That's why I think Qualtrics really likes SAP, because we love Qualtrics and we respect Qualtrics, and we see the bright future that they've seen. Don't worry for a single second. I guarantee you, that's an 80/20 now. 80% are saying, "I'm all in on Qualtrics." The other 20% say, "I hope he's right.
Very good. Thank you. Now it's time to take questions from the audience. I see one here from Raimo Lenschow of Barclays, and then we continue with Walter Pritchard from Citi.
Perfect. Hey, Raimo Lenschow from Barclays. By the way, I was working on Qualtrics before the IPO, and it was a good acquisition. The question for Rob and Jen, and it goes along the lines of the Qualtrics conversation we had. Can you talk towards the cross-sell, up-sell of the cloud assets that you have now Where we are on that journey? Your own SuccessFactors for a few years now, how has that been selling into the installed base, especially on the international side? With Qualtrics, we're at the very beginning, but the up-sell, cross-sell opportunity is massive there. Can you talk a little bit, Rob, like what you've seen so far? Jen, how you're helping Rob to achieve that from a sales motions perspective?
Sure. First of all, coming straight out of the gate, we've identified the top, I would say, 200 companies in the world that can use Research Core at an enterprise level, and the account managers are actually working on those plans right now for the teams. That's kind of a quick out of the gate, we'll take that market by storm approach. As Jen said earlier, we've already got the teams integrated, working in Provo to actually drive that. From more from a product point of view, Alex's organization on the C/4HANA team is already connected with the customer experience team at Qualtrics and have designed solution sets that already engage the X's and O's. That team's engaged. It's actually in his sales organization's bag already. He's already got a quota, and it's a lot higher than he expected.
The same is true for Zig and team on the CX team. The same is true for SuccessFactors, exactly the same combination. Those teams are already out the bag. Remember, the scale of the sales organizations on the SAP side are massive, right? We're talking about 15,000 professionals touching customers in mass scale organizations. SuccessFactors has got 6,700 customers, 126 million users that are now going to have access to information and data and insights that they've never had before. That's going to be big, and the same is true on Alex's side. I think the integration has gone better. The opportunity from a modular integration has gone better than any other acquisition we've actually ever done. We're faster out of the gates than ever before. The reason for that is there's no overlap. This acquisition was purely transformational.
This acquisition is rising everything in SAP. If you just take ERP, if you connect ERP to the CRM market, you take those two addresses, you add XM on top, everything changes the game with customers. The experience that they see and how they can change the game for their customers is completely massive. We see massive scale and massive opportunity with the acquisition. Plus, they're really cool people, and they're growing unbelievably fast, right? When you add the two together, there's an opportunity to overachieve in a significant way here.
To add on to what Rob said, we've really partnered up because we want to make sure in addition to the channels that Rob just described and our broader account executives across GCO, we wanted to make sure that they aren't just putting it in a specific category. We wanted them to raise the game. If you think about where we do our best work, we do our best work when we can very clearly articulate what's happening in an industry. Where is technology disrupting different parts of that industry's value chain and how SAP is relevant to that. When we can tell that story relative to not just inside their own company, but if you can start to then connect their value chain. The retailer I mentioned earlier.
If they can start to connect the value chain of how customers are perceiving or have feedback on packaging of a certain brand at P&G, right? To be able to now provide that experience data, right? Maybe it's not called experience data traditionally, but that's exactly what that is. The value chains that all of our customers have with each other, I mean, it's limitless. Really helping our sales force to understand and really look. You can see when you read an earnings call. You can see the back and forth with the investors. You see exactly where those points are, whether it's on the growth side or on the cost side. Teaching them to think about that from more of an industry perspective. As Rob said, we take the low-hanging fruit, and we get the specialization.
All of that together, I think is going to serve us very well, and we're fast out of the gates in a different way than I think we've ever been with the other acquisitions, with a phenomenal team.
From a technology side, you work with Qualtrics, it's very easy to integrate. It's not that you need any huge efforts to do that. You can just use the existing APIs, then it's very easy to, for example, integrate this into SuccessFactors or in the C/4 portfolio.
Just as another side, at Sapphire, the digital supply chain team, if you connect with Hala, she'll explain exactly what we're going to launch at Sapphire in the digital supply chain around product.
Okay. Thank you. Next question comes from Walter Pritchard.
How about now? All right. Two-part question actually on C/4. I guess first, for Luka, maybe when you talked about 2020 ambitions a couple years ago, you sort of talked about the front end C/4 area, not really called C/4 at the time, not being a major part of the cloud revenue you're expecting in 2020. Could you help us understand, as you're looking at a tripling of revenue in 2023, how we should think about C/4 and CX as a part of that?
The other part of the question, maybe for Björn, on just from a raw headcount perspective, I think Salesforce has about a third the number of employees your company has, and so probably spending quite a bit more on R&D just in that market. Seems like that raw development resource just is a difficult thing to compete with unless you have an equivalent number of engineers. Just wondering how we think about integration as an advantage versus just raw engineering horsepower, where that market has been changing very quickly and feature function and staying ahead of it is really one so far.
Yeah, perhaps, I can go ahead with the C/4 and CX question. There is no doubt that our entire C/4 business, actually, we are combining the Qualtrics as well as our CX business now in one dedicated segment, which we call customer and Experience Management. This, of course, will be an exponential contributor towards the growth that we expect to see in the next five years. That business has always been one which Bill has given a clear ambition that based on our current position in the market, we should see it growing in the high double digits, if not in the triple digits, as we have seen it now, including the Callidus acquisition effect in 2018. I have been asked by the media, I think early on when we did the Callidus acquisition, when we will break through the billion mark in revenues in that segment.
We reached by the end of 2018, already almost EUR 1 billion in revenues. Including Qualtrics, this will completely blow away that number. Expect lots of exciting and exponential growth contributions from this segment, not only of this year, where it certainly will again grow in very, very high digits, triple or high double digits, but also going into the future.
On the development capacity, so to say, I think we roughly spend 14, 15% plus of revenues. As Christian mentioned it, if you combine the engineering teams in Christian's organization, Rob's and mine, it's roughly 30,000. From that number, we are by far not outnumbered and do not need to worry. What you can expect and will see is Luka mentioned the platform consolidation. All acquisitions come with their platforms, with their databases, with their infrastructure, and so on. That is something where I think we can even accelerate and bringing these together and having even more efficiencies on that one, such that you can expect that we move faster and faster.
Thank you. One question from Actually, two microphones at the same time. First Kirk, then Phil, and then we have Michael.
Okay.
Sequence, please.
Great. Kirk Materne with Evercore. Bill, I actually wanted to follow up on your statement around the hyperscale cloud vendors and your sort of expanding partnership. I think a year ago, when people talk about AWS and Azure versus SAP, they wouldn't necessarily consider you all as aligned perhaps as you are today. Jennifer mentioned this earlier. Could you just talk about where that is, how much of a tailwind that's been? Luka, really just quickly for you, obviously an acceleration in cash flow from 2019 to 2020. Is there any reason to believe that cash flow wouldn't grow at least the growth rate of operating income over sort of your 2023 ambitions, if not faster? Thanks.
First of all, thank you for the question on the hyperscalers, in particular Microsoft and Azure. We have a great relationship with Microsoft and a terrific friendship with Satya and our whole management team, and particularly Jen with Judson and everything, really work very close together. I would say you're in the early phases of seeing the tailwind that's going to come from these partnerships. Early phases. I think the ODI initiative, the Open Data Initiative that was announced with Satya and myself and Shantanu at Microsoft Ignite in Orlando, started something because lots of customers are asking different kinds of questions now. What does that mean?
If I had SAP across the value chain and all these platforms contributed to an Open Data Initiative where I had full visibility and I could run in Azure with the highest productivity and maybe even the best cost benefit, but I still get the most incredible system in business software, that's a big win for me. That's how the customers are thinking. We have lists, processes, and lots of customers in the pipe that are now initiated in those very large-scale discussions. The numbers you've seen already, albeit very good, are only a smidge of what's going to happen. If you take that further, you go to China or the ASEAN region with Alibaba, you think about Google Cloud Platform and what's possible with Google, especially with Thomas in the job and being very loyal and focused on the SAP capabilities.
We're really in the early days, the same would also be true for AWS with Andy and Jeff. Rob and I had an incredibly good meeting with them. We are becoming that standard in the IaaS environment because they know we're good for it. If we say we're going to do something, we do what we say we're going to do. That's our strategy. It's very different strategy than some of the alternatives.
Yep. Quickly on the cash flow line, no. There is no reason why the cash flow progression should not follow the progress of our profitability across the company. Two simple reasons for that. In the last few years, on the operating cash flow side, the main reason why that was not the case was the surge of cash-settled share-based compensation. We came from a situation where 10 years ago, most of our programs were also not cash-settled, but equity-settled. Due to the fact that we changed all of them because of the higher efficiency from an EPS perspective of the cash-settled programs, it has been building up. Now we are reaching the point where the only reason, by the way, why in 2019 it is still increasing is the addition of Qualtrics.
Once we have normalized for that from a cash flow perspective, we should actually reach a relatively stable state. On the other hand, on the free cash flow line, the reason why we have been trailing has been the surge in CapEx. As we have said, that surge is also coming to an end. There is no reason outside of extraordinary, unexpectable, one-time effects why this should not be the case, and we don't expect any.
Okay, thank you. Let me take a question from Phil now.
Yeah, great. Thank you. First off, Bill, it was back in this day, 2010, when you were named CEO, and I remember, I actually looked up my notes from then, that Hasso gave you two marching orders. Actually, first off, congrats on starting your 10th year today.
Thank you.
As CEO. Hasso had two marching orders he gave for you. First was focus on profitable revenue growth, and second was to deliver innovation. When I think about the high-level takeaways from today, it's like those are still the marching orders going forward here. Two questions. One for you and Christian, one for Rob and Juergen. If I think about delivering profitable growth and innovation, starting with the core S/4HANA, you talked about 10,000+ customers.
How should we think about, as you're thinking about 2020, 2023, how that progresses forward? Where are we in this adoption life cycle? How are you thinking about that? A question for Juergen, Rob, and then also, I guess Christian, too. It also feels like coordination across your three teams is probably more important now than ever as the line between what's cloud and what digital core blurs. What are you doing from a process standpoint to make sure your three teams are linked up?
Sure. Well, Phil, thank you very much. 10 years goes quick, man. I'll tell you that much. Hasso, back then, he said something else, too. He said, "Give me a happy company." I'm really happy to report that the customer engagement scores are one thing, but they're driven by the employee inspiration of SAP. To be a top employer of choice in every country that's measured by Glassdoor in the high 90s, to have the highest employee engagement scores in the history of SAP, and to have 93% of the women and men in the company say, "I'm proud to work for this brand," we're on the right track. On the innovation and the results of the company. As you know, basically take any metric in the company and triple it, and you can back into where we were then and where we are now.
I think another important part on the innovation is we made the company a cloud company. As you know, back then, we didn't have a high percentage of predictable revenues in the company. Now you're at 65%, well on your way to 80% predictable revenues. The cloud has now surpassed the on-premise business model, and the momentum, as Luka articulated very clearly, is just insurmountable. Including the maintenance base of the core, in the next few years, the cloud will be the prevailing revenue theme of the company. We also moved into the business network, nobody talks too much about the business network. I tell you, I think this is one of the crown jewels of the company. Someone like Thomas Kurian, he'll tell you what he thinks of it.
He thought it was a genius strategy because now you have inter-corporate enterprises driving all kinds of commerce between trading partners. I can remember making a call on a well-known investment bank across the street and talking to the CEO, and he says, "My goodness, I could put my spend management on one common platform and take 15% of the cost out? Wait, is this a trick? Is this a trick question? Do I want to do it? Where do I sign?" I think we've yet to fully monetize the potential of that EUR 3 trillion running through that network. You can take a fine company like Amazon. They got EUR 250 billion running through theirs. We got EUR 3 trillion running through ours. We're doing things at a very high level of scale here. Finally, on the margin side of the equation.
Look, at the end of the day, our marching orders were to get the market share and get this company rocking in the cloud. I think by anyone's measure, being the fastest growing cloud company in the world, we have gone on a good pace. It's also true, and I think Jen has done a great job with the go-to-market organization of the company, that having the hyperscalers there now gives us yet another channel and a dynamite way to team up, like with finance, and basically make everybody happy to change the CapEx and the margin profile of the company, even as we grow super, super, super fast in the cloud. Now, what we're counting on is the high retention rates, the high renewal rates, of course, the lower cost of sale, and the combination of that ever-present dynamite core business.
You put all that together, we have no doubt we can go for the margin. We didn't want to go for the margin too soon, just like now, we have to temper our desire for the margin because there's a huge market to be won. We know you want both, we said we're going to give you both. That's a healthy internal debate. I love these guys, they know that we have to play the levers between making all constituents, all stakeholders happy, still achieve our goals as a growth company, especially in the cloud and the network, take the market by storm in Experience Management. Candidly, Bill, there hasn't been a single time that I've been in front of this group or this company that I felt better about SAP.
I was on the back of an envelope just now, just taking our 2023 ambition, the heuristics that you do, revenue in the cloud, revenue in the core, sort of a margin profile adjustment, I couldn't come up with anything that resembled anything less than double the value of SAP. We know where we're going.
The good news is I can confirm that Bill does not only love the left side, but also-
Also the right side. Exactly. Yeah. That's the thing. If I was you, what I would want to know? I would want to know what kind of management team am I dealing with here. We can have the healthy debates and still be friends and agree to a common set of principles that have to be driven to win. Winning has multiple dimensions when you're a company of our size, scale, and strategic importance in the global economy. Here's a guy that came from training school to being the Chief Operating Officer and running the most important development initiative in the company. Luka, how many years you've been with the company now, 20?
23.
23. Jen Morgan, Rob Enslin and I, we've been to every movie you can imagine over the last 17 years together. Juergen, we had Juergen as the Chief Innovation Officer of the company because he was the closest thing that we could find to Hasso. When you think about the Hasso Plattner Institute and what he was working on and the next generation innovation, we're going for youth here, and we're going for the future. Then you look at what we have with Qualtrics. Qualtrics, there's no reason why these kind of fellows and the women and men at Qualtrics, they want to run SAP someday. Well, come on. Let's go. Jared's like, "No," but Zig's like, "I'm thinking about it." This is wide open. We are in front of you what we're like in closed doors.
I think that's really the chemistry that it takes to really be agile and tough enough to lead and stay ever sustainable in front of all challengers, in front of all comers, and stay ever true to the winner's dream. That's what we're doing.
Thank you. We continue with Michael, then I saw a question from Ross MacMillan over there.
We can cover your process question offline, of course.
Sorry, Juergen. We have time to discuss over lunch as well, if you want to.
Yeah. No, I just wanted to say that Bill also answered your second question. Let's do that over lunch.
You want to do it right now or rather later on?
No.
Okay. Make sure we have enough time, because I'm sure that Bill has some follow-ups on that.
Yep.
Moving over to Michael, please.
Thank you, Stefan. Luka, you've given us some insights in the past into what the license revenues look like. What proportion today is S/4 and HANA? Looking out to 2023, it doesn't look like the sort of rate of decay increases a lot. Are you assuming that by the end of 2023, that's pretty much all just S/4 and HANA? Bill, 2025 seems a long way away, but for some of your larger customers, the migration to S/4 is lengthy. Is there any point at which you would evaluate that 2025 sort of end of standard support for SAP ECC customers? Do we have to get to that, say, 50% adoption by 2020? What would it be by 2023? Thank you.
Right. Thank you.
Yeah. First to start off, S/4HANA is actually not the only area in our portfolio that is still driving very decent growth in on-premise. There is a second one, and that's digital supply chain management. HANA will be in the breakouts, able to tell us why that is. Well, simply because we have the market leading solutions in this space across both the cloud as well as on-premise. S/4 and digital supply chain management, by the way, are great examples for why it's not only an either and or question. It can be an "and" question. Both of these solutions had very strong growth in cloud revenues in the triple digits in 2018, while posting double-digit growth, in software licenses.
I always think when I think about the digital core, I see those two areas of the portfolio together, they by now drive close to half of our revenues on-premise. This will further increase. We had an unusual Q4, I would say, because we also saw growth in our C/4HANA business, although it is pivoting very fast to the cloud. It shows that these solutions really are extremely appealing. In general, we don't expect this to continue, and the rest of the portfolio is continuing to migrate fast to the cloud. Analytics had a great performance in the cloud. This is also very reassuring, while we expect that it will continue to decline in on-premise.
When you think about 2023, it is very clear that we will continue to have a very strong S/4 and digital supply chain business, whereas the rest by then will be really, almost entirely cloud-based.
Michael, one build I'd like to have on Luka's commentary about Q4 and the on-premise business. At the end of Q3, we were very clear, and we told you, "Don't worry about the on-premise business." If you remember, at the end of Q3, it was -8% in constant currency, -10% in nominal currency, and we told you, "Don't worry." There was this reaction like, "Is this the first signal? Is this the drop in the water that the end of the gravy train and the on-premise is in front of us?" We told you it wasn't, and it turned out we were right, and that business isn't going anywhere, and it's really rock solid. Luka gave scenarios today thinking about outpacing our expectations.
I just reinforce that because if you're running this company the right way, and the people on this stage are, you're not going to do unnatural things to make it say -4% in Q3 instead of -8% and sacrifice your reputation for good value and fair pricing in the market just because it's midnight and you need one. I think that's sort of a cultural change that I would just like you to get accustomed to. We want to give you the best in investor return on our behavior, and that was a critical quarter in proving that theory out, and we got all of that back and then some.
On the subject of 2025, I would like you to think about a massive conversion of the ECC install base on the move programs that we have in place now, and the acceleration of them with the hyperscaler strategy that we have embarked upon. I would like you to think that having the 2025 mark on the table is an important one because our customers are building around that, and we're driving that with all we have. There are so many interdependencies with the various cloud network experience management solutions, what we have done with HANA, and the way the main system has to be the S/4 system to capitalize on all of the functionality and the value benefits. I'm confident that the 2025 date is plenty of time. We're going to move our customers, and they're going to go for it.
In the highly unlikely event that there was one or two stragglers out there, we're never going to leave anybody behind. It would be obviously an unattractive solution at that time and also an unattractive cost choice to make. Therefore, you should stick with the 2025 mark. We're going to stick to it.
Thank you. The next question is Ross MacMillan. We have John King, and I see Brian Schwartz. Let's go with Ross.
Thanks. Either Bill or Alex, just on C/4, do you have everything that you want in that portfolio today, or are there still some gaps?
Go ahead, Alex.
Just build on.
Rob?
I mean, one of the gaps we've closed, which was Qualtrics. When we launched C/4HANA, we actually really wanted to get into Experience Management in a big way. This was pretty substantial. In the marketing space, we're partnering. I think ODI is going to be a big player in that space. I would say we are pretty complete in terms of an acquisition and maybe a couple of tuck-ins in certain places. Other than that, the suite is actually, I would say, rocking right now. The Sales Cloud is truly differential to anything else in the marketplace, and the combination of linking marketing straight into sales. I think it's differentiating us in the market already. What we've done in Service Cloud, nobody else is doing. When you talk about contingent workers, employees, we are already in social workers.
We're connecting workers in an Uber-like fashion around massive companies like Schneider. When the market starts to see that, and then we link that into the supply chain, the whole process is linked. We feel really good about where we are. We are already running on HANA in many aspects. Yeah, I mean, Alex, any further comments?
To build on this, two focus areas for 2019. One, we need to deliver on the Intelligent Enterprise, the integration that we speak about. The second is really the ecosystem. There are thousands of companies that provide capabilities. We just launched today our latest release of our marketing cloud that integrates with the Adobe Experience Manager. We need to get away from these thinkings that everything is competitive. We need to work with the ecosystem together to help customers in the outcomes. That's what we're doing through the Cloud Platform, through our App Center. We have now several hundred apps already on our App Center just focused on Customer Experience. You see that number quadruple in a short time. That's our focus, grow the ecosystem, deliver on the promise that we have made.
The assets we have, we are investing in those, you see the releases coming out very, very fast in terms of new capabilities.
Ross, if I may, I think the question also was, around competition earlier in CRM. My read on the situation is we have the assets that we need. We're going to organically build them out to be even more world-class. As Alex said, Rob pointed out, the integration back into the S/4HANA and the Intelligent Enterprise strategy is our competitive advantage. All of these systems, the five clouds that Alex took you through today, are in their own right Best of Breed, as evidenced by Gartner and IDC. We had the facts up there. I recognize that we have brand work to do to let the world know that that's the case. We're not there yet, but we will be. The second thing is, all of our systems are systems of record in a certain sense.
I know my consumer, I know my marketing, I know my sales, I got my service under control. They are very important operational systems. If you look at the competition, they also have some operating systems that are important systems. They tell you what's going on in a business. Where we're now taking a quantum leap forward, is we can answer the question that no one else can answer. Why is a customer behaving a certain way? How do we align our people on that mission-critical opportunity, whether they're in engineering, they're in sales, they're in customer service? What's that doing for our brand? Because if we're not creating fanatics and obsessed people about our products, then we know the brand's not going forward. That's a very external-looking discussion.
Every single discussion today that I see the competition have, I watch them come to my facility, it's really tall, we're going to do a digital transformation review. In that conversation, they talk about all the operating data systems and how they can help them run their business better. No question that's an important thing to do. They can't answer the why. That's what Qualtrics does. This is the pole position now. I also want you to know something. When you see that little market share slide, when you read The Wall Street Journal in the morning and SAP's going like this, the other one's going like that, just remember, they're working on data that's outdated.
They don't have Gigya in there, they don't have CallidusCloud in there, and they don't have several other attributes of what we're doing now on the organic growth side in CRM, and they definitely don't have Qualtrics in there. Wait till you see what we have in store for them on the brand side. I think we have an awareness challenge. We need you to understand we're real, and we're bringing it. Now with Qualtrics, we have the quote, unquote "winning formula".
Thank you. Let's move. Ready for follow-up, Ross? No? Thank you. Jonathan, please. Sorry, just.
Thank you. Probably a question for Rob, I think. Just around, Jennifer's presentation talks around uniting the conversations on moving to cloud and going to S/4. I'm just wondering, how much of a reality is that for some of your largest customers and maybe some of the more complex verticals that you operate in? Obviously, I get that some of the midsize customers, S/4 public cloud is probably already a great solution. What has to happen for you to be able to put some of your largest, most complex customers into the public cloud and, when will that appetite, and when will that product be ready?
Yeah, Christian, you should take that.
Yeah. As I also said in the morning, when you look at the split in S/4 between on-premise, private, and public cloud, you really need to look at this by industry and professional services. There, we are really far ahead on the public cloud side, and it was the right bet because the industry is moving to the cloud. We have others, who say we move first to the private cloud. That we are helping these customers to move back to the standard. Last but not least, of course, we have industries who stay on-prem, and we have now built very strong industry roadmaps.
For me, one of the big lever to get our customers moving is industries, because the industries are changing heavily when you look at what happens in utilities, when you look at what happens in automotive. These are now very strong roadmaps, which will make our customers move. When we talk about the adoption of S/4, let's not forget one thing. When you would ask a CIO, what is actually the hardest part to move from a legacy ERP system to S/4? I would make a bet that not many would say the technology side of the house. Because our customers don't see the move to S/4 as another technical upgrade. Oftentimes, it's really about aligning the data model to make use of the simplified data architecture of S/4.
What about aligning the charts of accounts of your 40 ERP systems you're having to wanting an order to cash process at scale to consolidate the numbers on the fly? Doing this by myself with SAP, oftentimes, the hardest job is to really to do your homework on the process side and on the data side, and this is what a lot of our customers are doing, and that's why I'm very, very excited also when it comes to see even a higher adoption of S/4 in the next years to come.
Thank you.
Maybe I can add to that. We've spent the last good part of the year, the first part of 2018, we surveyed probably our top, when I say surveyed, I mean spoke in detail to our top 158 customers across a lot of industries to understand exactly what they wanted. Coming out of that, what we've done, that really has translated into, we know exactly all of our customers, what their plans are, which hyperscaler, what they want. We've worked with development to make sure that all the services on our cloud platform are ready to go by hyperscaler. Then putting together those journeys, very specific journeys of the sequencing of how do you do this? What are the specific services that SAP is going to provide? That real prescriptive approach, the bundles of services and software to make sure that that happens.
We don't simply want our customers moving ECC into the public cloud. Anytime there's going to be a move to public cloud, that conversion over to S/4, that move to S/4 needs to happen. I agree with Christian's point, a lot of this stemmed from customers calling us about a year ago saying, "Help us. We need your help." That's what led to the reference architecture, the services, and really the very deep engagement across development services and our go-to-market teams with all of the hyperscalers.
Thank you, Jen. Now we move to Brian. I think that's time for one final one. I would give it to Alex Tawit.
Thank you, Stefan. Just wanted to ask the management team a follow-up question. You put a slide up there on your CRM install base, that you still have 4,000 on-prem customers here. It seems like a fertile ground for increasing customer lifetime values. Should we expect that the company will put in a move program like you have done with S/4HANA? The other question I just wanted to ask on that on-prem install base, is there a certain high industry concentration within those customers that are still operating on-prem? Thanks.
Good. Alex?
Expect that we put in a move program also for CRM. We have had lots of success with the S/4 move program. We're actually structuring it exactly the same way. I think the value that the companies see in obviously moving from an on-premise CRM to C/4HANA is very clearly laid out relative to the experience, the unified data model, the demand to supply chain integration. I think the value case is very clear for businesses to do so. As far as the industry, the industries are pretty split across them. It tends to be companies and brands that are probably now just starting to really think about customer experience as a competitive differentiator. As we have seen across every industry, across every company size, customer experience is starting to be on the top of the agenda for companies.
We will see that move program be very successful as well.
Where we also have a similar situation, even with the 20,000+ is in analytics. There, we still have very active, so these 20,000+ are active. In total, it's more than 40,000. Here, we also want to help them moving to SAP Analytics Cloud.
A couple more questions. Yeah.
Yeah. Perhaps, in terms of broadly the industries and on-prem, I think it's very obvious like for industries like financial services and healthcare, which remain predominantly on-premise or in very encapsulated private cloud deployments because of regulatory reasons. You have, in the middle of the spectrum, the discrete manufacturing companies, because they need differentiation. For them, this is really highly critical that they can innovate around their production processes. They start to become more comfortable with private cloud deployments, public cloud just for them is at the core, not yet, at least at scale, a viable model. You have the more services-based business models, professional services, other services, industries which are already very open towards using public cloud. We have some of the largest big four accounting and auditing firms worldwide, which are going through a full public cloud model implementation already.
Thank you. I think that you gave us some extra time, let's take two questions. The first one from Alex Tawit, then I think to go on this side, Adam Wood from Morgan Stanley.
Thanks for taking the question. Just thinking back to Bill's commentary in relation to Qualtrics around customer retention resulting in higher profitability. I wonder whether you've factored that into your guidance around cloud and margins out to 2023. I think at the moment, cloud churn remains quite a lot higher than on-premise maintenance. Are you baking in any kind of reduction in churn in the Cloud business to 2020, 2023? Is there some reason why the churn rate should remain structurally higher in cloud versus on-premise?
Let me take this because it is not really true that the cloud, per se, as a business model, drives a higher churn. You need to take a look at the nature of the solution that you're running and the business target that it fulfills. For example, in our business networks, we have extremely high retention rates, actually higher retention rates than in our maintenance business. Why is that? Well, once you've gone through the effort of hooking up your 10,000 suppliers onto one business network, really reap the benefit from it, you don't want to replace this and repeat this with another vendor. It's extremely high stickiness that you see there. At the other end of the spectrum, you have tactical LOB solutions, which are really becoming quickly a commodity, there you have to fight for your value and your right to renew.
Not all clouds are born equal in terms of their stickiness and renewals. Some are actually more sticky than the maintenance base. Secondly, yes, of course, we have an expectation that the higher base that we have built is also leading, by the law of large numbers, to increasing retention and renewal rates. Actually, we have seen that at work already in 2018.
It was one of the factors that drove the slightly higher cloud revenue performance than the one that we had guided for initially. We expect that this trend certainly will continue, as also the argument around the Intelligent Enterprise becomes stronger. That's why this is so much of a priority. When you really make the Intelligent Enterprise a reality, when you integrate perfectly between the different pieces of the puzzle, why would you want to rip out one or the other of them when it's really working very seamlessly? The more progress we will make there, the better our retention rates will increase.
Might I build just in the interest of time, because this is a really important question. We will be Qualtrics' best customer. I have so much respect for Jen, Rob, and Adaire and what they have done. A lot of that is done because of great account management and good management. They've made great changes to longer term contracts. Look, if you don't see the value in it, don't sign. Okay? I'd rather have you sign a five-year deal than a one-year deal. You got to see the value. We've made those kinds of adjustments. We've adjusted the compensation plans to reward long-term thinking and loyalty-oriented behavior. Jen talked about the customer first engagement team and how that now is really driving value into these relationships, deployment, use, really experiencing the solution.
Still, in the early phases of a cloud deployment, we want the sentiment, and we want it to be completely automated, and Qualtrics will do that for us. It doesn't have to be so heavy and human capital intensive. This is part of the change management within our company and our culture.
If we need that, can you imagine how many other thousands and thousands of customers worldwide need that? I was with Ryan Smith. We were going from Provo to San Francisco. I got a text from Kevin Plank, the Chairman, Founder, and CEO of Under Armour. He goes, "Bill, I love my S/4HANA system. I started to do things with Qualtrics. Please come here and make me lighthouse customer right away. I want to be your lighthouse customer right away." We're already now seeing the development of shoe technology connected to the fitness of the athlete, connected to the database, and actually a process where we have trial customers out there in the market that immediately give sentiment analysis on how they're experiencing the shoe. They do that through Qualtrics, through to the SAP platform. Now engineering has an early purview.
Like, do we have a winner here? Do we double down and invest, or we get this thing out of there and put the money somewhere else? These are decisions that Qualtrics will fundamentally transform in the global economy. I thought a lot about Jared and Ryan and kind of their thought process. They had a bigger dream for Qualtrics than waiting three to five years to make their dream happen. This thing is going to light like a fuse all over the world. It's like watching a fuse just take off. That's why. The loyalty effect is everything in business, especially in a cloud world.
Perhaps the last small data point that shows that the customers are becoming on average more confident, in terms of a long-term commitment towards our cloud solutions, in the sense that the average committed contract lifetime of a cloud contract at SAP has been increasing by 0.6 years, actually, from 3.2 years to 3.8 years over the course of the last five years. That shows you that the stickiness is increasing.
Very good. Thank you. Last question from Adam.
Thanks very much for fitting the question in. I've got two, if I could. Bill, I wanted to pick up on something that you mentioned around SAP having an awareness issue. When we speak to the field of SAP partners, two kind of issues often come up. The first one is that awareness issue or relevance issue that SAP is seen as being a fantastic back-office company.
Yeah.
Not so strong in the front office. There's an old saying that no one got fired for buying IBM, maybe less true today, but do you think that's an issue in the CRM market? The second area of that challenge is around the business users being much more influential in decisions than they used to be when it was the CIO leading it. SAP would be super strong with IT, maybe sometimes weaker with the business. First, do you agree with that? Secondly, if so, what are you doing to try to narrow that gap and change the perception of SAP and what the vision is?
First of all, I want to thank you for the question. Yes, to some extent, I do agree with that. When you're the number one ERP company that ever existed in the world, there's something special about that. You literally own the CIO relationship and the CEO relationship because the CEO knows they bet their job if the SAP install doesn't go well, or if they don't have a fundamental end-to-end view of the way they run their company. That's why you see so much emphasis on CapEx with SAP ERP, which is why I believe in so much the long-term nature of it, because it's not a switchable commodity. This is something like buying a new house. You're going to keep it for 30 years. This is your deal, right? We got so successful with that.
It's not easy changing cultures on general line people that know S/4HANA is hot. So many of the other adjacencies are hot. To say, "I get up every morning and all I think about is C/4HANA." That's where you have Rob, Alex, and their machine now building something that never existed before, and then getting those specialists to focus on that. Jen and Adaire's challenge is to basically say, "I got the world-class CRM. I can't buy another account executive for every account that needs it." Here comes the beauty of the orchestration between two executives that know, trust each other, and really care about each other, making sure that every customer has the shot at C/4HANA, and that the general line people know enough to compete against the Salesforces and the others. We got the solution.
Then on the brand side, we have to get out there now with Qualtrics and change the conversation. We got to start with the front office and how fundamentally we're transforming the front office. The back office will get pulled through the story. In the past, we were talking about the back office and the data, and you couldn't get to the front office conversation. Now, the reason why we have to change that is because every CEO wants to talk about what's going on with the consumer outside my company. Because when they go in the boardroom and they sit in front of 10 smart people, they get fired if they don't know what's going on in their market with their products, how their people are moving in an aggressive way to take care of their customers. Ultimately, do they have a good brand?
Are they well regarded out there? Do people love the brand? Qualtrics is the big story. C/4HANA, omni-channel, e-commerce end-to-end. We got the whole operating system of the company. We got the database. We got the digital core. We got the predictive. We got Leonardo. We're going to run Intelligent Enterprises as fast as they can go to satisfy every consumer in the world in every single channel. That's what we're doing now. I think a year from now, you'll ask me a different question. You made so much progress. How long do you think they can withstand the pressure from SAP? Do you think they have another three or four years in them? Yeah, probably. Give them three or four years, but don't give them 10.
Thank you. Follow-up from you, Adam?
One please. There's been a couple of SAP restructuring plans over the last five years. Do you think you need another restructuring plan to hit the 2023 profitability targets, or can you do that with the business as it stands without recourse to further charges?
First of all, SAP has had in its entire history, which is now 47 years, three company-wide restructuring plans. One in 2009, one in 2015, and one in 2019. I don't see a need after we're done with this in the next foreseeable future. I can't have a crystal ball for the next 10, 15 years, but in the foreseeable future for a company-wide one. We had very successful targeted ones in the past, like the services one in 2017, for example. It was absolutely necessary. We were right-sizing the organization, focusing it on the right skills, on the right services as well. We also changed the service portfolio and look at how that business has resurrected now. That is something that might happen once in a while, but not at a company-wide scale, no.
To be candid with you, we didn't need to do this when we did it. The easier decision was just to report a blowout fourth quarter and a great 2018 and not deal with this. It's not that the 4,400 assumed has anything to do with making our number, because we're rehiring them, but we're putting them in the growth place. I think what you should take away from that action, it's like this is a management team that's not harvesting the short term. They're building a sustainable juggernaut that's going to run the business software industry for the next quarter of a century. That's what we're here to do. Those are the kind of decisions we make behind closed doors, even if the comp plan doesn't tell you to do it.
There isn't a single comp plan that tells you when you have a great quarter or a great year to mix up the messaging with a proactive restructuring because you want to go after more growth. Am I right or wrong? You know how it is. I think that we're with you, and I think that all the heavy lifting in a lot of ways is behind us on many levels now.
Okay. Thank you so much for your time this morning. This concludes the Q&A session. We'll now be serving lunch, and then we continue with the breakout sessions in the afternoon. I think there should be now a slide coming up. Thanks so much.