SAP’s Capital Market Day was held at their Hudson Yards office in New York City earlier this week. Among the presenters were CEO Bill McDermott, CFO Luka Mucic, Chief Commercial Officer Franck Cohen, and executive board members Bernd Leukert and Jennifer Morgan. During the four-hour event, SAP announced their ambitions for 2020 and the direction of their products while keeping a strong focus on the Cloud.
The following is a summary of the key SAP messages UpperEdge took away from the meeting.
Cloud Revenue Growth
In 2018, Cloud subscription revenue is set to exceed license revenue for the first time in company history demonstrating SAP’s ability to transition to the Cloud. SAP further demonstrated its confidence by committing to a 30% annual growth rate through 2020.
License Revenue Growth
Although SAP has set guidance based on an anticipated decline in software license revenue, it noted 2% growth in FY17, attributing the growth to customer demand for additional on-premise licenses.
Operating Profit Improvement
Another commitment SAP made to Wall Street is a 9% increase of CAGR between 2017 and 2020. They highlighted the efficiencies to be gained via relationships with Google, Microsoft, and Amazon and their ability to shut down their own data centers, lowering their costs and allowing for margin improvement.
Increased Predictable Revenue
Striving for a more sustainable business model, SAP committed to an increase in predictable revenue from 63% to 70-75% by 2020 — another goal that cloud subscriptions will help them achieve.
S/4HANA Migration Opportunity
Having migrated less than 20% of its install base to S/4HANA, SAP highlighted a huge opportunity for more S/4HANA migrations. It also confirmed their implementation partners have trained over 30,000 people on S/4HANA, indicating the preparedness of the ecosystem to handle demand for resources.
Targeting SMB Market
SAP indicated that certain software vendors in the SMB market have had it too easy, and they will now introduce heightened competition by increasing their own efforts in that market. The company highlighted the opportunity in the SMB market and illustrated their commitment to pursuing this demographic by showcasing some of their SMB customers during the day.
Expansion of CRM Portfolio
In January, SAP acquired Callidus software for 2.4 billion and their plans for leveraging this significant acquisition was heavily discussed at yesterday’s event. This strategic move by SAP adds a comprehensive suite of applications to their CRM portfolio and puts them in direct competition with Salesforce.
New Consumption-based Pricing Model for SAP Cloud Platform
Also mentioned, was SAP’s announcement at the Mobile World Congress held in Barcelona in February, reiterating SAP’s rollout of a new consumption-based pricing model that allows customers to buy Cloud credits and redeem them for any available SAP Cloud Platform service.
Overall, SAP is flexing its Cloud muscles and changing the way it does business. These ambitious goals will have an impact on current and future customers.
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