SAP CEO Bill McDermott Talks Cloud, Being 'Cool'
When InformationWeek got on the phone with SAP CEO Bill McDermott, the conversation was wide-ranging and thought-provoking.
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SAP released its quarterly earnings report on Oct. 20,. CEOs generally make the rounds of analysts and journalists following the release, and SAP offered me a slice of Bill McDermott's day. I agreed, and we got together on the phone for a conversation that was wide-ranging and informative -- and pretty much avoided the earnings report altogether.
It's not as if McDermott had reason to avoid talking about the report. SAP's earnings were somewhere between very good and outstanding, depending on how you choose to interpret them. It's more that I tend to focus on products and technologies, and McDermott is a man who's passionate about the technology portfolio he's assembled as SAP's CEO.
Our 45-minute discussion ranged over a number of subjects, though I was a bit surprised to find, when I went back to review the recording, that there had only been seven questions. In those questions we spent a lot of time on the cloud and business networks, looked at how those technologies are having an impact on customers.
[Read SAP Doubles Down On Cloud Computing.]
We finished up with something that I've wondered about for a couple of years: How did SAP go from one of the most stodgy of conservative software companies to an organization that has schoolkids eager to line up to use its tech for the coolest sort of student and maker projects?
The following conversation has been edited from one that ran considerably longer than the scheduled time. Like many men of strong opinions, McDermott doesn't easily let go a topic once he's sunk his teeth into the subject.
InformationWeek: In the earnings call [Oct. 20], you talked about platform customers and cloud customers. Are you seeing any trends in the type of businesses that are the customers of each type of product or service?
McDermott: The platform conversation, I believe, is being generated from the concept of the business-to-consumer economy. In the world of mobile you're basically dealing with the business-to-consumer economy. So, every CEO you talk to, along with their board, knows that they have to digitize their business so they can remain competitive. The best way to do that is to connect with your consumer. The consumer is on a device and they expect that you're going to connect with them in any channel, on any device, and they're going to be able to conduct business with you.
To do that, the 20th century data platforms cannot keep up, and what makes matters, in a sense, more complex, is the disk-based computer is too slow for the real-time enterprise. And then adding on the complexity of the warehouses and all the other "analytics engines," and all the aggregates that now get created in the enterprise, causes this massive sea of complexity. So where we see the platform in particular is removing layers of complexity.
In some ways that's [removing steps from] the business process or work process -- how do you take steps out of that workflow? The second piece is how do you radically simplify the stack, or the amount of hardware companies have to invest in? And how do you create a live platform, where the company's data can be immediately available to that consumer so they can do whatever they want in any channel? And how can the executives of that company see what's going on from the back offices and the supply chain, to real-time financials, to the behavior of their customers in every channel, from every corner of the earth? That's where platform comes in.
InformationWeek: You mentioned devices. Is the adoption of mobile devices something that's happening at the same pace all over the world, or do you see big differences between the developing and developed world?
McDermott: Mobile is completely global. What was interesting about the emerging markets is that they were native in their adoption of mobile, because they didn't have all the legacy infrastructure that the more mature markets had when mobile first broke out on the scene. But at this point each company is rethinking their strategy around the mobile digital consumer, and how they will structure themselves and utilize technology in more effective ways to execute their strategies.
InformationWeek: Let's turn to some of the acquisitions SAP has made in recent years. A lot of mergers and acquisitions have foundered over the clash of cultures coming together. Is meshing the cultures something that's easy for SAP, or is it as much a challenge for SAP as it is for many other companies?
McDermott: It's a very important question. The reality is we've taken a different approach to M&A than most large-scale technology companies. Essentially, they take out the back-office functions in these companies. They feel that they're essentially buying technology, and they want to snap those companies into their infrastructure, into their brand, into their identity, and do it in a way that gives them the biggest short-term yield on the revenue and on the profit side.
We take a very different approach. Our first major M&A, you'll recall, was Sybase. We knew we had the HANA ambition for the company. We knew we were on to something with in-memory computing. But we also knew we needed scale to be a major player on the international scene in the enterprise. So we bought Sybase and we got a couple of thousand engineers to complement our HANA ambition. At the same time we didn't entirely consume Sybase within SAP, we really used it as an innovation arm within SAP.
I worked very closely with [former Sybase President/CEO] John Chen to make them feel that their independence was, to a certain extent, protected, while at the same time we were kind of friends with benefits. They could leverage the global reach of SAP, and we could leverage the engineering and the innovation cycle they had in the database world.
We actually did the same thing with SuccessFactors. When we acquired human capital management with SuccessFactors, with Arriba, and with Concur, we worked very hard to keep the leadership and respect of those companies. Because if they weren't better than us at the specific things they did, then we had no business buying them in the first place.
We thought it was our job to respect that, and learn from that, and essentially have them be change agents within SAP. When we bought SuccessFactors, one of the big reasons for doing it was to buy the cloud DNA. In 2010 we had very little revenue in the cloud and very few users in the cloud. Today we are the fastest-growing enterprise company in the cloud, with 85 million users, and we're well on our way to a billion dollars of revenue in the cloud. What we've done is maintain the development teams of the companies. We've maintained the culture of these companies, and we've even maintained the brand identities of the companies. Because we really think the secret sauce is that none of us [is] as smart as all of us.
InformationWeek: Speaking of Concur, one of the things mentioned [during the Oct. 20 earnings call] was the idea of Concur spreading down into the small and medium-sized business market. At Sapphire Now 2015 (the annual SAP user conference) I talked to a lot of companies that were smaller than the traditional SAP customer. Is this on purpose?
McDermott: Absolutely. I mean, if you look at us today, we have nearly 300,000 customers. We have 80,000 SME [small and medium-sized enterprise] customers just in SAP's core business. As I think about Steve Singh [Concur CEO and leader of the SAP Business Networks Group] and what he built at Concur, what I find compelling is he has a very good small- to medium-sized business channel. As a matter of fact, today 85% of their sales come from non-SAP accounts.
I'd like to see us leverage the channel strategy of the companies we acquired, and always maintain a healthy balance of their products being sold into SAP accounts and also non-SAP accounts. One of the great ways of building a bridge into the future for our flagship technologies is sometimes to have the innovation at the edge of the enterprise. By innovating on the edge of the enterprise, you very often can then start the conversation on a broader basis: How do we digitize your whole company? And how do we, on an end-to-end basis, become your innovator of choice?
The one thing that's been completely under-publicized is we've also started a direct-to-consumer business which we call the SAP Digital Store, where customers don't even have to deal with a sales channel. They can deal with SAP on a direct basis, up to and including ordering our software with a credit card. That business is a brand new business that we're already calling a $100 million business, and we are just getting started. So I think this can be a $5 billion business in the not-too-distant future.
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