SAP’s Brilliant Transformation: And They’ve Only Just Begun

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Six months ago when SAP announced plans to buy Qualtrics for $8 billion, the ankle-biters screeched, “They’re paying way too much!”

Three months ago when SAP announced it was going to churn a tiny percentage of its workforce to ensure it could bring in top-priority skills for the future, the nickel-counters howled, “They’re gutting the company!”

Within the past several weeks, as two executive-board members left the company, the knicker-knotters wailed, “They’re falling to pieces!”

So we can only wonder what the doomsday brigade is blubbering about now. Because SAP’s blockbuster Q1 results sent its stock price rocketing up 12% as the company delivered stellar results across every phase of its business.

Putting SAP Q1 Revenue in Context

Back in the rational world, what SAP’s leadership team has really been up to transcends those short-term and fleeting details by light-years. SAP is rewriting the rules of the enterprise-apps business in ways that every competitor will have to respond to in some fashion.

And while that Qualtrics acquisition isn’t the only factor behind this momentous disruption, it is surely the primary one. Because it enables SAP to do what many enterprise-software companies have wanted to do for years but have not been able to achieve:

  • offer a consistent set of truly end-to-end solutions that unites supply chain and demand chain for a true 360-degree view of the customer;
  • span the formerly disparate worlds of on-premises and SaaS;
  • capitalize on the current—and completely valid—obsession among companies in every industry for creating fabulous customer experiences;
  • obliterate data silos; and
  • infuse every application in its massive portfolio with modern technologies from ML to IoT to advanced analytics and AI.
From the SAP Q1 2019 Earnings Call

CEO Bill McDermott hammered this point home in yesterday’s earnings call with analysts. McDermott offered this perspective on how Qualtrics and experience management completely transforms—and transcends—the CRM space:

“When you add experience-management context to the customer relationship, now you’re talking about a whole new system of innovation” as opposed to traditional systems of record like CRM, McDermott said.

“So we have fundamentally moved the cheese—the CRM game is different and the best part about that is the experience economy is a massive market. And at the same time, this is complementing our core,” he continued, laying out the 360-degree strategy.

“This is making the intelligent enterprise more relevant than ever. So while it’s really great as an entirely new category, what we’re seeing is it’s really amplifying the power of the SAP core—and that’s the intelligent enterprise vision we’ve been on for several years now.”

SAP Q1 Cloud Revenue By the Numbers

Just a lot of fancy talk? Anyone who thinks that deserves to be lumped in with the geniuses who carped about the Qualtrics deal. Or those who wet the bed over the very normal employee turnover. The proof is in the superb numbers SAP posted yesterday. You can get the full story here, but let me offer a few Q1 highlights:

  • cloud revenue of $1.77 billion, up 41% in constant currency;
  • software and cloud revenue of $5.64 billion;
  • cloud subscribers totaling 195 million;
  • cloud revenue by region: Americas up 49%, or 39% constant currency; EMEA up 42%, or 39% in constant currency; and APJ up 55%, or 51% in constant currency;
  • Business Network revenue (Ariba, Concur and Fieldglass) of $829 million, up 18%;
  • Customer and Experience Management revenue of $342 million, up more than 100%;
  • projected cloud revenue for 2020 of $9.6 billion to $10.2 billion totaling almost one-third of total projected SAP 2020 revenue of $32 billion; and
  • projected cloud revenue for 2023 of more than $16.9 billion, making up almost half of total projected SAP 2023 revenue of $39.2 billion.
SAP has updated its revenue outlook, in part on the strength of SAP Q1 cloud revenue
From SAP’s Q1 2019 Earnings Release

Early last month, after attending Qualtrics’ annual customer conference and getting to hear from some SAP executives about the full power of the acquisition, I stuck my neck out a bit—well, actually, a lot—and wrote a piece called I Have Seen the Future of Enterprise Software, And It Is SAP Qualtrics.

And after seeing SAP’s Q1 results and hearing about their plans to continue disrupting the software business to meet the needs of the global digital economy, I’m more certain than ever that that headline is completely valid.

 

Disclosure: At the time of this writing SAP was a client of Evans Strategic Communications LLC.

 

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