SAP SE conducted its Annual ASUG and Sapphire customer conference in Orlando this week with the usual sales and marketing fanfare. As anticipated, most all of the SAP keynotes focused on the promise of the Qualtrics acquisition and yet another product transformation for customers to anticipate and endure. 
SAP Opening Keynote
SAP CEO Jim McDermott kicked-off the 30th annual SAP customer conference with his usual football pep rally keynote on how SAP is winning in customer needs for the ‘Best Run Businesses’. Hasso Plattner, Chairperson of the SAP Supervisory Board delivered his usual keynote, and by the view of this Editor, the contrasts could not be starker.
McDermott reiterated a very important revelation, namely that: “customers are the ethos of the SAP brand.”
The bulk of the opening keynote outlined yet another set of promises. They included committing to deliver native integration of data across all SAP Cloud technology stacks (Ariba, Fieldglass, Concur, Success Factors) by the end of this year, that nearly all existing business applications will be migrated to the SAP Public Cloud platform. Further, the Qualtrics acquisition promises to integrate operational and customer experience focused data with significant potential for SAP and existing Qualtrics customers.
In other words, customers need to anticipate and prepare for yet another set of SAP technology transformational initiatives.
Sharing the opening keynote was Ryan Smith, Co-Founder and CEO of Qualtrics. Smith defined for the audience what experience data actually consists of, namely Customer, Product, Employee and Brand related data, buyer sentiments and actions. He characterized the SAP partnership as the opportunity to now leverage experience data with SAP’s business operational data, which has been a 16-year objective. If readers have not assessed by now, the target buyers for Qualtrics are sales, marketing and product management teams, and represents a market space which SAP believes is much broader and more lucrative than ERP.
Sounds great except for the reality that experience a highly competitive arena compromised of a lot of deep-pocketed enterprise technology players to include IBM, Infor, Microsoft, Oracle and Salesforce, among others.
The open question is how long SAP will require to complete the integration, and whether the enthusiasm of Qualtrics is snuffed by the sheer inertia, pricing strategies and overhead management structure of SAP.
One noted highlight of the opening keynote was the unannounced appearance of Apple CEO Tim Cook and pitched his company’s strategic collaboration with SAP on Artificial Intelligence (AI), Machine-Learning and Augmented Reality technology leveraging the Apple iPad as the preferred mobile device. SAP CEO McDermott indicated to the audience that his company would be doubling down on that Apple partnership to include expanding IoS support on the SAP Ariba platform and IoS and Apple Mac support for SAP Cloud applications.
Hasso Plattner Keynote
SAP Co-Founder and Supervisory Board Chairman Hasso Plattner kicked-off his keynote with a humorous and candid note, namely that his talk would be more technology focused and lower cost than the first keynote, anchored by the company’s CEO.
Plattner opened with updated statistics of now amassing 11,000 licenses for the company’s SAP S4 HANA business suite application. (as contrasted to implementations) Further shared was that SAP made an internal recount of all HANA database licenses and that number now exceeds 50,000 when other SAP Cloud platforms are incorporated.
He once again schooled the Sapphire audience on the latest technical changes being made to the HANA database and that most SAP customers can run the database from DRAM resident memory as opposed to database calls. A revised strategy calls for portioning data by date relevancy, with older data archived on disk and most current data in persistent memory without the need for pre-aggregation. He further declared that: “HANA is too good a database to confine to ERP systems.”
We strongly suspect that SAP competitors and some systems integrators will have an alternative viewpoint.
A totally new application, SAP HANA Cloud Services was announced, complete with an on-stage demonstration. Introduced was Gerrit Simon Kazmaier, newly appointed Senior Vice president of HANA and Analytics. The application is still in beta, seeking additional customers, and thus not of general release. No doubt, the announcement was pushed for Sapphire audience consumption, but similar to the SAP S4 HANA application suite announcement several years ago, pre-announced without a lot of substance.
Plattner provided his usual refreshing candor with SAP audiences, admitting that his initial expectations for HANA maturity took two years longer. He acknowledged that initial implementations of S4 HANA applications were challenging for customers, and that data configuration is extremely important. He then explained that one of the reasons that SAP is now pivoting toward the strategy that all customers should migrate their SAP instances to the Public Cloud is to provide better management and tuning of HANA by SAP engineers, as opposed to customers or system integrators. He further acknowledged that SAP is in the process of revisiting its technical development leadership structure to reflect new faces.
Other candid admissions included:
- Customers have pushed back on the frequent number of SAP technical updates, and that the company’s move to Public Cloud will soften that burden.
- That SAP will provide better product “at the detail level.”
- The enterprise technology provider has internally identified 82 technical integration projects, including unlocking Experience, that need to be completed this year- the largest complement of annual projects in SAP history.
- There has been constant feedback that Cloud user interface “sucks” to the point that SAP’s internal development teams were literally sick of that constant feedback. That is supposedly now going to be also addressed in 2019.
- Regarding our previous Supply Chain Matters blog highlighting a published report indicating large numbers of SAP customers vulnerable to cyber threats, Hasso acknowledged that some customers did not keep up to date on required security packages.
- And finally, an acknowledgement that the SAP senior management team and Executive Board is being refreshed with new faces and approaches.
Supply Chain Matters Perspectives
We call reader attention to our prior blog commentary reflecting on SAP’s recent Q1-2019 financial performance. We noted the declaration of Ambition 2023, a rather aggressive effort defined as tripling Cloud subscription and support revenues and growing total revenues to more than € 36 billion, with gross margins upwards of 78 percent. Further declared was the stated goal of a dividend payout ratio of 40 percent or more of the prior year’s profit after tax.
At the Q&A session held for press and analysts this week, McDermott confirmed that current gross margins for Cloud now approaches 64 percent: “not near the potential of SAP”.
We highlight the above for readers because it helps to explain SAP’s aggressive goal to move the bulk of the company’s on-premise customers to the Cloud on an accelerated timeline. Add the indicators from Hasso Plattner that SAP seeks to better control and optimize HANA performance by leveraging the Cloud maintenance update model, and the admission that SAP S4 HANA upgrades remain challenging for customers, including a shortage of qualified consultants.
The implication is that customers will now have to make some significant decisions over the coming months regarding their SAP upgrade and deployment strategy needs. The key date is 2025, which is the end of on-premise ECC maintenance support.
Our sources further indicate that nearly all SAP Cloud development efforts are now being pulled back to Walldorf, resulting in the exit of large numbers of former globally distributed development teams including the U.S.
Regarding the new presence of activist investor Elliott Management, there was little elaboration. McDermott indicated in his news briefing that the relationship with the activist has been very collegial, that SAP represents the best investment in the software market. When asked by a German media reporter, Hasso Plattner indicated no formal contact with Elliott thus far, but acknowledged shareholder feedback on improving the company’s profitability.
As indicated in a prior SAP focused commentary, for the existing customer base, this year’s Sapphire set the stage for the next significant inflection point of the company, the stated fourth major systems development cycle. We strongly suspect that indeed, customers have pointed questions and feedback, either pro or con in nature. This will especially concern SAP’s manufacturing and supply chain management customer groupings.
From our lens, SAP’s former strategy of growing Cloud via major acquisitions must now come to grips with the needs for more aggressively moving on-premise customers to the Public Cloud. This will likely lead to rather active customer boardroom discussion and decisions in the months to come, and a heightened escalation of competition in the Cloud technology arena, including supply chain management.
Supply Chain Matters will feature an additional follow-on commentary to assist readers in their transition deliberations.
Bob Ferrari
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