Audio: Bill McDermott Earnings Call
Earlier today SAP set out its detailed earnings for Q4 2010. There were few surprises and, as predicted, SAP has fully provided for the impact of the TomorroNow lawsuit, tempered by a tax credit of €359 million ($491 million.) Even so, questions remain. In a call with Bill McDermott, co-CEO, I asked the following questions: (this is not a verbatim transcript but extracts of key points)
Qu: It looks as though the cost of software and software related services is up substantially. Does that mostly relate to the on-demand business?
A: Where we have invested is in sales and marketing and it is true that any time you go into an on-demand business there are investments that need to be made up front...and we are going to scale Business ByDesign in 2011, there's no question about that.
Qu: R&D looks fairly static so how will SAP deliver on its vision for innovation if this line item continues to fall relative to revenue?
A: The key in innovation is not head count, the key is doing things more effectively and we learned this in HANA as an example where we had announced the product at SAPPHIRE and launched the product in November globally and we now have 50 customers that are using it....you're basically seeing a much more fluid fast cycle time on SAP innovation from the factory to the customer.
Qu: Some of my colleagues are a little skeptical about ability to deliver to promise (in the mobile arena.) Do you see a market risk if SAP falls short on delivery?
A: I don't expect that we will...we made a commitment last May...for this SAPPHIRE. We're on target for doing that.
Qu: What's going on in Germany. The economy is relatively strong but the absolute increment seemed relatively weak compared to other regions. Are there any specific factors in that market?
A: Germany is growing good, generally in the high single digits to low double digits when you look at the software and software related services...Germany is the fastest growing market for Business ByDesign, they're adopting very quickly. Exports are up and that's a strong base for us.
Qu: How do envisage SAP accelerating the on-demand revenue stream?
A: We want to get more indirect sales...using the partner ecosystem to broaden our reach more dramatically is the fastest way to scale Business ByDesign. As we scale there will be large high tech companies, telco companies even governments that will want to adopt it as a standard. We expect to have a thousand installs this year.
Qu: Do you have a particular time frame in mind for that first thousand?
A: Definitely this year and I'd like to see it in a month before the end of this year. I'd like to think we'll hit that around the third quarter.
Qu: You don't anticipate it will cannibalise other lines of business?
A: I really don't. I think at the end of the day you're going to see small and mid that were heretofore uninitiated because they didn't have the technical expertise, resources or funds to bring a system on-premise so the cloud is the way for them to go. Because for them this is not just a slice of functionality but this is a suite where you can run your business. The nice part is [you can start small and grow the system.] Some big customers will do on-demand.
Qu: HANA was the big thing for 2010, what's the big thing for 2011?
A: I think there's a lot of money on the table for HANA in 2011....the ability to truly change the way you run a company is fascinating. I think the mobile and unwired platform is huge...I truly believe this is the year for Business ByDesign.
Nothing particularly revolutionary there but as Gartner's Thomas Otter says:
There are now many moving parts in SAP’s strategy, and communicating the on demand, on premise and on device vision in a way that customers can clearly grasp will be vital. For the first time in a while, SAP has some genuine new product opportunity. The true judge of innovation, though, is not whether vendors label products innovative, but how customers do.
Bill McDermott sounded upbeat but the proofs will unfold in the coming months.