José Duarte talks to Janine Milne about the company’s plans for the cloud and the mid-market.
Q. You became CEO EMEA just before the crash. How did that change the strategy for the company?
A. The world has changed dramatically in the last 12 to 15 months. We saw a major wave of concern in Q4 2008 and Q1 2009 that brought many investments to a standstill. There really was no visibility about was going to come and our customers were under huge financial stress, because their source of finance was dry and we did have clients who defaulted on paying.
Companies stopped investing in capital goods and that includes software. In Q2 we started to see that business was no longer in freefall but in stability mode. IT has been impacted negatively by the shrinkage of investments, but what is interesting is that every crisis creates new ways of doing business. We see many companies running out of cash and pulling out of markets, but the strongest, like SAP, are emerging stronger.
The type of business being done has also changed. Companies have a much more conscious decision-making process with more emphasis on establishing the right business case and tighter controls on ROI. As a result, SAP has adapted to that paradigm and is doing more smaller transactions and selling based on predicable and tangible impacts, not just technology. The market is much more mature and adult and SAP is encouraged by this because this is what SAP is about, not vapourware.
Q. Has the UK been impacted worse than the rest of Europe?
A. The UK was the first to be impacted and was impacted pretty strongly, but by the second half of the year we started seeing opportunities in the UK. We still see the economy is pretty shaky, but I spend my life travelling all over the whole region and it’s not a fancy place to be. There are only a few little oases like the Middle East where the impact was less than in Europe.
Q. The large customer market is saturated, so is the mid-market your main focus now?
A. We started looking at the mid-market a few years ago and it now represents 30% of revenues and 70% of the deployments we sign. We only see that going up, although in tough times this market is not as resilient as that of large companies.
The strategy goes way beyond conquering new market segments, but into new areas of technology. Two years ago, we acquired Business Objects and this is the fastest growing business for SAP. The integration went really well and has been a good buy for the company. We are also making solid inroads into everything related to sustainability and that goes beyond green and looks at things such as compliance.
We’ve grown from being a simply company with a mono-product – ERP – to having a portfolio of abilities, geographies and market segments and product sets, such as CRM, BI and supply chain.
Q. The cloud is a hot topic right now. What is SAP doing in this space, in particular with Business By Design [SAP’s mid-market cloud ERP offering]?
A. Cloud right now is a big buzzword, but it has been around quite some time and there are two types: private and public clouds. For many years, people have used and consumed applications out of private clouds – ebusiness is all about this. Now we have the public cloud and Software-as-a-Service (SaaS).
We felt it was the right time to market [with Business by Design] but we had to ‘de-accelerate’ entry into market. Business By Design is a unique product because it’s a suite while most players products are niche. With SAP you can run your company wall to wall with accounts, payroll and so on without having to interface to disparate systems. SAP is absolutely committed to Business By Design with our second release in June and we have started heavily on sales efforts across six markets.
Business By Design is for small and medium businesses, but we also want to serve a larger audience. Our belief is that large enterprises will not run their mission-critical applications on public clouds. What companies have told us is they’d like to keep a private cloud in-house for mission-critical systems, while deploying a public cloud for the fringes of applications. So SAP is developing and will deliver a set of applications for SaaS on the public cloud for this area. We will see a full suite for small and large enterprises with a host of applications.
Q. Given the groundswell of interest in all things cloud, is this changing the competitive landscape, particularly as you are quite late to the cloud table?
A. From a business volume standpoint these are still relatively small players, although Salesforce.com is larger than Netsuite. This is not a mature market at all. I’ve seen this so many times and I believe that our time-to-market is quite good. You hardly ever see big players at the beginning of trend, but when they do come in they consolidate and gain speed. We’ve acquired in-cloud companies such as Clear Standards which does carbon impact management and a few years ago an electronic catalogue for strategic sourcing which is available as SaaS. You don’t hear about it much because it’s relatively small in terms of revenue.
The competitive landscape will change in the same way as 10 years ago with the dot.com phenomenon. We will see more viable means to deploy applications but it won’t be an either or scenario – it’s just one more way of consuming applications.
Q. Has the growth of cloud computing and the pay-as-you-use model affected the way you charge for licences?
A. We have been adapting and customers are looking for ways of doing business that are much more cash friendly. One way to accommodate that is financing. So what SAP did a few years ago was start a strategic engagement with big clients and craft subscription-based pricing. In 2007, it went unnoticed in the market, but we stopped reporting one of our KPIs as software revenues and reported it software-related services. We believed subscriptions would pick up in a big way and we’ve now brought that model to a much broader base and subscriptions are available for small and medium companies.
Q. What are your short-term strategic goals for 2010?
A. Let me put it this way. As we see it today – and we are quite careful about making projections – 2010 will still be a challenging year. When I talk about EMEA I break it into two blocks: emerging markets, such as CIS, the Middle East and Africa, which are tremendously dependent on the price of natural resources, such as oil and gas and the rest of Europe. The other block is the rest of Europe: a heavy net exporter which depends on the well being of the global economy. I do think the emerging markets will ramp up, but for Western Europe – 80% of GDP of Europe – it’s something we need to consider.
This week, France had sweet results, but the UK market is still hurting and so are the markets in Spain and Italy, so it’s a mixed bag. In such an environment all we can do is keep investing in being close to our clients and offer technology that can help them gain efficiencies in their operations. You can’t do that without state-of-the-art technology.
Nine months ago people stopped because there was no way they could afford to invest; today there’s no way they can stand still. So this is one of the things that is fuelling our business. The other thing is the business-user arena. Clients are getting insight into how their business is running and planning and here again Business Objects is helping and will grow next year.
Sustainability will be the next big thing. It’s not about green IT, it’s a much broader picture. It’s about sustainable environmental policies and security; it’s about being compliant and about smart management of resources. How you can do this is through technology – you can’t do it with a pencil and paper.