At the start of its Q3 2019 earn­ings call, SAP wel­comed its two new co-CEOs, Jen­nifer Mor­gan and Chris­t­ian Klein. Both praised for­mer SAP CEO Bill McDer­mott for his con­tri­bu­tions over the last decade but were also ready to move the nee­dle in a new direction.

“It’s an hon­or to write SAP’s next chap­ter and fol­low Bill,” Mor­gan said. ​“The fun­da­men­tals and future of SAP could not be stronger.”

SAP announced dou­ble-dig­it growth across rev­enue, prof­it, and cash flow due in large part to new cloud busi­ness, a part­ner­ship with Microsoft, and its newest bil­lion-dol­lar acqui­si­tion — Qualtrics. ​“Our third quar­ter results reflect the momen­tum we’ve built enter­ing the final quar­ter of the year and more broad­ly where we are on our jour­ney of growth and oper­a­tional excel­lence,” Klein said. ​“We are excit­ed and ener­gized to write the next chap­ter in SAP’s sto­ry along­side the best work­force any­where in the tech­nol­o­gy indus­try,” Mor­gan added.

ASUG iden­ti­fied these five things that cus­tomers should know based on the dis­cus­sions in the SAP Q3 2019 earn­ings call.

1. Who Were the Big Players?

SAP report­ed rev­enue of $7.5 bil­lion, a 13% increase year over year. But who were the big play­ers in this rev­enue hike and how did they con­tribute? In Q2, SAP announced that cloud rev­enue grew by near­ly 40% year over year. The trend con­tin­ued in Q3, with new cloud book­ings up 39%, and up 51% exclud­ing infra­struc­ture as a service.

SAP also announced a new part­ner­ship with Microsoft, which con­tributed 18% to the total new cloud book­ings growth. ​“This is rep­re­sen­ta­tive of the strate­gic choic­es we’re mak­ing,” said SAP CFO Luka Mucic. ​“We’re dou­bling down on the part­ner­ships with hyper­scalers to dri­ve a healthy and high­ly prof­itable busi­ness, both in the cloud plat­form and SAP S/4HANA.”

SAP S/4HANA was also a big play­er in Q3. Adop­tion rose 25% year-over-year, adding 500 new cus­tomers in the third quar­ter and bring­ing the total to near­ly 12,000 cus­tomers who have pur­chased licens­es. The announce­ment, again, stopped short of shar­ing how many of those cus­tomers are actu­al­ly live, but the most up-to-date num­ber—3,000 — we have is from SAP­PHIRE NOW and ASUG Annu­al Conference.

Last, but cer­tain­ly not least, is the newest kid on the block — Qualtrics. ​“We made a bold move with the acqui­si­tion of Qualtrics, and cus­tomers are excit­ed about the holis­tic expe­ri­ence man­age­ment plat­form it pro­vides,” Mor­gan said. Since May, SAP has added 300 cus­tomers to the Qualtrics plat­form. It also recent­ly announced a new human expe­ri­ence man­age­ment (HXM) plat­form, which is accel­er­at­ing adop­tion of SAP Suc­cess­Fac­tors Employ­ee Cen­tral, adding more than 150 cus­tomers in this quar­ter alone.

2. How Are Part­ner­ships Lead­ing to More Growth? 

Although SAP stat­ed that it will con­tin­ue to give its cus­tomers a choice when it comes to pick­ing a hyper­scaler, Mor­gan not­ed that, ​“Many of our enter­prise cus­tomers have cho­sen Azure, and in response, SAP and Microsoft estab­lished a part­ner­ship to move on-premise SAP ERP and SAP S/4HANA cus­tomers to the cloud through indus­try-spe­cif­ic best prac­tices, our joint ref­er­ence archi­tec­ture, and SAP cloud deliv­ered ser­vices on Azure. This part­ner­ship will both accel­er­ate and sim­pli­fy cus­tomer migra­tion to SAP S/4HANA on Azure.”

A new set of part­ner­ships called project Embrace was first announced at SAP­PHIRE NOW and ASUG Annu­al Con­fer­ence. The recent announce­ment solid­i­fies a three-year deal between Microsoft and SAP in which both com­pa­nies will ide­al­ly address the dif­fi­cul­ty to shift from SAP’s tra­di­tion­al on-premise mod­el to remote­ly host­ed services.

“By putting the cus­tomer first,” Mor­gan said, ​“we’ve com­bined inno­va­tion with Azure to cre­ate the opti­mized envi­ron­ment for SAP S/4HANA to enable the inte­gra­tion, orches­tra­tion, and exten­sion of SAP sys­tems in the Azure cloud. As always, choice will pre­vail as we rec­og­nize that many of our cus­tomers also run SAP on Ama­zon Web Ser­vices (AWS) and Google Cloud Plat­form (GCP). In this case, our cus­tomers will still have the ben­e­fit of the best run SAP and their pub­lic cloud of choice.”

3. Why Does the Expe­ri­ence Matter?

In the third quar­ter, seg­ment rev­enue in cus­tomer and expe­ri­ence man­age­ment was up 75% — in no small part due to Qualtrics and SAP C/4HANA — to $413 mil­lion year-over-year.

SAP will con­tin­ue to invest in its cus­tomer expe­ri­ence port­fo­lio and extend it into SAP Ari­ba, SAP Con­cur, and SAP Field­glass. ​“Qualtrics has allowed us to rede­fine how we’re hav­ing con­ver­sa­tions,” Mor­gan said. ​“It’s allow­ing us to start con­ver­sa­tions in places we wouldn’t tra­di­tion­al­ly go.”

The com­pa­ny is putting its mon­ey where its mouth is by using Qualtrics to track its own employ­ee expe­ri­ence. ​“Our employ­ee engage­ment index is near record high, but we won’t stop there,” Klein said. ​“In addi­tion to fur­ther sim­pli­fy­ing our inter­nal process­es, we are cur­rent­ly con­duct­ing our annu­al employ­ee sur­vey using SAP Qualtrics tech­nol­o­gy. It will give us detailed insight into every­thing. Employ­ees are crit­i­cal to our success.”

4. What’s the Word on the Street? 

The reac­tion around the Q3 earn­ings report has been most­ly pos­i­tive and well-received. Diginomica’s Stu­art Lauch­lan not­ed that it’s a sol­id Q3 and a good launch­ing point for the new co-CEOs to build upon. But not every­one was fix­at­ed on the numbers.

Indus­try ana­lyst Josh Green­baum focused more on the untold part of the Microsoft announce­ment, tweet­ing, ​“SAP is pick­ing Azure as its pre­ferred cloud plat­form for the Embrace pro­gram, which at one time was to include GCP and AWS. This is a rare, exclu­sive agree­ment that is going to have huge repercussions.”

In response to the news, ASUG CEO Geoff Scott said that ​“SAP cus­tomers make a deci­sion on a hyper­scaler based on a vari­ety of impor­tant fac­tors. We con­tin­ue to see this seg­ment of the mar­ket as very flu­id and encour­age our mem­bers to con­sid­er all options when it comes to mak­ing this very crit­i­cal deci­sion for their organizations.”

ASUG News will pro­vide more infor­ma­tion as it emerges and will watch vig­i­lant­ly for cus­tomer reper­cus­sions if they arise.

5. Where Is SAP’s New Lead­er­ship Focusing?
   

Although Mor­gan and Klein have been co-CEOs for a lit­tle more than two weeks, they’ve already hit the ground running.

“I’d like to point out three focus areas that I believe will be crit­i­cal for our suc­cess in the next chap­ter of SAP,” Klein said. He called out the val­ue of feed­back, say­ing, ​“SAP has always been best when we lis­ten to our cus­tomers,” The sec­ond was inno­va­tion. ​“Our con­tin­ued growth through inno­va­tion is based on our abil­i­ty to lever­age R&D resources effec­tive­ly and effi­cient­ly. We will fur­ther strength­en core inno­va­tion with our cus­tomer to real­ize true busi­ness val­ue with the help of new tech­nol­o­gy,” he said. And the third was SAP’s employ­ees. ​“It is our col­leagues that dri­ve inno­va­tion, pro­vide val­ue to our cus­tomers, and con­sis­tent­ly pro­mote our qual­i­ty and profitability.”

Mor­gan and Klein aim to con­tin­ue cloud rev­enue growth into 2020 and more than triple it by 2023, which is a bold plan. We will hear more on how they will do that after Cap­i­tal Mar­ket Days, being held Nov. 12. ASUG News will fol­low that sto­ry and report as we learn more.

ASUG mem­bers can join us for dis­cus­sions like this with ASUG lead­er­ship at one of our nation­al or region­al ASUG Exec­u­tive Exchange events near you to net­work with oth­er exec­u­tives look­ing to get more val­ue from their SAP systems.