Like most tech giants, SAP is undergoing a significant transformation in its business. Bernd Leukert, Member of the Executive Board of SAP, Products & Innovation, who is responsible for global development and delivery of all of the vendor’s software, spoke to BusinessLine on a range of issues — from its future bets to whether some Indian IT software exporters will stay in business. Excerpts:
In the technology landscape there is a huge premium on ‘innovation’ and ‘disruption’. Where do see yourself in two years?
The premium for us is how do we capitalise on the new opportunities we see. There are plenty of innovations through software, which is helping our business. In the past, we have been more perceived as a backbone that support business processes — whether financials, HR, procurement — but we have significantly transformed into the core enabler of future innovation of companies — which go into the business model. Through acquisitions, we have managed to enhance some parts of our business, by which we are able to retain higher margins. In the next couple of years, our cloud business will be on par with our on-premise licensing business.
System Integration companies (TCS, Infosys and others) who used to be a significant revenue contributor are coming under increasing pressure as their customers’ demands are changing (cloud, analytics etc.). Will they be relevant in the future?
Their business model is undergoing a big disruption. You have to see the spending trends to understand what’s going on. Tech investments are happening in areas where companies can have a competitive advantage, else there is a risk of them losing out. However, if it is for areas which are running off business, they are not investing. If they stick to what they are doing now, they will be irrelevant.
Typically, enterprises are not looking at capex-intensive and long-duration software. How has SAP adapted to this change?
I would say that since the last several years, SAP has provided a variety of deployment options for S/4HANA (the company’s flagship technology which involves in-memory computing) — from on-premise, managed cloud and several public cloud offerings. It depends on our customer’s need. We have completely rewritten our ERP, what we now call our digital core, by leveraging all the capabilities of the HANA platform. A lot of customers are looking at cloud but interestingly we have had a customer wanting an on-premise edition of S/4HANA for their finance department. Having said that it is a rare instance.
There has been a change in the way customers are buying software. The customer selects the areas of business they want to move to with S/4HANA and then want to roll out gradually, targeting business areas by function, rather than implement it through a single large project.
You have three business models, which include your core on-premise licensing. Doesn’t focussing on new areas like cloud and pay-per-outcome model cannibalise your existing business?
We have taken a decision based on the changes on the ground. Some people had concerns when our new business was cannibalising the core business. In the past, I had a customer who told me that he would have paid $8 million for an implementation upfront. If his business made $200 million out of that investment, it was good for him. However, if he had only $2 million, it was bad. Now if we go for a pay-per-use, he does not have a problem in paying SAP $50 million, considering that he made the $200 million.
Europe is seeing an economic slowdown. How much of an impact does it have on your business?
Parts of Europe is isolating itself, closing borders. But on the other hand, in the last couple of quarters, Europe is one of the most stable growth engines for us. In situations where there is uncertainty, companies prefer to go with a safe bet, instead of a start-up. We are well diversified in our business and it does not matter whether the Euro, Dollar or Yuan wins.
