SAP is well-prepared to take advantage of the ongoing digital transformation going on within the enterprise space, according to company CEO Bill McDermott.
“No company is completely insulated from the macroenvironment,” he conceded Feb. 7, during the SAP Capital Markets Day event in New York.
But the news headlines don’t tell the whole story of what’s happening at SAP and other businesses, he noted, telling attendees: “Companies are digitally transforming” their businesses and, “of all the companies that will benefit from digital transformation, there’s no company better-positioned than SAP.”
Since 2010, “we’ve tripled the company” and “we’ve made SAP the fastest-growing cloud company in the world at scale,” he said. Now, SAP is “chasing after companies like Salesforce in size,” he noted.
Meanwhile, “we see [an] incredible future for our cloud business” and there’s “no sign of slowdown in sight” for SAP either, he noted, adding: “We’re going to triple the size of the cloud between now and 2023” at SAP.
He sees “increasing cloud growth gross margins at SAP” as “low-hanging fruit,” he told attendees, vowing: “We have a lot of opportunity to get 800 basis points in the next years on increasing cloud gross margins and we’re going to get that done.”
At the same time, SAP is “going to be very disciplined in our hiring,” as well as in its future mergers and acquisitions (M&As) after its purchase of Qualtrics for $8 billion late last year, he said.
“As Jerry Maguire would say, Qualtrics completes us,” McDermott said, paraphrasing a line by Tom Cruise’s title character in a famous 1996 movie.
Although the investment that SAP made in Qualtrics was large, McDemott said he “knew” that the deal was “totally worth it” and would enable SAP to “capitalize on a new category called experience management,” which Qualtrics was “by far the de facto standard and the market leader” in. “We see a massive category — $100 billion category – in the realm of experience management,” he said, calling that a “huge market.”
That’s because customer retention is a major issue for many companies, he said, explaining: “There’s $1.6 trillion in economic value that gets forfeited every year from companies losing the customers they already have…. It’s five times more costly to get a new customer than keep the customer you already have.”
Asked if there’s any more big M&As planned by SAP, McDermott pointed out that his company plans to follow the same playbook that it used following its purchase of Concur Technologies in 2014.
“We will not do big M&A until we retire the debt on Qualtrics and, even after that, when I think about the completeness of our vision and the completeness of our portfolio right now, we don’t need one,” he told attendees, sending this message to investors: “Relax, you won’t be surprised. You don’t have to worry. We’ve got everything we need to run away with this marketplace.”