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SAP AG (NYSE:SAP)

February 12, 2013 7:00 pm ET

Executives

Sanjay Poonen - President of Global Solutions Go-To-Market

Analysts

Mohammed E. Moawalla - Goldman Sachs Group Inc., Research Division

Mohammed E. Moawalla - Goldman Sachs Group Inc., Research Division

Okay, good afternoon, everybody. We are very pleased to have SAP present at our tech conference day. And a pleasure to have Sanjay Poonen, President, Global Solutions and Head of the Mobility division back at our conference again this year.

Sanjay Poonen

Thank you, Mo. A pleasure to be here.

Mohammed E. Moawalla - Goldman Sachs Group Inc., Research Division

And we also have, from the company, from Investor Relations, Scott Smith and Karen Moran as well here in the front row.

So, Sanjay, I guess if we can kick things off, just to talk through the environment. You've had your Q4 results a couple of weeks ago. So maybe if you can just give us a sense of the dynamics you are seeing in the business across kind of the 3 main territories.

So North America, where it's been, I guess, a slightly disappointing quarter, but sounds like nothing too structural, but if you can walk us through the changes you've made there; and the environment in Europe; and then, obviously, the emerging markets, which is now becoming an important part of the story.

Sanjay Poonen

Yes, absolutely. Happy to. So we announced our Q4 in 2012, and it was the best year in the history of SAP. Revenue continues to grow with the strongest Q4. And yes, as you've seen, our market capitalization continues to grow. I think performance has done very well.

We had, in the Americas altogether, 22% growth for Q4 and about the same when you looked at the 2012 picture. EMEA grew 10%, about the same for the entire 2012 picture, and APG grew 24%. So overall our growth was 16%, 17% for the cloud and subscription business. And I think, as you looked at the overall, we continue to see relative optimism in the environment, where we continue to look at ways in which we can optimize our performance and execution. We keep doing that.

But the general consensus is it's a different SAP than what our CIOs and customers have seen probably 3, 5 years ago. It's -- this last week was the 3-year anniversary since Bill and Jim were appointed as co-CEOs of the company. And the trifecta of where we're investing in mobile, in big data, in analytics and cloud have really rejuvenated the story. When I can go into a meeting and talk about what we're doing to transform a company's view of the world with mobile, all that we could do to transform their data management.

So we made some changes organizationally. Rodolpho Cardenuto was running our Americas, he was based in Miami, has a real good purview of the entire Americas area and I think he's going to be a great leader. We have now expanded our view of Middle and Eastern Europe and EMEA to make sure we have great leaders driving that. And a field that's fired up, we came back from our field kickoffs. We want to have a fast start this year.

And the big thing that everyone is excited this year is about suite on HANA and the ability to take this hot product that we've had called HANA, move it beyond just the data warehousing area to transactional processing and OLTP. And I think this should be, for us, a big moment in the history of SAP, that's almost symbolically like our R4 release, if you would.

You asked about the emerging markets, also doing very well. We had great growth in Brazil to the tune of 20% up, Mexico 50% and above, and Middle East and Africa, 50%. So we have lots of opportunity we see in the BRIC countries and in the emerging markets. In fact, we've put a focus on those fast-growing markets. And in many of those markets, there's still a very live market to buying transactional and processing ERP software to automate their processes. So we see that market very much alive for some of the reengineering that happened perhaps in the U.S. in the '90s and early 2000s. That market's just starting to have it.

And in many of those places, we are way ahead of either the other global players in the applications market, or even local competitors, in being, hopefully, the de facto standard for any line of business standardizing us. And then you add, on top of our core applications, the benefits we could provide those companies for analytics, big data, mobile, whether it's on-premise or cloud, it's a very good story.

Question-and-Answer Session

Mohammed E. Moawalla - Goldman Sachs Group Inc., Research Division

Maybe before we delve into the kind of the new product cycle story at SAP, I know an area you are responsible for is kind of global solutions. And in your previous role kind of also, kind of the go-to-market of the products. I mean one of the things SAP has done is as part of this shift to new products is reengineered itself to push the channel quite aggressively, but to also -- you've invested considerably in the last 12 to 18 months. Can you give us a sense of what that sort of the go-to-market model now is with -- for the company as we can then better understand the growth dynamics across the new areas?

Sanjay Poonen

Yes, it's actually very simple. It starts with the center of the universe being the customer, okay. And then we -- base from that, we ask ourselves, what's the best way in which we can serve the customer, whether it's customer segmented, large enterprise or smaller? So let's just take the large enterprise customer. We serve them often direct, either by region and often by industry segment. And we have a core quarterback to the account, think of that person who owns the relationship, has the relationship with the CIO, the CFO, often even the CEO. And they're supplemented by specialists who can come alongside them in some of these market categories that we've now invested. We have an analytics specialist who knows everything about how to use our analytical tools and compete against best-in-breed players. We have a database in technology. And by the way, the roots of that specialization came from business objects, where we've invested more in that, and we're now a leader in the analytics market, because of the way in which we partner between the core account rep and that analytics specialist. Then we've invested in a database and technology specialist that took a lot of the Sybase DNA and that more -- and we gave those folks more to sell than just the Sybase database products. We gave them HANA. These guys love it. And that team now is also fuel to growth. And that part of our business has also grown, thanks to some of these new innovations. And then we invested in a new area 2 years ago, 3 years ago, called mobility where we invested in a specialist team to do that. So those specialist teams, thing of them as sort of like a hospital. You have the general practitioner, that's the core account executives, and they are specialists who, in those areas, work alongside with the general practitioner to help the health of the patient, so to speak, patient being the customer. And then as we've grown into some of these new businesses like the cloud, we've been careful to retain those cloud teams that are focused by line of business. So in our cloud team, we have a cloud team focused on HR and financials. We have a cloud team that's focused on procurement. We have a cloud team that's focused on customer. And they work alongside the SAP rep to ensure. Every one of these specialist teams work very closely with a core account executive to ensure the customer is served. That's always the principle. Often, there's also in this ecosystem, system integrators and partners that need to complete the solution or work with us in the implementation phase. We work very closely with them, whether it's the IBM Global Services, the Accentures, Deloittes, or boutique companies in various areas. And sometimes there's boutiques in a particular specialist area. For example, we're seeing a whole new wave of mobility-based boutiques, that no other -- when they have millennials, 20-year somethings, who understands how these new mobile apps need to be built. That's an example of boutiques. And finally, as we think about the segmentation either by industry or by region, we've also taken part of our -- lower parts of our markets, below a certain size, below a certain size and said we're going to give that to the channels. So the channels can effectively sell, whether it's through VARs or distributors, and that also gives us an opportunity to extend our reach, where the SAP go-to-market machine isn't the only ones covering those accounts.

Mohammed E. Moawalla - Goldman Sachs Group Inc., Research Division

Okay. So if we sort of dive into some of the new product areas and start with HANA, I think if we think of the HANA story, you've sort of described it as now in 2013, entering the kind of third and probably the most important phase. But can we just sort of recap on the first and the second phase in terms of where you've reached? Because initially, HANA was seen as just as an accelerator, then as a sort of more of a full-on data warehousing replacement. And I know you've targeted a lot of that big BW install base that you have. And the third phase is obviously the application phase with business within HANA. I just want to get a sense of where you are in the kind of the first 2 phases in terms of the opportunities you've tapped. And has it been largely install base successes or have you been able to get outside of your install base?

Sanjay Poonen

Yes, good. I mean, for all of you who have not heard about HANA, hopefully, you have, it's one of the most phenomenal innovations that is reinventing the way in which data management of the databases, I encourage you to all get to know her very well. She's a beautiful product. But in essence, what we looked about when we saw the database market, we looked at folks who had been in this market 30, 40 years, and there hasn't been much innovation because the spindle of the disc has really been the center of the conversation in the last 20 years, much like perhaps, the tape or punch cards, where 50, 60 years ago. And we saw a dramatic change in the way in which the equivalent of Moore's Law was playing into memory. And we believed that a much faster database could be built that took advantage of DRAM and built the entire database to be with compression and columnar storage be done in RAM. Not to say that this could be completely extinct, but you could do a lot more things in real time by bringing the powerful aspects of what could be done in memory close to the compute, which is the CPU. And that's, in essence, among many other things that HANA does, the secret sauce of what we've really kind of built a really good innovation engine around. And then we started building into this in-memory database more and more capabilities that reduced the stack that you typically have in a transactional or analytical environment for CIO. So if you think about a CIO today building a stack. They've got to buy an old CP database, maybe from an Oracle, buy an ETL tool from an Informatica, then buy another data warehouse from a Teradata, BI tool from us or somebody else, a planning tool from Hyperion, a predictive tool from SaaS; you add that up, it's a horrendous cost of ownership nightmare. And we felt that there could be a completely new way to engineer that analytical stack done inside HANA. So we began to expand HANA to be not just an analytical database, but the ability to do aggregates and planning on the fly. So you don't have to buy a separate thing called Hyperion, or to now do predictive analytics inside it. So we took the open source language R, embedded a lot of that capabilities to extend, you can also extend it in ways. Now you don't have to buy another tool called SaaS. The notion of batch data warehousing goes away. You don't need to buy an ETL tool. And that was what we've been doing over the last 2 or 3 years. And the final piece of it was to say, hey, can we, in this same database, also do transactional processing, or OTP, which was really what people didn't believe you could do. And that's what we've cracked over the course of the last year and announced in January, our Business Suite, which is our transactional -- market-leading transactional platform running. So when we started off, I would say that our -- first HANA was here, the really fast analytical database. We're not sure what problems it could solve, but give us a problem, we'll solve it, okay. And it's like, basically, shooting at clay pigeons and they sort of fall and you find a few of them. And we found some actually interesting ones. Ironically, many of them were ones which had no back end of SAP. One was a telco customer that was looking at customer churn, the back-end data was not SAP at all. We began to solve that effectively for them. And we've continued to do those types of opportunistic sells. But then we found that there was a problem within our own base that we could solve very predictively over and over again. It was taking BW and sliding out the traditional disk-based database and powering it with a new in-memory database called HANA. So think of it as like driving your 3 series into the garage of the auto shop and you come back the next day, it's a 7 series. That's, in essence, what we were doing to BW run on a traditional database versus now on HANA. And as we talked about at the end of 2012, we saw the phenomenal success of BW and HANA, which started slow in 2011. But in the second half of 2011 and in all of 2012, that became one of the hottest selling scenarios for HANA. That's a lot more predictable in terms of knowing how to do it, how to package it and, quite frankly, we are the only ones who could do that, just because it's our data warehouse with HANA now running underneath it. We also began to understand a number of transactional and analytical processes that we could make much faster with HANA. We called them accelerators. So we took our cost and profitability module, for those of you who know SAP, it's a module called CO-PA, and we found a way by which that could be monumentally faster. Colgate talked about it at SAPPHIRE as, a way by which they were able to see their cost and profitability done now in seconds rather than in days. And we began to build some of those accelerators. CO-PA -- the CO-PA Accelerator is probably the one that got the most attention and has had some good success. And it was all leading up to saying if we could take significant parts of transaction processing, MRP, working capital, parts of CRM and run those on HANA, that would be a much bigger -- because we got between 30,000 and 40,000 ERP customers in the large enterprise, a lot of B1 customers. And the approach we took there was to first also start with the B1 customer base, which is a mid-market product, so that people didn't feel like HANA was only for these big customers. And we put B1 on top of HANA. And it was the first place where we began to see incredible performance benefits to transaction processing with a real small ERP system. In fact, we -- in that use case, one of our engineers actually put B1 -- sorry, HANA running inside a Mac mini, to give you a sense of that's how small HANA could really get to power a B1. And then this year, we announced our mainstream OLTP product, Business Suite ERP is now running on HANA. And I think you'll hopefully see over the course of the next year, or 1.5 year, 2 years, the same type of momentum we've built, BW and HANA, now on a much bigger landscape. Remember, the entire database market is a $20 billion market, split roughly about $6 billion in data warehousing and $14 billion OLTP. And we think we're just getting started. If you'd look at what we've done collectively between HANA, ASC, IQ, the Sybase products, that database business did not exist at SAP at all 3 years ago. And we're now the fastest growing player in the database market. We have very much, I think, an opportunity to take a sizeable part of that $20 billion market and make it something that people spend on SAP IP as opposed to other databases.

Mohammed E. Moawalla - Goldman Sachs Group Inc., Research Division

Okay. I mean, you've clearly guided fairly optimistically for HANA this year, saying you can do EUR 650 million to EUR 700 million, which is above kind of where the market expectations were. But you doubled that business effectively in -- more than doubled it, actually, in 2012. That's going to nearly double it again in 2013. Is it just a continued momentum of BW or do you anticipate the application-related sales to kick in, in the second half as well on HANA? Or is it too early days?

Sanjay Poonen

It's early to tell. But I think if you look at the success, we go through a process called ramp-up, where we're watch in the first 6 months, very carefully, how our customers are deploying before we send this mainstream GA. So I think in the first 6 months, we're going to be watching very closely suite on HANA. And then hopefully, it goes the year, around the time of SAPPHIRE so on. And then I think we have a lot more of a generally available as what GA is. We're able then to kind of go more mainstream at it. So I think the momentum starts picking up the second half of the year going to 2014. But the opportunity is very big because it's a much bigger base of potential ERP customers than the BW base. And the myth around HANA was, well, it's really a faster data warehouse, they're not -- never going to be able to do OLTP processes, that's what much of our competition said. And quite frankly, nobody in the data warehouse space, you take Teradata, they've ever done OLTP processes. It's always been just data warehousing. So this is the first time that a database is able to solve that type of problem set.

Mohammed E. Moawalla - Goldman Sachs Group Inc., Research Division

And how do you get around the issue of potential, I don't know if you want to call it cannibalization or overlap, because you're selling an on-premise system today. Your HANA is a much more faster way to -- and a more efficient way, to buy that business suite effectively under HANA. And at the same time, customers are considering cloud options for some of their applications. So how do you sort of get that message without disrupting some of your other activities?

Sanjay Poonen

In our other businesses?

Mohammed E. Moawalla - Goldman Sachs Group Inc., Research Division

Yes.

Sanjay Poonen

I mean, I think the key thing for -- I was describing this to one of our smaller groups earlier is, I think every smart enterprise selling person or our channel partner, is really trying to sniff out how much is the CIO got in their budget. And so listen, those budgets are contracting often or maybe flat, I'd like to take a bigger part of that wallet share by removing all the other potential smaller companies that you got to deal where you've got to integrate and duct tape these solutions together and give you a bigger part or take away consulting and replace it with packaged software tools, and that's the name of the game of what we're trying to do. Often, it's services that are redundant, which can be replaced with software. That's been the name of the game. I mean, 40 years ago, when we started accounting systems, people -- it's not like accounting was invented by SAP. It was invented by the Egyptians, or whoever, thousands of years ago. We just happen to do it faster than doing a lot of consulting in a mainframe. So I think as we look at this, the intelligent folks, as we think about our go-to-market, it's all about innovation and cost reduction for a CIO. The innovation gives them a sense of where the future needs to go, and they often create budget to be able to accommodate that. But the cost reduction means that we take many of those layers and say, you don't need to spend it as much in consulting, or you don't have to spend it on these 20 different vendors that are basically, you're spreading your butts across all of them. We can now do a lot of that for a lower cost of ownership than all of those. And as we play that out, we ask ourselves, where is the applications business going? It's a combination of on-premise. And in the cloud, let's take HR, we believe the talent management market has moved significantly to the cloud, okay. We believe it so strongly that 1.5 year ago, we bought the leader in that space, SuccessFactors. So today, I'd be surprised if there are a lot of talent management RFPs, where people are saying, I want a talent management solution on-premise. Now the HR business is also, in some geographies, also moving to the core HR business moving into the cloud. But not in all geographies. We have a number of geographies where they are not going to move their HRIS system into the cloud. They're quite happy with an on-premise. So we have to bet in both ways. But our applications business now in HR needs to be thought of as a blend of cloud and license, which is why we began to give it some color as a license and subscription business. The same with procurement. We used to sell SRM on-premise, supply relationship management. And we began to see this big part of what was happening in what was becoming the eBay of the business network, a company called Ariba. And we decided we needed to play in that space that took a combination of what we were doing on-premise, with what was happening in the cloud and in a real smart commerce type of system. And that's gone really well, for us. So our job is, as we think about the trend of where these markets are going and then mapping them into customers' buying behavior to be their de facto trusted advisor. And I think, the part that most of our customers we seek to do, among the 200,000, is to be in their inner circle as a trusted advisor as to where they ought to be thinking about their spending going forward. Whether it's in on-premise or cloud and applications, in analytics, in big data or in new areas like mobile, where I think in the enterprise mobile world, we're doing things that are pretty unprecedented relative to any of our competitors.

Mohammed E. Moawalla - Goldman Sachs Group Inc., Research Division

Actually, it's a good segue into mobile, which is kind of your area of responsibility. You've done great with the unwired platform; can you just give us a sense of the level of penetration of that before we sort of talking about some of the applications? There's also a perception in the marketplace that it's a very costly product. So can you address some of those issues?

Sanjay Poonen

Good things are not often cheap, but nonetheless. Our view is when we saw the phenomenon called the iPad, okay, I know Tim Cook was here this morning, and to the enterprise, before we even bought Sybase, we saw that this was going to be a tremendous opportunity to transform the way in which business people did work. Bill McDermott tells the story of he saw this as a phenomenon. He decided to buy a bunch of iPads for our sales force and executives so that we could run our entire CRM process, throw away the spreadsheets and say, destroy spreadsheets, we're running these completely now in those. And as those of you have seen, Bill on Jim Cramer, he showed us how he runs his business on an iPad. What happened was, as we did this, I think he tells the story that he and Tim Cook, or it may have been Steve Buck [ph], but I think it was Tim Cook and him talked about it, and Tim was actually surprised that this was becoming such an enterprise phenomenon. Because they initially thought it was a consumer phenomenon. And he asked us, "Do you not care that the iPad doesn't have printing capabilities and so on and so forth?" And we're like, listen, printing is old school, we don't print anymore, we just do this on the road. So we began to see how dramatically he was transforming our business. We threw away spreadsheets, we began to run our CRM analytics process, where our pipeline, our forecasts, all of it was real time, with mobile analytical tools on the iPad. And we said, listen, this is going to be a phenomenon where we could transform our customers with an enterprise mobility and become, hopefully, the Apple of enterprise mobility. So they built a great consumer brand, we'd like to build an enterprise mobile brand. And what Sybase brought to us was some really good assets and mobile security, device management and a mobile middleware platform, which we've evolved significantly since then. And they also bought a messaging business. So that business, which was 0 for us in 2010, was EUR 220 million in license. And then we also have our subscription business on top of that of 365. So it's a very healthy growth business for us. And we focus on mobility in 5 areas, okay. Number one is mobile security, to ensure just like you need it in Norton or a McAfee to secure your laptops, you will need mobile security solutions to provision, take care of your devices, containerize it, all of that is what we call mobile security. And that's #1. Number 2, mobile analytics. So kind of like what we did for Business Objects on the desktop, you're going to need on your iPad, on your phone, we want to be the best in doing that, too. Number 3, a mobile middleware or a mobile app platform, where we are used by either our own applications teams inside SAP or ISVs or system integrators in building apps. The fourth, our mobile apps built on that platform packaged that's what we sell rather than custom building it, you build mobile apps. And the fifth is a messaging infrastructure. So when we talk about that EUR 220 million, it's across those first 4 areas and then the messaging business is on top of that. And we seek to provide price for value. We've always looked at our pricing to see where it needs to be evolved. In the mobile space, quite frankly, we're kind of competing against ourselves because there's nobody of that size. When you take our license software and our messaging business, there's nobody of our size in enterprise mobility that's created something big. So where customers give us feedback on pricing that needs to evolve, we've done that, okay. And we're, in some senses, we think that every much a possibility that the mobile business could be a $1 billion business, because there's 1 billion devices plus in the enterprise. And all we need to do is collect small amounts of money, or big amounts of money for every single device that could potentially run a business application powered by data coming from SAP or non-SAP sources. In each of those 5 areas I outlined, as part of our enterprise mobile portfolio, we're the leader in that industry if you pull up the Gartner Magic Quadrant or the IDC market shares in those. But most of the competition are fragmented sets of startups in every one of those areas. It's not one consistent big player. And that for us says, listen, we're 2 or 3 years ahead of the big players. We've got to continue to take the mobile opportunities, combine it with big data. So one of the things we talked about at SAPPHIRE in Madrid was taking our mobile security solution, Afaria, putting it on top of HANA to manage and simulate 100 million devices being managed. That blows away any other MDM tool, mobile device management tool. But that's the combination of Afaria meets HANA. We announced also at that SAPPHIRE, a precision retailing solution, where you could walk into a store and on your mobile phone, you get a promotion -- instead of a paper coupon, you have a promotion on your phone, that tells you that the milk in that store that you're just passing by is on sale, and the yogurt that you like is also on sale next to it, okay. Your preferences, upsell, cross sell, analyzed in HANA, promoted to you on a mobile device. So you're going to see enriched possibilities of where big data and analytics meet mobile. And one of the things I'm most excited about is not just the mobile opportunity for devices. We think the world is going to be a fascinating world of what's called the Internet of things, where your refrigerator, your thermostat, your car, your washing machine are all going to be on the Internet, with a wireless endpoint that's, hopefully, managed by us. The data that comes out of that vending machine, for example, could be combined with information about the weather, that tells you tomorrow is a hot day, and you can then ensure that every vending machine from a CPG company is stocked, ready to go, on a hot day, with drinks, the analytics done at HANA. That's the world of what's called the Internet of things. And the base of customers that want that type of solution was just like solid and SAPs based on manufacturing, oil and gas, automotive, utilities companies, who are all now putting sensors to make this a very, very intelligent place we live in and make your lives a lot more productive. That's the vision of where we see mobility going, and that's going to be a huge opportunity for us for years to come.

Mohammed E. Moawalla - Goldman Sachs Group Inc., Research Division

So just switching to the cloud business. Clearly, you turbocharged your strategy 18 months ago with the acquisitions of SuccessFactors and Ariba. You kind of got your skin really in the game now and I guess what you mentioned earlier, the ability to offer that real flexibility to customers, whether it's pure cloud on-premise, hybrid. What are the -- sort of some of the successes you've seen in terms of cross selling with these best-of-breed solutions, first of all? And secondly, in terms of some of the other areas of the cloud portfolio, and I'm thinking here CRM, what is the game plan to take on someone like a Salesforce.com in a much more aggressive manner? Because they seem to be pushing a bit more upmarket into some of your territory?

Sanjay Poonen

Yes. I think you know, in the cloud market, we feel very good about where we started. We think it's the second or third inning. The reason it's not the ninth inning is if it was, the biggest player in this market would be 10 billion or 20 billion, and it'd be game over. If you look at the cloud market, we've got a very healthy business overall, but the cloud business of ours is one of the fastest growing businesses. And we don't think, as this market develops in the second inning, to the fourth inning, to the fifth inning, the market's going to be, buy my CRM cloud from this vendor, buy and then on Monday, and then Tuesday, I do my travel and expense with another vendor, where I've got to remember a different login and password and different pricing there. And on Wednesday, I do my supplier procurement with it. This world existed on-premise with companies called Siebel, I2, PeopleSoft, and they have all become now part of 2 or 3 companies. So we think the cloud market's also going to go through that evolution where you have a best-of-breed combination of integrated families and business processes for things like hire to retire, procure to pay, so on and so forth, but part of it's done in the cloud. And our goal is to become that de facto choice over a multiyear period, as this becomes the second, third, fourth, fifth inning for cloud solutions. And we picked a couple of places we think -- we thought could make a material difference. In HR, the difference we felt was it could touch every single employee. Today, for example, on our cloud business, we touch 20 million plus people -- employees of the world. Salesforce.com has a much smaller base because they're only going to touch salespeople, okay. And our goal is to then once we've touched those 20 million, upsell them more of our cloud solutions. That's a much stronger proposition, which is why we decided. And there some of the successes had been not just -- I mean, SuccessFactors had some great successes with the talent management companies, the who's who among the 3,500 customers they have. But now, of late, we've really started to advance into a core HR, where we've been winning very well. We talked about the Pepsi win against Workday. Temken was another one. We feel very good about a complete HR solution from core to talent management and the investment that we've taken of some of our SAP people that can either help -- continue to help Lars build out that solution. Procurement, the same way. We have a number of customers of SAP who had picked Ariba. But Ariba and SAP were kind of battling each other at accounts, we're figuring out how we coexist. That's gone away. And if anything, the Ariba reps are delighted to say, listen, we can push more of the SAP customers to this eBay of the network, business network, Ariba, there's a lot more that could get transacted in the network. But also, on either side of it, we could do stuff. The same with travel and expense. We have now a travel and expense product in that area. In CRM, I think there's going to be an interesting evolution of where the world of the consumer, B2C world evolves, which has mobility and analytics, 2 areas where I don't think Salesforce has done a very good job, where we think we've got a much better story, okay. And we think it's going to a multiyear game in how that gets evolved. And we're going to play. But it's not going to be just a cloud CRM solution; there's going to be parts of it that we do that are powered by HANA, there're parts of it that we do that are powered by mobile; there're parts of it that we could do that's a lot more sophisticated intelligence with analytics. But we will also sell a suite of other cloud applications that a single player in the SFA market doesn't have. And then we've thought very carefully about what's the future of collaboration. We brought together the assets of stream work, where SAP was investing in Jam, and we're thinking through the future of social collaboration in a much smarter way than some of the existing players in that space, where you'll be able to see SAP Jam embedded inside every business application of SAPs, whether on-premise. So it's embedded now within learning solutions of talent management from SuccessFactors, or within the CRM solutions in the cloud, or in the procurement solutions of Ariba. And that gives us a much richer opportunity for a social collaboration in the cloud than maybe just one small process. The final part of the topic that I want us -- you're not allowed to lose also track of, is we have a strong proposition in the platform as a service and in infrastructure of the service player. For example, Amazon Web Services had a conference in November of last year, one of the biggest developer conferences. And they invited 3 people to speak on stage with Andy Jassy; #1 was Reed Hastings, the CEO of Netflix, who runs a big part of their processes on Amazon; #2 was NASA, who would have thought jet propulsion labs doing their stuff in Amazon; third was SAP, okay. Now that business of taking our applications and running it in the infrastructure of a service of Amazon is a huge cost-reduction opportunity for our customers. None of the cloud vendors can do that because they're focused on their public cloud. We have an opportunity of taking our private cloud or hybrid clouds into a world where Amazon also helps us leverage the cloud infrastructure to lower cost. So where are we viewing this is a holistic game where we will play in all areas of that application stack for cloud? Platform as a service, which we announced at [indiscernible], the HANA cloud; infrastructure as a service, where we will do some, but also play a lot with partners, like Amazon; and then, of course, our applications as a service, where we've got people, our HR solutions, customer, supplier and finance.

Mohammed E. Moawalla - Goldman Sachs Group Inc., Research Division

Okay. Any quick questions from the audience? Go ahead.

Unknown Analyst

Yes. So just going back to HANA, because it sounds like it's a pretty revolutionary type of product. So I'm just trying to understand a little bit better like who would be displaced if HANA were to be penetrated. So I guess a 2-part question. The first is you touched upon, does that mean a company like a Teradata or Informatica with ETL where if you adopt HANA, you no longer need those data warehouse type of functions? So would they be ones that get displaced? And the second question would be some of the other companies in the space right now, that do in-memory analytical, something like a typical, spot fire or a click, do they -- is that where you'll be taking the business away from with HANA?

Sanjay Poonen

Yes. No, I think the way to view it is, in general, where it's a new opportunity, with someone saying, I've got a new analytical process. I talked about that telco that's thinking about customer churn. We want to be the de facto choice for everything in that analytical stack, where, in the past, we may have been only thought for BI and places like planning. And today, when we see an enterprise data warehouse or a data mart -- SAP was never mentioned. But today, I find a lot of our peers, we are 1 among the 2 or 3 there. That's competing in a new opportunity. Sometimes, for example, BW and HANA, were replacing a traditional Oracle database. That's a replacement opportunity. But in every one of them, whether it's a new opportunity where we're competing for something new, or a replacement opportunity, our goal is to provide more innovation at a lower cost of ownership than that stack, okay. So vendors that you mentioned, without naming any of them, that say, hey listen, we can do data discovery or data visualization. And our secret sauce is in-memory, doing that in-memory, 3 or 4 years ago. That varnish has gone, right. We could do everything Visi, visual intelligence, on top of HANA, that any of the data visualization and data discovery. But you take a step further. None of those vendors ever talked to you about predictive analytics, because you had to do that with another tool called SaaS. We can now not just do data visualization and data discovery, we can also give you the ability to do predictive analytics powered by HANA. So when we come in there in what we call a design thinking workshop, we're able to really give a customer where we think the world is going and then practically show them solutions that are highly innovative for their needs today.

Unknown Analyst

On Afaria, could you talk me through where you are today on BYOD? Because I maybe wrongly have the perception that this has mainly been for devices given by the -- that are owned by the enterprise?

Sanjay Poonen

Yes. So in the mobile management market, we think it's much more the mobile device management. You pull up the IDC market shares, we're #1 by a far cry, relative to other startups. So we've done very well there. And Afaria's strength is it's the most scalable mode. So we have several of our large customers that are managing hundreds of thousands of devices. We had 1 customer, a ministry of education in an APJ situation that's going to manage potentially 10 million devices. So our strength of scale where most of our startup competitors keel over at like 3,000 or 5,000 devices. So our goal is to take that message of scale, add more capabilities for all the modern device platforms, whether it's iOS, whether it's Android, whether it's Windows, and then continue to build on top of analytics, connect at the telecom expense management vendors and make that the basis for the security solutions, not just for devices, but the Internet of things. So we're investing very heavily in Afaria. We're doing partnerships with hardware vendors, systems management vendors, VARs. We had a prominent VAR in North America in Q4 sign up to become our preferred distribution. They're going to use -- make our product their preferred distribution channel. And also, the telcos, because the telcos are very, very important players. There's also the cloud players like Amazon. So I think it's got a rich future in terms of what its capabilities set and we're only getting started in the BYOD phenomenon. So yes, it is for -- in the case of SAP, for example, if you ask our CIO, the first tool he used from a mobile portfolio was Afaria, to manage the 60,000-plus devices. But in many cases, it's manning the Bring Your Own Device phenomenon, because for many companies, that's what they have in their environment.

Mohammed E. Moawalla - Goldman Sachs Group Inc., Research Division

Great. We're out of time. Sanjay, thank you very much.

Sanjay Poonen

Thank you very much.

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Source: SAP AG Presents at Goldman Sachs Technology & Internet Conference 2013, Feb-12-2013 04:00 PM
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