SAP Completes Concur Buyout; Here's What's Next

| About: SAP AG (SAP)
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Summary

SAP CMO of Cloud and Concur EVP of Marketing talk strategy.

Near-term: Sharp customer focus.

Mid-term: Accelerated Concur R&D.

Long-term: Concur integrated with SAP's Cloud Offerings.

Challenge: SAP cloud revenue run rate remains tiny versus topline revenue.

When SAP SE (NYSE:SAP) completed its buyout of Concur Technologies Inc. on Thursday, it marked the latest step in SAP's effort to push far beyond traditional enterprise software sales.

Concur is a cloud-based business travel and expense management system. The company has more than 25,000 customers and 25 million active users in more than 150 countries. SAP announced the $8.3 billion Concur buyout in September 2014.

Concur certainly is a growth play. Revenue jumped 28% year-over-year to $177 million in Q3 2014 vs. Q3 2013, Concur announced back in August 2014.

On The Record

But now that the buyout is official, where do SAP and Concur go from here? Seeking some answers, I interviewed Tim Minahan, Chief Marketing Officer for SAP Cloud and Robson Grieve, Executive VP of Worldwide Marketing at Concur.

During Thursday's interview, Minahan and Grieve described a world where SAP customers will eventually move seamlessly from one SAP cloud application to another, providing an integrated experience as users move from one business or personal task to the next.

Or as SAP CEO Bill McDermott said in a prepared statement:

SAP provides the largest global network of digitally connected companies for businesses to collaborate, organize and innovate business models in entirely new ways. With the acquisition of Concur, we are expanding this network and delivering on our promise to help companies run simple.

Case in point: Over time, CFOs will be able to scan a single report (rather than multiple SaaS application silos) as they seek to understand various company expenses - from travel to marketing, procurement and more, noted Minahan.

Challenges And Opportunities

Still, SAP and Concur don't want to look too far down the road. The core priority right now is to remain customer-focused. According to Minahan:

Concur's mission has always been easy to understand. It is to provide the perfect trip.

Under SAP's ownership, Concur won't stray from that mission, he said.

Buyout integrations can be tricky, but Minahan has extensive experience across SAP's cloud products. And he knows how SAP can best tuck acquired cloud businesses into the larger SAP. After all, Minahan joined SAP through the $4.3 billion Ariba buyout in 2012.

"Now that we've got a feel for SAP's view of the world, I can say it's a match both philosophically and strategically," said Grieve. "We're completing each other's sentences in meetings."

Grieve's top priorities for Concur:

  1. Stay focused on customers. Don't stray from that.
  2. Execute against existing goals and objectives. "We have a clear roadmap for the future and we're pushing hard on that," he said.
  3. "Mid-term and long-term, we'll put thoughts from our product teams and our user bases together to really drive integration," he added.

The prime opportunity: Help SAP engage new types of IT buyers - marketing pros, traveling pros and more - through the web.

"We [SAP and Concur] do share a significant number of customers, but there's plenty of room for us to grow," said Grieve.

Recent Progress

For its Q3 2014, SAP's cloud revenue jumped 41% and the company's annual cloud revenue run rate reached $1.7 billion, CEO McDermott said during an Oct. earnings call.

That's promising. But SAP's overall revenues were about $17 billion in 2013, meaning that the cloud is still only about 10% of the company's business. SAP apparently won't pursue big buyouts to further lift cloud revenues for the next few years.

That means SAP will lean heavily on Concur and other cloud assets the company already owns. It's a safe bet SAP and Concur will also lean heavily on strategic partners such as IBM (NYSE:IBM).

SAP inked a strategic partnership with IBM back in October to accelerate enterprise cloud adoption. IBM and Concur signed a similar deal back in May. And IBM, of course, competes fiercely against SAP's core rival: Oracle (NYSE:ORCL), which also is marching toward more cloud sales.

Both SAP and Oracle face a long road ahead in their cloud transformations. I'm not a shareholder in either company, preferring instead to buy and hold faster-growth, pure play SaaS providers like Salesforce.com (NYSE:CRM) and WorkDay Inc. (NYSE:WDAY).

Disclosure: The author is long WDAY, CRM.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.