ServiceNow CEO Bill McDermott has called cloud computing the “pervasive computing theme of the 21st century.”
The cloud computing market is experiencing major growth, due in no small part to the pandemic and the rise of hybrid work. All three of the top providers are experiencing major growth, with no signs of it slowing down. According to McDermott, cloud computing’s success is because of its “pervasive” and transformative nature.
“It simplifies everything. Everything’s on the mobile. Everything’s beautiful and easy to use,” McDermott told Yahoo Finance.
“It’s one platform that can single thread business across an entire enterprise, all functions of the business. So, it is a great unifier in a sense, because some people have very powerful Chief Information Officers, others have Chief Digital Officers, others have Chief People officers, others have these wonderful data managers,” McDermott added. “But to have one platform, that single thread, all of those powerful relationships to deliver great experiences is super exciting to us.”
While the economic downturn has many companies hedging their bets and cutting costs, McDermott believes the cloud computing market can continue growing, buoyed by companies’ digital first strategies.
“Ninety-five percent of CEOs have a digital first strategy. So, they’re leaning in to digital transformation. Because it’s the only way out. On one hand, it’s software as the great deflationary force,” McDermott said. “On another hand, if you can’t transform and recreate your business model, and innovate digitally, you lose the game. So, CEOs are very well aware of this. So, that tailwind is super strong.”
McDermott’s predictions are good news for the cloud market and underscore the opportunities available to cloud providers.
“Business is really simple, and people are more productive, and they’re doing things that can lead to growth and opportunity,” says ServiceNow CEO Bill McDermott. “That’s the whole point of digital transformation. Right now, companies are hunkered down with systems that are absolutely wearing them out. It’s time to make the bold move, pivot to ServiceNow, and let’s get in there and fix the job.”
Bill McDermott, CEO, and President of ServiceNow says that only one in four digital transformation projects actually deliver positive ROI due to lack of integration:
Most Digital Transformation Projects Don’t Deliver
We have a situation on our hands where digital transformation, cloud computing, and business model innovation, are all converging at once. ServiceNow is the platform, of all the enterprise platforms, that really makes business work. One of the big lessons that business has right now is trillions have been poured into digital transformation yet only one in four projects actually deliver positive ROI. The reason for that is lack of integration.
Our system integrates with all the existing systems as well as all the collaborative tools in the enterprise. From day one, the customer gets it up and running swiftly because it’s in the cloud. They begin to derive value from it because you automate the way the work is done and ultimately, you’re now in a position to serve your customers the way they want to be served. It’s a speed game and ServiceNow is at the top of its game.
Companies Have To Create New Business Models
We’re an example. If you’re going to grow your company you’re going to take advantage of digital transformation. This is the only way out and it’s the only way forward. In the 20th Century companies put in big heavy on-premise systems. The issue is now they can’t, in a frictionless economy, immediately pivot those business models because they haven’t digitally transformed their business.
About 25 percent of the opportunity of businesses out there today over the next three years will come from white space places they are not in today. They have to create new business models. They have to think about new partnerships and new routes to market. Without the baseline of a platform like ServiceNow they’re not going to get there.
That’s The Whole Point Of Digital Transformation
I am very optimistic that the economies of the world not only are going to recover but actually going to do very well this year because people are going to be investing in digital transformation. We have seen that does not cost jobs. On the contrary, it frees people up to do things like go after new markets, derive new ideas, and so forth, because the AI revolution is also on.
We have built-in machine learning and AI into our platform. So 80 percent of the soul-crushing work people don’t want to do is done by the Now platform. The 20 percent that involves a human immediately gets initiated through a workflow order from the Now platform.
Business is really simple, and people are more productive and they’re doing things that can lead to growth and opportunity. That’s the whole point of digital transformation. Right now, companies are hunkered down with systems that are absolutely wearing them out. It’s time to make the bold move, pivot to ServiceNow, and let’s get in there and fix the job.
Fastest-Growing Pure-Play SASS Silicon Valley Company
If you look at our actual earnings results, they were stunning and obviously achieved beyond expectations performance across the board. We also followed that through in the guide. We’ll continue to be the fastest-growing pure-play SASS Silicon Valley company. We will continue to have the best margin profile of all of them. Obviously, we’re going to continue to gain market share in industries around the world, in geographies around the world, particularly in Europe and Asia Pacific, and Japan.
We will also gain market share on personas. Lots of people are getting the memo now that ServiceNow obviously dominated the IT automation market but the same backbone platform has enabled us to change the employee experience, the customer experience. In these tough times with COVID we can write low-code onto our platform in minutes and roll out new applications to hundreds of thousands of people so companies can move super fast.
We keep the guide consistent with the revenue that we generated in 2020. If there’s an upside to that… fantastic. That’s what good companies should do. They should go beyond expectations when they can but we stand by the guide and we’re looking forward to having a great year.
ServiceNow Was Born In The Cloud
The whole idea of ServiceNow is so different than SAP which was a company that needed to pivot to the cloud in 2010. We did that and that was very successful. ServiceNow was born in the cloud. It’s a very young company with tremendous growth opportunity on the organic front. Having said that, (we would be in interested in an acquisition) if you have a situation where there is a partner out there that has a substantial TAM, that can be highly complementary and synergistic with ServiceNow on the revenue side.
It also would have to do great things for the customer, because we have a precious platform and we jealously protect the integration power of that platform. A lot of things would have to be right but I can tell you as responsible business people we always look at it. We don’t need it to make our goals but you always have to look at it. We do want to be the defining enterprise software company the 21st century. That’s our plan.
“Digital transformation was the opportunity for our generation before COVID,” says ServiceNow CEO Bill McDermott. “Now with COVID, it has accelerated and exacerbated all the issues of broken systems and siloed operations. Before COVID they didn’t want to be told to go into a cubicle. Do you think after COVID once this thing clears up at some point in the future they are going to be told to go into a cubicle? No, they’re going to be digital.”
Digital transformation was the opportunity for our generation before COVID. Now with COVID, it has accelerated and exacerbated all the issues of broken systems and siloed operations. People are not realizing that 75% of the workforce by 2025 will be millennial generation people. Before COVID they didn’t want to be told to go into a cubicle. Do you think after COVID once this thing clears up at some point in the future they are going to be told to go into a cubicle? No, they’re going to be digital.
They’re also going to absolutely expect their employer to give them the best tools. The big idea if you want to give the customer a Michelin 3 experience is you have to fuse the employee experience and the customer experience on a common platform. This way most things can be automated for the customer on a self-service basis. The things that can’t be automated can immediately be workflow ordered to get the right person in the right place with the right skill set at the right time. That’s what we do and that’s why this is a thrilling moment.
Now Platform Is the Standard For Digital Transformation
The Now platform has become the standard for digital transformation in business today. If you think about most of these companies they’re grappling with the future of work. They have to accommodate their employees. They have very distributed workforces. How are they going to get them the tools that they need and onboard them properly? In some cases, they never even meet the people they hire. Then obviously, how are they going to manage the experience they have digitally?
This also goes direct to the customer. How do you go direct to the consumer? How do you make sure you give them a great service so they stay loyal to you? The ServiceNow Platform is at the epicenter of all of that. More and more, developers are building new innovation on the fly on the Now Platform. The Now platform has become a standard for large enterprises around the world. The ecosystem and the network effect building on that are truly sensational. We’re extremely fired up because we want to make work… work better for people all over the world. What we’re trying to do is get to the essence of everything.
ServiceNow CEO Bill McDermott: COVID Has Accelerated Digital Transformation
IBM and ServiceNow are partnering to provide enterprise solutions that utilize AI to automate IT operations. The new joint solution combines IBM’s AI‑powered hybrid cloud software and professional services to ServiceNow’s intelligent workflow capabilities and IT service and operations management products. The solution raises up deep AI‑driven insights from their data and then recommends actions for IT organizations to take that help them prevent and fix IT issues at scale.
“AI is one of the biggest forces driving change in the IT industry to the extent that every company is swiftly becoming an AI company,” said Arvind Krishna, Chief Executive Officer, IBM. “By partnering with ServiceNow and their market-leading Now Platform, clients will be able to use AI to quickly mitigate unforeseen IT incident costs. Watson AIOps with ServiceNow’s Now Platform is a powerful new way for clients to use automation to transform their IT operations.”
“For every CEO, digital transformation has gone from opportunity to necessity,” said ServiceNow CEO Bill McDermott. “As ServiceNow leads the workflow revolution, our partnership with IBM combines the intelligent automation capabilities of the Now Platform with the power of Watson AIOps. We are focused on driving a generational step improvement in productivity, innovation, and growth. ServiceNow and IBM are helping customers meet the digital demands of 21st-century business.”
ServiceNow says that in today’s technology‑driven organization, even the smallest outages can cause massive economic impact for both lost revenue and reputation. They note that this partnership will help customers address these challenges and help avoid unnecessary loss of revenue and reputation by automating old, manual IT processes and increasing IT productivity.
Here is what IBM and ServiceNow are planning:
Joint Solution: IBM and ServiceNow will deliver a first of its kind joint IT solution that marries IBM Watson AIOps with ServiceNow’s intelligent workflow capabilities and market‑leading ITSM and ITOM Visibility products to help customers prevent and fix IT issues at scale. Now, businesses that use ServiceNow ITSM can push historical incident data into the deep machine learning algorithms of Watson AIOps to create a baseline of their normal IT environment, while simultaneously having the ability to help them identify anomalies outside of that normal, which could take a human up to 60% longer to manually identify, according to initial results from specific Watson AIOps early adopter clients. The joint solution will position customers to enhance employee productivity, obtain greater visibility into their operational footprint and respond to incidents and issues faster.
Specific product capabilities will include:
ServiceNow ITSM allows IT to deliver scalable services on a single cloud platform estimated to increase productivity by 20%.
ServiceNow ITOM Visibility automatically delivers near real‑time visibility from a native Configuration Management Database, into all resources and the true operational state of all business services.
IBM Watson AIOps uses AI to automate how enterprises detect, diagnose, and respond to, and remediate IT anomalies in real time. The solution is designed to help CIOs make more informed decisions when predicting and shaping future outcomes, focus resources on higher‑value work and build more responsive and intelligent applications that can stay up and running longer. Using Watson AIOps, the average time to resolve incidents was reduced by 65 percent, according to one recent initial proof of concept project with a client.
Services: IBM is expanding its global ServiceNow business to include additional capabilities that provide advisory, implementation, and managed services on the Now Platform. Highly‑skilled IBM practitioners will apply their expertise to facilitate rapid delivery of valuable insights and innovation to clients. IBM Services professionals also will introduce clients to intelligent workflows to help improve resiliency and reduce IT risk. ServiceNow is co‑investing in training and certification of IBM employees and dedicated staff for customer success.
“Businesses are facing increased pressures to match the digital pace of a cloud‑first market in order to meet the demands of their customers,” said Stephen Elliot, program vice president, DevOps, and Management Software, IDC. “The C‑ suite is transforming workflows to deliver insights and automation for more efficient customer engagement models and cost containment strategies for the business while simplifying IT operations and increasing collaboration between IT and business stakeholders.”
“Digital transformation is the opportunity of this generation,” says ServiceNow CEO Bill McDermott. “If you look at the Zoom partnership as one example, all companies want simple, easy, seamless experiences for their people and their customers. This is how you transform companies. This is how you grow and this is how you navigate a digital experience to win. We’re at the forefront of the digital transformation rage in the cloud.”
We’re At The Forefront Of The Digital Transformation Rage
Digital transformation is the opportunity of this generation. If you look at the Zoom partnership as one example, all companies want simple, easy, seamless experiences for their people and their customers. This is how you transform companies. This is how you grow and this is how you navigate a digital experience to win. We’re at the forefront of the digital transformation rage in the cloud. We’re super excited.
If you look at Zoom, they had 300 million users utilizing their system in the heart of this COVID crisis. I expect that will continue to grow. The question was how do you handle 300 to 400 million users, most of them concurrently on a global scale? They turn to ServiceNow to solve that problem. Our customer service management solution is like no other in the marketplace. We can not only use self-help tools for customers, but we can also use virtual agents. Best of all, most of the service that will be required when Zoom does have to remediate an issue will be done predictively on the Now platform.
ServiceNow At The Epicenter Of Helping Zoom Innovate
Furthermore, they also want to have a hardware as a service business model that they’ll bring to offices all over the world. The idea here is simple, touch it once–instant collaboration, instant linkage to the ServiceNow workflow, and then the users get a great experience. That hardware as a service business model will be very large for them because they want to displace existing legacy vendors with their modern solution. ServiceNow is in the epicenter of helping Zoom utilizing our great innovation and ultimately taking both of these solutions to market to help many many customers around the world.
If you look at the tech sector for cloud, companies that are at the forefront of creating great digital experiences, these companies are going to continue to scale, continue to hit new highs and continue to grow. Nine out of ten CEOs have a digital-first strategy before COVID. Now I suspect that 10 out of 10 would have a digital-first strategy. It’s the only way to navigate these choppy waters.
We Get Things Done In Days and Weeks, Not Years
The companies that will do less well, and I’m just basing this on research and current results, are the ones that have heavy time-consuming elongated project cycles or potentially commodity hardware where customers are just not going to invest in that. Whatever they invest in they want a return and they want that return to come quite quickly. In the case of ServiceNow, our business cases show 5, 6, 7 times return on investment and we get things done in days and weeks, not years. That’s what makes the big difference. Speed, value creation, and truly illuminating great employee and customer experiences are what this market is all about.
One of the things that we covered in our last earnings call is that 20 percent of our business is in one-way shape or form tied to industries that would be highly impacted by COVID. What was amazing is we didn’t have one down-sell or one cancellation in that total customer group. What you’re seeing is when you have a platform company that truly can innovate, make work actually work better for people, take cost out, and improve business productivity, that’s the last place even challenged industries are going to cut.
We’ve been very fortunate because the partnerships that we have built with this hungry and humble culture and our near 100 percent retention rate are paying off even in the most challenging industries like the airlines, hospitality, and retail.
ServiceNow CEO Bill McDermott: At The Forefront Of The Digital Transformation Rage
“We’re done with talking about if it is a good idea to digitally transform,” says ServiceNow CEO Bill McDermott. “Now the conversation has shifted to how quickly can you get me there. I have to get there really fast. My prediction is that companies that are digital, that can lead this digital transformation revolution, will prosper through this time because there are so many public sector and private sector entities that must change. I do believe we will be going into a totally new normal.”
Bill McDermott, CEO of ServiceNow, discusses how COVID-19 has forced CEOs to speed up digital transformation in order to compete and win. McDermott says that businesses have to have an all-weather workforce to win.”
We’re Done With Talking About If It’s a Good Idea
When we came out of the financial crisis in 2008 that is when cloud computing hit a new gear. That’s when it became the pervasive computing theme of the 21st century. The elasticity of the cloud, the ability to build applications very quickly on a platform like ServiceNow’s⎯so you can be in service, in service to employees, in service to customers, and in service to keeping the operation going, even through difficult times. if you think about digital transformation, it’s a $7.4 trillion addressable market in the next four years.
I talk to CEOs and heads of state every day. We’re done with talking about if it is a good idea to digitally transform. Now the conversation has shifted to how quickly can you get me there. I have to get there really fast. My prediction is that companies that are digital, that can lead this digital transformation revolution, will prosper through this time because there are so many public sector and private sector entities that must change. I do believe we will be going into a totally new normal. It’s not dissimilar to 2008. We’re going to have to figure out whether it’s three weeks from now or three months from now.
A Totally New Way To Work
How are you going to get back to work? Business continuity must contain. Think about all the processes that will have to change. I like to think of this as a physical distancing, not a social distancing because our processes on Zoom every day has us connected to the management team and the people throughout our company. So while we are physically distant we have socially kept the conversation going. We’re continuing to pursue our goals because that’s what the world needs from ServiceNow.
Customers right now are basically saying, how do I take care of my people? For example, I’ve heard from some very outstanding CEO saying we’re going to keep hiring or am certainly not going to lay people off. How do we get the tools for people to do the job remotely? How do we make that happen? How do we make sure we’re caring for the people? How do we align them with the goals and the orientations of the company? How do we keep compliance and security at a high level even as they work from places like home or studio environments where they’re not used to working? All of this has to be done utilizing a digital platform, a totally new way of working.
What About the Customer?
Here’s a really big thing. In the beginning, everybody was saying we’re going to work from home. We will close down operations and that was basically it. What about the customer? What we’re learning about the customer is right now they’re not really interested in you upselling them and cross-selling them in an engagement layer of CRM. What they are interested in is business continuity. How will you service me even as we’re in the midst of a crisis?
This idea of service management, of making sure you get the right assets in front of the right problems where you can resolve issues for customers⎯especially since they’re no longer working in their offices for the most part. It has really reoriented the workflow of companies all over the world and it’s happened really quickly.
Over 43 percent of the companies today actually don’t even have a work from home policy. Think about that. Now, after this crisis, I can assure you they’ll need one and the boards of directors will expect that they have one. If you remember the post 9/11 era, it was unbelievable to think that people would be standing in line to get x-rayed with their luggage before getting on a flight.
Digital Transformation Has To Go Faster
As they think about this new environment just think about the procedures and the protocols that we have to now impart on the workforce to make sure that they’re healthy when they come into these buildings and they actually go to work. We will actually have to have quick analysis. For example, you could do an ear temperature check to make sure someone’s temperature isn’t high when they’re coming into the workplace to keep people safe. That’s a protocol, that’s a new process, and I expect that things like that will definitely happen.
I also expect that workers will work more from home, that people will be more agile and flexible in how they work, and the tools and the platforms of digital have to be enabled to make that happen, So here it is, people that are digitally transforming now, you have got to go faster. People that haven’t actually embarked upon this journey, you need to do it now. Now is when your people will expect you to build a culture that enables them to prosper in any working environment. I have to believe we’re in a new norm. If it’s not COVID-19 it’s going to be something else. Workforces have to be prepared to handle anything. We have to be an all-weather workforce to win.
Digital Transformation: The Conversation Has Shifted – ServiceNow CEO Bill McDermott
“Digital transformation is the biggest opportunity of our time,” says ServiceNow CEO Bill McDermott. McDermott says there are three things that any c-suite executives will tell you:
We have to create great customer experiences to attain fierce customer loyalty.
Employee engagement and really getting employees inspired about working for their company is essential to win the talent war.
Step function productivity improvement generated from digitization is necessary to get cost down where it should be and revenue up where it has to be to win.
Bill McDermott, CEO of ServiceNow, discusses how digital transformation is the biggest opportunity of our time in an interview on CNBC:
Digital Transformation is the Biggest Opportunity of Our Time
Now I’m at ServiceNow and I’m so excited about this cloud future and digital transformation. I have been all over the world and met hundreds of customers in the last three months. Digital transformation is the biggest opportunity of our time. There are basically three things that any c-suite executives will tell you. One, we have to create great customer experiences to attain fierce customer loyalty. Two, employee engagement and really getting employees inspired about working for their company is essential to win the talent war. And three, step function productivity improvement generated from digitization is necessary to get cost down where it should be and revenue up where it has to be to win.
ServiceNow is the platform that essentially is the platform of all platforms. Every environment in the enterprise today is a heterogeneous environment. We are that cross-platform integration engine of the 21st-century economy which is why ServiceNow is growing faster than all of the companies in the cloud.
You’ve Got To Move Everything To a Modern Cloud Architecture
Here’s the root cause of the problem (of executives hesitating on digitization). It took 50 years to build the chaos, the complexity that exists in these enterprises. When you’re talking to these executives they don’t know what to do. That’s because they don’t know how to dig their way out of the mess. The fact is they’re not going to dig their way out of the mess. The fact is they are not going to did their way out of this mess. These systems of record will stay there for long periods of time.
A system of innovation, a system of action, over these systems of record (is what is needed), where you can integrate the data into a new generation workflow in the cloud. Workflow designed experiences can take the mess and move it into a modern cloud architecture so they can execute their mission. The light bulbs go on when they see the solution. Unfortunately, and sadly, the vendors who got them there in the first place are telling them to buy new messes and add it on to the old mess. You have got to leave that old mess alone, put a tourniquet on it, and move everything to a modern cloud architecture, a modern workflow.
Digital Transformation is the Biggest Opportunity of Our Time, Says ServiceNow CEO Bill McDermott
Achieved HANA Database, ERP, Cloud, and business network.
The market cap of SAP over the last decade speaks for itself.
“SAP is in good shape,” says former SAP CEO Bill McDermott. “The HANA database, refactoring the ERP system on HANA, moving the company to the cloud, and the business network.”
“When you look at the market cap of SAP over the last decade the record speaks for itself,” McDermott says. “It was an honor to leave it at maximum strength and also to see the new co-CEOs take over. I think every CEO dreams of handing the keys to the next generation in the succession plan.”
McDermott became CEO of ServiceNow in November 2019.
It Was An Honor To Leave SAP At Maximum Strength, Says Former CEO Bill McDermott
“What’s happening is that digital transformation is a strategic priority for every company,” says ServiceNow CEO John Donahoe. “If you can’t compete digitally you can’t succeed. ServiceNow is one of the core strategic digital transformation partners for increasingly virtually every company around. Companies are focusing on how can they deliver better experiences to their customers, better experiences for their employees, and drive real productivity growth.”
John Donahoe, CEO of ServiceNow, discusses how digital transformation has become the key strategic priority for every company in an interview with Jim Cramer on CNBC:
Digital Transformation Is A Strategic Priority For Every Company
What’s happening is that digital transformation is a strategic priority for every company. If you can’t compete digitally you can’t succeed. ServiceNow is one of the core strategic digital transformation partners for increasingly virtually every company around. I was in Europe and met with several customers and some of our big partners and they aren’t focusing on macroeconomics they aren’t focusing on Brexit.
They’re focusing on how can they deliver better experiences to their customers, better experiences for their employees, and drive real productivity growth. ServiceNow is one of their core platforms that enable all three.
Cross-Functional Workflow Is the Wave Of the Future
I inherited a wonderful company from Frank Slootman, a company that had enormous potential. My role over the last three years has been to try and bring us up into the C-Suite and begin to pull us outside of IT. The reason for that is employees don’t really care if their issues are IT or HR or finance. Historically, software has been very siloed. Cross-functional workflow is the wave of the future. That’s what digitization enables. I’ve gotten us started to do that.
However, with our next CEO, Bill McDermott, there is no one in the world who was operated more across all the major buying centers in the enterprise. He knows all the functional software and all seams that exist. There’s no one in the world that has greater C-Suite relationships than Bill McDermott. He’s going to take this even to the next level.
Digital Transformation Is A Strategic Priority For Every Company – ServiceNow CEO John Donahoe
“We’re the fastest growing cloud company in the enterprise software space,” says SAP CEO Bill McDermott. “We grew total revenue by 16% and grew cloud 48%. Let me just put this on the line. When you grow cloud 48%, that’s 80% faster than Salesforce, that’s 30% faster than Workday. So when you have a franchise that’s growing your core business in double digits, the cloud faster than anybody out there, and you’re progressing the margin one point per year between now and 2023.”
Bill McDermott, CEO of SAP, discusses SAP’s amazing growth over the last quarter, especially in cloud, in an interview on CNBC:
Fastest Growing Cloud Company In the Enterprise Software Space
This is a good start to the year. It’s what the capital markets have been waiting for. They’ve been getting all kinds of revenue growth. We’re the fastest growing cloud company in the enterprise software space. They wanted to see the multiples on the margin. As we raised our full-year guidance we committed to improving the operating margins by one point per year for the next five years. Now after a $75 billion investment in innovation for our customers, our shareholders are saying wow, this is the moment I get the multiples on the margin and therefore the leverage in the share price.
Our cloud gross margins can improve to 75% between now and 2023. We’re hiring the absolute very best people in the world in artificial intelligence, machine learning, big data, all the areas that our customers want us to go. It’s not the number of people, it’s getting the absolute very best people. If you hire right, you manage your cloud gross margins right, and you have a highly inspired customer base where you’re growing with high renewal rates, you get tremendous leverage on the operating margin.
The Company Really Is On a Roll
What we’re doing is when we did restructure, and that was announced in Q4 and we executed it in Q1, we basically said we’re going to take about 4,400 people from areas that were not part of the new economy and hire to those tremendous standards. We’re bringing in the best data scientists in the world, best machine learning individuals out there, best enterprise application software coders around the world, and we’re developing in China, Israel, the United States, and in Europe. The company really is on a roll.
We’re almost done (with the restructuring) in the sense that we accounted for most all of it in Q1. We are finishing it up in the next quarter right now. For example, it’s being executed in Germany, but the majority of it has been handled. The stock today (is way up). We grew total revenue by 16% and grew cloud 48%. Let me just put this on the line. When you grow cloud 48%, that’s 80% faster than Salesforce.com, that’s 30% faster than Workday. So when you have a franchise that’s growing your core business in double digits, the cloud faster than anybody out there, and you’re progressing the margin one point per year between now and 2023, I think that’s why the shareholders have the stock up 8%.
What’s On My Mind is Where the Customer Needs Us To Go
All competition is on my mind. But what’s really on my mind is where the customer needs us to go. We weren’t losing to them. What the shareholders wanted, and we surveyed them, we had a capital market stay in New York and we used Qualtrics to survey them, they said we love your revenue growth we know you’re gaining share we just want more operating margin leverage out of the company. That’s what we gave them this quarter. It took us ten years and $75 billion in R&D and M&A to get to the point now where we have everything we need. We don’t need to do any more big M&A, we just need to perform well and spin-off margin and free cash flow for our shareholders and the stock goes on a run.
They (our customers) know we’ve given them so much innovation. It’s coming at them so fast that now they’re saying help me integrate it, help me fully leverage it across the enterprise and get the value from it. Interestingly, the customers and the shareholders are both in the same place. They’re saying you’ve done unreal things, now let’s dig in and drive real value from all the things that you’ve done. We bought an $8.3 billion dollar company called Qualtrics. We now took over a new category called experience management where we can actually tell the consumer experience inside or outside the company in real time. We have data now.
So think about this, if you’re running a company and you want to recruit to retire process in your company, how do my people feel when I recruit them? How did I feel when I trained them? Am I coaching them? Am I teaching them? Am I giving them everything they need in their compensation plan? We know this all now in real time with the Hana database built into the human capital management process. We do things that no other company can do.
SAP CEO: Were the Fastest Growing Cloud Company In the Enterprise Software Space
SAP CEO Bill McDermott released a video message on Twitter saying that “trust has really suffered” despite the “enormous benefits from the digital world.”
I think trust has really suffered. In many ways, we’ve gotten enormous benefits from the digital world. In fact, you can stay connected to everybody, almost every place, by just picking up your device in the morning and never leaving your house.
But the reality is the human contact, the interdependence that comes with trust, and that trust is formed one person, one conversation, one relationship, and in my way of thinking it still has to be a live conversation.
There is nothing that replaces the person to person relationship that gets developed looking at somebody, being in that space, being in that moment, and conveying how you really feel from the heart.
SAPannounced the completion of its $8 billion acquisition of Qualtrics which brings critical real-time customer experience data to its customers. SAP CEO Bill McDermott explains how the combination of Qualtrics’ Experience Management (XM) Platform with SAP’s enterprise software and cloud services is not only a game changer for companies, but solidifies SAP as the world’s business software leader:
“Where did we leave them in the dust? We basically out innovated everybody in terms of how you run your business better. Now the idea is how you create an unbelievable human experience so you inspire your people to take care of your customer and create a loyalty effect that’s unlike any other company in the industry. That’s what we do.”
Bill McDermott, CEO of SAP, talks about how the integration of Qualtrics into SAPs enterprise solutions will help businesses know their customers with real-time sentiment analysis, in an interview with Fox Business at Davos 2019:
With Qualtrics Your Brand Will Become a Religion
I think it’s really important that you focus on the business of your customer and stay obsessed with that and not get caught up in a lot of tech jargon. That’s why I’m glad we’re the business software market leader.
There is a huge trust deficit in the economy. Customers aren’t necessarily getting what they paid for which is why there is a $1.6 trillion deficit from customers that defect from companies that are out there in the marketplace today. So how do you keep a loyal customer? Today’s systems create operating data. You know your customers, you know your people, you know your suppliers. But we need to know what are consumers saying in real time, in the moment? We need that sentiment analysis.
Qualtrics is the number one experience management company in the world. From now on, your customers, if you are CEO, will love your products. In fact, they will be obsessed with them. Your brand will become a religion because every employee is an ambassador that’s connected inextricably to the customer experience. That’s Qualtrics.
If you are a customer of SAP, now you have all the experience data. I call this X-data. This is data from all the consumers that are experiencing your product and your brand. You combine that with the O-data which is all the operational aspects of how you run your company, from your demand all the way through to your supply. You know everything. You take X plus O and you have the winning formula.
The Enterprise Has Been Redefined by SAP
We surveyed, with Qualtrics and SAP, along with the World Economic Forum here, we surveyed 10,000 individuals on a random sample in 29 different countries. Once of the questions was, “What are you really worried about out there?” Most humans said we are worried about being replaced by robots. We said, “Is tech for good or is tech for bad?” What’s happening in your world with the perception of technology? They said, “A little bit better than negative, but somewhat ambivalent.” That’s a concern.
They said that they are basically trusting the people that run their companies, even more than the people that run government. There is a trust deficit out there. It’s really important that we close that trust deficit at the leadership level. It’s also important that companies get the human experience going with their own employees and their customers. That’s why I think that this experience management positioning for SAP is fundamentally going to be a moment in time where the enterprise has been redefined by SAP.
Over 77 percent of the world’s transactions run through an SAP system. We manage everything from the customer relationship to how you manage your people to how you build great products and how you ship on time and deliver. Now we have experience management which is the ultimate touchpoint for customers, and we put it all in the cloud. So you can be nimble, you can be agile, and you can upgrade quickly. You don’t need a whole lot of resources to maintain these systems. We are moving faster than anyone in 25 industries and in 193 countries around the world.
About the S/4HANA Upgrade
S/4HANA is now the system from the demand signal of your consumer in any channel including ecommerce. We know your consumer. We align the product in the proper configuration, at the proper price based on the customers history and all the loyalty that they should earn in their business with you. We ship. We take care of the whole supply chain. You get what you want at the price you procured for anyplace in real-time in the world. That whole value chain is SAP.
4HANA is now in a cloud. So you can run your entire company from end-to-end on top of SAP’s 4HANA platform in the cloud. Game change. Again, I go back to, that’s all the operational data and all the operational processes. Now, if you can add experiences to this with Qualtrics you’ve got an unbeatable competitive advantage.
I’m signing up customers left and right on this idea in Davos because this has been the number one thing that businesses have forgotten. You have to have the experience under control with your consumer and it has to be real-time sentiment analysis. Just think, it’s five times more expensive to get a new customer than to keep the one you have. Don’t you want to know how they’re doing?
No Signs That There is This Global Slowdown
We have a very strong business. There are no signs in our business that there is this global slowdown. Because we serve the best run businesses in the world we are usually an early indicator of what’s going on out there. We see a very optimistic future. Our pipelines and our business model have not changed one iota. I think there is this disjoint between the consumer companies and the consumer world and the enterprise.
SAP CEO Bill McDermott: “We out innovated everybody.”
SAP Bill McDermott: “No signs that there is this global slowdown.”
SAP CEO Bill McDermott remains very optimistic about doing business in China. He says that SAP has a fundamental belief in China and continues to invest in China. “We’re not having challenges in China,” says McDermott. “We’re doubling down in China. China has been very kind to SAP and we have been very kind to China. It’s a win-win.”
Bill McDermott, CEO of SAP, discussed their continued belief in China in an interview on CNBC International:
We’re Doubling Down in China
We have really a fundamental belief in China. China is the jewel in the crown for SAP. We actually defined it as a second home many years ago. We continue to invest in China and China continues to invest in SAP. It’s the fastest growing market we have in the world. As you know I spend quite a bit of time in China. When I was there last year we formed a very strategic partnership with several firms including the Alibaba Group, partnering with Jack Ma and Daniel Zhang and the Alicloud.
When you think about the infrastructure as a service of Alicloud with SAP’s business software market leadership you have a business model that generates incredible growth for both companies, but also serves customers beautifully. We’re not having challenges in China. We’re doubling down in China. China has been very kind to SAP and we have been very kind to China. It’s a win-win.
I Think a Trade Deal is on the Horizon
I remain optimistic on that front. Optimism is probably the only free stimulus any of us can get our hands on these days. Look, it’s an uncertain world. If there’s not the US-China tariff and global uncertainty on trade, it’ll be Brexit. If it’s not Brexit, it’ll be something else. What we do is we manage a portfolio of businesses geographically and through our industry domain expertise. When you go to market in 193 countries you’re going to have dislocations.
In an uncertain world, steady leadership always prevails. Our numbers said that in 2018 and they’ll say that again in 2019 and beyond. I do hope that it comes to terms in a positive way. I actually believe it will because business sense tends to prevail and you’ve got the number one and two economy in the world that both could benefit greatly from a deal. So I think a deal is on the horizon. I’m actually very optimistic.
SAP released a compilation video (below) featuring SAP CEO Bill McDermott and Qualtrics CEO Ryan Smith that really sums up well why SAP is acquiring Qualtrics:
Bill McDermott: First it’s an honor to team up with Brian Smith, a great CEO, and an inspirational leader. We couldn’t be prouder of our relationship with Qualtrics.
Ryan Smith: This is a once in a generation opportunity and we’re gonna change the whole face of enterprise technology with this combination.
Bill McDermott: SAP is the fastest growing cloud company in the large-scale business software industry while Qualtrics is the fastest growing business software company in the experience management space. If you combine those two forces you have a juggernaut of cloud growth.
Ryan Smith: There are two types of data. You have operational data which is telling you what’s going on and what just happened. These are your analytics, this is your CRM product, this is your HCM product. Then you have experienced staff which allows us to get human sentiment in the moment to understand the why, how someone feels. SAP owns the operation systems from end-to-end, we own the experience systems from end-to-end. The ability to combine those and have one single view will transform the way we even think about CRM as we know it.
Bill McDermott: We want to be the jet fuel that propels them to 193 countries with the biggest business software sales go-to-market force in the world in 25 industries, small, mid, and large alike. Every customer should know that X-Data and O-Data are together now.
Ryan Smith: We are fired up today is a new beginning and with all the resources from SAP, we’re super excited for that.
Bill McDermott: And the loyalty effect is what the experienced management of Qualtrics and the operational data of SAP drive. So X-Data, experience, and O-Data, what’s going on in the operations, put that together, you could inspire everyone in the company to take care of everyone outside the company.
Ryan Smith: I could not be more excited to work with SAP, McDermott, all of the SAP family. The Qualtrics family is excited and we’re going to go do something legendary.
SAP CEO Bill McDermott says that buying Qualtrics creates a “global growth juggernaut in the cloud, the number one business software growing in the cloud in the world.” McDermott says that he’s here to build a company for the generations, not just for a few days and that this is a fundamentally transformational deal, one that will reshape the entire industry.
Qualtrics CEO Ryan Smith says that combining forces with SAP will change the experience economy forever. “This is by far a once in a generational opportunity and it’s going to change how everyone thinks about cloud and SAAS and CRM and ERP and HCM forever,” said Smith. “Why wouldn’t we want to be a part of that?”
SAP CEO: If You Can Combine X-Data and O-Data You Can Change the World
We’re reshaping the enterprise application software industry. What led us to this deal is that all CEOs you talk to want to run their companies on an end-to-end basis. They want to deal with their customers in every channel, they want to fulfill, and that requires operational data. SAP touches 77 percent of the world’s transactions, but the operational data doesn’t ask the right question. It doesn’t say, why does the customer feel a certain way about your brand, about your products, and about their experience. This new category called experience management is all about x-data and if you can combine o-data and x-data you can change the world.
Ryan I have known each other about three months. We spent a lot of time together, a lot of text, a lot of phone calls, and we fundamentally wanted a transformational deal, one that would reshape the entire industry and here we are.
SAP CEO: If You Want to Survey Somebody You Hire Survey Monkey…
Have you looked at acquiring SurveyMonkey? No, they do surveys we reinvent customer experiences in a whole new category called experience management. If you want to survey somebody you hire Survey Monkey, if you want to fundamentally change the way an enterprise thinks about its culture, its brand, its products, and its people, now you’re talking Qualtrics, the leader in the marketplace by a factor of 10x. We’ve always bought the biggest and the best one and thankfully with the high trust that Ryan and I developed and our companies developed we’re ready to go.
SAP CEO: A Global Growth Juggernaut in the Cloud
When you’re talking about this particular company, Qualtrics, they’re growing at 40 percent on a year-over-year basis in the cloud. They have a very serious go-to-market strategy, but it’s modest in size. We’re growing at 41 percent year-over-year in the cloud and we have a very large go-to-market machine, more than 15,000 people touching the customer every day. If you combine that rate of growth you have a global growth juggernaut in the cloud, the number one business software growing in the cloud in the world. So digest that dear shareholders.
We’re saying and we’re very clear on this, we’re going to grow total revenue in double-digit, operating income in double-digit, not to mention being the fastest growing cloud company in the world. So today this will be digested. Now they’ll know, why did he do a big one when he said he was more likely gonna do tuck-ins? Because I never thought I would get Qualtrics and it takes some skill to pull deals like this off and convince a great entrepreneur like Ryan that he’s better off with SAP than going it alone when he’s 13x oversubscribed in his IPO.
SAP CEO: I’m Here to Build a Company for the Generations
So that’s what took a little bit of time and when we pulled it off together this weekend we were literally crossing each other in the air at 39,000 feet, so this was high-stakes. Now that we’re here, we’re doing all-hands meetings, we’re talking to the media, we’re talking to the bankers, and I expect the stock to do extremely well as the day progresses, and more importantly in the mid and the long term. I’m here to build a company for the generations, not just for a few days.
Qualtrics CEO: We Created the Experience Management Category
We were planning on ringing the bell on Thursday. I was home this weekend just to kind of take a little break after a week on the road it was going really well. We were 13 times oversubscribed with the best still ahead of us and then we had an opportunity to combine forces with SAP and change the experience economy forever. I think in my conversations with Bill it’s something that we only dreamed of that we could make this happen. It’s pretty special.
We’ve been doing this for 16 years. We transformed the entire experience management category, we’ve created it. We’re powering the feedback for 14 different airlines, 200 financial institutions, and we’ve really created this category to go do something big, that was the goal. We never had a financial reason to go public, we bootstrapped our company longer than anyone and we had no investor pressure. We’re one of the only companies that has been cashflow positive and high growth since its inception. The reason why we were going public was to create this massive new category.
Qualtrics CEO: A Once in a Generational Opportunity
When Bill approached us with a once in a generational opportunity that we could take all the power of Qualtrics and our 9,000 brands and have that sit alongside SAP and have every ounce of customer feedback go into the entire product process with an ERP system, reshape how the world thinks about CRM, and everything that we’re doing to power all the employee experience of the whole world that’s all available overnight. That’s something that we couldn’t turn down and we chose to be here.
Our IPO was already way oversubscribed, it was gonna take off and everyone was looking at us saying, hey this is the next $20 or $30 billion dollar standalone company. But we want to win and this is what winning looks like and we’re going to reshape the entire industry and Bill’s on board and we’re excited.
We were pretty set on going public and so it wasn’t till this opportunity came through this weekend where we said, hey look, this is by far a once in a generational opportunity and it’s going to change how everyone thinks about cloud and SAAS and CRM and ERP and HCM forever. Why wouldn’t we want to be a part of that? We couldn’t be more excited and like I said this is a pretty special team with Bill and me.
SAP CEO Bill McDermott, in a wide-ranging interview with Bloomberg talked about enterprises moving to the cloud, competing with Oracle’s new autonomous database, competing with Salesforce, and its huge business in China:
SAP Has Taken Over the Enterprise Database Market
Do you have a major move to the cloud? If legacy companies haven’t fully invested themselves in the cloud where they’ve converted their revenue streams more to cloud than on-premise I think you will see them make bold moves to get cloud-ready. No choice, that’s where the customer wants us.
We obviously have taken over the enterprise database market with HANA. HANA has many of the characteristics that you mentioned (referencing Oracle). HANA can take data from any source, everything that is either structured or unstructured and data from any source in the enterprise. HANA is running the biggest enterprises in the world now with 25,000 customers at mass scale. We like our HANA database very much.
It’s All About the Customer Experience
We see a fourth-generation of CRM where we go beyond the current market participants. Basically, they focus on sales, marketing campaigns, things that essentially take money out of the customers pocket. What we want to do is focus on an omnichannel ecommerce world where we connect the demand chain because our customers are social, mobile and on the run. They shop in every channel, direct to consumer, wholesale, retail. We want to connect that demand chain to the supply chain so that we have a complete end-to-end business.
Why is this so important? We are not just talking about CRM, we are talking about customer experience. The way CEOs think about their brand, their products, their human capital, their customers. All of the people inside of the company have to be completely committed to the customers outside the company. This is what we call fourth-generation CRM. It’s all about the customer experience.
We’d Like to See China and the US Cooperate
The most important thing is that we get paid to run businesses and work in an environment where we let government do what government does. All government leaders have to do what’s best for their country and best for their constituents. These tariffs are obviously a serious situation. You have the two largest economies in the world with $30 trillion in combined economic firepower that right now are at a little bit at odds with each other.
It’s good, as we saw in today’s tweet, it was stated that at the G20 President Xi and President Trump will sit down and talk. That’s very encouraging to the market. Markets like certainty. So certainly we would like to see China and the US cooperate. It’s good for supply chain, it’s good for business.
China is Regarded as SAP’s Second Home
Germain engineering is highly regarding in China, as it is in the United States and around the world, but we do particularly well in China. China is our fastest growing market. We think that China is easily regarded as SAP’s second home in terms of market receptivity, ecosystem growth in China, and our long-term prospects. We think China will end up being the biggest market in the world soon.
We have the most sophisticated data privacy in the world. We acquired a company called Gigya where we have billions and billions of customer records. We protect your privacy, we don’t let customers actually engage you unless you agree that you want to opt-in on various offerings from our customers and they serve their customers. We follow the same reference architecture, the same high-security standards and cloud standards in China that we do in Europe, the United States, and every other theater in the world.
We are very confident in China in the way enterprises can serve their customers in China with high-security standards. We recently announced a very important partnership with Alibaba and that is a cloud partnership that will not only impact our growth in one of the fastest growing regions in the world.
We Are Very Diverse and Highly Inclusive
We actually have appointed in the last 12 months two women to our Executive Board, not just because they are women, but because they are great leaders. That would be Adaire Fox-Martin and Jennifer Morgan. If you look at our company we have a third of our workforce that is female and we also have a third of our leaders that are female.
We are very diverse and highly inclusive. One of the things we really enjoy is what we have done with Autism at Work and now we have dedicated one percent of our hiring to autistic folks, at least on the spectrum somewhere, to help our workforce be highly productive and diverse. That extends also to the solutions that we have. If you look at success factors, the number one human capital solution in the world, we have a business without bias mentality.
Computers don’t have bias. In the way we build the algorithms in the software they eliminate bias from the hiring process. The computer doesn’t have a bias. It looks for the best candidates and it fills an algorithm or model that the company is trying to get at. If you want 40 percent of your workforce to be diverse and inclusive, the model is built to do that for you. You don’t leave it up to humans, you let the software do the work and then the human judgment comes in at the final phase of hiring. It’s changing companies everywhere.
“We grew 41 percent in the cloud and SAP has now become the fastest growing enterprise application software company in the world,” said SAP CEO Bill McDermott in an interview on CNBC. “For business software, we are the fastest growing company in the world. It’s amazing how fast the growth is in the cloud.”
Our cloud business is growing faster than anyone else’s, but we are also partnering. If you look at Microsoft and the Azure Cloud, of which Microsoft has been a great partner of ours for four decades now. If you look at AWS with Amazon or if you look at the Google Cloud platform or if you look at Alibaba in China, we have partnerships with all of these hyperscalers.
It’s All About an Open Initiative For Customers
Our reference architecture, our software, can also run in there cloud which gives us another set of distribution channels around the world to expand our market-leading software. They’re all going to grow fast and we’re going to grow fast.
It’s all about an open initiative for customers. Customers really need to manage their business in real time and the cloud is a great way to do it. It’s lower cost, faster innovation, easier to consume, it’s a winning formula.
Bill McDermott On the Economy
It’s really amazing. I’ve been obviously all over the world and if you go to China right now, things for us and all solution oriented tech companies are very strong. The Asian region is outstanding.
John Kerry and I hosted a meeting in Bankok and we met with 35 CEOs that simply could not possibly be more positive about the economic scenario.
Shortly thereafter, I was in Israel with Prime Minister Benjamin Netanyahu and Chancellor Angela Merkel talking about Industry 4.0, venture capital, and tech investment. Yesterday, in Canada with Prime Minister Trudeau where there is a huge AI opportunity with great young people highly skilled in AI. Everyplace you go there’s nothing but optimism.
Thank you Prime Minister @JustinTrudeau for your statesmanship and leadership. SAP is strongly committed to a bright future in Canada. We have outstanding customers and colleagues! https://t.co/idBVmXQUPJ
“Thank you Prime Minister @JustinTrudeau for your statesmanship and leadership. SAP is strongly committed to a bright future in Canada. We have outstanding customers and colleagues!”
Trade Tensions Have No Impact on the Tech Industry
The trade tensions are something that is obviously concerning, business people don’t like uncertainty, but in terms of the real impact of the business volume, new orders, global pipeline, I don’t see any impact at this stage for the tech industry.
CEO’s of Adobe, Microsoft, SAP announced the launch of the Open Data Initiative, a new data repository in the cloud dedicated to facilitating collaboration across the global research community. This is an initiative squarely aimed at Facebook and Google, in effect challenging them to provide all customer related data back to the customer. Here is Microsoft’s portal to the Open Data Initiative.
Below are key highlights from a discussion the three tech CEO’s had on CNBC…
Satya Nadella, CEO, Microsoft:
The insight that all three of us had based on the work we’re doing with many customers, such as Coca-Cola, Unilever, and Walmart, today as customers they’re all excited about this open data initiative. It’s their real insight that led us to do this, how do we work to put them in control of their own customer data, because that’s the real currency.
Any brand out there cares deeply about the continuous improvement of their own customer data understanding. The three of us coming together is going to be central to them feeling in control of their own customer data.
Bill McDermott, CEO, SAP:
There isn’t a CEO in the world that does not want to have a single view of their customer and they have to connect their demand chain to their supply chain and do so in real time. If you think about the consumer whose social, mobile, they’re geospatial, they’re always on the fly, they’re going to shop different companies in all channels, direct to consumer and retail, and you have to make sure that connection point with that consumer is really intimate.
These companies need to be intelligent enterprises because more and more AI and predictive analytics is going to rule how you engage with that customer. Ultimately, what you have to do is fulfill, so now you’re going to see the demand and the supply chain completely integrated and that data will be shared evenly among our companies so the customer is the major benefactor of the Open Data Initiative we announced today.
Shantanu Narayen, CEO, Adobe:
All three of us shared this vision of how do we enable enterprises to put customers at the front of the digital journey. Getting behavioral data, getting transactional data, and getting customer engagement to be the front and center is the most important thing that enterprises can do so that digital is actually a tailwind rather than a headwind.
What Marketo does is add to our offerings in the Experience Cloud of being able to create this unified profile for all customers. The thing that every customer will tell you today is that they want an engaging experience with whoever they’re doing business with, whether it’s financial services, automotive, or retail. Adobe focused a lot more on B2C customers, but the same requirements that were true for B2C customers are now true for B2B customers and that’s what Marketo provides.
Satya Nadella, CEO, Microsoft:
The name itself should tell everything, it’s an open data initiative. It’s about really unlocking the data that is our customers’ data about their own customers. I think what is foundational here is trust. In other words, ultimately customers will decide.
Also, compliance with their own customers trust in them is also going to be very key, because if you think about it one of the top considerations for anything around customer data is privacy and regulation around privacy. So the most important thing here would be for each vendor to think through how they participate here and ensure that there is more trust in the entirety of the value chain, starting with the end consumer to the brand and to us as software vendors or tech companies.
I think the real challenge is going to be for some who may want to join but their business model is probably not going to allow them to join. I think overall though what we have all anchored on is if we can create an architecture and an incentive system that turns the tide to put customers in control of their own customer data I think the overall economy will be better off.
Bill McDermott: 
