Two years after former CEO Bill McDermott vowed that SAP would take the CRM market by storm and spent $8 billion on Qualtrics to help do so, SAP is conceding the broad mainstream CRM market to Salesforce and will pursue only certain specific segments.
While Mucic did not use the words I’ve employed above-“exits” and “concedes”-and while he did his very best (which is quite good) to put the best shine on the story, there’s no doubt in my mind that my analysis of what SAP is doing is right on the mark.
I’ll offer detailed examples below of Mucic’s verbatim comments to support my analysis, but first I want to emphasize that I don’t think this pullback by SAP is a bad thing. In fact, I think it’s smart. Here’s why:
- Look at how dramatically and pervasively our world has changed in the past 6 months. Is it really outlandish to think that in light of that massive disruption, as well as other factors, that the world’s largest maker of enterprise applications would decide to refocus its energies on categories where it has the best chance to succeed? In my mind, that’s a smart move.
- In SAP’s past two earnings calls, CEO Christian Klein has repeatedly cited the need for SAP to be disciplined and focused to allow it to pursue high-growth opportunities in a rapidly changing world. Klein has decided that perhaps its best for SAP to be aggressively all-in on two of the three key enterprise-app pillars-ERP and HCM-while being less aggressive and more precise in CRM, picking and choosing only subsegments in which it knows it can do well.
- Over the past two years since McDermott issued his blunt challenge to category king Salesforce, Marc Benioff and company have never faltered. In fact, through the ongoing growth of its primary SaaS clouds but also through its stellar acquisitions of first MuleSoft and then Tableau, Salesforce has expanded not only its data-analytics and integration capabilities but also the very size and boundaries of CRM itself.
- “Focus” is always a good thing, and in turbulent times can be essential. During that Aug. 25 earnings call, Benioff contrasted his strategy for Salesforce-going all-in on only one of the 3 big enterprise-apps categories-versus that of SAP and Oracle, which have been pursuing all three subsegments for several years: ERP, HCM, and CRM. Here’s how Benioff put it from my article called The Magic of Marc Benioff: 10 Key Drivers Behind Salesforce Q2 Surge : “A lot of our competitors are everywhere. They’re in every market. Some of them are in enterprise and consumer. They’re not just in CRM, they’re also in HCM. They’re in ERP. They’re public cloud. I mean, we’re not-we’re singularly focused.”
Okay-so against that backdrop, what exactly did SAP CFO Mucic say about his company’s future plans around CRM?
In the middle of a 50-minute online Q&A session, Citi analyst Amit Harchandani asked Mucic, “What does this mean for the whole strategy around C/4HANA and in particular the customer relationship market? How should we think about that versus what we have heard from SAP in the past?”
Here’s Mucic’s response, with some perspective from me interlaced throughout portions of his lengthy response.
SAP wants to be a “significant” player but only in certain categories of CRM
“ So, first of all, customer experience is absolutely a key market in which we want to be a significant player but with a focus on those categories where we clearly see that there is potential for SAP to be a strong #1 or #2 player.” Okay, that all makes sense-but notice that at the very top of his answer, Mucic clearly states that SAP will pursue a targeted approach to CRM rather than a full frontal assault.
For example, SAP’s #1 in Experience Management with Qualtrics
“There is a very obvious one in which we are leading the market and that’s the whole area of experience management, where we have Qualtrics, which is the category leader and that we are truly excited about and we are obviously looking at a partial IPO of Qualtrics to even further exemplify and magnify our growth opportunities.” Again, this makes sense.
SAP also will continue investing in the e-commerce category via Hybris
“The other area as I mentioned before is e-commerce, where we have with Hybris a very strong cloud fit that is growing in the high double-digits and that is in huge demand these days in particular with the challenges introduced by COVID. We think this is one of the core investment priorities for many companies around the globe.” Legitimate answer-but bear in mind that for Salesforce, e-commerce is one of its smaller clouds, way behind its franchise Service Cloud and Sales Cloud.
Is “customer data cloud” truly CRM?
Mucic continued: “And then also areas like customer data cloud, for example, where we also have a leading solution that can help customers manage the GDPR and triggers a digital sales motion in a way that is conducive to consumer preferences.” I give Mucic an “A” grade for effort, but so far this has not exactly been a bright star in the SAP constellation.
Trying to slip past the elephant-the very BIG elephant-in the room
Mucic then attempted a bit of sleight of hand by obliquely referring to “market leadership by others” in what he bizarrely called “commodity markets.”
Referring back to his comments about Qualtrics, e-commerce, and customer data cloud, Mucic said, “And so in those areas we absolutely continue to invest and we see great growth opportunities.”
And then things got tricky
“In others that from our perspective more translate into commodity markets where the growth rates are coming down and admittedly there is clear market leadership by others, we might look also at one or the other partnership opportunities. And in the meantime of course we see that the rising tide lifts many boats [a clear reference to Salesforce’s blockbuster Q2 results and the immediate 25% surge in its stock price to almost $250 billion] in many of those areas and so we will continue to look practically at an opportunity to participate in this growth.” Again, I give Mucic credit for doing his level best to try to ignore or somewhat dismissively address the undeniable market dominance by Salesforce. But maybe someone should tell Marc Benioff that big chunks of the CRM business are “commodity markets”-that would be news to him after his company posted growth of 29% to $5.15 billion for the 3 months ended Aug. 31.
It’s critical and it’s wonderful but do NOT expect us to go all-in
“But we don’t necessarily see it as an area in which we would dramatically double down on our investments. But clearly, CX remains a critical pillar of our cloud strategy, just in a little bit more of a focused sense.” Mucic is a very smart man, and at the end of the call he said that next year will mark his 25 th anniversary at SAP. So he’s seen a lot of market gyrations and he knows that while he should never say never, he also knows that one of his primary jobs is to help manage the expectations of investors and the marketplace.
And so in spite of all the declarations about how vital the CRM market is to SAP, the truth is that Mucic was telling the world that SAP has intention of taking Salesforce head-on, and will instead focus its attentions and energies and resources elsewhere.
So in this Cloud Wars battle, I’d score this one a huge win for Salesforce but also at least a partial win for SAP because, outside the realm of CRM, SAP has some huge opportunities that will now receive more of the company’s focus, resources, and love.