SAP Cloud Expansion Delays Profitability Target

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Jan. 21 (Bloomberg) -- Bill McDermott, co-CEO at SAP, discusses the company delaying its profitability target on an expansion of software deployment via the cloud on Bloomberg Television’s “Bloomberg Surveillance.”

Model was broken and you needed to move to this new model?

The good news with sap is, we have had four consecutive years of double-digit year-over-year growth.

But in our 2010 strategy, we essentially saw our leadership position and applications and analytics as an opportunity to go for the three biggest growth areas.

One was mobile.

The other was the in memory database.

The disc is too slow.

Finally, cloud.

If you look at it from a ceo's perspective, most accountable issue is complexity.

If you can collapse the i.t. stack and start investing your precious capital in innovation and simplicity and execution, the cloud is a very good deployment model.

We have been accelerating that for the last couple of years.

You had to push back your profitability targets for two years to get to this.

Well, the big thing is this.

Wouldn't you rather have a courageous management team that says, let's go for market share and the cloud and be the cloud company and postpone 35% margin ambition and absolutely capture the market share?

What we decided to do is accept the cloud revenue stream, as you said, and for the first couple of years, it flattens out the margin.

But by year three, it kicks in and that is why in our guidance today, we said we will hit it, 35% ambition, by 2017, but we will also deliver a nearly 3 billion cloud company to the world.

That is the largest mega-cap cloud company in the world.

That is sap.

We would also be the fastest growing and revenue.

Initial reaction from analysts, maybe you can get to the 3 billion target the you will probably have to make acquisitions to do it.

Should we be looking for you to be on the prowl?

Well, the majority of our ambition is in or get a growth ambition, but we are proven in the past that we don't shy away from things that make sense for our customers and our shareholders.

If it moves us forward, it make sense for the customer and the shareholder, we always look at it.

But at this stage, we don't have anything big on the drawing board.

It is much more about business as usual for organic and tight ends.

-- tuck-ins.

This text has been automatically generated. It may not be 100% accurate.

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