Edward Snowden’s revelations about the National Security Agency may have embarrassed the Obama administration and irritated governments worldwide, but Jim Hagemann Snabe says the furor has been good for business. Snabe is co-chief executive officer of German software company SAP (SAP), the world’s biggest maker of business management software, and he says customers are focusing more on SAP’s ability to provide data security outside the U.S. Snabe spoke with Bloomberg Businessweek today after SAP announced a 5 percent increase in operating profit and reiterated its full-year forecasts, reassuring investors worried after disappointing results from rivals Oracle (ORCL) and IBM (IBM).
Why do you think the attention to the NSA and its surveillance programs have helped SAP?
As you can see in the quarter, our cloud biz is really exploding, with more than 160 percent growth. That is in the same quarter as all the uncertainty around cloud security came up. I think the best way to read that is when companies look for their suppliers in the cloud, they are going to well-established companies they trust, not smaller companies where they don’t know exactly where the data is. So I actually believe that this increased focus on cloud security has become a reason for SAP to win in the market, and we are seeing that in the numbers this quarter.
Do customers want their data stored outside the U.S.?
I think we have the benefit of offering local data centers in all regions, and therefore companies feel comfortable in outsourcing their infrastructure to SAP. What we do see is countries want to make sure the data—in particular, the public sector data which can be very mission-critical—they want to have control under the legal rules of the country, and that’s why they are asking if we are willing to set up data centers in these geographies. And the answer is yes, if there is an interest.
Because of worries about the security of data in the U.S., following the reports of what the NSA has been doing?
I wouldn’t say it like that. What they are saying is, we want to make sure the data and the data center is treated according to the legal rules of data protection that we have in our country. That’s what they are requesting. And because of our size and our investments in the cloud, we can guarantee that. Most others can’t. You know, we grew up in the complexity of multiple countries and multiple currencies and multiple languages in Europe, so we know how to do localization, including how to live up to individual rules for data protection in each country.
But can’t a competitor like Oracle guarantee security, too?
Well, actually, you need to look at where the data centers are. We are currently in 20 locations and plan to install four additional externally-run co-location IT data centers in Q4 2013 and Q1 2014. If you look at our business, we have always been more global than any of our competitors, not just Oracle [but] in particular the niche players in the cloud. We have not just sales offices around the world but innovation labs around the world in more than 72 locations. We can add scale. Because this is a scale challenge: If you break up your data center in multiples, you need scale for each one of them; otherwise you will be too expensive. We actually have the scale. We are bigger than Oracle in the cloud.
Regarding SAP’s quarterly results, for two quarters in a row license sales have dropped. They fell 5 percent in the most recent quarter. Is that a sign that SAP is losing out to smaller rivals like Salesforce.com (CRM) and Workday (WDAY) and their Web-based products?
When we look at our business, the key metric is how much new-sell software do we do, and it comes in two flavors: software and cloud subscription. And so when you look at our numbers, you really have to add them up to understand how much our software is appreciated by the market. On top of that, you need to take the currency effect out. You know, we can’t manage currencies, but we can innovate software. If you do that, you will see that our new-sell software (which is the software plus cloud) is growing double digit, 13 percent at constant currency—which is twice as fast as our main competitor. Our software number grew by 2 percent and our cloud number grew by 162 percent. So no, we are not losing to the small cloud players, we are winning big-time.
SAP has been focusing on Hana, the new database software launched in 2011. Revenue for Hana grew 79 percent to 149 million euros ($203 million) in the third quarter. For a company with over 16 billion euros in revenue last year, that’s very small. How long before it becomes a more significant contributor to SAP?
You need to look at the product in the span of its lifetime, not just in absolute terms. Any new product will be small at the beginning. Hana is the fastest-growing product in our history, period. When does it become significant? It’s already significant. We are targeting 650 to 700 million euros this year, which is only the second year in the market. And more importantly, all of our products will run on Hana, which means it will be the base for SAP in the future and all of our partners and ecosystem. That might not count as Hana revenue, because you sell a product that runs on Hana, you actually generate revenue on the product. But it basically means Hana is not just a new piece of software, it is the future platform for enterprise software. And you have seen how our competition is reacting: First, they were in denial, saying we must be on drugs, and now they are claiming [their] version after next may be something similar, and when we look into their claims, they still don’t understand the simplicity that Hana offers and the performance and [total cost of ownership] reduction that it offers. So we are at least three years ahead and we are changing a very mature database market, getting off slow disc into main memory.