SAP SE O.N. (NYSE:SAP) Q3 2020 Earnings Conference Call - Final Transcript
Oct 26, 2020 • 09:00 am ET
Thank you. [Operator Instructions] We'll now take our first question. This question comes from Adam Wood from Morgan Stanley. Please go ahead, your line is now open.
Hi, good afternoon and thanks very much for taking the question. I've got two, please. Maybe just first of all, you've made very clear that there is a big move to cloud underway and I think everybody will understand that. But in the past you've given customers choice in terms of how they pay wherever they run between bringing licenses to hosting deals or paying subscription. We understand that, for you, there is a higher lifetime value of customer in subscription and obviously for customers that means then they're paying you more over the lifetime. So could you maybe just help us understand why these large SAP customers now want to run on subscription? Are you forcing that transitional or you continue to give choice? So any help you can give us on why that change is happening would be useful.
And then maybe, secondly, on cloud revenue, you highlight now there is a much bigger part of that going to come from cannibalization as on-prem moves to cloud. Is there any way you could help us understand what the underlying growth of new business in the cloud is going to run off versus how much of that cloud revenue is going to come incrementally from cannibalizing the on-premise? Thank you.
Yeah. Thanks a lot. Adam. Let me start and then, Luka, Adaire, you can build on top of that. I mean, first, what we have seen in the last six months is definitely when I'm talking to the CEOs, look, I mean, for many enterprises, the supply chain is heavily disrupted. They sometimes don't even know. Can they produce and deliver the next day? And that is the inflection point of our customers, where they are saying, "hey, I really want to move now to the cloud, I want to have a resilient operation, why should I still operate my own IT data?" And so that's the first point.
And then the second point is doing a business transformation, Adam, is not easy. You have to change how a company works, you have to redesign business processes. And also our customers, including the large ones, believe, "let's move to the cloud, and also let SAP help us to transform our business, show us the best practices you have for the digital age, let us standardize our solutions, and now that the platform is ready, let's also build the extensions in the cloud and really consume regular innovations on the fly."
So besides the commercial aspect, it's really about the resiliency and the transformation of their business. And where is this cloud revenue going to come from? First, yes, of course, there is a trench, as accelerated move of our installed base to the cloud. But second, this quarter, you have heard me saying 45% of our S/4HANA cloud customers are net new, which