More SAP leadership changes as Fox-Martin exits

Emphasizing cloud capabilities

White's appointment to head SAP's marketing efforts is aimed at emphasizing how the company's cloud capabilities can help customers transform their businesses, SAP CEO Christian Klein said in a call to analysts and members of the media last week.

Christian Klein

"The competition is increasing in the cloud market, and our customers want to understand the different capabilities of our solutions and the relevance for their business transformation," he said. "[White] and her team will have a huge focus on strengthening our product, industry and digital marketing capabilities."

During the call, SAP also released a partial review of its fourth-quarter financial results. Cloud revenue increased 8% year over year, while software license revenue declined 15%.

The results were strong despite the economic disruption from the COVID-19 pandemic, Klein said.

"Our predictable revenue stream is now up by 5% compared to 2019, so Q4 was our biggest one and most successful one both for cloud revenue and software licenses," he said. "We almost doubled our operating cash flow to €7 billion by the end of 2020, which is an indicator of the overall health of our business."

SAP leadership change was inevitable

The latest SAP leadership changes likely reflect the ushering out of McDermott-era executives in favor of those who are aligned with Klein's agenda, according to industry observers.

These changes are inevitable when you have that kind of change at the top.

"These changes are inevitable when you have that kind of change at the top, and it's to be completely expected that Klein is putting his stamp on [SAP leadership]," said Joshua Greenbaum, principal at Enterprise Applications Consulting. "[Fox-Martin] was a good leader and effective based on the Q4 results, so she will be missed on that level, but it's a testament to SAP's very deep bench strength that Russell is a top-tier executive in his own right and should be able to carry the torch very well."

Jon Reed

Joshua Greenbaum

The change was inevitable, agreed Jon Reed, co-founder of Diginomica, an enterprise industry analysis site, but it confirms that SAP is now fully under Klein's control.

"It will be interesting to see what happens because they have this whole reconfigured board and now they've got to go out and perform," Reed said. "This seems like the final tweaks to the lineup, so the board under Klein has run out of excuses."

A shift in marketing strategy

The elevation of marketing to a board-level business area and the appointment of White indicates a shift in marketing strategy, Reed said, which will likely focus on a more business-oriented rather than a consumer-oriented approach to cloud computing.

"We'll see if SAP can take a different tone in its marketing, maybe less flashy and more substance, maybe more authenticity and less about sexy buzzwords," he said. "SAP has sorted its cloud strategy fairly well in what they want to try to do, but they're still trying to figure out how to explain what they're doing. The appointment of [White] ties more into an emphasis of a narrative around cloud."

Predrag Jakovljevic

A different marketing approach may not solve some of SAP's biggest issues, but it may help to present a more business-focused message, said Predrag Jakovljevic, principal industry analyst at Technology Evaluation Centers.

"Adding a marketing person can't fix the inability to migrate on-premises SAP ECC to S4/HANA, but surely [White] will try to come up with different business case based story-telling than Tillman was doing with a more product-based approach."

Mixed Q4 results

The preliminary Q4 results weren't fantastic, but they weren't disastrous either, given the overall economic circumstances and SAP's ongoing shift to cloud models, according to the analysts.

"SAP is moderately improving, there's plenty of cash, but still revenues declined and the outlook seems soft," Jakovljevic said. "On the other hand, cloud revenues are moderately up, so at least SAP has handled the expectations much better than with the Q3 debacle."

SAP's relatively healthy Q4 results could help it gain more cash from the impending Qualtrics IPO, Greenbaum said.

"A lot of people at SAP probably wanted something a little more dramatic from cloud but it's pretty solid otherwise and considering they couldn't hold the kind of big virtual events that SAP counts on to drive revenue," Greenbaum said. "Ironically this quarter has helped position the Qualtrics IPO better, which will have a direct material effect on SAP because they stand to show a pretty decent profit from the acquisition while maintaining a strong ownership position. That's an interesting win that's in the background of what the numbers were like."

The mixed results show more about the overall economy and SAP's challenges in moving its core business to a cloud-first business, Reed said.

"First, the pandemic economy is hard, and the goal is more to get through the pandemic economy rather than to absolutely get big quarterly results," he said. "Second, the core on-premises business is going away. It's not going away tomorrow, but these numbers indicate a continued decline in that core business. However, there are also some signs of life in terms of subscription revenue increases and cloud revenue increases, so I suspect we'll hear a lot more from SAP about cloud and subscription revenues going forward."