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Data Sheet—Tuesday, January 27, 2015

Good morning, Data Sheet readers! Once again, Fortune senior editor Andrew Nusca here, filling in for Heather Clancy for the week. This morning: Microsoft’s surprising earnings, why Amazon was raided in Japan, and big data’s speed bump problem—plus an interview with SAP CEO Bill McDermott. (Feedback? Tell me on Twitter @editorialiste.)

WHAT YOU MISSED

Microsoft’s 2Q15 earnings were in line with expectations. Profit is down, smartphone sales are up, and commercial cloud sales have doubled. A big surprise: Surface sales continue to pile up, crossing the $1 billion mark for the first time. An even bigger surprise? Bing increased its market share.

As for Texas Instruments, its earnings outlook is sunny after it reported strong demand for chips used in cars and industrial equipment systems. The company’s a good bellwether for the Internet of things.

Dropbox acquired Pixelapse, a Y Combinator startup that makes collaboration tools.

The Japanese police raided Amazon’s Tokyo headquarters over child pornography.

Huawei will focus on high-end smartphones, predicting mass consolidation at the low end of the market. The king of China’s low end? Xiaomi, of course.

Here’s the breakdown on HP executives’ roles ahead of the company’s split later this year.

JD.com, living in Alibaba’s shadow but marching to its own drummer.

Facebook didn’t get hacked by Lizard Squad on Tuesday, it just screwed up a configuration change.

YOU OUGHTA KNOW

33-year IBM veteran Robert LeBlanc has been tasked with leading its new dedicated cloud unit, which includes the group that was once SoftLayer. It’s responsible for 7.5% of the company’s annual revenue and about 100% of its future.

Speaking of which: CEOs have a rosier view of data initiatives than the troops on the front lines, according to The Economist Intelligence Unit. Why? Because employees leave the warts out when they tell the boss.

There will be a quarter of a billion connected cars on the road globally by 2025predicts Gartner, allowing you to convey your road rage over the Internet in real time.

When it comes to IT hiring, big data is “hitting a bump in the road” this year as ROI remains elusive.

BURNING QUESTIONS

Why is Mark Hurd happy about waking up at 4:30 a.m.?

Will this chart continue to stoke the fires of the San Francisco vs. New York tech arms race? (Yes.)

Should Google disable a Waze feature that warns when law enforcement are near?

INSIDE SAP’S WAR ROOM

Last week SAP, which supplies software that helps run the finances and operations of tens of thousands of companies, announced its 2014 revenues and cut its 2017 profit target. The reason? Its ongoing transition from a traditional software model (pay up front) to the as-a-service model used in the cloud (pay as you go) is depressing revenues. The company’s stock took a tumble.

In late November, I sat down with Bill McDermott, SAP’s chief executive, in his office in New York to talk about this moment in the company’s almost 43-year history.

We spoke at length; below is an excerpt from that conversation. In it, McDermott carefully outlines SAP’s grand plan and sheds a little light on his mindset as he heads into this year.

Take me a little bit into to the war room when you wanted to make the Concur deal.

2010. I became co-CEO. We’re in the strategy room. Where are we going to take SAP? We were number one in business applications and analytics. We’re a good company. Participating in a $110 billion market. How do we at least double, maybe triple, our addressable market? That was the business challenge. We said, where’s the world going in the next five years, from 2010 to 2015? Mobile. And that was obvious based on the Millennial generation being the only one ever born into the device.

So that was a trend we wanted to capture, and we did by buying Sybase. So they had the number one unwired platform and fueled the next ambition we had—big data, or if you like, what I prefer, “consumer-oriented contact,” where you have insight that’s meaningful to the ultimate consumer. Yes, big data is the engine. But the empathy for the consumer is even more important. So data is doubling in the world every 18 months, we knew we invented Hana, we had great access to these Sybase engineers to really drive our program, so that was the first move. Sybase was the first big one. We did it in the first 100 days.

And now we’re at 2015, the beginning of the next cycle.

Yeah, but I’ve got to stair-step you a little, alright? So that was the idea of mobile and in-memory computing with Hana. The third big thing was the cloud. Andrew, as you know, in 2010 we had no revenue and no users in the cloud. So we bought SuccessFactors. We bought Ariba. We bought Fieldglass. Just as three very specific things we did. We also bought Hybris to spirit on customer engagement commerce and invented our own cloud for customer, which now has 400 logos of great companies around the world running essentially what you would think of as CRM in the cloud, like unto Salesforce only a better platform and a better user experience. Now you’ve got 44 million users in the cloud, you’re the number-two cloud company as measured by revenue. Soon you’ll be number one, not that far into the future. Very interesting—and that’s a four-year timeframe.

The next thing is the business network. So Ariba, the ambition there was to really open up indirect materials. Here’s why. If you look at any company today in any industry, they form these industry clusters. And these global networks are highly fragmented. It’s not like it used to be in the old days where I’m in New York and all my partners are across the street and we’re building stuff together. They’re accessing my materials and these services and these OEM relationships and third-party relationships from all over the world. That can only be conducted in a very agile business network where it’s totally digital, commerce is conducted in a global economy, and it happens at the speed of thought. There you go with Ariba.

Now, Concur. This is the other piece. As you know, the vision that I’ve got is, “run simple.” We run really sophisticated systems on a global basis. But in this world, if it doesn’t come through simple on the device, where everything is beautiful to see, use, and consume, you’re not relevant. I really believe Concur puts the “s” in “simple” for SAP. But it also does something else that’s really interesting. It builds a wildly significant business network. Here’s why. It’s a $1.2 trillion addressable market. It’s a big market. Each one of those business travelers has a high wallet share on the network with very good margins. So you can make your money on the SaaS model but even more on the transactions.

I’ll give you an example. You take an Uber ride through the Concur network. I get a piece. You make your reservation on certain airlines.

You get a piece.

I get a piece. You eat at certain places, I get a piece. You stay at certain hotels, I get a piece. Eighty percent of the travel that’s done by businesses gets done outside the corporate travel department. So I say that companies should simply dictate based on grade levels at companies: here’s how much you can spend on meals, ground transportation, hotels, and air transportation. If the global economy and the open trading networks available to you—whether it’s Expedia or Orbitz connected through Concur—can give you a better experience? (claps) Go for it! I want you to be happy. Now why do I need all that infrastructure around this global service in my own company that’s managing travel? Think about this. Most companies spend six or seven percent of their total profits on managing T&E.

Sure, it’s the most variable expense after salary.

Bingo. So 84% of Concur’s revenues are generated in the United States where only 30% of the travel budget is driven in the U.S. We’re the most global software company in the world. Here we go: grow time.

You talked about this six-year plan. Why did you announce in late November that you were going to make an announcement about it in January 2015? What’s the mentality?

The first thing is, I don’t know who’s doing the math. I basically said a 2020 vision. That would be a five-year plan. Twenty minus 15 is five. (laughs)

Well, journalists and math, you know.

Basically what I was saying is, as we announce our 2014 results and our guidance for 2015, on that earnings day I would essentially establish the guidance for 2015 and I would lay out a vision for 2020. On the investor day, which will be in February [3rd], and I plan on conducting it at the New York Stock Exchange, I will have the financial analyst community come in for a deeper dive, year by year, on how we see the trajectory of our growth strategy going. The idea is really simple: in 2010, we gave ’em a vision for 2015. It’s 2015 now—it’s time to give ’em a vision for 2020.

But there’s another thing. I have great confidence in our business and this company and our strategy.

Do you think your core business will hold up? You’re in a period of transition. In 2010, you wanted to grow the business, and you plotted it out. Now you’re in a period where the transition is much bigger than you. What are those challenges?

SAP will remain ever strong in the core. There are many customers that run very sophisticated global businesses on that core. They’ve invested heavily in it. It has near 100% renewal rates in every aspect of our core. And they’re going to be able to innovate on top of that core by adding cloud dimensions to it or, simply, if they choose to run it in their data center, they’re absolutely free to do that. That core is rock-solid. I call it Fort Knox.

The second thing is, a lot of them are going to want to do things in the private cloud. We’ll enable that. We talked earlier about IBM. Partners that are really good with Hana and the reference architecture are free to run in a private cloud environment the SAP applications. This gives customers additional choice.

Then the uninitiated customers that really want Hana, that radically want to simplify the IT stack and go all public cloud, will have that option as well. The big idea around this is the business network and the integrated enterprise. Andrew, you know very well—when we think about what happen to the best-of-breeds in the on-premise world, why did they go away?

They didn’t change. Status quo.

Exactly. They might have been best in certain functionalities, but they didn’t breed. So the integration challenge became unbelievable. With SAP and SAP Hana, whether it’s on-premise, private, or public cloud, you’ll have an integrated enterprise and a business network that’s unmatched in the industry. We’re going bold.

For the full conversation—in which McDermott promises, “We’re going to win this thing”—head over to Fortune.com.

FORTUNE FIVE

Exclusive: Kleiner Perkins tried to ‘acquire’ Social+Capital Partnership, by Dan Primack

These 6 tech giants still haven’t released their diversity data, by Michal Lev-Ram

In conversation with the NFL’s digital chief, by Daniel Roberts

This French company makes technology to help the blind see, by Amy Serafin

The top 10 in-demand jobs of 2015, by Benjamin Snyder

ONE MORE THING

With “Nutella” out, I guess I’ll have to name my kid “Jif.”

MARK YOUR CALENDAR

IBM Interconnect: Cloud and mobile strategy. (Feb. 22 – 26; Las Vegas)

Gartner CIO Leadership Forum: Digital business strategy. (March 1 – 3; Phoenix)

Microsoft Convergence: Dynamics solutions. (March 16 – 19; Atlanta)

IDC Directions 2015: Innovation in the 3rd Platform era. (March 18; Boston)

Cisco Leadership Council: CIO-CEO thought leadership. (March 18 – 20; Kiawah Island, South Carolina)

Gartner Business Intelligence & Analytics Summit: Crossing the divide. (March 30 – April 1; Las Vegas)

Knowledge15: Automate IT services. (April 19 – 24; Las Vegas)

RSA Conference: The world talks security. (April 20 – 24; San Francisco)

Forrester’s Forum for Technology Leaders: Win in the age of the customer. (April 27 – 28; Orlando, Fla.)

MicrosoftIgnite: Business tech extravaganza. (May 4 – 8; Chicago)

NetSuite SuiteWorld: Cloud ERP strategy. (May 4 – 7; San Jose, California)

EMC World: Data strategy. (May 4 – 7; Las Vegas)

SAPPHIRE NOW: The SAP universe. (May 5 – 7; Orlando, Florida)

Gartner Digital Marketing Conference: Reach your destination faster. (May 5 – 7; San Diego)

Annual Global Technology, Media and Telecom Conference: JP Morgan’s 43rd invite-only event. (May 18 – 20; Boston)

HP Discover: Trends and technologies. (June 2 – 4; Las Vegas)