Sponsored By

CEO Chat With SAP's Rick CostanzoCEO Chat With SAP's Rick Costanzo

Light Reading's Steve Saunders quizzes Rick Costanzo, EVP and General Manager of SAP Telco Industry and HCP/Mobile Solutions, on how SAP is preparing for the brave new world of digital transformation.

Steve Saunders

December 18, 2015

13 Min Read
CEO Chat With SAP's Rick Costanzo

In the 25 years I've been writing about technology, SAP is one of the few companies that I've never gotten to know. But like many of the enterprise giants (and SAP is a genuinely massive company -- think $90 billion in market cap), it's making increasingly big moves in the telecom space. So now it's obviously showing up loud and clear on Light Reading’s sonar (ping! ping!), ironically at a time when LR itself is starting to undertake more coverage of enterprise space.

I sat down with Rick Costanzo, EVP and General Manager of SAP Telco Industry and HCP/Mobile Solutions, and a 20-year veteran of the telecom industry, via both Blackberry and AT&T.

And, wow, what a great interview this turned out to be!

Figure 1: Rick Costanzo: He wants to unlock the value of all that data. Rick Costanzo: He wants to unlock the value of all that data.

Rick offered exceptional insights into the challenges faced by today’s Tier 1s, and his vision of how service providers can build a future proofed communications strategy that also makes money in the here and now should be essential reading for anyone in the comms supply chain.


— Stephen Saunders, Founder & CEO, Light Reading

Next page: Where to from here? Where to from here?

Steve Saunders: Hey Rick, so how do you see the global communications industry changing?

Rick Costanzo: Thanks Steve; it's a good question.

The big trend is really around digital transformation. It's not unique to our industry, of course. You have Airbnb and what it's doing to the hospitality industry, Uber and what they're doing to urban logistics. The reality is the telecom industry is no different. There are a few different drivers for digital transformation [in telecom].

For the past several years our industry has defined success using one KPI: subscriber growth. The problem is that western Europe and North America have been over-120% over-penetrated for the past four or five years. Markets like Latin America will be able to squeeze a few more years of subscriber growth, but eventually they're going to end up being in the same position as North America.

So now that there are no more new subscribers, people are starting to ask "what's the next way to define success?"

Part two of that problem is the cannibalization of traditional services by OTT services, which started with things like WhatsApp in 2005 and by my estimates will add up to $400 billion by 2018.

On the positive side, communication service providers are sitting on a mountain of valuable, monetize-able data. In the history of mankind, 90% of the data that we've ever produced happened in the last 2 years so, and I'm sorry to coin a Canadian-ism, but it is massive hockey stick growth.

SS: [laughs] It is.

RC: And that data is largely coming from 2 billion smartphones that are out there. Now imagine what happens to the tsunami of data when the 2 billion becomes 20 billion connected things.

My own belief is that whoever can unlock the value of context in that data, either in a predictive or a real-time fashion, is going to unlock brand new business models, and tremendous value for customers and tremendous business opportunities.

So there are both positive and negative forces driving digital transformation but it's all sending it down one path.

Next page: Unlocking the data

Unlocking the data

SS: What is SAP doing to unlock the value of all of that data right now?

RC: It's been the crux of what we've been trying to figure out with our customers for the past year. Clearly, the business of the communications service providers is evolving, and the SAP point of view is that it could evolve into four brand new business models.

One would be a provider of digital lifestyles -- services like mobile wallet, and media sharing, and tele-health, and home security; that type of stuff.

Another business model could be as an industry transformation catalyst. Digital transformation has been happening in the telecom space for the past ten years; service providers are no stranger to it, and some of the lessons that they've learned put them in a great position to help other industries digitally transform as well.

The third business model is as data broker. To my point, there's so much valuable data that's available now. We're already taking some initial steps with some of the telcos to help them look at that data in real time, and our HANA platform allows us to provide some unique value here.

Let's say you are the telco using a particular application to create engagement with your end users. Wouldn't it be great to be able to go to that particular application provider and say, "Would you like to know the demographic of the people using your applications? How many clicks they used before they actually went over to a different site or transacted? Would you like to have this ability based on geo-location and across all devices, not just one particular platform?"

To be able to do that in real time, and to do data modelling around the information, and to do this predictively, unlocks some brand new business opportunities.

Then the fourth business model would be "business network liaison." Think of it like this: One way to define the subscriber base within a telco is really as a collection of communities. There's an opportunity to allow those communities to leverage new economies of scale that they can't provide on their own via a global platform, created by the telcos, that give them the opportunity to join with or interconnect with other communities that have the same needs; for example, procurement services, whether for raw goods, or for contracted health.

So we're looking at a world that includes those four new business models, but, to be candid, we know that it's going to take a lot of heavy lifting and investment for them to materialize. So we're telling telco customers "you need to put building blocks in place now that will help you contribute to the future, but also have immediate payoff for you today." That means creating an evolution that allows them to first improve customer engagement, service monetization, point-of-sale experience, financial systems, and network operation management.

SS: That's a compelling vision. Tell me more about this new cloud platform, HANA.

RC: Sure, you're talking about the HANA cloud platform, which is our "platform-as-a-service" offering.

One way to look at it is as our open standards-based solution for application extensibility and application creation; a means of extending and personalizing both SAP and non-SAP applications. There's also an infrastructure-as-a-service component to it as well, and there's also a database-as-a-service component, and as the name suggests it's also cloud-based, which for telcos means this is a very flexible and agile way of taking advantage of the real time and predictive insights that HANA actually provides.

SS: Most of the customers that I see on your site are mega-corps, super-power-sized enterprises, as opposed to telecommunication service providers or communication service providers. Are communication service providers and telcos and Tier 1s a growing market for you?

RC: 100%. Over the course of the past year, communication service providers, the telco industry, has been the fastest growing industry at SAP. I think we still have a ton more work to do for sure, but I think the reason why we're growing so fast is that this trend of digital transformation is absolutely clear and present.

I recently sat down with the chief commercial officer of one of the world's largest telcos and he said something that really struck me. He told me that three or four years ago, big data was run as a bit of a science experiment, and it never really delivered the business impact that they were hoping for. Now, that's what happens whenever you have detached efforts where the technology is detached from the commercial aspects of the business.

So what this organization is doing is they're taking a reboot of big data, and this time it's being sponsored by the business, and they're being super-pragmatic about it.

They're saying: "We want to solve three problems: First, help me sell more; second, help me reduce costs, thereby improving my market position; third, help me figure out where I can get the best return on my investment over the next two years from a finite amount of debt capex available. Do I upgrade this corridor of the network with the following users that would represent this certain amount of revenue, or do I upgrade this other corridor?"

And SAP is really well positioned to answer all three of those challenges, because we started making the investment into our HANA platform several years ago.

SS: HANA used to be called something else, right? I'm assuming it's changed a lot over time.

RC: Sure. SAP's really an application as a platform company. These applications ran on other databases. You could fine tune them for forever and a day, but ultimately you end up hitting certain limits. We felt that we were constrained by the databases we were running on, so we decided to create our own -- which is where HANA started off. Then what we discovered is you could evolve this into a platform and you could write all native applications on the platform, and actually you could run analytics on this platform as well -- without having to run separate infrastructure -- and then we evolved that a little bit more and started launching industry-specific solutions for HANA, and telco is certainly one of these industries where we have revenue assurance, margin assurance solutions. So it has evolved, certainly, but the point about HANA is that it was written for the digital age.

It was written for an age of agility, of real time and real-time predictive insights, without the massive footprint required by the big expensive boxes. And it has great performance, and so we're hitting a sweet spot because digital transformation requires all that real-time, predictive insight, and HANA's in a unique position to capitalize on that.

Next page: Web-scale competition

Web-scale competition

SS: One of the questions that everybody is currently asking is whether incumbent service providers, the Tier 1s, are going to survive the onslaught of competitive forces from web-scale companies like Amazon and Facebook and Google and IBM and all of those guys. Do you think they're going to make it?

RC: The answer is "yes," I think some of them will make it, but it depends on who we're talking about right? So there's my qualified answer!

I'll give you my own personal take. I think half of the global telco industry has kind of said, "You know what, I think it is going over the top, I think it is the web-scale guys who have won the day. I'm going to focus on carrying packets from one end of the country to the other end of the country and I'll drive the efficiency as much as humanly possible, but I'm a utility."

I think the other half has said, "No way! I see myself as a strategic services platform for my customers, and I'm going to invest in all the transformation that I personally need so I can deliver those value added services."

Those are the organizations that are coming to us saying, "We know we can't do it ourselves, we need to partner," and those partnership opportunities go back to those four business models. But what we're also saying is, look, having been in this space for 20 years, let's agree that this industry, perhaps more so than any other, has the capability of over-hyping a little bit, just a titch.

SS: Well, big data is the best example of that, isn't it?

RC: It is. I do believe in the shiny future, I do, but let's not underestimate the amount of investment and the heavy lifting that needs to happen now. Those building blocks that we talked about earlier on… there's immediate payoff in terms of having better customer engagement, a better service monetization platform… the payoffs for those are immediate, and they're necessary for building that path to the future. So my answer is yeah. I think for the ones that are making those investments, they will make it. Now, are they making those investments fast enough?

The most forward-thinking ones are, and I'm going to characterize that the most forward-looking ones tend to be the larger incumbents that have experience, first-hand, of the near and present danger.

SS: Interesting. I've asked the same question to half a dozen C-level folk at service providers and communications manufacturers just this week and the consensus is that 50% number is about right. But I also think your prediction that half of them end up as utility, or essentially expensive plumbing, but maybe with security built in, so like expensive bulletproof plumbing, that is a very prescient vision indeed.

Next page: Not being Oracle

Not being Oracle

SS: Obviously SAP's always compared and contrasted with Oracle. It's probably quite annoying when you hear that, because obviously you're very different companies. I mean, Oracle's had the strategy of investing in infrastructure acquisitions in order to try to obtain customer relationships in the telco industry. Is that something which SAP needs to do as well? Most of your acquisitions have been higher up the stack, haven't they? They've been more cloud focused.

RC: I think you've heard the expression, "everything's a nail if you're a hammer," so I think if you have a business strategy that weds yourself to really expensive hardware, you see the world through that. We built HANA in a way that we didn't have to wed ourselves to super expensive hardware. We believe in "in-memory," and we believe in the strategic importance of in-memory, and we believe in efficiency and great performance. So we take a look at what another company might have done and we kind of go, "Uh, I think you should have been delivering value irrespective of having biases towards hardware revenue pattern," so we've taken a different approach, and frankly, with the growth that HANA's seen over the past several years, and continues to accelerate, I think it's a message that's resonating in the marketplace.

SS: What's your customers' biggest concern, what's keeping them awake at night?

RC: Their biggest concern is, "Can I transform fast enough, and am I transforming in the right areas?" I think, if I reflect back on that conversation that I mentioned to you earlier on with the chief commercial officer, I think it's an industry that tends to over-hype a little bit, and I think what you're seeing now is, broadly, an embrace of pragmatism to kind of stay alive: "Look, we believe in the future, but we're going to make those investments in the future as long as they have material payback for us today," and I don't think it's a difficult reconciliation, I really don't.

I think it comes down to how do you have better insight for your customers? How do you provide them with better experiences when you engage with them? Are you getting the necessary investments to upgrade and to digitize your core? Think of the core as ERP 2.0, and are you running the right investments in terms of making sure you get the best performance and the best capex return on investment for your network operations? As long as you're looking at the world, looking at the future, through that lens of pragmatism, I think you can pay off today and you can pay off for the future as well.

About the Author(s)

Steve Saunders

Founder, Light Reading

Steve Saunders is the Founder of Light Reading.

He was previously the Managing Director of UBM DeusM, an integrated marketing services division of UBM, which has successfully launched 45 online communities in less than three years.

DeusM communities are based on Saunders' vision for a structured system of community publishing, one which creates unprecedented engagement among highly qualified business users. Based on the success of the first dozen UBM DeusM communities, the UBM Tech division in 2013 made the decision to move its online business to the UBM DeusM community platform – including 20 year old flagship brands such as Information Week and EE Times.

Saunders' next mission for UBM is the development of UBM's Integrated Community Business Model (ICBM), a publishing system designed to take advantage of, and build upon, UBM's competitive strengths as a leading provider of live events around the globe. The model is designed to extend the ability of UBM's events to generate revenue 365 days of the year by contextually integrating content from community and event sites, and directories, to drive bigger audiences to all three platforms, and thereby create additional value for customers. In turn, these amplified audiences will allow business leaders to grow both revenues and profits through higher directory fees and online sponsorship. The ICBM concept is currently being discussed with a broad group of business leaders across UBM, and is earmarked to be piloted in the second half of 2013 and early 2014.

UBM DeusM is Saunders' fifth successful start-up. In 2008, he founded Internet Evolution (www.internetevolution.com), a ground-breaking, award-winning, global online community dedicated to investigating the future of the Internet, now in its fifth year.

Prior to Internet Evolution, Saunders was the founder and CEO of Light Reading (www.lightreading.com), Heavy Reading (www.heavyreading.com

Subscribe and receive the latest news from the industry.
Join 62,000+ members. Yes it's completely free.

You May Also Like