Sap can’t find the turbo switch

Martin Bayer

Turning the software tanker SAP SAP on a cloud course takes a lot of time. Sales and profits grew by just two percent last year. Revenue increased to just over 27.8 billion euros, profit to nearly 5.4 billion euros. By way of comparison, software giant Microsoft grew by 20 percent in the past quarter. Cloud specialists grow even faster. ServiceNow just reported revenue of nearly 5.9 billion dolalr for its full year 2021 – up 30 percent year-over-year. Cloud pioneer Salesforce is targeting a 24 percent increase in revenue for its fiscal year 2022, which is currently underway, and by then would be breathing down SAP’s neck with $26.4 billion in annual revenue. All about SAP on

SAP executives are nevertheless spreading optimism, pointing to their own growth in the cloud business. In 2021, SAP’s cloud revenue improved 17 percent year-over-year to €9.4 billion. With its flagship ERP solution S/4HANA, the group took in nearly €1.1 billion in the cloud last year, 46 percent more than in 2020.

SAP CEO Klein: "Tremendous success of RISE with SAP"

"Our strength in the cloud business is obvious", said CEO Christian Klein Christian Klein . More and more companies are choosing SAP "to reposition themselves, build stable supply chains, and become sustainable businesses as they move to the cloud". Klein sees the "RISE with SAP" program, which was launched a year ago, as an important building block for progress in the cloud. With this, the software manufacturer wants to make it easier for its customers to move to the cloud. Profile of Christian Klein in the CIO Network

SAP CEO Christian Klein insists on the company's own cloud strength and praises the transition program'RISE with SAP'.

SAP CEO Christian Klein insists on the company’s own cloud strength and praises the "RISE with SAP" migration program.
Photo: SAP

Klein speaks of the tremendous success of RISE with SAP. In fact, the program seems to be gaining momentum. SAP says 650 user companies signed contracts in the fourth quarter alone. That’s half of the total 1.300 RISE customers acquired by SAP in the past year. These include companies such as Fresenius SE and Siemens.

The number of S/4HANA users is also increasing. 1300 new customers were added from October to December 2021, an increase of 18 percent over the same period last year. A total of 18.The DSAG criticizes the fact that 800 companies opted for the ERP system introduced seven years ago. Of these, 13 would have.100 already in productive operation. However, SAP does not say how many of them run S/4HANA in its own data center and how many have opted for a cloud solution.

SAP users: Cloud remains a challenge

On the user side, SAP’s euphoria is dampened. "The journey to the cloud comes with some challenges for user companies", say Christine Grimm, DSAG Board Member for Transformation, and Thomas Henzler, DSAG Board Member for Licenses, Service& Support. "Classic ERP structures, as users knew them from the past in an on-premises context, are often too complex in the cloud and difficult to reconcile with a cloud philosophy."

Christine Grimm from DSAG calls for more harmonization from SAP

Christine Grimm of DSAG calls for more harmonization from SAP.
Photo: DSAG

Grimm and Henzler point out that SAP’s strategy is moving away from a monolithic approach and toward a modular application landscape with standardized software-as-a-service products. As a result, they often need several different solutions, possibly on different technological platforms, to be able to map an end-to-end process. This is due not least to the SAP acquisitions of the past. Once again, DSAG is calling for better harmonization of these solutions.

Customers demand integrated cloud products and attractive licensing models

For DSAG, it is clear that if SAP wants to be successful in the cloud, it needs "mature and integrated cloud products as well as attractive licensing models". Ultimately, every transformation is a comprehensive, multi-layered change process, the ‘metamorphosis’ of an enterprise. Grimm and Henzler speak of a fundamental change that affects strategy, culture and organization. These challenges, in all their complexity, need to be understood and supported. "Software alone does not make a transformation."

Thomas Henzler, DSAG board member responsible for licenses, service and support, points to the complexity of the transformation projects. Software alone is not enough

Thomas Henzler, DSAG board member responsible for licenses, services& Support, points to the complexity of the transformation projects. Software alone is not enough.
Photo: Piller/Benjamin Klingebeil

Users expect more support from SAP here. Transformation is a volatile, agile process, they say, and companies typically have different maturity levels and histories. "For this reason, it is difficult to understand how a ‘business-transformation-as-a-service package’ such as RISE with SAP is supposed to ‘unravel’ this complexity", criticizes the DSAG. "We expect more clarity and a holistic understanding from SAP. What is required is not business transformation-as-a-service, but business transformation at eye level."

A lot of revenue from licenses and maintenance

A look at the figures reveals how many SAP users still adhere to the classic on-premises model. In 2021, the Group earned 14.7 billion euros from software licenses and the associated maintenance, which is still well over half of total revenue. At €11.4 billion, maintenance revenue accounts for the lion’s share of SAP’s business.

But one thing is clear: SAP is doomed to cloud success. The traditional on-premises business, with which the Walldorf company justifies its past successes, is crumbling. Last year, license revenues fell by eleven percent to just 3.2 billion euros. Maintenance sales stagnate.

In the SAP boardroom, however, there is optimism about the cloud shift. For 2022, the Baden-based company expects cloud growth to accelerate further. For example, the Group expects cloud revenues of 11.55 to 11.85 billion euros for the current year. That would mean an increase of 23 to 26 percent. In the long term, SAP wants to generate annual revenues of 22 billion euros in the cloud by 2025. Total revenue expected to reach 36 billion euros in four years.

But the old license maintenance business hangs like a log on SAP’s leg. The cloud and software item is expected to bring in between 25.0 and 25.5 billion euros in 2022 (plus four to six percent). In 2021, this figure was just under 24.1 billion euros, which also represented growth of only four percent compared to the previous year.

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