SAP Fights for Survival

Cloud-first business strategy

SAP's Rise Migration and Modernization program is designed to address the needs of customers who have already followed SAP's S/4 strategy. This is SAP response to a request from the DSAG, the German-speaking SAP user group. The announcement at SAP's annual press conference in July 2023 that key innovations would only be offered to customers with a Rise or Grow contract hit on-prem customers particularly hard. "At the 2023 annual conference, DSAG called on SAP not to leave on-premises customers out in the cold. It is therefore all the more satisfying that SAP is now responding," said Jens Hungershausen, Chairman of the DSAG.

SAP has introduced various resources, services, and financial incentives to help customers migrate to the cloud. The Rise with SAP migration and modernization program is designed to address two fundamental issues: scale and cost. According to SAP, it is designed to provide the confidence needed to migrate even highly complex ERP systems to the cloud by eliminating the need for custom code development, reducing data silos, and reducing process complexity.

Paradigm shift—from innovation to rebates

At the start of the year, SAP’s strategy did a complete 180. Whereas before it was the innovative business processes (see Signavio and LeanIX) that were supposed to convince customers to switch to S/4, now it is only the financial benefits. The discount war has begun in the SAP community. Experts believe that the current development is only the beginning of an aggressive price war. What will it cost to bring the majority of SAP customers into the public cloud?

The DSAG user association explains: "SAP wants to offer S/4 on-prem and ECC customers who sign a Rise contract and move to the public cloud a bonus of up to 100 percent of the average annual contract value. ECC customers who move to the private cloud will receive up to 45 percent of the average annual contract value. SAP will also provide an enterprise architect as part of the Rise contract for customers above a yet-to-be determined contract value threshold. This person will act as a trusted advisor to the customer without any sales pressure.”

The cost savings from switching to Rise will be credited to SAP. "They can then be used to cover the cost of maintenance, cloud services, or additional cloud subscriptions," explains Jens Hungershausen. "Every company needs a cloud-first business strategy," said Eric van Rossum, Chief Marketing Officer for Cloud ERP at SAP. "It's more important than ever that customers start migrating and modernizing now to take advantage of the latest cloud innovations, such as AI and sustainability solutions."

Why only?

The reasons for SAP's surprising, panic-driven action are obvious: S/4 will be ten years old next year and the majority of customers are still running the previous R/3 and ECC versions; S/4 was never designed for the cloud, so there is no technical argument for moving S/4 to the cloud. Only a financial advantage could convince SAP customers to opt for SAP's cloud computing. Am I right?

SAP faces two main challenges: innovation and support. The example of former SAP flagship customer Mercedes perfectly illustrates the disaster. The Stuttgart-based automobile manufacturer uses Salesforce for CRM and Workday for HCM. SAP came up short in both areas, and Mercedes is just the beginning of a trend to keep an eye on.

Current hird-party maintenance

If the use of SAP software is reduced to the core financial system and areas such as CRM, HCM, SCM, etc. are covered by other vendors, then the issue of third-party maintenance could become relevant once more.

SAP's withdrawal from Russia is commendable, but as an SAP expert explained on Austrian radio, the many SAP systems in Russia have not come to a standstill as a result. These SAP systems are now being supported by local IT specialists outside the cancelled maintenance contracts. This unofficial third-party maintenance is not unknown in the global SAP community. Even in the R/3 era, many systems in Asia were operated illegally. In China, local ERP systems that are amazingly similar to an R/3 and ECC system can be found repeatedly.

SAP's current financial figures paint a different picture. However, if SAP were not up to its neck in debt, these very generous discounts would not exist. SAP seems to be worried about its medium-term survival. And the S/4 price and discount war has only just begun!