SAP Is at an All-Time High and Is Expanding Into the Cloud

SAP is pursuing a dynamic corporate and product policy, which is impressive to observe. The cost of on-prem offerings has increased significantly, with the objective of encouraging SAP customers to adopt cloud-based solutions. SAP is offering a new form of cloud transformation with the complete private cloud package, RISE with SAP and GROW with SAP for public cloud. The subscription model creates a permanent dependency on SAP's services and generates a consistent revenue stream. The more flexible license model provides cloud customers with a distinct competitive advantage over on-prem customers. Concurrently, the contractual arrangements and the transformation process themselves are highly intricate, entailing a multitude of potential risks and consequences, including the necessity for IT restructuring.

Cloud only with a surcharge

The announcement that innovations, such as the use of artificial intelligence and sustainability reporting, would only be made available in SAP's own cloud offerings—at an additional cost—caused frustration and unease among customers and partners alike. As a result, there is increased pressure to migrate to the SAP cloud.

It would appear that the number of people who have migrated to S/4 is less than anticipated. The cloud offerings have not been as accepted as was expected. Investments already made in on-prem software were not taken into account until the next move, which began at the beginning of 2024 with the introduction of a new bonus and discount program. "RISE with SAP Migration and Modernization" is designed to encourage customers to develop a cloud-first business strategy based on SAP.

SAP is intensifying its efforts to influence customer behavior. Since September of last year, many customers have no longer received additional discounts on top of the standard discounts, which were previously a regular offering. SAP is effectively imposing a tax on customers, making it more challenging for them to purchase on-prem licenses and encouraging them to switch to RISE cloud solutions. This strategy aims to increase profits. New customers have already been informed that they are unable to purchase on-prem licenses due to the availability of cloud offerings.

SAP has enhanced the appeal of the RISE migration program by extending the fast-track surcharge. If a corresponding contract is concluded by the end of September 2024, in addition to the 45 percent for ECC customers (max. 3 million EUR) or 60 percent for S/4 customers (max. 6 million EUR) Migration Credit as credits, there is a further 25 percent turbo uplift, which can be a significant amount of money in individual cases. Additionally, substantial subsidies are frequently offered by hyperscalers. According to the latest data from SAP, over 5,200 customers have already entered into private cloud SAP contracts.

If you have not yet entered into advanced discussions with SAP, it is unlikely that you will be in a position to sign a contract by September 2024. We advise you to consider RISE or GROW as a short-term option to avoid potential economic and strategic disadvantages for your company, particularly given the program's limited availability until the end of 2024.

For over a year, SAP CEO Christian Klein has been spearheading the company’s transformation, shifting towards a greater reliance on public cloud and AI, and eliminating 10,000 positions. His primary objective is to significantly increase SAP's stock market value and ensure his continued employment. Due to mounting employee dissatisfaction, a recent survey revealed that nearly half of respondents no longer trust Klein to lead SAP into the future. There are several reasons for this. The CEO's management style is perceived as authoritarian, and he has instructed the workforce to return to the office. He is also seeking to implement an evaluation system to identify underperforming employees. SAP is definitely undergoing a transformation. SAP employees, who are accustomed to success, have never previously experienced such circumstances.

The dismissal of 10,000 long-serving (and presumably critical) SAP employees in favor of cheaper, inexperienced, and loyal employees raises questions about the impact this will have on SAP. Given the current shortage of experienced resources, customers may find it challenging to receive qualified support and further development of the software.

SAP anticipates savings of approximately 200 million EUR by 2025, a significant reduction from previous estimates. Consequently, earnings before interest and taxes (EBIT) are expected to increase in line with this strategy. SAP is now forecasting revenues of 10.2 billion EUR, up from the previous guidance of 10 billion EUR.

GROW and public cloud

Christian Klein's product strategy is clear: in current presentations, GROW with SAP is always set as the goal for the public cloud, RISE with SAP as the transition if GROW is not (yet) possible. And then AI. The stock market has rewarded all of this, as well as the euphoric second-quarter results (operating profit up 33 percent to 1.94 billion EUR). Analysts had expected only a 24 percent increase, however, over the past twelve months, the share price has risen by almost 60 percent to almost 200 EUR per share.

SAP Cloud or better alternatives? Check now! Prior to the new program, on-prem license purchases were never credited to cloud contracts, so this is another significant shift in momentum in favor of RISE with SAP. Over the past few years, HiSolutions' SAP SAM experts have helped many companies move to the SAP cloud. On the other hand, the SAP Cloud proved to be uneconomical or unsuitable for at least as many customers. As a result, in conjunction with the client, sustainable alternatives were found, evaluated, and implemented.

This is highly complex. It touches the very foundations of IT and every business. Millions are at stake. Many companies do not have the experience and expertise required for this unique transaction and should seek the advice and support of reputable and experienced SAP licensing and contract consultants.

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