SAP's stance on cloud-only innovation needs clarity in 2024
SAP must focus on delivering technical and business value for all customers in 2024 rather than alienating some by offering modern technologies for S/4HANA Cloud users only.
The growth of generative AI and the continuing efforts to move customers to the cloud will likely dominate SAP's agenda in the year ahead.
Both issues intersected last summer. SAP courted disgruntlement with its still-large on-premises customer base when it unveiled that some capabilities, including GenAI and sustainability, would only be available to customers that had moved to S/4HANA Cloud via the Rise with SAP program.
In 2023, DSAG, the German-speaking SAP user group, and UKISUG, the U.K. and Ireland user group, expressed displeasure in SAP's strategy. But industry observers believe the move to cloud is inevitable and sometimes necessary to take full advantage of technologies like GenAI. However, while it made headlines for SAP last year, GenAI use cases for ERP will not come online soon.
Although permutations might vary, analysts see 2024 as another inflection point for SAPe that will again be dominated by the cloud and GenAI advancements.
New year, old problems
Overall, SAP and its customers and partners are beginning 2024 with the same problems that have persisted for several years, according to Joshua Greenbaum, principal at Enterprise Applications Consulting. The big questions are how and when customers move to the cloud -- primarily to SAP S/4HANA Cloud -- which are complicated problems that don't have quick or easy answers.
It's not bad that customers and partners are taking time to make these moves carefully, Greenbaum said, because many companies that jumped in headfirst then had to remediate their S/4HANA Cloud implementations. Customers are planning to move to S/4HANA Cloud, he added, but are trying to do it on their own terms.
"Customers are looking at doing a real business process-focused upgrade as opposed to a technical upgrade, which is an important shift," he said.
SAP has attempted to make the S/4HANA Cloud move less complicated through the Rise with SAP program, which launched in 2021. Originally billed as a simple way to the cloud, where customers have "one hand to shake" in managing the S/4HANA Cloud system, Rise has evolved into a number of cloud deployment options, including a public SaaS edition and a private cloud edition, that lets customers manage their own environment.
Rise with SAP not a fit for every customer
However, not all customers feel that Rise with SAP meets their needs, and the details of Rise contracts are not always apparent when customers sign on, said Liz Herbert, an analyst at Forrester Research. Dealing with this customer unrest will be an issue for SAP in 2024.
"In the bigger picture, you've got customers that rightfully feel concerned whether what SAP is offering with Rise fits their needs," Herbert said. "They also have evidence that SAP has perhaps over-promised them [functionality] in the S/4HANA shift."
It's unlikely that SAP will alter its strategy to offer new capabilities only for S/4HANA Cloud users, she said, as the enterprise software market has overwhelmingly moved to SaaS. Many in the industry think that moving to a pure SaaS model is better for the vendor, the customers and the partners.
"SAP is in a difficult spot there because they probably shouldn't go back," Herbert said. "But they probably should be thoughtful, at least about those customers that made the early bets and about the reality of the maturity of their products."
One aspect of the move to the cloud that's becoming more "ominous" is the deadline that SAP has set for ending on-premises ECC support, said Vinnie Mirchandani, founder of Deal Architect, an enterprise industry blog. SAP should focus on speeding this process up.
"SAP needs to encourage more automation in the migration to S/4HANA," he said. "It's still too dependent on labor intensive SI [systems integrator] led migrations."
Analysts say that SAP must clarify its cloud strategy for customers in 2024.
The controversy around SAP offering new capabilities to cloud customers only is another matter, according to Mirchandani. DSAG and other user groups represent the voice of SAP customers well. But he found the response from DSAG leaders outdated in today's cloud-oriented IT world.
"The enterprise world has been moving to the cloud for three decades now, and contrary to industry myth, SAP and its customers have been a major force in this transition," he wrote in a blog post.
Enterprise software pricing is always flexible, and SAP should be able to justify any premiums for new capabilities based on added value, according to Mirchandani. He does not expect a repeat of the customer pushback that SAP faced when it increased maintenance prices in 2008 during a recession.
"This is aspirational," he wrote. "And each customer will do their own value analysis and in [the] case of AI, I am already seeing plenty of risk mitigation being factored in ROI assessments."
Focus on innovation, not Rise contracts
SAP has presented an ambitious approach to modernizing its customer base, but questions remain about whether it will succeed as a business and technical transformation partner for customers, said Jon Reed, co-founder of Diginomica, an enterprise software industry analysis firm.
SAP needs to better explain the technical reasons why customers should be using Rise with SAP to access AI and other new capabilities, he said. There could be valid reasons for SAP to offer cloud-only access, such as tracking AI credits.
But customers might also be able to access some of the same functionality through other means, such as the SAP Business Technology Platform, for example, without an immediate move to the cloud, Reed said.
"So far SAP has been fairly persistent about talking about Rise for AI and Rise for other functions," he said. "While there's a good business case for Rise for some customers, SAP needs to be careful about putting up barriers in between themselves and the innovation to follow."
In the bigger picture, you've got customers that rightfully feel concerned about what SAP is offering with Rise fits with their needs. They also have evidence that SAP has perhaps over-promised them in the S/4HANA shift.
Liz HerbertAnalyst, Forrester Research
Greenbaum agreed that the confusion around cloud-only capabilities is an issue SAP needs to resolve in 2024, given it dominates the conversation that many are having with SAP now.
"They're asking if they really need a Rise contract to do [particular functions] and if they'll be able to do those things if they don't have Rise," he said. "[SAP is] making a complex job more complex by confusing the market with these terms and conditions for both technology and product, which is unfortunate."
Too much of the conversation is around contractual commercial terms and conditions, which is separate from discussions about technology direction and solving business problems, Greenbaum said.
"They should get that out of the way so they can actually get into the stuff that's more germane to the customer's actual success," he said. "The innovation issue is a red herring, as there are all kinds of domains where you can innovate without Rise, which is a really good idea."
Jim O'Donnell is a TechTarget senior news writer who covers ERP and other enterprise applications for TechTarget Editorial.
