5 years after launching its rescue plan to elevate ERP customers to the cloud and change them to the most recent software program, SAP is astray by about €2 billion, The Register can reveal.
Customers reliant on SAP’s legacy ERP software program – together with international companies corresponding to Airbus and BMW – are dealing with the top of mainstream assist in 2027, however the German software program large has already modified its stance on assist deadlines. Because it misses migration targets, some specialists see a change in emphasis.
In October 2020, SAP CEO Christian Klein promised a brand new technique after cuts to its gross sales and margin outlook caused a 23 percent share price crash.
Talking to buyers, he mentioned it will contain “accelerated technical migration of our customers’ most important business applications to the cloud” in a platform powered by SAP S/4HANA, the in-memory database.
The next January, SAP launched prospects to the brand new plan called RISE with SAP. For starters, RISE with SAP promised a lift-and-shift of complicated SAP environments into public, personal, and hybrid clouds. As well as, it deliberate to maneuver customers of ERP software program older than S/4HANA onto the most recent in-memory platform launched in 2015. Third events signing as much as the plan included Accenture, Atos, Capgemini, Cognizant, and Deloitte Consulting, in addition to cloud suppliers AWS, Microsoft Azure, and Google Cloud.
Early final 12 months, it emerged that SAP might have strayed astray. Figures from the top of This fall 2024 confirmed only 39 percent of worldwide ECC customers – from a total of 35,000 – had bought or subscribed to licenses to start their transition to SAP S/4HANA. The determine was up marginally on the 34 % recorded for a similar quarter a 12 months earlier.
These are the latest figures accessible on ECC migration. Final 12 months, SAP replaced RISE with SAP S/4HANA Cloud Private Edition with SAP Cloud ERP Private Edition, creating confusion over licensing. The transfer additionally made it tougher to check like-with-like by way of reported migration figures.
On-prem assist income exhibits cloud migration delayed
Nonetheless, since SAP bundled cloud migration and ERP upgrades collectively, on-prem software program assist income – which relates nearly solely to ERP with a small chunk of information warehouse software program – acts as a proxy for cloud adoption. As cloud income goes up, on-prem software program assist goes down as a result of assist is included with cloud income. SAP already knew this.
In 2022, then-CFO Luka Mucic advised buyers that for 2025, SAP wanted to see €8.5 billion in support revenues, down from round €11.5 billion in 2021, as customers transfer from on-prem licenses and assist to cloud subscriptions. However the 2025 full-year determine for on-prem software program assist is €10.5 billion, down solely 7 % from 2024’s €11.29 billion. That is €2 billion off the place SAP wished to be, or about 24 % greater than it ought to have been. Between 2021 and 2024, the class solely fell 2 %.
The truth is, Mucic, who left SAP in 2022, told investors in 2020 the corporate could be “arriving totally within the cloud come 2025.” With €8.5 billion in on-prem software program assist revenues for that 12 months, SAP is a good distance from the place it mentioned it will be, whichever means you measure it.
In addition to the carrot of an in-memory database, and promise of “innovation” solely with S/4HANA within the cloud, SAP has the stick of ending software program assist. Mainstream assist for ECC ends in 2027, whereas prolonged assist is obtainable at a two % premium till the top of 2030. Signing as much as a cloud migration deal offers prospects a keep of execution till 2033 in some circumstances.
Enterprise case nonetheless a barrier for legacy customers
The query is why are some prospects so reluctant to surrender on their ECC software program? Essentially the most easy reply is that they do not see the worth. Final 12 months, Freeform Dynamics’ survey of 455 CIOs, senior-level IT roles, SAP specialists, and enterprise managers discovered 95 percent of legacy users say building a positive case to migrate requires a big effort or is genuinely challenging. The analysis echoes considerations shared by consumer teams and particular person customers over the past 5 years.
This can be right down to the mantra that this isn’t a software program improve. Ideally, SAP expects customers to rid their ERP software program of any customization constructed for ECC and transfer to S/4HANA and the cloud with a “clear core” on which they will construct extensions utilizing the cloud-based Enterprise Know-how Platform (BTP).
In a way, customers are damned in the event that they do and damned if they do not. Organizations that take too a lot of their ECC customizations to S/4HANA will battle to maintain tempo with obligatory software program upgrades and will not have enough agility to entry SAP innovation, limiting advantages. However customers going for the “clear core” strategy face re-engineering processes that may have been habituated amongst hundreds of finish customers for a decade or extra, which might take as a lot work because the technical migration, including to prices and timelines. Both means, it is troublesome to get the justification so as to add up.
Kingfisher – which operates 2,000 European retail shops together with UK manufacturers Screwfix and B&Q – has rejected SAP’s migration plan. The corporate advised a Gartner convention final 12 months that it had moved its ECC system to the cloud, with third-party support from Rimini Street. It’s constructing automation, AI, and information analytics across the ERP system via partnerships with Google and Databricks.
Gartner has predicted that by 2030, greater than 10,000 SAP prospects will proceed to assist main components of their enterprise with options based mostly on SAP ECC, with the bigger, extra complicated organizations over-represented on this group.
Talking to The Register, Jens Hungershausen, chair of German-speaking consumer group DSAG, mentioned: “The primary downside is a enterprise case of transferring to S/4HANA. There are numerous prospects who simply waited and hoped that there could be some form of change within the upkeep technique from SAP.”
A survey by DSAG, which represents customers in German, Austria, and Switzerland, discovered that of ECC customers, about half would proceed investing within the legacy system past the assist 2027 deadline.
“The purpose right here is that numerous members even have a plan,” Hungershausen mentioned.
ECC customers will migrate in the long run
Some, he suspects, will benefit from the choice to get ECC assist till the top of 2033, signing up to the deal announced in January last year.
Hungershausen says a lot of the ECC customers who’re but to begin their migration to S/4HANA would accomplish that with a so-called brownfield migration, which preserves present processes, information, and customized code.
“It will not be an actual transformation.”
Nonetheless, some organizations counting on ECC had been ready to see if SAP would prolong the upkeep once more to permit time to transition to the brand new software program.
“Clearly, there are not any different choices accessible to the shoppers. SAP made a upkeep dedication to assist S/4HANA till 2040. They prolonged ECC upkeep till 2027, in order that’s nearly 12 years of time to maneuver to undertake a brand new model of the software program. I believe that is good,” Hungershausen mentioned. The rationale migrations are off-track could possibly be right down to financial and geopolitical uncertainty.
Nonetheless, Hungershausen says DSAG continues to take situation with SAP’s stance on “innovation,” which largely means bringing new options corresponding to AI to its ERP platform.
In 2023, SAP boss Klein advised funding analysts that future innovation would only be available in the cloud via RISE with SAP. The assertion outraged users, who mentioned a 2020 comment from product engineering lead Thomas Saueressig – that S/4HANA could be “the structure and platform of the longer term for our prospects” – included no caveats concerning the cloud.
“We hold calling out SAP for that, as a result of I strongly imagine that even for those who look within the course of AI adoption, it will be useful to a minimum of make additionally the improvements accessible to S/4 and, explicitly, S/4 prospects on premises,” Hungershausen mentioned.
SAP shifts focus from migration to ‘innovation’
With SAP so dramatically lacking targets for ERP migration, its angle to prospects could also be altering.
Alisdair Bach, head of SAP observe at consultancy Dragon ERP, advised The Register that SAP is extra targeted on upselling merchandise to fulfill demand for innovation, notably with AI, fairly than merely pushing its ERP modernization agenda.
“Modernization has come to an finish: the world has moved on. The dialog round S/4 is sort of an outdated dialog now,” he mentioned.
Prospects with ECC investments might transfer to S/4 by way of a brownfield migration, avoiding transformation. For these staying with ECC, SAP affords a devoted SAP ERP Non-public Version subscription for ERP ECC programs, at present accessible till the top of 2030. The SAP ERP Non-public Version Transition Possibility, launched final 12 months, is obtainable till 2033.
By that point, the migration could also be simpler for patrons to devour, given the appliance of AI in migration planning and execution, Bach says. Within the meantime, SAP is extra targeted on producing income in different methods. “There’s a broader deal with upselling the broader product portfolio from SAP. Getting ECC prospects into the cloud, it will possibly begin upselling AI licensing, Enterprise Information Cloud: upsell, upsell, upsell, by way of bite-sized chunks of the generic innovation.”
Bach argues that the one means SAP can fulfill its promise to buyers to begin driving extra income from agentic AI is to promote to its legacy set up base that has moved to the cloud. As such, he’s predicting that Joule, SAP’s agentic AI platform, will come to ECC within the cloud later this 12 months.
One other instance is SAP Agent Builder. Though it’s a part of Joule Studio, it isn’t unique to RISE, and is obtainable to on-prem prospects beneath SAP Construct Developer licenses on BTP.
RISE with SAP was the seller’s multibillion-euro response to its buyers’ lack of religion. If it raises sufficient income from so-called innovation merchandise, then they are going to be pleased and keep silent about SAP falling behind its ERP modernization plan. If not, the ball might be in SAP’s court docket as soon as once more.
SAP declined to remark. ®
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