Cloud Wars Economy Acceleration

SAP will charge a 30% premium for the full cloud-only AI portfolio

Cloud Wars Economy Acceleration

Overshadowing some strong second-quarter cloud results, SAP CEO Christian Klein said customers who want access to the company’s large and rapidly growing Business AI portfolio must pay a 30 percent premium and enroll in RISE or GROW programs.

This is a bold display of leadership from Klein as it gives SAP first mover status among the leading cloud vendors in defining a new pricing model for a new wave of generative AI technologies that have captured the imagination of both the business and consumer worlds.

It’s also a move that carries more than a small risk for SAP as it seeks to shed the last vestiges of its long and storied on-premise past and emerge as a cloud-first company that blends cutting-edge innovation with massive scale and industry expertise.

Risk is complicated in its operation but simple in its nature: At a time when many customers around the world are curbing spending, SAP is telling them they can have full access to the awesome power of GenAI software only if they can afford what Klein called a 30% “increase.”

But leaders don’t become leaders by doing what everyone else does, and I give SAP a lot of credit for claiming the role of first mover and declaring with great confidence that customers will be willing to pay that premium because the business innovations they receive in return are so valuable.

Since this is such a pivotal moment for the entire Cloud Wars Top 10, how do you rate the keys to the future? I feel it is important to share Klein’s thinking. So I’ll run a detailed excerpt from the earnings call where he explains the power of SAP Business AI and then reveals how the price of poker just went up.

Get insights into how Bob Evans creates and updates the Cloud Wars Top 10 ranking, as well as how C-suite executives use the list to inform strategic cloud purchasing decisions. It is available exclusively through the Acceleration Economy Cloud Wars Top 10 course.

“As I said earlier, we believe we are uniquely positioned to become the leader in AI built for business,” Klein said. “Customers will benefit from new AI-powered solutions that fundamentally change the way processes can self-learn and automate to optimize business outcomes. For example, imagine supply chains that automatically initiate a different delivery route based on weather and congestion data.

“There will be a dramatic shift in how employees can interact with solutions in radically more efficient and personalized ways. For example, imagine your ERP system using ESG data and embedded business data to decarbonise the supply chain by 5% just by asking, and there will be a step change in uncovering new insights that lead to better business decisions. Imagine a trusted data layer across your enterprise that allows AI to collect the right data in seconds,” Klein said.

And then try to quantify the opportunity for SAP to double its addressable market to $1 trillion and also the remarkable new levels of business value for customers.

“This will provide us with significant market expansion opportunities through new AI-based solutions and new premium offerings. Based on external forecasts and our own calculations, we expect our target market to potentially double to $1 trillion by 2028, with AI as a key contributor,” Klein said.

“We will introduce new premium RISE offers with up to 30% increase in the autumn. Our approach with SAP Business AI is unmatched in the industry, providing our customers with the most relevant, trusted and responsible AI for business.”

Examples of generative business innovation powered by artificial intelligence

In the Q&A portion of the call, Klein explained why he believes the 30% premium customers will pay is a fair price for the innovation they’ll get.

“Today we have about 300 use cases for AI. And for example, take Calphalon — they actually have massive demand forecasting data with over 400 levels of inputs that go into demand forecasting. We’re taking all these petabytes of data and analyzing it to better predict demand. Now they can actually optimize their inventory and reduce supply chain costs by more than 10%, which is huge for a company their size and scale,” Klein said.

He went on to describe other examples:

  • Scenarios for cash flow automation which reduced the DSO (days of outstanding sales) by 10%
  • The ability to instantly analyze data from 400,000 customers to optimize company policy recommendations
  • Helping on-premises customers with highly customized ERP systems generate clean and modern code in the cloud to quickly build differentiating capabilities
  • Addressing skills gaps analyzing which countries and which universities generated the best skills in the past

For that level of innovation, Klein continued, a 30% premium is a fair trade.

“This is what SAP can do, and this is where we can launch more innovative AI use cases. They will come with a 30% premium, because we believe in immense value and see how customers respond to that. And we will incorporate that into every RISE deal going forward.”

Carrots and sticks

Under Klein’s leadership, SAP has been quite clear about its desire to ambitiously transition its on-premises customers to the cloud because that’s the only way those customers will be able to ramp up their performance levels to meet ever-increasing customer expectations, be they consumers or businesses.

So SAP is taking a very specific approach to its AI treasure troves: move to the cloud with RISE or you won’t have the AI ​​opportunity for generative intelligence.

“We’re not offering generative AI sustainability capabilities and also quite different trading capabilities in our LOB and on-prem products,” he said in response to an analyst’s question.

“Also, when a customer decides to go to a hyperscaler and be hosted with even more customization and misaligned data models and do it outside of RISE, this offering is not available. We cannot apply high-quality AI without high-quality data and this is difficult to achieve in a highly customized on-premises ERP system, which is why AI is only available in the cloud. This is very, very important.”

Indeed it is both for the customer and for SAP.

“The level of demand is very high”

Supporting Klein’s point of view, SAP’s head of global sales and customer success organization Scott Russell, executive board member, said that when customers see how generative AI can accelerate and optimize their highly strategic business transformations, they will be open to expanding their RISE-based relationships with SAP.

“I want to reiterate what Christian mentioned at the beginning: digital transformation and demand for digital change in their core business for customers around the world continues unabated,” said Russell. “The level of demand is very high. And we certainly see that in all parts of the world in the regional performance with RISE.

“We now have a large group of customers who were successful early movers and have now successfully transformed and are operating as our test points in that successful journey. Part of this digital transformation is being able to generate value and an anticipated return on that investment and this is where AI becomes an accelerator,” Russell said.

“So while there are certainly parts of the market where there is a level of caution in terms of returning on investment and making sure these digital programs deliver the results, the use of artificial intelligence built into our processes and technology is one of the factors that is driving the strong demand that we continue to see.”

Final thought

Christian Klein didn’t build SAP into a high-growth cloud powerhouse by being tentative and cautious. Rather, he took on a series of risks calculated according to the ever-changing needs and expectations of his customers.

Will some balk at the 30% premium for AI? No question.

Will those balkers stay competitive? I would say that’s a huge question.

I commend Klein for making this decision because it is not based on SAP’s internal cost structure, but rather on how customers perceive value, innovation, and especially the risk of being stuck in a world where the future is coming to us faster than ever.

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