SAP results highlight AI-driven business software

SAP has posted an increase of 16% in its cloud revenue to €3.7bn for the third quarter of 2023. The company also reported a cloud backlog of €12.3bn, up 19%. It reported a decline in software licence revenue of 17% to €335m, while cloud revenue increased by 4% to €6.68bn.

The company used the quarterly earnings statement to highlight its artificial intelligence (AI) strategy. For instance, during the quarter, SAP announced the next step in its commitment to deliver business AI, with strategic investments in Aleph Alpha, Anthropic and Cohere.

It also expanded its partnership with Google Cloud, which SAP said would help enterprises harness the power of data and generative AI (GenAI). The two companies plan to combine their integrated open data cloud using SAP Datasphere with Google’s Vertex AI to launch GenAI-powered software for specific industry sectors, starting with automotive.

SAP also recently announced Joule, a natural language GenAI copilot. It said Joule would be embedded throughout SAP’s cloud enterprise portfolio, delivering proactive and contextualised insights from across the breadth and depth of SAP solutions and third-party sources.

Its AI strategy is being headed by Walter Sun, who was formerly at Microsoft, where he served as vice-president of Copilot applied artificial intelligence for business applications. 

Commenting on the earnings, SAP CEO Christian Klein said: “Our Q3 results are yet another proof point that we have entered the next phase of our transformation. We accelerated cloud growth across our portfolio and significantly expanded our cloud gross margins. Our strong focus on innovation, including our latest SAP Business AI capabilities, ensure SAP’s continued resiliency in the face of tough macroeconomic conditions and increasing geopolitical tensions.”

SAP has made a decision to limit AI features to a premium version of SAP Rise. This was unveiled in the second quarter. 

The risk for SAP’s customers is that the strategy to develop greater levels of AI integration in its portfolio will come at a price and will be limited to cloud-based deployments.

This change in tack from the enterprise software company sets a dangerous precedent, according to Paul Cooper, chair of the UK & Ireland SAP User Group (UKISUG).

“Services such as Rise are helping organisations move to the cloud (and S/4Hana), but there is a real risk of a two-tier product innovation system being created between cloud and on-premise customers. Every deployment is different, but we feel it is important that SAP does more to support all customers equally,” he said.

In a Computer Weekly blog post, Luiz Mariotto, group vice-president for SAP product management at Rimini Street, discussed the hard choices IT leaders face around modernising their SAP systems.

“SAP clients have a dilemma when planning their future SAP roadmap, but the logical path is IT optimisation in conjunction with IT innovation,” he said. “Companies need to reduce the total cost of ownership to run their ERP [enterprise resource planning], maximise value from investments made in SAP applications and, at the same time, free up budget and resources to invest in innovation projects that impact growth and competitive advantage.”