In response to the latest trend in technology, major software vendors have begun touting their AI capabilities and roadmap while promising revolutionary innovation. In some cases, like with SAP’s AI strategy, these enhancements will come at a significant cost. Despite SAP’s anticipated aggressive price uplifts, they are betting heavily that their monopoly in the ERP market will allow them to successfully position themselves as a leader in AI.
In the past year, SAP has released a number of announcements around their investments and plans with Generative AI. Many of these announcements were made at their annual Sapphire conference in May, where SAP focused on how they will enhance and leverage their partnerships to take their AI capabilities to the next level. Since Sapphire, SAP’s CEO Christian Klein has provided more context around the primary focus of their AI enhancements which will be limited to SAP RISE and GROW with SAP.
In this blog, I will cover everything we know so far about SAP’s AI strategy, including their current capabilities, their AI roadmap, the partnerships they are investing in to increase their AI credibility, and how SAP’s enhanced AI features will affect SAP RISE pricing.
What are SAP’s Goals with AI?
SAP aims to establish itself as a leader in “AI Built for Business” and leverage AI to significantly expand their market opportunities and entice its current On-Premise customers to move to the cloud, which is estimated to represents a $27.5-billion opportunity. SAP is also looking to expand their existing RISE-based relationships by bringing in additional revenue through enhanced value, like accelerating and optimizing business transformations, to customers with Generative AI.
What are SAP’s Current AI Capabilities?
It is important to distinguish SAP’s current base AI capabilities from their upcoming premium AI capabilities. SAP’s base AI capabilities will continue to be developed and included in their products at no cost and will remain centered around improved efficiency, product engagement and conversational Q&A. Alternatively, SAP’s premium, upcoming capabilities will be centered around use cases that are more complex and focused on driving intelligent business insights and measurable business outcomes.
While SAP is making significant investments to expand their AI capabilities, SAP stated in July that more than 26,000 SAP cloud customers use SAP Business AI today, via their base AI capabilities, across multiple scenarios and partner solutions.
Since its inception in 2021, SAP has also leveraged its Business Technology Platform (BTP) specifically to be the catalyst to market and deliver AI capabilities. While BTP will continue to be a foundational component for SAP and its AI strategy, SAP has recently announced several other initiatives to push customers towards products with AI features.
What are SAP’s Upcoming AI Capabilities and What is the Associated Timing?
First and foremost, SAP is taking aggressive measures to embed both base and premium AI capabilities into their products further and unlock new capabilities and use cases for business functions. Another major announcement has revolved around SAP’s new green ledger product that will help enterprises account for carbon emissions and sustainability measures in a way that is more transparent and auditable.
Lastly, SAP is launching a new product, SAP Business Network for Industry, which will enable customers in specific industries to improve and extend key business processes with trading partners, with embedded AI as a catalyst. Their immediate focus will be on the consumer products, high-tech, industrial manufacturing and life sciences sectors.
As a matter of priority, SAP is working on releasing these capabilities out efficiently. They have stated that most of their updated, premium capabilities will become commercially available in 2024, however, they are working to provide some early adopter programs available by the end of 2023.
What are the Scope Limitations of SAP’s Upcoming AI Capabilities?
These upcoming premium enhancements will only be available for SAP customers enroll in the RISE or GROW program. In fact, Klein has stated specifically that these capabilities will not be available for Perpetual customers or for customers who stray too far away from SAP’s clean core objectives.
While we expect SAP to provide more details around these guardrails, SAP’s initial announcements indicate that they will effectively try to force clients to adopt their cloud managed services offerings and desired migration approach in order to unlock their more advanced AI capabilities.
How is SAP Expanding their AI Capabilities Internally?
To expand their internal AI capabilities and reach their aggressive sales ambitions, SAP recently hired former Microsoft VP of AI, Walter Sun, as its new Global Head of AI. Sun has a proven track record of driving technological innovation and is expected to have a powerful impact at SAP.
In addition to Sun’s hiring, SAP also announced their first major AI in-house development – a new AI copilot named Joule for customers to leverage and interact with SAP business systems. They have also communicated their focus on further expanding their AI use cases, which includes around 300 today according to SAP, and even received consent from thousands of customers to use their anonymized data to accomplish this.
How is SAP Expanding their AI Capabilities Externally?
Externally, SAP has been clear that they plan to leverage their partnerships to expand their AI capabilities. Major partnership announcements have included Google, Microsoft and IBM. With Google, their aim is to bring together SAP systems and data with Google’s data cloud to introduce new opportunities for enterprises to derive more value from their full data footprints.
With Microsoft, SAP announced planned integrations with Microsoft’s 365 Copilot and Azure’s OpenAI services into SAP SuccessFactors’ product in order to improve how organizations attract, retain, and train their people. Specific to IBM, SAP announced that IBM’s Watson technology will be embedded into their solutions to provide customers with further insights and help drive faster decision making.
In addition to these enhanced partnerships, SAP has made targeted investments to drive their AI capabilities on multiple fronts. Shortly after SAPPHIRE, SAP announced major investments in established AI companies such as Aleph Alpha, Antropic, and Cohere.
Additionally, SAP-backed Sapphire Ventures, which is a venture capital firm that aims to help build and support new innovative companies, made a $1B investment in AI-powered startups such as Clari, Inc., DataRobot, Inc., Moveworks, and ThoughtSpot, Inc. These investments further exemplify SAP’s commitment to expanding their AI use cases, and embedded capabilities.
Lastly, SAP announced their acquisition of LeanIX, an enterprise architecture management company, in September. Through this acquisition, SAP is not only hoping to complement their transformation capabilities of Signavio, but also provide a foundation for AI-enabled business process optimization.
How will SAP Adjust Their SAP’s Commercial Offerings?
While we don’t know the full details of the impact on AI on SAP’s commercial offerings, SAP has announced a new variation in their RISE offerings and new AI credits that can be purchased to consume AI use cases. The table below shows their new SAP RISE model breakdown:
Provides small organizations with SAP S/4HANA Cloud, private edition functionalities with lean setup
|SAP Sustainability Footprint Management
|SAP Sustainability Control Tower
|Process and BTP
|SAP Signavio Process Intelligence
Offers additional capabilities for business process management, process automation and low-code business application development
|SAP Build Process Automation
|SAP Build Apps
|SAP Build Workzone
|Office of the CFO
|NEW Premium Plus Edition
Extends premium by including additional capabilities for Generative AI, sustainability, an advanced OCFO suite, and additional access to supplier networks
|Group Reporting Data Collection
SAP’s new ‘RISE with SAP Packaging’ now reflects three different RISE offerings for customers to choose from relative to their company profiles and desired capabilities. The most notable update includes the introduction of RISE Premium Plus. This offering will include embedded Generative AI and sustainability products among other unique capabilities. However, customers will have to pay a premium price, which is expected to be 30% higher than RISE Premium model.
Additionally, SAP will begin charging customers for AI credits that can be used for generative AI scenarios. It’s expected that the RISE Premium Plus model will contain a certain number of these units already embedded. However, there may be a limitation regarding the included AI credits. Outside of the RISE Premium Plus Model, it is expected that customers will be subject to AI credit charges based on their desired AI capabilities and planned usage.
The Bottom Line
While it is clear that SAP is confident in their AI roadmap and ability to establish themselves as the ERP leader in this space, only time will tell if their strategy and ambitious statements hold true.
Given the unknowns around SAP’s expansion of their Generative AI capabilities (vs. what they are saying to the market), availability of their new AI offerings, and the associated commercial details, there are many hesitant customers who are unsure around SAP’s ability to justify the anticipated pricing uplifts.
If you are an existing SAP customer, we recommend you huddle internally to discuss and align on your AI strategy to understand if there is a desire for SAP to be a key driver in your roadmap. Additionally, if it is determined that SAP will play a part in your AI strategy and roadmap, we recommend focusing on understanding what capabilities are actually needed and when, rather than being pushed by SAP to make decisions based on the urgency and perceptions being created in the market.