Europe's most valuable software company SAP SE (SAP.US) is confronting a "transformation life-or-death battle." Under CEO Christian Klein's leadership, SAP SE once escaped growth stagnation through aggressive cloud transformation strategies, becoming Europe's software giant. However, as cloud dividends fade by 2027, SAP SE has staked its future on AI applications, facing multiple challenges including customer dissatisfaction, internal doubts, market competition, and immature industry AI. The success or failure of this transformation will not only determine the company's fate but also impact Europe's competitiveness in the global technology sector.

Six years ago, when 45-year-old CEO Christian Klein took over SAP SE amid crisis, the company was stagnating due to missing the cloud transformation wave. After disappointing earnings triggered a stock price plunge, he issued an ultimatum to customers: "Migrate to the cloud or lose support." This risky move successfully forced the transformation, causing SAP SE's cloud business to surge and making it Europe's highest-valued software company.

Now, Klein needs to launch "Chapter Two." SAP SE has stated it will begin gradually ending support for legacy software starting in 2027, when growth dividends from cloud transformation will begin to fade. Customers must complete system migration before then, making the coming years a concentrated period for cloud business spending. After that, SAP SE must launch new services to maintain growth momentum—artificial intelligence (AI) applications have become its core future bet, but this puts it in direct competition with all global tech giants.

More troubling is that many customers are already dissatisfied with high cloud transformation costs. Gartner analysts pointed out this year that SAP SE is losing market share in several new products outside its core business, and its aggressive sales strategies are alienating customers.

This year, SAP SE's cloud business sales are expected to reach nearly 22 billion euros (approximately $26 billion), nearly triple the 2019 figure. However, the company faces severe future challenges: internally, some executives worry SAP SE cannot find effective strategies to drive customer adoption of new AI products. Investors who once favored SAP SE's cloud growth prospects have recently been selling shares due to concerns about AI's impact on the company's business.

Moreover, SAP SE's predicament affects more than just itself. As one of the few European software companies successfully joining the global first tier, this German giant's position holds great significance for Europe's tech industry. Its market value has far exceeded former U.S. competitor Salesforce (CRM.US) and is the only DAX 30 component stock with market value exceeding 200 billion euros, about 50% higher than second-ranked Siemens.

As technology leadership gradually shifts to the U.S. and Asia, SAP SE, along with a few European tech benchmark companies like ASML (ASML.US), Spotify (SPOT.US), and Arm (ARM.US), has become Europe's pride.

**Cloud Growth Dividends Ending, AI the Only Path Forward Despite Heavy Obstacles**

This spring, Klein outlined SAP SE's future blueprint to 11,000 employees, customers, and partner dealers—fully integrating AI into all products, including intelligent assistants for integrating and interpreting information, and AI agents capable of automatically executing tasks across applications, all packaged into convenient service suites.

But many customers are still digesting the impact of SAP SE's previous technology transformation (cloud transition). Some customers admit that cloud upgrades are both expensive and complex, with most enterprises not even having started, leaving them frustrated and exhausted.

Abhinav Gupta, a technology executive at NBCUniversal Group, voiced the common predicament of many customers when discussing attempts to upgrade their highly customized SAP SE systems: "Our business continues growing with increasing complexity, and existing systems require more refined configuration. But SAP SE system upgrades are not only extremely time-consuming but also prohibitively expensive to maintain."

Fatih Nayebi, Vice President of Data & AI at footwear brand Aldo, said that while he believes AI integration is inevitable, SAP SE's AI products sometimes have unclear logic and hopes SAP SE can provide more proactive support.

Multiple SAP SE executives responsible for product sales expressed concern about the company maintaining current growth momentum. They judge that cloud sales growth will begin weakening after 2027, as SAP SE will significantly increase support fees for legacy "on-premise" systems. SAP SE officially states it will terminate maintenance for these old systems in 2030, making continued use of old software "increasingly difficult and extremely risky."

Bloomberg-compiled data shows analysts expect SAP SE's cloud and software sales to continue growing in coming years, with 15% growth projected for 2027. Growth will then slow, but analysts generally predict maintaining above 10% growth before 2030. To achieve this goal, SAP SE must convince existing users to purchase more services and new AI products.

Reality is that most customers remain mired in cloud transformation: approximately 60% of customers haven't started cloud migration. For large enterprises, migrating complex software systems to the cloud may take years and cost millions of dollars.

Mercedes-Benz Group is typical—Chief Innovation Officer Katrin Lehmann revealed at the SAP SE conference that Mercedes is trying to handle migration of over 10,000 applications, approximately 1,200 from SAP SE, with most still running on local servers rather than cloud. Lehmann said she prioritizes the most critical programs, with other programs' fate still undetermined.

Historically, SAP SE has been difficult for customers to "abandon" because customer systems are largely customized, running collaboratively on local servers to handle core business processes involving sensitive data. While migration to cloud platforms and subscription models is initially troublesome, it makes it easier for customers to mix and match products from different service providers—what the industry calls "best of breed" strategy, where customers select the most suitable applications from different suppliers.

However, SAP SE explicitly listed this strategy as an "opponent" at this year's spring Orlando conference. SAP SE CFO Dominik Asam said the company's current focus is increasing the number of cloud products each customer uses: in 2021, only 9% of cloud customers used at least four SAP SE products in the cloud; this proportion has risen to 23%. He believes collaborative capabilities between SAP SE applications are key to future growth.

Muhammad Alam, SAP SE's Head of Product & Engineering, also said at the conference that customers he encounters "generally believe" that selecting services from different suppliers is "essentially a burden rather than value." He stated, "You can choose the most advanced features, or you can choose seamless integration experience, but you can't have both."

However, customers and partners helping enterprises plan SAP SE deployments reveal that users remain wary of over-dependence on a single software giant, and SAP SE customers haven't reduced use of other suppliers' services so far. These sources say that while many customers retain SAP SE's core enterprise products, they're seeking diversified cooperation to reduce dependence and obtain higher-quality software.

For example, Siemens chose SAP SE for financial applications ten years ago but uses Salesforce for customer relationship management (CRM) and Workday systems for human resource management. A Siemens spokesperson said in an email: "We adopt a platform strategy, ensuring we select the most suitable tool for each task."

Christian Hestermann, Gartner Senior Director who has long tracked SAP SE dynamics, pointed out: "We estimate that outside core markets, SAP SE is gradually losing share in multiple areas, including analytics systems, customer relationship management (CRM), and database management systems."

Gartner reports show SAP SE's CRM market growth was only 6.8% in 2024, while industry average growth was about 12%. In analytics, Microsoft's 2024 growth was about 18%, while SAP SE grew 12% but still significantly below industry levels.

Gartner further pointed out in a July report that some Chief Information Officers (CIOs), due to SAP SE's aggressive pressure for enterprise modernization transformation, no longer prioritize multiple SAP SE products, causing their strategy to shift from "SAP SE first" to "SAP SE last."

**From "Earning Maintenance Fees While Lying Down" to "Retaining Customers Through Service": SAP SE's Passive Transformation**

Previously, SAP SE didn't need to spend much effort maintaining customer relationships, typically selling software licenses once and continuously earning maintenance fees thereafter. But with cloud business transformation, subscription services can be canceled anytime, making customer retention crucial.

To improve customer relationships, SAP SE CEO Klein admits the company must change interaction methods and has implemented multiple reforms: including strict employee training systems, linking sales bonuses to long-term customer retention rather than just initial sales, and appointing board member Thomas Saueressig to specifically handle customer service, ensuring customers can effectively use purchased products.

Saueressig said these efforts have achieved some progress: among SAP SE's total 400,000 customers, approximately 34,000 are using its AI products.

However, informed sources reveal SAP SE internal employees worry the company hasn't clearly demonstrated AI products' actual value to customers—neither providing convincing arguments for sales personnel and partners to promote these applications nor disclosing AI business sales figures.

Gartner analysts raised similar points in reports, stating "SAP SE customers and potential customers have extremely low interest in investing in SAP SE AI products," possibly due to "complex licensing models and vague commercial value."

SAP SE spokespersons countered in emails that the company's "Business AI" solutions have strong demand and accelerating growth: "We've launched 240 generative AI use cases, planning to expand to 400 by end-2025. SAP SE is driving innovation in a rapid, scalable manner." The spokesperson also mentioned SAP SE's AI agents can already automatically handle dispute resolution and financial processes.

In fact, SAP SE's predicament isn't unique. UBS analysts Karl Keirstead and others pointed out in August research that AI application in enterprises remains in early stages. Some enterprises told UBS that deploying AI agents for complex scenarios might take 2-5 years, with one enterprise saying AI agents aren't ready for "official duty"—"They might achieve 70% accuracy completing certain tasks, but you can't distinguish which results are wrong. The time employees spend verifying incorrect answers might be longer than completing tasks themselves, making AI counterproductive."

More seriously, the AI opportunity Klein is betting on might not yet have truly arrived. UBS analysts found enterprise customers mostly prefer using AI development platforms provided by cloud service providers, especially "Microsoft Azure AI Foundry, Amazon AWS Bedrock, and Google Vertex"—undoubtedly making it much harder for SAP SE to sell its proprietary AI service suites.

"Frankly, from all our research, most enterprises are still in 'crawling' stage regarding AI applications," UBS analysts wrote in their report.

For SAP SE, continuing cloud transformation success in the AI era clearly requires overcoming more formidable obstacles than ever before.