SAP CEO Christian Klein said that AI is the primary driver behind his company’s excellent Q3 cloud-revenue growth of 26% and cloud-backlog growth of 28%, and offered three reasons for that category-leading momentum.
The force-multiplying effect of SAP AI is significant for a number of reasons:
- SAP’s competitors would dearly love to snatch some of SAP’s on-prem customers as they move to the cloud, and it appears that SAP has been able to keep them in the fold at least in part through its powerful AI innovations;
- SAP’s growth rates in both revenue and backlog are much higher than those of Workday, Salesforce, Oracle’s apps business, and Microsoft’s Dynamics 365 and SAP is using its all-in focus on AI to try to sustain that edge; and
- the unmistakable intentions of OpenAI and Anthropic — even if those intentions have not been fully stated — to overhaul the enterprise apps/agents/data/platform might remain more of an aspiration than an assault if market leader SAP continues to evolve so rapidly and successfully.
So, on SAP’s Q3 earnings call last week, Klein was eager to spell out the impact AI is having on SAP’s cloud business, which for the quarter generated $7.5 billion in revenue, up 26%, and $27 billion in current backlog, up 28%.
After noting that nine out of SAP’s 10 largest deals in the quarter included AI and the Business Data Cloud, Klein said this:
“In Q3, AI was the main driver behind our customers’ move to the cloud. There are 3 key reasons: first, AI accelerates the RISE with SAP cloud migration; second, AI makes the business case for our suite more attractive; and third, our customers are embracing our Business AI platform with RISE with SAP. They know it is essential for building the data and process foundation required for high-quality enterprise-grade AI.”
At the center of that approach is giving customers unfettered choice of which models to use.
“When building custom solutions, customers can select the best model for each use case,” Klein said. “SAP offers access to more than 70 models, both frontier and open-weight. Unlike some of our peers, SAP is not committing to a preferred model. We give our customers choice, and we will always make sure that they have access to the best options available.”
Why the Business Suite Is Winning
On Klein’s second point about the power of the suite over best of breed, the numbers speak for themselves: in Q3, Cloud ERP Suite grew 29% to $6.61 billion. In outlining the impact of AI on those impressive numbers, he hammered home the point about how SAP’s complete “ontology” simplifies migration to the cloud and and adoption of AI.
“I was very keen this time to share our line of business wins on this call because we always said the Suite will wins. But now we can go into every customer and say you can build the ontology in pieces with your best-of-breed landscape, or you can have it out of the box with an end-to-end ontology layer coming with the Suite,” Klein said.
“And when you then say hey, this ontology comes as a service and governed by SAP, this is really huge…. And another thing that is really outstanding in my eyes is we are really also making sure that we are not uploading any data or process IP of our customers into these large language models. I mean, which customer wants to see their own process IP and their own data trained in with this large language models and being available to the public?”
The Power of SAP Business Data Cloud
Klein then discussed the power of SAP’s extensive work on the data and platform side, offering a glimpse into what’s coming for the Business Data Cloud (BDC).
“In Q1, we will be able to auto-generate non-SAP data products, put it into the knowledge graph, and extend the ontology layer and automate it for non-SAP data,” Klein said on the earnings call.
“This AI matching with master data records — for the customer, the material, the supplier — we are on that and it will come very soon…. Obviously, we can adopt AI very fast on the customer side, but it takes longer if you have a messy system. And that has nothing to do with our AI or with the technology — it’s just the same as with every ERP implementation: you still need a clean core. So with that, the BDC is an outstanding business.”
Final Thought
With SAP’s TechEd event happening this week in Berlin, SAP will no doubt be rolling out more enhancements and innovations. But, the key thing that underpins the company’s ongoing success — and recent acceleration — is its ability to find the right balance between customers’ keen demand for better business outcomes powered by AI, and their parallel willingness and ability to consume new innovation without having their heads explode.
That’s where the key point from Klein comes into play: his focus on helping customers accelerate, grow, and engage with their customers more successfully. All the whiz-bang technology and terminology in the galaxy is little better than window-dressing without that focus, and SAP is managing that balance exceptionally well.
And the Q3 results are the ultimate proof of that.
