Drop in profits and competition: “SAP has lost supremacy”

Status: 01/26/2023 5:35 p.m

For a long time, the market leader for business software had hardly any serious competition. But why is SAP’s dominance dwindling so noticeably that the company is now cutting thousands of jobs?

The fan manufacturer ebm-papst from Mulfingen near Heilbronn is what experts call a “hidden champion”: it is hardly known to the general public, but it is the market leader in its segment. The fans of the Swabian medium-sized company can be found in machines, industrial plants and residential buildings. The company employs almost 15,000 people worldwide. For the most important processes, ebm-papst relies on software from the Walldorf technology company SAP. “SAP is our core software,” says Oliver Kühnle, the head of the IT department responsible.

Until a few years ago, SAP business applications were mostly installed locally on customers’ servers. Programs for personnel planning, customer relations and accounting were individually coordinated. There were hardly any real alternatives. The cloud business is now the most important market area for SAP. “For the customer there is now also the option of integrating other third-party solutions accordingly,” says Jens Hungershausen from the German-speaking SAP user group (DSAG).

Competition from third-party solution

Ebm-papst now uses such a third-party solution, in addition to the existing SAP portfolio. “We are always looking for the best software of its kind. In the area of ​​customer relationship management, we therefore now rely on Salesforce. The system is more dynamic, modern and intuitive to use in this special area,” says IT division manager Kühnle. “In my view, SAP has lost its supremacy in many areas and no longer covers all functions from A to Z for us.”

The IT chief of pulp and sawmill operator Mercer, Christoph Grewe-Franze, emphasizes that it is necessary to use third-party software in order to remain competitive. “There are things where SAP is bad, for example in the customer relationship management system. The only reason why Salesforce exists today is that SAP was too weak in this area. We also work with Salesforce,” he says .

Who is #1 in enterprise software?

The US company is probably one of the biggest competitors for SAP and certainly the loudest. The magazine “Wirtschaftswoche” quoted co-CEO Marc Benioff after an appearance at a Salesforce customer fair in 2022 as saying: “Salesforce is now the largest provider of business software in the world”. As a basis, Benioff uses his company’s quarterly figures.

A snapshot that does not stand up to closer scrutiny at the end of the year: While SAP reported a profit before taxes of 3.092 billion euros when it announced its company figures for 2022 today, Salesforce reported just 603 million US dollars. Nevertheless, the momentum lies with the Americans: Sales are growing faster than with the Germans. There is also competition from companies such as Oracle, Workday, Intuit and even Google.

“Too cumbersome, too complex and too expensive”

“When it comes to data analytics, we rely on Google Cloud. It’s a success story for us,” says Grewe-Franze from Mercer. “We don’t use this classic ‘data warehouse’ program from SAP because it’s too cumbersome, too complex and too expensive.” You now only pay a tenth for comparable evaluations.

Developments like this don’t seem to worry the head of SAP: “We have a very broad portfolio, that’s our strength,” said SAP boss Christian Klein in an interview SWR. “If we involve partners, if we involve start-ups, then we create win-win situations for everyone. We can provide our customers with more benefits. That’s why we’ve changed a lot in terms of the connection to our portfolio.” He is aware that in certain sub-areas there is competition with others, but “we are now very confident there too,” emphasizes Klein.

Less profit and job cuts

In addition to growing competition, SAP is also running out of costs. Overall, SAP’s net profit in 2022 was only around 1.7 billion euros. “The bottom line is that SAP earned significantly less last year than stock market professionals had previously expected. Higher spending on research and development in particular caused profits to plummet, and the withdrawal from Russia is another factor,” analyzes Constantin Röse ARD Stock Exchange Studio Frankfurt.

As a consequence, SAP now wants to cut 3,000 jobs. That’s not unusual at first, according to Röse: “A reaction that we’ve recently seen from other tech companies in the USA.”

“SAP remains our core software”

Despite the complicated market situation and increasing competition, users such as fan manufacturer ebm-papst and sawmill operator Mercer continue to believe in SAP. “All large companies have SAP as their backbone. As a financial controlling, logistics and master data master system, SAP is unbeatable. It would be negligent not to use SAP. SAP is the industry standard,” says Grewe-Franze from Mercer.

And Kühnle from ebm-papst emphasizes: “SAP will remain our core software. SAP is really good in the financial sector, for example, and offers the best possible options. A complete changeover is therefore not conceivable for us so far.”

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