Christian Klein, CEO of SAP SE, has navigated a remarkable comeback for the software giant, transforming it into Europe's most valuable software company. Six years ago, upon taking the helm, SAP faced stagnating sales and was lagging in the industry's crucial shift to cloud computing. Klein's decisive strategy involved issuing an ultimatum to corporate clients: migrate to SAP's cloud products or face a discontinuation of support. This bold move paid off handsomely, igniting a boom in cloud sales and solidifying SAP's market position.

SAP's history reveals a pattern of struggle with technological shifts. Founded in the 1970s by five German IBM employees, SAP revolutionized enterprise software by providing customers with centralized data access and faster processing. However, it faltered in adapting to cloud computing in the early 2000s, taking a decade to offer its own services and spending approximately $30 billion on acquisitions to catch up. Billionaire co-founder Hasso Plattner hand-picked Klein in 2019 to restructure the company and integrate its disparate cloud businesses into a seamless software suite, ensuring renewed growth. Plattner's departure last year, at 80, marks Klein's first major test steering SAP independently.

Despite this success, SAP stands at a critical juncture. The surge in sales from the cloud transition is projected to decline after 2027, when SAP plans to significantly roll back support for older, on-premise software. While the bulk of client migration spending is expected in the coming years, SAP must now find a "second act" to sustain growth beyond 2027. Its focus has squarely shifted to artificial intelligence applications, a field teeming with competition from virtually every major tech player.

However, the path to AI adoption is fraught with challenges, largely stemming from customer fatigue with the ongoing cloud transformation. Many clients express frustration over the expensive and complex migration process, with approximately 60% yet to even begin. For large corporations like Mercedes-Benz, managing portfolios of over 10,000 applications, 1,200 of which are SAP programs, the move is a multi-year, multi-million-dollar endeavor. NBCUniversal's Abhinav Gupta and Aldo's Fatih Nayebi, both customers, voiced concerns about the time, cost, and complexity of upgrading SAP systems and navigating its AI ecosystem.

At its annual Sapphire sales event in Orlando, Klein presented a vision of SAP's future, emphasizing the integration of AI across its products, offering assistants and agents for automation. The company's mantra, "Best of Breed is Dead," was prominently displayed, signaling SAP's push for customers to exclusively use its integrated suite of cloud products. SAP's CFO, Dominik Asam, highlighted the increase in cloud customers using at least four SAP products, from 9% in 2021 to 23%, as key to future growth. Muhammad Alam, SAP's head of product and engineering, argued that while customers can get the "best capability" or "seamless integration," they "can’t get both" when cherry-picking vendors.

This strategy, however, clashes with customer behavior. Many users remain wary of dependency on a single large software company and continue to adopt a "best of breed" approach, diversifying vendors for specific applications. Siemens, for instance, uses SAP for finance but Salesforce for CRM and Workday for HR. Gartner analysts report that SAP is losing market share in non-core areas like analytics, CRM, and database management. The pressure exerted by SAP for modernization has even led some CIOs to shift from a "SAP-first" to a "SAP-last" strategy.

Recognizing the need to improve customer relations, Klein has acknowledged that SAP must enhance communication, share ideas, and provide recommendations. The company has implemented rigorous new employee training and altered sales bonuses to reward successful product usage, not just initial sales. Board member Thomas Saueressig, tasked with improving customer care, reports that 34,000 out of 400,000 SAP customers are now using AI products, demonstrating progress.

Nevertheless, significant hurdles persist for SAP's AI initiative. Internally, executives and employees are concerned about the lack of compelling arguments to market AI products, with SAP not disclosing specific AI sales figures. Gartner's analysts noted "very little interest from SAP’s customers and prospects looking to make investments in SAP AI," citing complex licensing models and unclear business benefits. While SAP states it is seeing strong demand for its Business AI solutions with 240 generative AI use cases available, analysts like UBS's Karl Keirstead suggest that AI employment is still in its early stages, with many complex use cases taking years to deploy and facing accuracy issues that render them impractical for immediate adoption. UBS analysts also observed that corporate customers primarily seek AI development platforms from major cloud providers like Microsoft Azure, AWS, and Google, rather than integrated suites, posing a challenge for SAP's comprehensive offerings. As SAP navigates customer skepticism and intense competition, its ability to effectively transition to AI will determine its continued dominance as a world-class European tech leader.