SAP SE (SAPGF)

How it makes money

Cloud subscriptions are billed recurring, usually annual, fees tied to usage or number of users, and now make up the majority of what SAP calls cloud and software revenue; older on-premise licenses are sold once and then generate smaller annual maintenance fees, a mix that is shrinking as customers migrate. Services revenue, a smaller and less profitable slice, comes from consultants helping customers implement and migrate these systems, typically billed by the project or by time.

Revenue by segment

SAP's software becomes deeply embedded in how a large company records its finances and runs its operations, with years of customization, staff training and connections to other internal systems built on top of it. Independent studies have found that switching ERP providers typically costs several times the original software price and takes over a year, which is why SAP keeps the large majority of its enterprise customers even when rivals offer comparable features.

Recurring cloud subscriptions make revenue more predictable than a typical software license business, since customers rarely cancel core ERP systems even when budgets tighten. Still, corporate IT spending does slow in downturns, and the pace at which customers commit to new cloud migrations can stretch out when their own businesses are under pressure.

Key risks

• Intense competition in enterprise software — The company faces sustained competition from large rivals such as Oracle and Salesforce, who are also embedding AI features into cloud applications, which pressures pricing and can slow customer wins.
• Cloud migration execution risk — Moving large customers from on-premise systems to the cloud involves remediating custom code, cleaning data and securing internal support within the customer's organization, and on-premise license revenue is declining meaningfully as this transition proceeds.
• Data, antitrust and regulatory exposure — The company is subject to data-access and antitrust-related claims, including allegations of lock-in effects, as well as dependence on third-party cloud infrastructure and web services it does not fully control.