Business Strategy and Outlook| Julie Bhusal Sharma |
SAP is a best-in-breed enterprise resource planning provider and holds dominant market share in global ERP software. However, SAP is phasing out its support of its on-premises ERP software such that by 2030 all of its ERP customers will need to shift to a cloud solution. We think that this vulnerability is a significant threat to SAP’s switching costs, as competitors like Workday offer compelling cloud ERP solutions, while forced migration opens up opportunity to question a company’s best fit for ERP needs. In turn, we believe SAP’s narrow moat, derived from its switching costs, is trending negative. However, it is still early in SAP's transition of on-premises users to the cloud, which leads us to believe its negative trend could be prolonged.