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SAP is making a serious move for the midmarket with RISE with SAP, its "business-transformation-as-a-service" offering. With the sea change in attitudes toward technology's transformative power, the midmarket needs guidance moving standalone, short-term-focused digital transformation (DX) initiatives toward a fully integrated DX strategy. IDC research shows midmarket businesses are adopting business applications at an unprecedented rate, but many are looking for technology that can help them accelerate growth. SAP has seen exponential growth since the RISE with SAP launch in January 2021 — and expectations are high as SAP has had some time to prepare for this move. Once set in motion though, this train is expected to pick up speed and sustain itself.

IDC has covered the launch of RISE with SAP quite extensively, with various blogs and market thought pieces, but mostly from corporate and enterprise perspectives. Recently we had the chance to speak with seven SAP executives with responsibility for RISE with SAP revenues, RISE with SAP go-to-market, partner strategy, SAP cloud sales, and SAP midmarket strategy, for three separate regions in Europe and North America, to discuss the applicability of RISE with SAP for the midmarket.

The RISE with SAP business transformation packages are one-stop-shop offerings that support organizations large or small with SAP S/4 HANA public or private cloud under one simplified engagement. It includes SAP tools and services, business process intelligence, SAP business technology platform, and the SAP Business Network, all designed to facilitate the journey to what SAP calls the "Intelligent Enterprise." Most importantly for the midmarket, it enables business management software to be implemented modularly, instead of using yesterday's big bang approach.

"ERP in a Box"

ERP implementations, whether on premises or cloud based, have their challenges. Smaller companies that do their business during the day and IT overnight want to stay clear of lengthy and costly ERP implementations. At the same time IDC sees the midmarket more than ever ready for cloud-based solutions and ready to adopt enterprise-grade business applications at increasingly smaller company sizes. So, if this can be offered "as a service," with monthly payments through a simplified engagement, it's a compelling offering. The advantages of RISE with SAP relative to SAP S/4 HANA are clear, as it offers:

  • Cloud benefits: Scalable, flexible, and cost predictable; there are no upfront costs, with service based on a monthly subscription fee and user-based pricing.

  • Standardized offering: RISE is a guided journey, but as standardized as possible, with industry templates to accommodate industry-specific challenges. If necessary, it can be customized, but that will impact the time to implement and flexibility.

  • Clear responsibility: The one simplified engagement by SAP includes SAP services and hyperscaler capacity within one agreement. In short, SAP takes on the ownership to run it, manage it, and operate it. SAP also works closely with the customer's chosen partner, which is separately contracted to plan and execute on the cloud adoption.

The baseline is a fully functional SAP S/4HANA offering at the speed and time to market at which growing midmarket businesses want it. There are several reasons why this will resonate in the midmarket. First, DX is considered a top priority or very high priority by 30% of European small and medium-sized businesses (SMBs), with a further 50% indicating that DX is somewhat of a priority — leaving only 20% of midmarket businesses with no interest in DX. Secondly, though SMBs' revenues have been severely hit by COVID-19, their investments in IT remain resilient, though the focus of those investments has shifted to cloud services, with the majority being SaaS applications. Lastly, cloud adoption — the most important DX adoption pillar — continues to grow in the SMB segment, now accounting for the largest share of a growing business IT budget that has been dominated by hardware for decades. Also, other DX-related tech investment areas rank highly on the technology priority scale.

The Road to Transformation

The SMB market is not starting from scratch, with 20% of the market already classified as digitally determined — that is, they use enterprisewide DX strategies to transform markets and customers, and integrated continuous enterprisewide DX innovations are in place. At the same time, nearly 60% of the market can be classified as digitally distracted, meaning they have DX initiatives but these are not enterprisewide, and are merely short-term focused or disconnected from the enterprisewide strategy. For those that are digitally distracted, guidance on how to scale their DX initiatives from isolated or short-term events into integrated enterprisewide initiatives is needed.

The North Star

There is no doubt that the SMB market is ready for this. RISE with SAP is not only an enterprise play, it's also SAP's road map for its growing midmarket businesses. Currently over 80% of SAP customers are in the midmarket. Though the software giant lists companies with up to $1 billion revenue as a small and medium business, their sales pipeline for RISE with SAP shows companies with revenues from €50 million. With that in mind, RISE with SAP should give SAP the foot in the door in the SMB public cloud market that it is looking for.

So far, the numbers are backing up the strategy. Though the offering has only been live since the end of January 2021, SAP has seen exponential growth. This growth is in all regions — EMEA, APAC, and the U.S. Growth comes from existing customers but also from net new customers, which represent 45% of revenue. Customers are a mix of large as well as smaller companies, with one taking 8 weeks for an implementation. One region has already exceeded the planned revenue pipeline for RISE by threefold.

The pandemic increased the need to be up to date on IT, but 50% still do not have an integrated enterprisewide DX strategy. In short, medium businesses need a road map to guide them through the DX process.

At IDC, we believe SMBs are ready for this. IDC data shows globally that SMBs are focusing their software investments on business process and enterprise resource optimization and that they are ready to deploy SaaS solutions, especially in the ERP area. Cloud spending is now the dominant category of spend for SMBs, taking up anywhere between 30% and 49% of overall IT budget, depending on the size of the business. Globally, 40% of all SMB cloud spending will be on SaaS applications. In addition, many SMBs indicate that they plan to invest funds available from national recovery plans into modernization of digital services for customers and citizens, and digital connectivity and upgraded broadband services where government programs allow. The fact that SAP sees growth coming from net-new customers, hyperscalers, and high-growth companies might be the accelerator it needs to build and expand its cloud market share.

Simone de Bruin

Associate Research Director, IDC

European Partnering Ecosystems, SMB & Startups