Does SAP disprove the rule that Europe can’t scale tech companies?

Because while investors in America (and increasingly China too) have many large and fast growing tech companies from which to choose, in Europe there is really only one firm that in scale and reach can stand comparison with the likes of Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla. That is Germany’s SAP, or as it is sometimes known, Der Eine (The One).

Not only is the firm—a specialist in back-office enterprise resource planning (ERP) software—Europe’s biggest tech company, it is also the continent’s most valuable company full stop, with a market capitalization approaching €300 billion, having overtaken previous incumbent, Danish pharma darling Novo Nordisk, in March this year.

It stands in 450^th place on the Fortune Global 500 list, employs 109,000 people in over 130 different countries and boasts a stellar customer list that includes 98 of the world’s 100 largest companies.

One of the secrets to SAP’s success is understanding that in technology, there is never a good time to rest on your laurels, says chief operating officer Sebastian Steinhaeuser. “We remind ourselves every day that tech is the most competitive industry on earth. With every new wave of innovation the tech space is redefined, new companies pop up and you have to prove yourself again. I am very happy with that.”

SAP’s latest wave of change is moving both its own processes and those of its customers away from traditional (and expensive), bespoke on-site databases and into the cloud. The pivot began in 2020, and—despite some criticism that it was late to the party, which came with an initial 30% slump in the share price—it has proved to be a pretty smart move. Cloud migration is a proverbial win-win that cuts upfront costs and accelerates implementation for users, whilst also generating stable and predictable new revenues for SAP itself.

It’s also proof that despite received wisdom to the contrary, you don’t always have to be an early adopter to win in tech.

“You have to remember that the ERP system is the most critical software asset for any customer. There is a lot of trust involved in running that system,” says Steinhaeuser. “If the CRM [customer relationship management software] doesn’t work for an hour or so, it’s inconvenient. But if the ERP stops working then your entire business stands still.”

A strategy for AI

A consequence of this is that SAP customers generally prefer a proven solution that is a follower over one that is cutting-edge but untried.

SAP estimates that completing the cloud transformation will underwrite ongoing revenue growth until 2030, providing a welcome runway to prepare for the next wave of change—AI. “Our flagship offer for cloud migration is called Rise with SAP. It’s really a transformation that starts with moving your ERP to the cloud. The whole journey that follows is also about simplifying business processes, building AI use cases and expanding across our integrated suite to avoid cost and build business capability,” says Steinhaeuser.

In terms of AI, he sees the greatest opportunities, both for SAP and for Europe as a whole, in application rather than development. “There has been a wave of AI experimentation, but now the real challenge is in AI adoption and value creation,” he says. So as AI technology matures, competitive advantage will be less about who has the best tech and more about who gets the most out of their data. “The real differentiation will be in the context rich data you can feed in.”

SAP already has a ton of great data—integrating it all so that AI agents can get to work extracting value for its clients is what deals like the much-vaunted tie-up with data intelligence platform Databricks is all about. “It’s the perfect example of our strategy. We partner with the best technology out there and then apply it to solve the most pressing business problems,” Steinhaeuser says.

The SAP story may lack the Silicon Valley glitz of go-to corporate tech reinventions like Apple and Microsoft, but it is no less radical, says Gary Dushnisky, professor of strategy and entrepreneurship at London Business School. “SAP has exercised amazing foresight in some of the strategies they have developed, and they have also managed to reinvent themselves two or three times. That’s something that many other companies have failed to do.”

Besides, SAP’s real commercial rivals are not so much the megacorps of the Magnificent Seven (many of whom are SAP users themselves) but rather enterprise service platform providers like Oracle, ServiceNow and Monday.com for back office and workflow automation, and also Salesforce, which specializes in CRM but is increasingly meeting SAP in a battle to own the complete ‘customer experience’.

Out-competing them requires a certain counter-intuitive lack of interest, says Steinhaeuser. “Ultimately I am not that interested in what this competitor or that competitor is doing, because that is not what makes SAP unique. I am much more interested in how customer expectations evolve with technology.”

Europe’s missing tech giants

Why aren’t more of SAP’s rival companies European? The stock answer is that European companies simply aren’t as ambitious, but that is too simplistic for Dushnitsky. He highlights structural differences such as the huge disparity in the financial firepower available in the U.S. and increasingly Asia, compared to Europe.

This makes it much more likely that promising European companies will be acquired by U.S. ones before they can go global than the other way round. Another related difference is in American founders’ inclination to rebuff would-be acquirers rather than give in to them: having the nerve to say ‘no’ when a tempting offer is on the table.

“Mark Zuckerberg said no, Sergey Brin said no. Across the globe, people who are able to build these large organizations are people who want to build, rather than wanting to sell out,” Dushnitsky observes.

Rather than blaming the companies, Steinhaeuser says that it is the environment they operate in that needs attention. “I’m a passionate European, and Europe has all the ingredients. Some of the best talent, the best universities and the best research in the world are in Europe”.

But the continent loses out in other ways. For example, as the Draghi report on European competitiveness detailed, tech companies looking to expand across Europe must negotiate no fewer than 100 regulations relating to software, and 270 regulatory bodies. “We’d love to see five more SAP’s, but unfortunately I think [in Europe] we are still more focused on creating barriers to innovation,” Steinhaeuser says. 

Ultimately, focusing too much on questions of origin and location can hinder rather than facilitate growth ambitions, Steinhaeuser concludes. “I think part of SAP having achieved the scale we have is that we never defined ourselves as German or European, but as a global tech company having to compete with other global technology companies, 99% of which sit in the U.S.”