The application cannot be opened
The application cannot be opened during the update. Note that the update has been completed
iMac
Server.app does need to be closed during the update to a newer version of Server.app. When Server.app is next opened, it should open normally after some conversion-related processing.
Which version of Server.app are you now working with? (Lion Server is pretty old, and the early versions of Server.app back that far did have some bugs.)
Anything showing in the Console.app logs?
If the upgrade of Server.app has completed, does a reboot clear whatever might have happened here?