SAP CEO push for cloud-only 'innovation' shatters users' trust in German-speaking heartlands

User groups representing some of Europe's largest industrial businesses have reacted strongly to SAP's decision to double down on its cloud-only innovation strategy, arguing it breaks trust with anyone that invested in the latest on-prem software and asks them to pay double for innovation.

On July 20, SAP boss Christian Klein told investment analysts that future innovation would only be available in the cloud on its terms, such as the RISE with SAP lift-shift-and-transform program. Crucially, customers who made massive investments in migrating to the latest S/4HANA ERP platform on-prem would not see innovation in upgrades.

"It's also very important to emphasize that SAP's newest innovations and capabilities will only be delivered in SAP public cloud and SAP private cloud using RISE with SAP as the enabler. This is how we will deliver these innovations with speed, agility, quality and efficiency. Our new innovations will not be available for on-premise [sic] or hosted on-premise ERP customers on hyperscalers," he said.

In a statement, Jens Hungershausen, board chairman of German-speaking user group DSAG, told us: "Those who have relied on S/4HANA on-premise so far will be left behind by SAP's new strategy. Customers who have already invested in S/4HANA on-premise may now get the impression that they have wasted millions. That doesn't build trust if SAP doesn't at the same time show customers clear development paths for a smooth transition to the cloud and next-generation ERP without jeopardizing the investments they've made."

DSAG, which represents businesses employing SAP enterprise software in Germany's industrial heartlands as well as those in Austria and Switzerland, said SAP innovation would only be accessible only to customers using SAP S/4HANA Cloud, Public Edition or SAP S/4HANA Cloud, Private Edition via GROW-with-SAP or RISE-with-SAP contracts.

While on-prem solutions could be functionally enhanced, they would not get major innovations such as artificial intelligence (AI) and green ledger [ESG and carbon accounting software]. The same would apply to larger function modules and extensions based on SAP's development environment, Business Technology Platform (BTP).

DSAG said it would hit on-premise customers, direct-to-customer hyperscalers, and managed services providers particularly hard, because "innovations" would not be available to companies using a hosted hyperscaler implementation outside of RISE with SAP as well as on-prem S/4HANA.

"From DSAG's perspective, this is a 180-degree turnaround from previous statements. SAP had previously claimed it did not want to limit enhancements to cloud-based offerings. The statement is a major blow. It amounts to a paradigm shift," Hungershausen said.

The user group, which represents more than 3,800 companies, said it understood new innovation features would only be available as part of RISE-with-SAP and mid-market Grow-with-SAP contracts, with a 30 percent additional cost for the premium package.

But organizations using S/4HANA on-prem that want to use existing licenses or purchase new ones to implement either in their own data centers, or cloud-natively using a hyperscaler's Infrastructure-as-a-Service (IaaS), cannot use new AI and sustainability functions, according to SAP.

Thomas Henzler, DSAG board member for licenses, service and support, said: "For us, this naturally raises the question: if this is the case for AI functionalities, what will existing customers have to reckon with for other innovations? Since no technological reasons can be found for this, the impression is created that there is a two-tier society at SAP with regard to customers.

"As an interest group, we must now advise companies to carefully reconsider possible planned S/4HANA implementations with regard to the operating model – especially against the background of the renewed increase in maintenance. The announcement is a real showstopper and a big disappointment," he said.

The UK and Ireland User Group was equally vocal in its frustration with Klein's statement.

Chairman Paul Cooper said: "We have long said to SAP 'Don't forget your on-premise customers when it comes to product innovation.'

"Back in 2020 SAP announced it was extending its innovation commitment for SAP S/4HANA until 2040. The commitment then was for all customers not just those in the cloud."

Cooper said the only way on-prem customers could get new innovations was by using SAP Business Technology Platform (BTP), effectively being double charged as maintenance payments are being used to fund product innovation, while users must also pay separately for BTP.

"In comparison, cloud customers can automatically access innovation without paying for BTP. Services such as RISE are helping organisations move to the cloud (and S/4HANA), but there is a real risk of a two-tier product innovation system being created between cloud and on-premise customers. Every deployment is different, but we feel it is important that SAP does more to support all customers equally," Cooper said.

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In a statement, an SAP spokesperson said: "Businesses are facing volatile macroeconomic environments and markets that favor flexibility. To stay ahead, customers need to be in the cloud. That's the only way to deliver innovation with speed and agility.

"Therefore, our newest innovations – such as capabilities around Green Ledger and generative AI – will only be available in the cloud, delivered via RISE and GROW with SAP. In September, we'll share more details about program updates that will make it even easier for cloud customers to adopt these new innovations."

Users were also voicing their concerns to third-party support vendors. Jon Gill, EMEA head of sales at Spinnaker, said customers hit hardest would be those who were convinced to upgrade from older SAP platforms, such as ECC, to S/4HANA on-prem and were only now completing those projects.

"Customers who bought into the SAP messaging three or four years ago, prior to RISE or cloud being the main message, they've signed up for an S/4HANA transformation on-prem, and they're potentially just coming to the end of that implementation or still in it. They've signed off against a significant business case and then to be told, the innovation has gone from that platform.

"How are those customers going to respond? How do you go back to your board and say, 'Yes, I've just done one significant SAP migration. And now we're going to have to go and do another one.' What's the return? Well, nothing," the former SAP director told The Register. ®