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The decision by SAP to develop artificial intelligence (AI) enhancements as value-added components available on its Rise cloud-based platform illustrates both the growth opportunities for software firms and the strategy implications for CIOs.
Rise is an SAP software bundle based on its S/4Hana Cloud Suite enterprise software and includes SAP Business Technology Platform (BTP), SAP Business Network starter pack and business intelligence tools, as well as options to host on Alibaba, Amazon Web Services (AWS), Microsoft Azure and Google Cloud.
In a transcript of the 20 July second-quarter earnings call, posted on Seeking Alpha, SAP CEO Christian Klein revealed the company would be limiting AI enhancements to those customers on Rise that are prepared to pay a premium for the functionality and are happy to use SAP’s own cloud hosting service.
SAP appears to be positioning Rise hosted on SAP servers as the best way to take advantage of the continuous improvements to data models the company can offer through its cloud services.
The reason, according to Klein, for not making new AI innovations available to its on-premise S/4Hana customers, and those using hyperscalers to run customised SAP offerings, is that the data models produced in these environments are not aligned to Rise.
Faster digitisation ROI
During the earnings call, Scott Russell, head of SAP’s customer success organisation, spoke about how an early return on investment (ROI) is among the factors that need to be considered in any digital transformation programme. “That’s where the AI becomes an accelerator,” he said.
According to Russell, embedding AI accelerates value, enabling organisations to move forward quickly. Discussing how this is playing out with Rise, he said: “For the large number of customers that have already moved across, they’ve got the ability to not only have the transformation, but they then have a premium uplift and the ease of innovation adoption is one of the beauties of this programme.”
Russell said embedding AI in SAP’s processes and technology was one of the factors driving strong demand.
Looking at the AI focus inside SAP, CEO Klein said the company has developed use cases and prototypes, measured commercial value, discussed the go-to-market strategy and aligned the company’s vision. All of these point to SAP taking AI very seriously as a way to make its cloud platform compelling for users to want to use it to run their S/4Hana enterprise systems.
Jens Hungershausen, DSAG
Paul Cooper, chair, UK & Ireland SAP User Group (UKISUG) pointed out that 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. Commenting on the u-turn, he said: “It seems the only way on-premise customers will be able to access new innovations is by using SAP Business Technology Platform (BTP). This means that these customers are effectively being double charged as their maintenance payments are being used to fund product innovation, while they must 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.”
Martin Biggs, managing director of third-party software support company Spinnaker Support, described SAP’s decision as “unbelievable” and one which leaves SAP customers out to dry. Biggs said SAP’s loyal customers, which have invested hugely in complex migrations in the past few years, are now being told they need to do it all over again, which he said “is outrageous”.
His views were echoed by Jens Hungershausen, chairman of German SAP user group Deutschsprachige SAP-Anwendergruppe (DSAG). “Those who have relied on S/4Hana on-premise so far will be left behind by SAP’s new strategy,” he said. “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 show customers clear development paths for a smooth transition to the cloud and next-generation ERP [enterprise resource planning] without jeopardising the investments they’ve made.”
DSAG has called for SAP to provide a reliable statement covering the specific enhancements that will be made available to on-premise S/4Hana customers.
Innovating around Rise
SAP used to aspire to be the ERP software provider that took the best practices from the largest organisations and made them available to every business through its ERP suite. But Klein’s change in tactics on AI raises numerous questions for organisations assessing how they can benefit from the premium features that are being pushed into Rise in the cloud.
When asked if he thought SAP’s decision would drive up Rise adoption, Spinnaker’s Biggs said: “We’re not seeing anyone wanting to go to Rise to get the AI features. I think they realise there are other ways to do that integration because it’s not an ERP.”
Referring to SAP’s digital access licence, he said: “Customers don’t have everything running in SAP. They have other environments as well, and SAP has a history of charging for data sources.
Businesses will also need clarity on how SAP plans to use the data in Rise to improve the premium data models it deploys.
Jon Gill, head of sales at Spinnaker Support, previously worked at SAP as a director responsible for renewals and commercial management. In his experience, SAP Rise is not for everyone. He said: “With SAP’s biggest customers, are there limits on the size and scalability of SAP BW [the company’s data warehouse]?”
Gill questioned whether SAP’s largest customers would be able to benefit from pushing all their data into Rise: “Will the truly big customers even be able to get to Rise, even if they wanted to?”
In July, SAP posted on its support portal that it would be making an adjustment to the support fees for customers running on-premise. From 1 January 2024, it plans to “moderately adjust the annual maintenance fee for SAP support contracts based on the local CPI [consumer price index]”.
SAP said this was an annual decision that is made depending on regional and local market conditions, with 2024 marking only the second year in the past decade that it has applied this fee adjustment.
Luiz Mariotto, group vice-president of SAP product management at Rimini Street, said: “If SAP is increasing support cost and holding back innovation to S/4Hana on-premise, we believe many clients will reconsider their future S/4Hana plans and want more clarity on how SAP will manage one single code set like other SaaS [software-as-a-service], cloud, multi-tenant software companies such as Salesforce and Workday.”
An action plan
Rather than rely entirely on SAP software and SAP support, organisations can use third-party support to manage their SAP ERP. This enables them to develop migration plans and upgrades at a different pace to SAP’s own roadmap for customers. After all, SAP is not the only enterprise software deployed in a business.
Organisations tend to use software products that best meet their requirements. For instance, they may choose a different human capital management or customer relationship management system. Low-code and techniques like extract, translate and load can be used in conjunction with SaaS, on-premise systems and other commercial off-the-shelf or bespoke enterprise software to provide data integration with the company’s SAP system, whether this is deployed on-premise, in a public cloud or via SAP Rise.
Read more about SAP Rise
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