SAP’s Cloud Migration Push: Higher On-Premise Cost and No New Features

SAP is hiking up its on-premises support fees for the second consecutive year, while also cutting off its on-prem customers from future product innovations.

The company has been trying to lure its customers to the cloud with its Rise with SAP offering, which promises lower costs and faster access to new features. But for those who are still reluctant to make the switch, SAP has some bad news.

SAP increasing cost for on premise systems use

On a recent earnings call, SAP CEO Christian Klein announced that the company will only deliver its new innovations and capabilities in its public and private cloud platforms, using Rise with SAP as the gateway. He said that this will allow the company to deliver innovations with speed, agility, quality, and efficiency. He also said that the company’s new innovations, such as new ERP functionalities, sustainability and carbon accounting solutions, and AI features, will not be available for on-premise or hosted on-premise ERP customers on hyperscalers which will cause SAP On-Premise Higher Cost.

SAP increasing cost for on premise systems

In addition to depriving on-prem customers of new features, SAP is also increasing the cost of support for them. After freezing the support prices for a decade, SAP raised them by the local consumer price index (CPI) rate, capped at 3.3%, in January 2023. Next year, it will do the same, but with a higher cap of 5%.

SAP justified the price increases by citing “current market conditions” with “still-high inflation rates.” However, this contradicts the fact that many countries are seeing a decline in their inflation rates compared to last year.

For example, the UK’s annual CPI inflation rate dropped from 9.4% in June 2022 to 7.9% in June 2023, after reaching a peak of 11.1% in October 2022. In Belgium, the average CPI inflation rate was 9.59% in 2022, but it is expected to fall to 3.9% in 2023.

And in the US, the CPI inflation rate for the 12 months to June 2023 was 3.0%, down from 9.1% a year earlier.

The price increases have angered some SAP users, especially those who are using on-prem versions of SAP. Thomas Henzler, a board member for licenses, service, and support, at the German-speaking SAP Users Group, DSAG, said that SAP is not providing enough value for its support and services, and that it is unfair to charge more while offering less.

He said that SAP’s products are moving to the cloud, where customers have to pay separately, and that this reduces the original range of functions and benefits. He said that on-premise customers cannot be increasingly cut off from new features and innovations while at the same time prices continue to rise.

He also said that customers have little choice and have to accept “the bitter pill” given the time it takes to migrate to the cloud.

SAP indicated that it will continue to raise its support prices annually, based on an “annual decision” it published in a statement titled Adjustment of SAP Support Fees in late July 2023.