SAP chief warns EU against over-regulating artificial intelligence

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The chief executive of SAP, Europe’s largest software firm, has cautioned EU policymakers against over-regulating artificial intelligence and widening the already large gap with the US in the transformative yet nascent sector.

“I’m totally against regulating the technology, it would harm the competitiveness of Europe a lot if I can better test my AI models here,” Christian Klein told the Financial Times during a visit to Silicon Valley.

“If we over-regulate using data for developing new AI in Europe, but [in the US] it is still OK, then you’re at a massive disadvantage.”

The SAP boss’s intervention comes as the enterprise software sector is being upended. Rivals such as Salesforce and Oracle are racing to infuse generative AI through their services via chatbots or agents that can understand and act on natural language queries and commands.

But tech companies have bridled at restrictions in the EU’s new Artificial Intelligence Act, which seeks to regulate the most powerful large language models, and the Digital Markets Act and data protection rules, which restricts what data can be used to train LLMs.

Meta and Apple have declined to launch some AI products from the region as a result.

Meanwhile, on Sunday, California governor Gavin Newsom vetoed a controversial bill designed to regulate the most powerful AI models built in the state, under heavy pressure from tech groups.

“I’m super close to all the discussions in Europe and as the biggest software company we have a certain voice in that,” said Klein. “I think the right discussion is happening in Europe right now: how can we regulate the impact on businesses, on end users? Don’t regulate the technology. Regulate the outcome.”

The German company is investing €2bn a year in AI, a tiny fraction of the $100bn Big Tech titans have spent so far this year. But Klein said SAP is not trying to compete with the US hyperscalers and has no need for vast data centres or frontier AI model research.

“While others are screening the whole internet with their large language models, ask them about some facts about your company on business data, the results will not be that good,” he said. 

His modest budget is being used to develop its “Joule” chatbot, which Klein said can perform a variety of tasks from writing code to acting as an internal consultant to identify supply chain and business process inefficiencies and suggest improvements.

SAP also wants to attract more US engineering talent by opening labs near universities such as UCLA, Berkeley and Stanford. It has also directly invested in generative AI start-ups Anthropic and Cohere.

The AI pivot is the latest reinvention of the 51-year-old company.

Over the past decade, it repositioned itself from a mainframe based, per head licensing service to one that sells customers subscriptions to its interconnected cloud-based apps for overseeing everything from accounting, supply chains and HR.

Only about a third of its 400,000 customers have transitioned to the cloud so far, but Klein said there is a long waiting list and those who do spend more with SAP and have an 80 per cent recurring revenue rate.

In July, SAP reported that second-quarter revenue rose 10 per cent to €8.29bn, largely driven by increased cloud sales.

The company’s relatively slow move to the cloud led to a depressed share price for years. But during Klein’s five year tenure as co-CEO and then sole CEO, SAP’s share price has almost doubled to an all-time high.

Its market capitalisation of €242.4bn makes it Europe’s fourth-largest listed company and bigger than Salesforce, but it still trails its long-standing US rival Oracle, which is almost twice its size.

“For a long time, part of the bull case for SAP has been increased buy-in from US investors, and we now have the right set-up for this to materialise,” said Barclays analyst Sven Merkt. “SAP no longer lags behind US peers in terms of growth.”

Despite his stock market success, Klein is wrangling a morale problem at home. A recent survey of German staff showed that 51 per cent were willing to leave for a rival and only 38 per cent said they had “full trust” in the executive board.

In January, Klein announced that 8,000 of its 110,000 workforce would be affected by an AI-focused restructuring programme, increasing that figure to 10,000 in July. Just 15 per cent of those surveyed said that the overhaul had improved their working conditions.

“If we would not make our bet on AI and apply it internally, SAP would not be competitive any more,” Klein said.