In the past, most companies that purchased SAP could control the way they wanted to use it. From customizations and add-ons to the choice of database, hardware or any additional cloud services, customers had the freedom to select the options that were right for them.

Today, with the move to RISE with SAP, SAP is paring down these options and implementing the following step-by-step strategy for themselves:   

1. Set an end date for SAP ECC systems maintenance (2025-2027).
2. Remove the option to use old contracts when moving to S/4HANA and only offer S/4HANA contracts. SAP will not support most old agreements and specific customer terms and conditions as of July 2023.
3. Offer either the S/4HANA on-premises solution at a significantly greater cost than RISE with SAP (especially for those customers who have no existing agreement in place) or don’t offer it at all.   

If you wondered if there was a typo in Step 3, there wasn’t. SAP really is charging more for the on-premises solution than for RISE with SAP, despite the additional software, databases, services and tools that come with RISE with SAP. 

RISE with SAP is a great, comprehensive solution. It’s a complete bundle of software, processes, analytics and services. It is faster to install than S/4HANA on premises and requires fewer customer resources. This speed and convenience, however, comes at a price.

RISE is available in two different editions: Public and Private Cloud Edition. While Public Cloud Edition does not offer any flexibility at all, Private Cloud Edition offers at least some flexibility. Overall, RISE with SAP is significantly less flexible than the on-premises solution. For those organizations which have customer specific requirements or processes, RISE with SAP might not be the right option. Unfortunately, SAP will not have a solution available for all cases. The recent sale of SAP IS-Health is a great example. This solution worked quite well for many healthcare providers, and it’s no longer an option with RISE with SAP.

Additionally, RISE with SAP includes cloud services — Microsoft Azure, AWS or Google Cloud — so bundling those solutions with other services to get better prices is no longer possible. SAP makes this choice for you.

Customers can still choose between the Public Cloud Edition and Private Cloud Edition, and the Private Cloud Edition does offer somewhat more flexibility. However, SAP provides no opt-out option. This means that customers who have gone the path of RISE with SAP are stuck with this choice. SAP will be in control over your data, pricing, measurements and all future changes in the solution, including taking away solutions where SAP does not see any value or where the costs of maintenance are too high.

One additional consideration is that RISE with SAP is treated as an OPEX (operation expenditure) and S/4HANA on-premises is treated as a CAPEX (capital expenditure). In the long term, a rental is more expensive than a purchase combined with maintenance.  

What can organizations do when faced with this situation? There are companies who have experience with these transitions and financial discussions, and they can support you and give you the right insights, tips and tricks while avoiding any pitfalls in your contracts or missing any optimization opportunities. 

There are also several steps you can take yourself to ensure you are prepared:

1. Determine your current entitlements and needs. Fully understand the package you can bring into the negotiations with SAP and make sure your assessment is comprehensive.
2. Optimize your landscape. Get rid of your “shelfware” — those licenses you don’t need anymore — and don’t bring them into the new contract. Match your user licenses with the appropriate functionality to avoid negotiating the wrong package for future licenses.
3. Look at your upcoming needs and make a roadmap for the next 3-5 years. Starting with a larger package will help you negotiate better terms.
4. Simulate the pricing options upfront. Most often, the SAP offerings will be in favor of SAP. Even the STAR services simply provide a general direction for the number of licenses that could be required rather than a clear indication of what you really need.
5. Clean up your roles and authorizations. These will potentially have a big impact on your licenses in the future. It would benefit SAP for their customers to set licenses based on roles and authorizations rather than on actual usage.
6. Ask for several packages to understand the differences and find out which package best fits your requirements.

What you sign today could have an impact on your organization for the next 17 years; your S/4HANA contract or RISE with SAP contract might last until the end of life of S/4HANA in the year 2040. However, if you follow these steps, you will be in a position of strength to start your negotiations for the transition to RISE with SAP or S/4HANA and secure an agreement that will benefit your organization for years to come.

The post Who Truly Takes Control in Today’s SAP Agreements? appeared first on Snow Software.

In a typical example, a software vendor would offer on-premises solutions as a one-time purchase with a yearly maintenance fee, usually with an initial investment of 100% and about 20% yearly maintenance. Subscriptions, however, come with a yearly payment calculated over a mix of the initial investment and maintenance over a fixed timeframe, e.g., 4 or 5 years. This means that the customer is paying the same purchase amount for the first 4 or 5 years, but after this time, the customer does not own any license entitlements anymore and the subscription starts paying off. The difference could be 20%-25% more profit per year for the software vendor.

Like other vendors, SAP is not immune to the lure of extra profit. They may employ special tactics to convince you that cloud and subscription options are the best path forward for your organization. They could:

• Set an end-of-life timestamp on the on-premises solutions
• Increase the support costs for on-premises
• Offer the newest features only in their cloud solutions
• Increase the price for their on-premises offering (instead of lowering the subscription prices)

SAP is already speeding up the cloud transition process for customers. They’re now offering fewer credits for conversion from old contracts into their new cloud-based world, and they will keep lowering these credits by 10% per year. This means that waiting with the transition to either S/4HANA, S/4HANA Cloud or RISE with SAP will start costing you significant money — approx. 10% of the contract value per year!

This new directive could also impact those customers who only did a product conversion for their transition to S/4HANA. While these contracts keep their validity for on-premises installations, changing them could become more expensive in the future. Switching to RISE with SAP, for example, would not be possible based on old contracts and would require a transition to new contracts.   

Customers now really need to think about their current situation and where they want to be in the next 3-5 years. No matter what the customer specific answer might be, changing the contracts in 2023 might not be a bad idea at all. If you want fast support and clarity about license optimizations, contractual questions, cost estimations or any other factors for the different licensing options, Snow Software and our partners can support you in the shortest timeframe for your next SAP journey.

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The risks of slow adoption and improper sizing

In a recent report based on SAP reported data, Gartner^® calculated that “around 11% of SAP’s 35,000 ERP customers have adopted Digital Access”.¹ Four years after SAP introduced the Digital Access adoption program, the majority of customers, the remaining 89%, are still covered by the legacy Named User metric, terms and conditions. This majority will need to determine whether Digital Access is the best choice for their business.

Additionally, the report states that “almost 70% of SAP customers are buying Digital Access licenses without proper sizing. Customers who fail to size license volumes before buying, risk future true-ups 24 times greater than the original purchase cost.”² Gartner also finds that, “customers in the retail, manufacturing and financial services sectors are particularly at risk of excessive digital access licensing costs with average document counts significantly higher than in other industry sectors.”³ 

Choosing a cost-effective model

Make the most of your existing SAP investment by adopting the most cost-effective licensing model for your indirect access requirements, now and in the future. SAP customers planning their migration to S/4HANA should consider their indirect access licensing requirements as a key part of this transition. 

Under the Digital Access Adoption Program (DAAP), you can either license for growth or maintain your status quo. Either way, you should ensure sizing is correct now, because the discounts only apply to your first purchase. 

How should customers size their indirect access requirements?

Gartner suggests that SAP customers should size their existing SAP environments based on both models to see which is the best fit for their needs and perform a comparative and total cost of ownership analysis.  

To do this, you need to know: 

• Which of your licenses currently have entitlements matched to usage  
• Which third-party applications are likely to pose the greatest risk 
• How many digital documents your organization requires and whether you have any existing unused licenses or products that you could include in contract negotiations with SAP 

Snow Software has been helping customers with this challenge since SAP announced the Digital Access metric. We’ve drawn upon that experience to produce our latest Snow Infographic, (3-min. read) that outlines the 5 best steps to get started. You can also dive deeper with our new e-book, “Resolve SAP Digital Access Challenges in 5 Steps” (10-min. read), to guide you through steps you should take to be in the best position for licensing indirect/digital access. 

If you want to know more about how Snow Optimizer for SAP^® Software can help you right size your SAP^® Digital Access licenses and protect your organization against unforeseen costs, contact us for a demo today.

1&2&3. Gartner Research, “Resolve SAP Digital Access Licensing With This 3-Phase Approach” by analysts: Jan Cook, Mike Tucciarone, Ciaran Hudson, Roberto Sacco August 25, 2022. 

Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner’s research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.   

GARTNER is a registered trademark and service mark of Gartner, Inc. and/or its affiliates in the U.S. and internationally and is used herein with permission. All rights reserved. 

SAP is the trademark or registered trademark of SAP SE or its affiliates in Germany and in several other countries. 

The post 89% of SAP Customers Still Need to Recognize SAP® Indirect/Digital Access as a Priority appeared first on Snow Software.

To get insight on preparing for an SAP S/4HANA migration, I recently interviewed Dr. Michael Sandmeier, an expert in the field of SAP licensing. Dr. Sandmeier has spent the last fifteen years advising companies on how to prepare for complex SAP investments. His company, Sandmeier Consulting, is the market leader for SAP license consulting and management in Germany.

Q: Before embarking on the migration, what is the first thing that customers should do?

Dr. Sandmeier: The first step should always focus on the past and present, not the S/4-future. It is important for customers to have full insights into what they are contractually allowed to use and what they are using. In our experience, customers are not fully aware of this. Typically, this is because they have many SAP contracts and personnel fluctuations. It is important to start with a contract analysis to set the baseline and identify potentially important special agreements between the customer and SAP. When we evaluate the actual usage based on the contracts, we can define the perfect fit. The next step would be to evaluate the S/4 potential and compare it to the optimized ECC licenses, as in the example below.

Q: I have heard that S/4HANA licensing is based on authorizations. How is this different from previous licensing and what challenges will that present?

Dr. Sandmeier: That is correct. In the past, licensing was based on actual usage. So, every person needed a license to match their usage. SAP is unable to verify the actual usage but counts the number of used licenses. This was and is a huge advantage for customers. With the adoption of the S/4HANA model, authorizations become relevant for licensing. The related issue is that a user can only use what they’re entitled to in the SAP system. The authorized functionality is always significantly more extensive than the functionality used. Measuring the authorizations always leads to an increase in price. Today, SAP is unable to track authorizations, but they plan to do so in the future. This is unwelcome news for the customer. Even if a user does not use the full set of transactions they’re entitled to, all authorizations still must be licensed. Think about a minibar in a hotel. Normally, you get billed if you pick a drink from it. Based on the authorization concept, you would be billed for the entire contents of the minibar even if you did not drink anything! In the future, this means customers should challenge their authorizations and cut them down to mirror their exact requirements.

Q: Customers have a choice to go with either a contract or product conversion. What are the main differences and how should customers decide which one to choose?

Dr. Sandmeier: It is all about choosing by numbers. Firstly, a customer should build a business case for a product conversion and compare it to a contract conversion. To be honest, it is a little bit more difficult than it sounds. The main difference is that a product conversion means that all Line of Business solutions (Engines) switch to S/4HANA Line of Business solutions, but the users stay the same. A contract conversion means that licensed users and Line of Business solutions are both switched. Generally speaking, a product conversion could be cheaper if the customer just wants to use the S/4 system like their existing ECC system. A contract conversion could be better if the customer plans to invest in new scenarios, take advantage of innovative technologies or get rid of shelfware. However, the decision is always highly individual.

Q: Should customers look to move to S/4HANA now or should they wait until closer to 2027?

Dr. Sandmeier: 2027 is not that far away, especially when a complex migration is necessary. We would not advise waiting until 2027, but also, we would not advise acting rashly. You must bear in mind that we’re talking about a contract that replaces 20 years of SAP licensing. The conversion should take the history into account and, of course, the authorizations. If a customer wants to switch to S/4HANA now, there must be a defined transition period with rules. During the migration period, the customers also should redesign their authorizations based on the SAP license types. This could be a considerable task. If you’re planning to invest in SAP software in future years, it could be beneficial to use that investment to cover a contract conversion, particularly as contract conversions are the mostly heavily discounted.

Get more expert advice on preparing for an SAP S/4HANA migration

In the second part of this interview series with Dr. Sandmeier, we get his expert thoughts on RISE with SAP.

You’re also invited to join us for a live webinar on October 20, 2022, where we will be discussing licensing challenges in greater depth with Dr. Sandmeier.

SAP is the trademark or registered trademark of SAP SE or its affiliates in Germany and in several other countries.

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