Article SAP Cloud Licensing: A Sweet Deal or a Bitter Pill to Swallow?
SAP Cloud Licensing: A Sweet Deal or a Bitter Pill to Swallow?
By Insight UK / 25 Mar 2024 / Topics: Software
SAP customers should be aware of the dangers of SAP cloud licensing. The word "cloud" might not mean much, since most customers still deal with their own cloud giants, like AWS, Microsoft, or Google. They might want to stick to the on-premise model or switch only to the S/4 cloud/subscription model with their own cloud deal.
Flexibility & Subscription Fees
Early adopters of SAP S/4 cloud are facing challenges with flexibility, support, and product documentation. There is no leniency where customers have added the wrong products to their Bill of Materials either, due to lack of knowledge, mis-selling or when sold as part of package. SAP does not allow any reduction of the quantities during or at the renewal of the term, nor does it offer any assistance in case of project delays that result in double licensing costs during this period.
SAP has made on-premise licensing less attractive and have become more aggressive in their approach to drive adoption in the cloud. A substantial change was made last year, Subscription fees could only increase at the renewal date, often based on the CPI or a maximum of 3.3%. In the new Cloud Order Forms, this has changed to a fixed amount of 3.3% on each anniversary date of the Cloud Order. Meaning customers will need to factor in upfront the 3.3% increase on a yearly basis when looking at total cost and ROI.
SAP AI Option
The latest information from SAP is that any further development which includes AI will only be available under specific S/4 HANA RISE licenses. The metric for these AI functionalities will be SAP AI units, which can be viewed as a kind of "virtual credit" and can be consumed as part of the subscription package. This is a considerable disadvantage for customers who are still under the on-premise licensing model, or which have not yet opted for the newly added S/4 RISE material which includes this AI functionality.
If you are engaged in any mergers, acquisitions or divestures, there is hardly any flexibility in the SAP cloud agreement to either merge or reduce the number of licenses required, something quite different to the on-premise world.
Measuring licenses in the Cloud
Trying to measure Cloud products is still a nightmare as many products are not able to measure the usage, and for others, which according to SAP can be measured, customers cannot relate from which data source or table this information has originated from, and so becomes impossible to check. As a reminder, customers should monitor their compliance on a regular basis.
As more customers are moving to the S/4 HANA FUE license model, it is advisable to manually overwrite the classification based on, what employees are actually using per profile and to make sure the authorisation profiles are closely mapped to the actual usage of the SAP software.
Finally, the standard SLA's in the contracts are also important to discuss. SAP will offer a credit on a future invoice if they fail to meet their obligations under the agreement. However, the customer must formally notify SAP, which makes the process less convenient for customers and the credit is extremely limited. Customers should ensure that credit is not the only remedy for any issues with the SAP Cloud solutions, as it is crucial for you as a company to maintain your business operations.
Conclusion
It is important be aware of, and understand the new contract terms so you can identify and assess potential risks based on the immediate and expected future demand. To avoid falling into a trap, you need to pay attention to any unclear wordings or terms in the contract. Ensure flexibility, so that you can amend the Bill of Material throughout your contract term, according to your company’s current needs and the ability to adjust to any future needs. Always consider other options, especially for certain business applications specific to your Lines of Business. And, lastly never forget to assess any Digital Access risks which could prove equally costly.
Our advice
Do not get trapped in a never-ending contract with SAP. If you require guidance on licensing and contract support, feel free to reach out to our SAP Licensing Experts at Insight who can assist you in preventing signing an agreement with SAP that lacks flexibility or the ability to make modifications.
