Going Back to School on SAP Licensing

Unbelievably, its been four years since we published an article titled: Top Questions to Ask When Taking the Slow Road to SAP (S4) HANA.  And despite that passage of time, not much has really changed about SAP’s predictability.  We outlined six considerations to weigh before investing further in SAP’s vision of the future.  The intent of that article was to invoke questions that would cause SAP customers pause and consider both short- and long-term issues that may have been considered foregone conclusions related to S/4 HANA.   

There is a famous saying that every history teacher probably says a hundred times a year to students, Those who fail to learn history are doomed to repeat it.  Today we write to remind SAP customers the history of SAP licensing and bring forewarning of financial calamities to come, if actions aren’t taken to protect you from a budget-draining SAP licensing future.  SAP has issued the deadlines and re-written the rulesonce again, to serve their own financial self-interest over the needs of its customers.  Their recent behavior and backtracking under the heat of customer scrutiny only underscores the point.  Below we outline the past, present, and future of SAP’s migration plans, and why you should be more than wary.  

Back to SAP Primary/Elementary School 

For perspective, I was four years old when R/1 was released, so technically not even in preschool yet.  One of the benefits of garnering experience (i.e. getting older) and bearing witness to the way vendors like SAP do business, is being able to spot patterns and observe habits.  Companies, like people, develop traits that despite their best intentions and changes in leadership just can’t (or won’t) leave behind.  If you’ve been around long enough, you have likely seen the re-licensing exercises forced by SAP on its loyal customers.  SAP does this approximately every ten years or so: 

  • 1973 – SAP Releases R/1 
  • 1981 – SAP Releases R/2 
  • 1992 – SAP Releases R/3 
  • 1999 – SAP Releases mySAP (part of R/3) 
  • 2004 – SAP Releases ECC (ERP Central Component)  
  • 2015 – SAP Releases S/4 HANA (on-premise) 
  • 2016 – SAP Releases S/4 HANA (cloud) 
  • 2025 – Deadline to be on HANA (or else!) 

What’s striking is that it’s very easy to find the above information on Wikipedia and SAP’s own website or hundreds of other sources.  But as you witness these evolutions over time in person, what becomes painfully clear is that their history is primarily written by end-users and SAP themselves.  Because what you can’t really find (at least easily) is the historical record of massive costs incurred by SAP customers in having to migrate to every successive version listed above.  To add insult to injury, SAP customers must pay not only for the migration, but also pay the additional licensing fees on top of the software support fees, to get the upgrade to the latest software.  Even Oraclenot known for any customer centricity, includes software upgrades in its support maintenance fees. 

  • Does today’s IT manager or executive remember the massive investment to move from R/1 to R/3 or ECC?   
  • Is it recorded in Wikipedia how SAP continually re-writes the rules to ensure these migrations and re-licensing exercises take place roughly every decade?   
  • Is this historical record being considered before making massive financial decisions on S/4 HANA?   

The short answer is no and almost no one plans or budgets for it.  Most companies are too busy just trying to “stay current” while continuing to provide resources and services to its internal constituencies and its customers rather than anticipating the next SAP hurdle and its impact. 

But we are here to remind you.  Beware the ghost of SAP Licensing past. 

SAP’s New School 

Many long-term SAP customers are currently suffering from the sins of their enterprise’s SAP licensing past.  Those sins generally trace back to less than optimized pricing on original purchases which are then compounded by platform re-licensing.  In the past, SAP found itself needing to buy customers off its oldest versions as they did with R2.  SAP learned that its expensive so instead of repeating that, SAP devised a new way to force customers to abandon legacy platforms without SAP having to pay them to do so.   

Since its initial release of S/4 HANA, SAP has been doing its level best to move customers away from other versions by offering incentives in many cases to “encourage” customer behavioreven before it was fit for purpose.  As things progressed, SAP upped the ante by setting a deadline for the adoption of HANA, as it declared it would no longer support third-party databases at the end of 2025 (which has since moved to 2027).   

SAP will tell you that this database is merely a ‘move’, which we would say from a database perspective is largely accurate.  What they won’t say however, is that there is massive licensing cost associated with HANA especially if Enterprise Edition is required and staff with the skills to support HANA are scarce and expensive.  Beyond the database, customers will be forced to reimplement in order to deploy S4.  We are finding that most SAP clients are not budgeting for this massive implementation costand they struggle to develop a business case beyond SAP’s end of support deadline. 

Majoring in SAP…Forever 

SAP’s future was declared from the inception of S4/HANA.  SAP aspires to have a single public cloud solution which requires all customers to pay subscription fees for use in perpetuity.  The interim waypoint on that journey is single tenant cloud instances (historically known as managed hosting).  This interim approach highlights many of the issues with jumping into SAP’s next version too soon.   

First, it is extremely expensive.   

Second, SAP has failed at being a competent hosting provider more than once already (2008 and itunclear ihyperscaler “embrace” in 2019 is acknowledgement of the next time).   

Third and most concerning, is that there is no turning back.  In its efforts to lock customers into its cloud subscription, SAP provides token credit for legacy perpetual licenses which are then terminated in the process.  Once on an SAP cloud subscription, customers are stuck paying SAP for it in perpetuity or until SAP’s next version, which if history is any indicator will require some form of incremental (re)licensing for an innovative platform named something like T5, and can be expected to be perpetrated 10 years after the introducing of S4 (circa 2026). 

The only thing we can anticipate with any certainty about the future on SAP’s cloud journey is that it will be more expensive than it is today.  

In reviewing their past behavior and the current demands to move/migrate to HANA – you draw your own conclusions in terms of the customer experience.  What happens once you are 100% dependent on them by 2025…wait, we mean 2027?  Will they be less flexible or more flexible when you have no options? 

Summary: Take Thornton Melon’s Advice 

Current SAP customers on ECC would benefit from the sage advice dispensed by Rodney Dangerfield’s commencement speech in the movie Back to SchoolRodney’s character Thornton Melon advises the graduates contemplating going out into the brave new world with one simple directiveDON'T GO.  SAP customers would do well to similarly reconsider their options before jumping off the relative certainty of their perpetual licenses, into SAP’s cloudy future Before you make any new investments, it is a good time to evaluate your current SAP investments and explore more sustainable alternatives.  After all, SAP is going to force a new implementation.  The next move is going to be expensive.  Does it need to be SAP?  Maybe or maybe no.  Does it need to be soon? Probably not.   

Those that fail to take pause risk being financially ’schooled’ by SAP’s re-licensing, re-investment, and re-implementations that come with it, for years to come. 

NET(net) has been optimizing SAP environments since 2002 and can provide the guidance you need to understand all the possible alternatives and options available.  Contact us to schedule a conversation with an SAP expert to see how we may be able to help. 

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