SAP CEO Christian Klein is in a tough spot, trying to minimize the damage of a brand that has lost ground to competitors who have better adapted to the new reality of cloud computing. This exposure has been amplified during the global pandemic and has negatively impacted SAP’s profitability in a time when other companies are prospering due to customers’ increased dependency on technology and automation.
In an attempt to remedy these challenges and re-focus his brand, Klein is promoting a new program for ‘business transformation as a service’, dubbed “RISE with SAP”.
SAP plans to migrate your ERP to its cloud, promising to improve and speed your digital transformation efforts, while saving you money in the process. But is SAP’s offer to help you save 20% legitimate, or does SAP’s RISE ambitions better describe their aspirations about your annual outlays to SAP?
Table Of Contents
Is SAP Really Promising to help me save 20%?
NET(net) Analysis on RISE with SAP Offer
Will SAPs RISE be your DOWNFALL?
SAP says RISE but what about LOWER?
What is RISE with SAP?
According to a company statement, “RISE with SAP offers customers at all stages of digital transformation a completely new way to redesign processes for better business outcomes”.
According to SAP CEO Christian Klein, “Companies that can adapt their business processes quickly will thrive – and SAP can help them achieve this. This is what Rise with SAP is all about – it helps customers continuously unlock new ways of running businesses in the cloud to stay ahead of their industry.”
Company statements and marketing promotions aside, RISE with SAP seems to be more about capturing greater wallet share and account control (by forcing customers to adapt their business processes to align with SAP’s unmodified software on SAP’s complete technology stack (software, cloud infrastructure, and databases)), than it is about unlocking new ways to help customers run their business in the cloud (as is claimed). With that approach, this could be SAP’s final salvo as the enterprise authority on what is considered to be an “intelligent enterprise”.
Is SAP Really Promising to help me save 20%?
SAP is promising to lower the (combined) cost of licensing, maintaining, and hosting its core ERP applications by taking it all on for a single subscription fee.
SAP claims that customers will realize value sooner and benefit from an “UNMATCHED” TCO with an ‘up to’ 20% reduction in costs over five years, for SAP S/4HANA Cloud.
You can safely bet that SAP is not going to offer to lower your costs to support your SAP software by 20%, rather, show you a total TCO that has been modeled (by some very impressive sounding people) to show you how a greater consolidation of wallet-share to SAP will in fact result in a lower overall cost for you when considering business transformation and hosting, among other costs. Anyone who has ever received a “free” Value Engineering report from SAP knows how this game works.
Regarding that TCO *promise, SAP is quick to disavow your preconceived notions by saying:
*TCO reductions and timelines are modeled estimates from interviewed company data taken from the following IDC studies: ECC and SAP S/4HANA TCO study (Nov. 2020) and IDC SAP S/4HANA Business Value Study (March 2020). Timelines and estimates are intended for illustrative purposes only, and SAP makes no guarantees as to actual results.
NET(net) Guidance on SAP
We have been advising clients for years to consider any monies paid to SAP for annual maintenance and support services largely wasted, because:
- SAP R&D investments were being directed away from on premise licenses and towards a future in the cloud (meaning that you were paying for the development of a future product that you would be forced to buy all over again anyway).
- Absent the product ‘upgradability’ benefit in the annual payment, SAP customers are already sacrificing some 68% of the value of their maintenance investments before you even consider the true value of technical support.
- Once you consider the true value of technical support, you will find that it generally hovers around $0 - low for most SAP customers, who have very few Sev1 issues, and a 94.44% resolution rate that does not rely on SAP as the primary (let alone the exclusive) fixer of support cases. Rather, the customer’s internal ‘center of excellence’ (CoE) fixes most problems (and in many cases, before the SAP support team even responds).
- It is not widely known, but standard SAP support does not even cover customer customizations, nor many other parts of the SAP ecosystem that most commonly encounter production issues, and despite what customers might believe, there are zero provisions in the standard contractual agreement that address SAP’s commitment to get you back up and running in any timeframe, with any amount of effort, for any service level, or for any amount of money; even if you have an outage directly caused by SAP software.
- SAP Maintenance and Support for the Zombie Hordes
- Top 6 Questions to Ask Before Taking the Slow Road to SAP (S4) Hana
SAP has been terrible in the cloud. Bloomberg says SAP’s Failure to Adapt to the cloud has cost the software giant $38 Billion. SAP’s only real cloud success has been with acquired companies such as (Ariba, Concur, and SuccessFactors), but SAP has done little to integrate those offerings into its core product. Now that SAP is losing market share to the likes of Salesforce.com, Workday, ServiceNow and other providers who are slicing off pieces of the once larger SAP pie, SAP too has decided that it must actively pursue its own cloud strategy to secure customer loyalty (vendor lock-in), by dragging customers to the cloud (forcing them to buy SAP software all over again, and this time also forcing them to ‘modernize’ their business processes (strip out all customizations), and host it with SAP on its own cloud).
Before contemplating a migration to SAP’s cloud, consider that SAP’s track record of providing hosting services has been lamentable. Each time SAP has entered the hosting market (absent acquired Software-as-a-Service (SaaS) companies), SAP has abandoned the service as they were not able to provide a reliable, cost effective offering. As far back as 2008, acknowledging their shortcomings in this area, SAP divested its hosting business to AT&T in the US and to other companies in other parts of the world. Existing market analysis shows that SAP‘s modern day cloud offering isn’t cost competitive with the wider market. If SAP can offer a price competitive solution, then its availability, performance, reliability, and security should all be seriously evaluated as there is not enough of a material track record at this point to evaluate it fairly. Couple that with the excellent cloud service reputation of AWS, and Google, and it seems apparent that SAP is following the Oracle (and to a lesser extent the Microsoft) playbook on trying to create a captive cloud of application users on a vertically integrated technology stack for increased account (and pricing) control.
So, all the capital outlay and maintenance money spent with SAP will not make a bit of difference now that you will be forced to migrate to the cloud even if you stay with SAP. Also, you remember the years of systems integration work you have done to customize and integrate your offering with various parts of your enterprise? Yeah, nah… that is all gone too because SAP’s S/4HANA Cloud is designed to run standardized versions of the software. There is a private cloud option, but that’s not what RISE with SAP is all about so if you decide you want to go that way, you’ll really get sticker shock.
Of course SAP will whisper in your ear about ‘modernizing’ your business processes (which actually means stripping anything that is not standard to SAP), and they will tell you that they are giving you 100% investment protection for previous investments, and they will demonstrate with their spreadsheets, insisting that the only reason you are getting these “massive” discounts is because you have been a good loyal, long term customer, but the ugly truth of the industry is that they give better deals to net new customers (with no such previous investments) to win their business than they offer to you to retain yours.
With the announcement late last month of RISE with SAP, our worst fears were confirmed. SAP is now offering 'business transformation as a Service' which is essentially them convincing you that you do not need any customizations in your software, and you just need to use their tools as they come, so they can run them in a multi-tenant environment at scale. Oh, and of course this means that everyone will be upgraded to S/4HANA and will run on SAP's cloud. Did you get that, SAP’s software, SAP’s business processes, no customizations, and running on SAP’s cloud. Remember, that HANA also means SAP’s own database and no discounts. RISE with SAP is clearly most expensive solution SAP could possibly conceive, running in a way that puts SAP completely in charge of your environment, keeping your systems closed, and makes escape an impossibility. It’s no wonder there is such a strong marketing push behind this program.
Worse yet, do not forget that SAP claims that it "doesn't discount" HANA, and does not offer even half the historical discounts on users in the Cloud, as they did in the on-premise world, so the cost comparisons to what you were paying previously is the one thing that is guaranteed to RISE should you adopt SAP’s cloud solution.
The other thing guaranteed to RISE with SAP is your subscription access license levels. Nearly all modern SAP deployments require interfacing to external data sources, and in SAP’s world, this requires (at least) Enterprise Edition access rights. Most customers are currently running configurations with users that have limited and/or view only access rights, but those days are largely gone as soon as customers “RISE with SAP”.
NET(net) Analysis on RISE with SAP Offer
SAP’s pricing model for S4/HANA had better get a major overhaul if it is to successfully compete in cloud ERP. A normal client on SAP S4/HANA will have a database size of about 1-2TB. At this size, a typical client will pay about $6.2M with another $1.24M of annual support costs (20%). Over 7 years, this would be a cost of $17.36M ($2.48M annually). Compare this to fully capable cloud ERP software that sells for $99 per user (1000 users would cost $1.188M per year (or $8.316M over 7 years [remember this number as we will come back to it later]). With this simple and quick analysis, it is easy to see how SAP could be more than double the cost of competitive options. Even a professional user at SAP that costs $5750 to acquire and $8855 to maintain over 7-years (at 22%) would cost $14.605M for that same 1000 users. These are not discounted prices, but SAP also says they do not discount HANA, and they are also not offering the same kinds of discounts on users as they have done in the past, insisting that the cost of support is so much higher now that it also must provide the hosting platform. Customers with price holds may be surprised to learn those price holds do not extend to Cloud by default unless specifically named in your contract.
There is also a serious question as to whether or not SAP will provide investment protection to those customers who agree to RISE with SAP. Let’s assume for a minute SAP is willing to provide investment protection. For a customer who paid $10M to acquire their SAP licenses, would SAP offer them a $10M reduction on a new $31.965M deal (31% discount)? Sure, probably they will – to ‘show’ the customer that they are fully protecting their investment, but customers don’t often see what SAP is offering new customers off the street, and we have seen discounts much better than this on net new deals (with no previous investment), so it is a bit of a sales game at this point – unfortunately, and how is any unsuspecting customer to know the truth of the matter without some industry perspective?
For a client that has a basis of $10M of Net License Value (NLV) that is paying $2.2M per year in annual support costs (22%), and on a version of the software that will continue to work for your business, you have no immediate need to do anything. Even ECC customers who have support through 2027 still have viable (and in fact much cheaper) alternative for continuing support long after SAP considers your software support End of Life.
Paying seven more years of support from 2021 – 2027 at $2.2M is $15.4M. SAP will surely want to show you how their RISE offer of $21.965M (with $10M of ‘investment protection’) is actually better, so they will undoubtedly add in healthy estimates for your hosting and management costs, plus some penalties for continuing to operate sub-optimal business processes without their refinement, but rest assured, they will do their best to prove to you that $21.965M is actually 20% less than what you would otherwise spend, even if you would only otherwise spend $15.4M.
In the example above, at a cost of $31.965M with a $10M credit, a customer could reasonably expect to pay $21.965M over the same period to get to S/4HANA Cloud. On paper, it does not look like a terrible deal, but the problem is that of course costs are locked there and now you are trapped in the cloud running SAP software on SAP’s platform. Not necessarily terrible, but certainly not cost optimized.
One of the problems with this approach is that it does not illustrate what else SAP customers can do. Our clients currently have choices when it comes to what software they use, how it is implemented and integrated into their eco-system, how those workloads are managed, how the operating environments are supported, how the capabilities are deployed and consumed, etc. While modeling these potential deal permutations, we are often able to construct viable (often unilateral) alternatives with a better overall cost and/or value proposition for our clients to consider.
Fully leveraged, the concessions that NET(net) can help you construct can bring your comparable costs down from a projected $31.695M to somewhere closer to $8.167M (nearly a 75% reduction of costs). This number is actually less than the projected $8.316M from above for a comparable Cloud ERP solution and far less than the $15.4M ‘business as usual’ option as well, so it pays to act now.
NET(net) can help you implement a customized cost and value program for SAP designed to minimize cost and risk, and maximize the realization of value and benefit, and once you have cost-optimized your SAP investment, you can use those Savings to fund other parts of your digital transformation journey.
Will SAPs RISE be your DOWNFALL?
Beyond a supposed migration from an on-premise SAP solution to a cloud SAP solution, it is not exactly clear what else is included in this so-called ‘business transformation’ offering, however, it was announced shortly after SAP confirmed its acquisition of business process company Signavio (transaction expected to close in Q1 2021), so one could speculate that it may include some business process management consulting from Signavio.
Luka Mucic, Chief Financial Officer and member of the Executive Board of SAP SE said, “I cannot overstress the importance for companies to be able to design, benchmark, improve and transform business processes across the enterprise to support new capabilities and business models. The combination of business process intelligence from SAP and Signavio creates a leading end-to-end business process transformation suite to help our customers achieve the requirements needed to gain a competitive edge. SAP and Signavio are a great cultural fit and share the same values, and we are excited about joining forces with them to deliver on our Intelligent Enterprise strategy.”
To move on-premise workloads to the cloud, SAP will seek to normalize managed workloads, removing customer customizations, so that it can host core processes at scale on its own Business Technology Platform, likely at effective costs even lower than workloads priced on Amazon AWS, Microsoft Azure, or Google Cloud Platform, otherwise it will be difficult to provide enough incentive for customers to choose SAP’s cloud platform as its choice destination. “Business Process Transformation” appears to simply be code for the removal of customer customizations so that SAP can make the economics of multi-tenancy in a cloud environment feasible for THEM.
Philippe Anav, SVP Cloud at NET(net) says: “In order for SAP to gain the economies of scale needed to efficiently host its application in a multi-tenancy mode, they will need to strip out customer customizations and standardize the application. For them to be sell this “Platform as a Service” at or even below the costs of industry stalwarts such as Amazon, Microsoft, and/or Google, means they will be doing so at very low margins and at a much smaller scale, making long term economic success questionable. So far, Oracle has been able to have a reasonably successful cloud primarily focused on Oracle applications customers, so it is not impossible for SAP to do the same, but it certainly raises some early questions worthy of investigation”.
It does appear that in order to provide incentive enough to migrate to the cloud, SAP is at least willing to eliminate existing concerns about third party access and/or indirect use. SAP customers like Diageo famously clashed against SAP claims that third party platforms that accessed SAP back-end database systems (on Oracle databases, mind you) needed to be licensed as separate full use end users, making the economics of on-premise SAP solutions completely defunct with even minor integrations with broader platforms. It is expected that SAP cloud deals will include very clear language that overcomes these previously contentious problems with third party access and/or indirect use from other cloud providers (such as Salesforce.com) that has resulted in dubious ‘out of compliance’ claims from SAP, resulting in heated litigations with its own customers.
- SAP Takes InDirect Aim at its own Customers
- Top 10 Audit-Crazy Suppliers (2019 Version) – SAP ranks #4!
Kellsey Le, President & CEO at NET(net) says: “SAP routinely makes our Top 10 Audit-Crazy Suppliers list, and their customers still have a bitter taste in their mouths from the Diageo case, remembering these ‘indirect access’ audits as perhaps the single greatest over-reach of any supplier in the industry, since the days of Adobe’s ‘criminal’ copyright infringement allegations against various customers. Even though SAP has reversed many of its policies in how it went about prosecuting these alleged violations of access rights, their customers still have not forgotten the opportunistic behaviors they displayed, making dubious claims of non-compliance and trying to squeeze them for additional fees. It will be interesting to see how customers react when being asked to trust SAP even more now to consolidate their entire value chain to SAP’s cloud. Early indication from our clients suggests they are not yet ready to make that leap of faith to SAP’s next platform iteration anytime soon”.
SAP says RISE but what about LOWER?
Customers inclined to consider the “Rise with SAP” offer will no longer pay separate licensing and maintenance fees, and their applications will be hosted by SAP in its own cloud rather than on premise or with another cloud provider.
Clients will need to have a clear idea how they can get their applications back on premise, or at least back under their control, if things do not work out in the cloud for some reason.
NET(net) Chairman Steven C. Zolman says, “SAP is talking a lot about 'RISE with SAP’ as their effort to migrate customers to their cloud, but we haven’t heard them answering any questions yet about how our clients might be able to LOWER from SAP their subscriptions back to an on-premise perpetual license in case there are major problems with SAP’s multi-tenancy, or how they might be able to MOVE their SAP cloud deployment to another cloud provider if there are availability, reliability, and/or performance issues with SAP’s cloud, and we advise all clients to QUESTION SAP until all those questions are answered in full; with complete transparency”.
Rise with SAP is primarily aimed at moving on-premise S/4HANA workloads into SAP’s cloud, but the offer also extends to customers running S/4HANA in another cloud, or to those with heavily customized S/4HANA applications: Those workloads will be moved into SAP’s private cloud edition of S/4HANA.
NET(net) Chairman Steven C. Zolman goes on to say, “This so-called RISE with SAP offer reminds me a bit of another program SAP forced on its customers when they unilaterally raised annual maintenance and support services costs by more than 29%. In that case, SAP also blamed their customers for the increase, insisting that customers were demanding ‘a higher level of engagement with SAP’, except that the claim was 100% marketing nonsense. Not a single client we worked with welcomed the change. Customers were outraged. Now, with RISE with SAP, early signs are that SAP is going to try to force through a more than 42% price increase, while stealing ownership, stripping away important customizations, eliminating viable market options, and yet somehow still having the gall to call it RISE, while insisting it is a 20% reduction in costs. Only SAP could believe they could get away with being such scoundrels, while also being so tyrannical, oppressive, and tone deaf.”
While the “RISE with SAP” offer might be attractive to some clients (especially those who have followed our previous advice and put off the migration from ECC to S/4HANA and want to make this migration happen before the end of mainstream support in 2027), clients are advised to be extremely careful in their interactions with SAP as all the elements of a deal are based on your current state, meaning that any sub-optimization in pricing and/or over-provisioning of assets will be forged into your ongoing obligations forever, and your supply chain options will be minimized in the process, preventing you from achieving benefits that are widely available in the market today.
As with most supplier marketing programs, details are sketchy. It is not entirely clear what all is included in the services, how the fees are calculated, how the migration is handled, how customizations are handled, what is run on the public cloud vs private cloud, how it will be priced, etc.
What is also not clear is will it only ever be one way? Will customers only have the choice to ‘rise’ to the cloud with SAP, or will SAP ever allow clients to ‘lower’ themselves back into their own datacenters and/or back to a perpetual license mode where they do not have to pay a continual fee and/or apply all updates as soon as they are released, or will customers be able to move their SAP S/4HANA instance to another cloud provider’s platform?
Many questions remain, but one thing is certain. The time is now for you to get your SAP environment completely optimized because any sub-optimization in pricing, deployment, configuration, and/or consumption will be forged into your forever liability should you decide to ‘RISE with SAP’ now or in the future.
Whether you intend to RISE with SAP or not, Contact Us today if you would like to see how much we could help you LOWER your costs.
Founded in 2002, NET(net) is the world’s leading IT Investment Optimization firm, helping clients find, get and keep more economic and strategic value. With over 2,500 clients around the world in nearly all industries and geographies, and with the experience of over 25,000 field engagements with over 250 technology suppliers in XaaS, Cloud, Hardware, Software, Services, Healthcare, Outsourcing, Infrastructure, Telecommunications, and other areas of IT spend, resulting in incremental client captured value in excess of $250 billion since 2002. NET(net) has the expertise you need, the experience you want, and the performance you demand. Contact us today at email@example.com, visit us online at www.netnetweb.com, or call us at +1-866-2-NET-net to see if we can help you capture more value in your IT investments, agreements, and relationships.
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