The "long tail" of SAP®'s transition to the "digital economy"
SAP® wants to be the technology that drives the transition of companies to the "digital economy". Its goal - according to claims coming to us from the German multinational - is to "empowers companies across all industries to reinvent their business models for the digital economy."
To do this, it has been adopting a double strategy in recent years: on the one hand, it is pushing for migration to a new, higher-performance "architecture" capable of processing large volumes of operational and transactional data in real time (the in-memory computing offered by the HANA platform); on the other hand, it has developed a new pricing model-the Digital Access model-that is better suited to the needs of the "digital age."
The two "deadlines" that SAP® has set to incentivize companies are:
- migration to SAP HANA and SAP S/4HANA by the year 2027, for companies using SAP Enterprise Resource Planning (SAP ERP)
- a facilitated program, the DAAP (Digital Access Adoption Program), to move to the new pricing model for indirect/digital access with considerable discounts, active until December 2022
Let's delve into these for a moment, before understanding why it's the right time to take back contracts.
Migrating to SAP HANA and SAP S/4 HANA
Companies using SAP Enterprise Resource Planning (SAP ERP) already know that they will need to migrate to SAP HANA or SAP S/4HANA by the year 2027, as this is the deadline after which SAP® will cease to provide support for ERP applications in use on the SAP NetWeaver platform.
SAP HANA, in fact, will be the primary database for capturing all transaction data, on which the entire suite of SAP® application software (HANA Suite or S4HANA) will run.
By 2027, that is two years longer than the previous deadline: previously SAP® had announced that it would discontinue ECC6 support in 2025. This is an implicit admission that migration to S4/HANA is slower than SAP® would have liked. Several incentives and concessions go in the direction of supporting this path: this is the case of the extended maintenance extendable until 2030, from which customers engaged in off-boarding phases can benefit with a premium of two percentage points.
There is also no shortage of integrated packages of solutions and services to support migration: in January 2021 SAP® announced the "Rise with SAP®", program, whose offerings were among the hot topics at Sapphire Now 2022 in May. It is clear that SAP® is investing heavily in cloud migration.
That this is profitable is also confirmed by SAP®'s financial results for the year 2021: there was a 5 percent increase in revenue (24.410 billion euros), with cloud revenue up 19 percent from the previous year (9.592 billion euros).
If we take into account that new business metrics such as ARR (Annual Recurring Revenue) "drive" the evaluation of investors and buyers, as they are considered reliable financial performance indicators, SAP’s relying on contracted recurring revenue components (subscriptions) increases its very value on the market.
A market in which SAP® already holds leadership: recently Gartner recognized SAP S/4 HANA cloud as a leader in the Gartner Magic Quadrant for Cloud ERP for Service Centric Enterprise 2022, and important partnerships, with IBM for example, are being forged to improve the cloud migration process on a daily basis.
But what could be the reasons why adoption in enterprises is slower than expected, such that the date is being moved from 2025 to 2027?
- operational difficulties: the new applications and capabilities offered by SAP S/4HANA will require some operational changes and probably the adoption of new processes, of which the learning curve of users must be taken into account
- difficulties with custom code: because SAP S/4HANA is a completely new version of the product, existing customizations for SAP® ERP may not be compatible with the new environment. SAP® customers do not always have the resources to do this and want to maximize existing investments in ECC6, where they have often spent large sums on customizations.
If then the entities involved have not included digital transformation projects in their strategies, C-levels may not see an immediate return on business.
The Digital Access Adoption Program (DAAP)
The other news concerns the Digital Access Adoption Program (DAAP): it has been extended to the end of 2022..
The Digital Access model, the adoption of which DAAP encourages with heavy discounting, is a new licensing metric that SAP® introduced in 2018 that is based no longer on the number of users, but on the number of documents that non-SAP® third-party systems go to create on SAP® systems.
A choice that is a direct result of the problem of properly licensing indirect/digital access, which had involved SAP® customers in diatribes over irregularities, due to uncertain contractual definitions of what "usage" should be licensed. The best known case is the one involving Diageo UK.
SAP® has therefore brought clarity with a new licensing model, which is based on the count and document type (there are 9) of interactions produced with SAP® by third-party systems. As noted in SAP ERP Pricing for the digital age, customers can decide whether to maintain the status quo of their existing SAP® contract (and thus continue to use per-user licenses), convert only unused licenses to "documents," or change the entire contract to match the new model.
