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:
Let's delve into these for a moment, before understanding why it's the right time to take back contracts.
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?
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 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.
To facilitate customers to switch to the new model, SAP® is pushing strong financial incentives that will be valid until December 2022. In summary, the customer can choose to license 115% of the current estimated usage from "digital objects" (documents produced by indirect/digital access) and the license fee will be applied only to 15% growth, with the discount applicable to the entire volume (115%). Conversely, it can license 100% of the "digital objects" and the 90% discount will be applied only to the "digital objects."
SAP® has made available two different measurement methods for estimating and counting indirect access, but the evaluation of whether to adhere to the new model and which financial offer is best for one's company is not so obvious.
Elements such as in-depth knowledge of one's SAP® environment and the third-party systems they access, coverage of what has already been "licensed," and the importance of having an accurate estimate of the documents that will be produced all come into play.
These are two issues that are certainly not new, but they have a major impact on SAP® customers and may require special attention from licensing managers:
Given these premises, and bearing in mind that the fall period is the time when companies draw up their budgets for the coming year, SAP® will do all it can to convince them and will offer big discounts to make it cost-effective to engage before the end of the year.
For this reason, it is a good time to make the appropriate assessments regarding license agreements.
For those who are converting to the new S4 HANA licensing model-which has simplified direct access into three types of use (Professional Use, Functional Use, Productivity Use)-it may not be easy to recover the limitations included in Limited Professional licenses. The risk is to pay for uses (and usages) that do not correspond to real needs, if care is not taken in reviewing the new license agreement.
As for indirect access, if you are considering switching to the new digital age licensing model, incentives expiring in December can make the conversion cost-effective.
In all of this, you have to be careful: where there are offers that seem unrepeatable there may also be unfavorable situations. It takes experience to spot them, before any signings or renewals.
SAP®, like almost all major software vendors, has a dedicated licensing compliance function, and customer audits are a standard and routine part of any software vendor's business operations.
Over the past two years, aided by the vicissitudes of 2020 that have caused delays in license audits and increased pressure to meet annual targets, we have seen an increase in auditor visits to companies.
At WEGG, we are experienced compliance consultants and have supported several companies in verifying compliance and preparing self-audits for submission to SAP®, with the support of technologically advanced SAM tools.
In conclusion, now is the right time to take hold of your SAP® licenses and contracts and take stock of your situation, to act proactively and take advantage of the favorable economic climate whereby SAP® is offering greater discounts at this time than in previous years.
We will examine these issues in a webinar (in italian language only) scheduled for September 15.
*SAP®and other SAP® products and services® mentioned are registered trademarks
of SAP SE (or a company affiliated with SAP®) in Germany and other countries.
Insights
OUR OFFICES
OUR OFFICES
PADUA
Via Arnaldo Fusinato 42, 35137
MILAN
Viale Enrico Forlanini 23, 20134
ROME
Viale Giorgio Ribotta 11, 00144
Copyright © 2022 WEGG S.r.l. • P.I 03447430285 • C.F. 02371140233 • REA 311023
Certified company ISO 9001:2015
