Recent changes to the way SAP (NYSE:SAP) licenses and charges for its ERP software and associated AI features will mean more work for CIOs looking for the best value.
SAP recently rebranded its Rise with SAP Premium package of hosting and managed ERP application services as Cloud ERP Private and discontinued Rise with SAP Premium Plus with its additional green ledger, AI assistant, and supplier portal functions. The company now uses “Rise with SAP” more generally to describe the process of modernizing its on-premises ERP software.
With the rebranding, though, came more subtle changes in licensing to trip up the unwary, such as which services are included in the package or how additional fees for consumption of AI services are calculated.
“With Cloud ERP Private, organizations receive nearly twice as many bundled SKUs compared to RISE with SAP Premium. While there are strategic additions like LeanIX, it’s important to note that some capabilities, such as SAP Datasphere, are no longer included,” said Gartner VP Analyst Mike Tucciarone.
In a research note published this month, Tucciarone and co-author Calum McDonald explained changes in the components, pricing, and other details that could impact CIOs’ budgets and business cases for Cloud ERP Private.
“It significantly impacts negotiations for existing RISE with SAP package customers and net new customers desiring a private cloud ERP option. This change is driven by modifications to existing packaged components and entitlements previously found in RISE with SAP Premium package,” they wrote.
SAP says FUE to users price ratios must change
With the disappearance of the Premium Plus package and its inclusive AI assistant functionality come other changes to the way SAP charges for AI consumption.
“We discontinued the Premium Plus package that had embedded AI units, which are now sold as an add-on, and it is always up to the customer whether to purchase,” a SAP spokesperson said.
That unbundling — and the loss of the bundled units some customers may have relied on — highlights a dilemma for vendors struggling to articulate the value proposition for the AI features they are adding to their products, and to get customers to pay for the additional computing costs the AI features add.
SAP’s initial approach was to bundle access to some AI features, and to charge for excess usage. Later, it offered AI features to more customers and brought in a tier-based pricing system, with some users paying more for access than others. Now it’s twiddling the knobs on that pricing model again.
At issue are changes to SAP’s Full User Equivalent (FUE) model, in which customers pay per FUE, with different numbers of users in different categories (Professional, Functional, or Productivity) making up one FUE.
Moved to tiers
“Unfortunately,” said Scott Bickley, advisory fellow at Info-Tech Research Group, “it appears that SAP is now moving functions that were previously allocated to a lower, less expensive license category to the more expensive Professional license. This is a stealth price increase, as it requires SAP customers to purchase additional higher-level licenses that can cost exponentially more than the lower-priced Functional or Productivity licenses.”
SAP’s spokesperson acknowledged that there have been adjustments to the FUE for some functions, but said that, on the whole, the company had moved things into less expensive tiers, acknowledging only that “We did upgrade three authorization entries in our ruleset, which is uncommon. In most cases, we downgrade these authorizations, which provides access to a broader group of people. In this instance, these authorizations were previously incorrectly classified. However, this does not mean a direct increase or decrease in cost as these are narrow by feature access, and users have multiple authorizations.”
In the face of such changes, Bickley said, “SAP customers must factor into their TCO active and ongoing monitoring of SAP’s license requirements and audit against their current environment in order to stay compliant.”
On premises off the menu
SAP has been discouraging the purchase of on-premises licenses, Bickley said, sometimes even telling customers that they’re no longer available, in its attempts to push customers onto S/4HANA in the cloud.
“The end goal for SAP is singular in nature: SAP Public Cloud for S/4 HANA or bust! As an SAP customer, you are either onboard or will be left behind,” he said. “SAP has already started deprecating early versions of S/4 HANA Any Premise, and customers can expect this practice to continue. This will force these accounts to stay current on S/4 HANA or risk losing support. Additionally, SAP customers should not expect innovative features to be added to the on-premises versions of S/4 HANA.”
Despite this, he said, “We do see on-premises deals occurring,” although “the discounting is a fraction of what was previously available. These deals are intended to be unappealing versus the move to SAP S/4 HANA in the cloud. SAP customers seeking on-premises license purchases should also expect SAP to slow roll these requests as they are the lowest of priorities for SAP Sales and likely do not count towards their sales quotas.”
SAP’s response to these concerns was to say that there have been no changes to the availability of on-premises licenses.
What should CIOs be doing?
Although existing RISE with SAP customers can renew their contracts, the Gartner anaylsts wrote in their research note, “SAP account teams may be incentivized to position migrations to Cloud ERP Private package, given investments in the components (for example, SAP’s acquisition of LeanIX) and a need to show positive momentum to investors.”
Thus, Tucciarone said, “The critical issue for CIOs is awareness: Many IT leaders are moving forward with planning, budgeting, and negotiations without realizing that RISE with SAP will be discontinued after June 2025. This lack of visibility could have significant implications for any technology roadmap and commercial agreements with SAP.”
Gartner advises CIOs to carefully analyze the components of the SAP Cloud ERP Private offering, and require SAP to detail all of the changes that will affect their current solution. It also recommended that companies not accept any proposed discounts at face value, but to instead validate them with external sources.
“CIOs need to quickly get up to speed on the full scope of changes — everything from the bundled SKU changes to new pricing structures and commercial terms like the new transformation incentive model and flexible cloud addendum,” Tucciarone said. “Only then can CIOs accurately assess the impact on their technology stack and budget, and ensure their organization isn’t caught off guard.”
In short, it’s a balancing act, and one that SAP doesn’t seem intent on making simpler.
Or, as Bickley put it, “SAP licensing feels like a world where the rug is constantly being pulled from under one’s feet.”
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Source: News