Whether it’s with a carrot or a stick, SAP seem determined to move their customers to S/4HANA Cloud.
With further increases in on-premise support fees from 2024 and a statement from SAP CEO Christian Klein that new innovations will be delivered in SAP S/4HANA Cloud via RISE with SAP only, SAP’s intentions are patently clear. Their approach appears to be working, as seen in their half-year 2023 results: Cloud revenue up, software license revenue down. Read on to find out more.
S/4HANA and SAP’s cloud strategy is a constantly moving target; it’s difficult to keep up with the latest news and changes, and what that means for you as an SAP customer. ITAA have insights into the market and have explained SAP’s latest licensing related updates including S/4HANA, arguably the biggest topic in SAP at the moment.
SAP Half Year 2023 Financial Results
SAP are focusing purely on increasing cloud revenue, particularly S/4HANA Cloud and RISE with SAP. The half year 2023 financial results continue to represent this goal.
Cloud revenue has increased 21% compared to last year with software license revenue decreasing by 20% and software support decreasing by 2%. These financial results are no surprise and certainly reflect how SAP are currently communicating with their customers during the sales cycle. You would expect to see the license revenue decreasing in line with the cloud revenue increasing as customers are purchasing fewer perpetual licenses.
It is also worth mentioning that SAP confirmed that half of RISE with SAP customers are net-new to SAP.
Support Fee increase for 2024
For the second year running, SAP are increasing On-Premise Support fees for customers.
SAP announced a planned increase in Standard Support, Enterprise Support and Product Support for Large Enterprises (PSLE) which takes effect 01 January 2024. This increase in annual SAP support fees is based on local CPI to a maximum of 5%. This is an increase from last year, which was a maximum of 3.3%.
In many SAP customer contracts, SAP reserve the right to increase support fees annually with 90 days’ notice. Last year was the first time that SAP have increased their support fees for almost 10 years. ITAA now expects that there will be fee increases annually, though SAP state that each increase is an annual decision.
Please note these key takeaway points:
- This only affects order forms that have passed the initial term and first renewal term
- Any new purchases will not be charged the additional CPI rate until the first renewal term has passed
- This does not affect any cloud products or contracts
- Last year’s increase will still be charged in addition to this increase
It is critical that organizations review their SAP support invoices and contracts as a priority this year to ensure the correct fee is paid for 2024 and annual budgets are adjusted accordingly. ITAA can help SAP customers to understand their contractual clauses related to SAP support, how much support fees will cost next year and the options available to them. To discuss how we can help your organization please contact us.
You can read in full SAP’s “Adjustment of SAP Support Fees 2024” Statement for further information.
Christian Klein has also confirmed that any new innovations will only apply to S/4HANA Cloud as part of RISE with SAP or GROW with SAP. This means any customers who have purchased, or plan to purchase, S/4HANA On-Premise will no longer have innovations in their software. SAP have been pushing their customers to the cloud for the past few years, and this new announcement confirms that the future is cloud for SAP. S/4HANA On-Premise is an option but with no innovations and the paths to conversion becoming harder and less fruitful, it’s increasingly becoming a less persuasive option due to the way SAP are presenting it to the market. It is worth listing out just ten of the various strategies SAP have executed to encourage their customers to S/4HANA Cloud:
- Introduction of S/4HANA Private Cloud
- Introduction of S/4HANA Customer Data Center/Tailored Option
- Introduction of RISE with SAP
- Introduction of GROW with SAP
- Acquisition of Signavio to improve business processes
- Commitment to end of mainstream support in 2027
- Regular increase of On-Premise support fees
- Removal of On-Premise S/4HANA Product Conversion offering
- Reduction in credits available for On-Premise S/4HANA Contract Conversion offering
- Innovations restricted to S/4HANA Cloud only with RISE with SAP and GROW with SAP
Ultimately it is up to SAP customers to decide whether S/4HANA Cloud and RISE with SAP is the best option.
ITAA are independent SAP licensing experts and help customers understand the cost and strategic implications of moving to S/4HANA. We help customers of all sizes and in numerous industries decide on their route forward with SAP. If you would like an informal discussion to explore how we could help you, please get in touch.