How to Best Understand SAP Licensing Costs and Contract Complexity

What This Article Covers

  • The SAP Software Cost
  • The Price of SAP and Pricing SAP
  • SAP Licensing Cost
  • The SAP Price List and the SAP Software Cost
  • Negotiation on SAP Software Cost
  • Why are SAP Contracts Becoming so Complex?
  • Publicly Supporting Open Connections, While In Reality Offering Control?
  • The Increased Overhead of Using SAP
  • The Increased Need for Clause Clarification

Introduction

SAP follows the on-premises model of keeping its pricing secret. In fact, when reviewing SAP’s price list, it states that the price list is public and cannot be published.

Right on the first tab of the SAP price list, it states the following:

“All rights reserved. The contents of this work are confidential and proprietary information of SAP AG. Improper and/or unauthorized reproduction in whole or in part of the information contained in this work is a violation of SAP’s proprietary rights and could cause irreparable damage. No part of this work may be reproduced or copied in whole or in part in any form or by any means (including without limitation graphic, electronic, or mechanical, including photocopying, recording, taping or information storage and retrieval systems) without the prior written permission of the publisher.”

That is false. SAP is selling a public product. Therefore the price and the pricing list cannot be protected in that manner.

The SAP Software Cost

The cost of SAP should never be confused with the price of SAP software.

The cost of SAP gets into the topic of TCO or total cost of ownership. When people say the cost of SAP, they don’t necessarily mean the TCO, but they may. TCO means making a model that accounts for the different cost categories. I have written the only book on enterprise software TCO. Many software vendors propose TCO, but when you review their models, they demure.

TCO means making a model that accounts for the different cost categories. I have written the only book on enterprise software TCO. Many software vendors propose TCO, but when you review their models, they leave many costs out. In my view, software vendors cannot help customers come to a TCO because they have a conflict of interest on this topic.

I have written the only book on enterprise software TCO and performed thorough research on the topic. My conclusion is that most of the entities that talk about TCO, like software vendors and consulting companies don’t want their customers to know the TCO. In fact, while many software vendors propose TCO, when you review their models they leave many costs out.

In my book Enterprise Software TCO, I break the costs of enterprise software into:

  • Acquisition Costs
  • Implementation Costs
  • Hardware Costs
  • Maintenance Costs

The Price of SAP and Pricing SAP

SAP is priced in some different ways, and the price of course changes depending upon the specific application, and the number of different ways that SAP can be priced is surprising to most customers.

The different ways the price of SAP or pricing SAP can be arrived at include the following:

  • By User
  • By Revenue and Expenses
  • By Revenues
  • By Flat Fee
  • By Weights: (For things like commodity and agricultural products)
  • By Orders: (For things like sales orders)
  • By Contracts: (For things like CRM Marketing)
  • By Cores: (For things like SAP Hybris)
  • By Transactions: (Also SAP Hybris)
  • By Employees: (For SAP HR solutions)
  • By Cost of Goods Sold: (For SAP Collaboration SNC)
  • By Freight Spend: (For SAP TM)
  • By Plant: (For SAP Manufacturing Integration)
  • By Resources: (For SAP Manufacturing Scheduling)
  • By Rental Unit: (For SAP Real Estate Management)
  • By Spend Value: (For SAP Supplier Management & Ariba)
  • By Product: (SAP Vehicle Management for Auto)
  • By Outpatient Days: (SAP Patient Management for HC)
  • By Business Partners: (SAP Tax, Benefits and Payment Processing for Public Sector)
  • By Points of Delivery: (SAP Energy Data Management for Energy Utilities)
  • By Learners (SAP Enterprise Learning Environment)
  • By Concurrent Sessions (SAP BusObjects Knowl Acc Bundle f BI Suite (CS))
  • By Virtual Users: (SAP LoadRunner by HP, 100 VU bundle)
  • By Connected Systems: (ProductivityPak adapter for SAP Solution Manager)
  • By GB of Memory (SAP IT Operations Analytics or SAP Predictive Analytics Suite for Full Use HANA)
  • By HSVA: (SAP HANA, Runtime edition for Applications & SAP BW – Install Base)
  • By Recipients: (SAP NetWeaver BeXBroadcaster)
  • By LVM Instances (SAP NetWeaver Landscape Virtualization Mgmt enterprise)
  • By Annual Subscriptions (United States National Directory (1 server))

And that is not the comprehensive list. However, it should also be recognized that many of SAP’s applications are not widely sold. Therefore the pricing SAP the way that is shown above is often rarely applied.

Pricing SAP can be determined (before discount) by estimating the number of “things” that the pricing is based upon. And that by itself can be challenging.

SAP Licensing Cost

SAP licensing cost and refer to the price of the SAP license, which is the right to use SAP software. The SAP licensing cost is simply the more technical terms for the price of SAP. The SAP licensing cost is stated in the software contract, and it is defined by the end user licensing agreement.

The SAP Price List and the SAP Software Cost

The SAP price list is not so much a list — as in an SAP price list printed out as a Word document as it is a spreadsheet which provides the SAP software cost under different conditions. The actual SAP price list (spreadsheet) is quite limited, and the people at SAP did a rather poor job of automating it. SAP also offers an interactive price to determine the SAP software cost, but it also has limitations.

The SAP price list is restricted to SAP account executives and salespeople at SAP partners. However, it is a good idea to verify the SAP software cost provided by SAP or an SAP partner with a third party.

Negotiation on SAP Software Cost

The final piece of the sap price puzzle is the discount. The discount applies to all SAP products, except for a few. The discount applied to a price is its subject area, and also differs by region and many other factors.

How to Understand The Rising Complexity of SAP Contracts

SAP talks a lot about simplification, but SAP’s contracts are becoming more complex and more limiting regarding what customers can do with SAP’s software. In this article, we will get into this little topic for which there is so little published information.

Example of the Cloud Connector

SAP has the following to say about its Cloud Connector.

An analysis by a commenter stated the following:

It is supported to run S/4 HANA on AWS as IaaS provider, the same for SCP (fka HCP). But it really seems not wanted to use more from AWS than the virtual OS. You even have to solve basics like connectivity yourself when you leave the SAP world. “Must not” – a license restriction?

Publicly Supporting Open Connections, While In Reality Offering Control?

Once again, SAP restricts the usage of its products to other SAP products. This is done even after SAP proposing that it is in favor of open standards. It should be remembered that middleware companies never limit the usage of their adapters. However, SAP does.

This type of language is littered all through SAP’s contract documentation. It is an orientation to control things, so they maximally benefit SAP. So that SAP controls how the software is used. This is a growing problem and liability with using SAP. Actually, by upgrading to newer versions of SAP, the customer ends up with more restrictions than in older versions, so the restrictions are being ratcheted up.

Control and the Cloud

SAP talks a good game about partnering with Azure, but the control they want to be combined with public IaaS like Azure or AWS means things get super weird. You are making me think about another article Rolf! That is the second time in a week!

Recently I spent time trying to figure out what a contract restriction means or S/4HANA with the person at an SAP customer.

The SAP account executive has no idea what the clause means. It actually took them three weeks to come back with a clarification that did not seem to clarify anything.

Conclusion

SAP pricing is quite complex. Brightwork Research & Analysis, we perform SAP pricing for quite reasonable rates. We have access to all SAP pricing information as well as access to discount information.

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References

TCO Book

TCO3

Enterprise Software TCO: Calculating and Using Total Cost of Ownership for Decision Making

Getting to the Detail of TCO

One aspect of making a software purchasing decision is to compare the Total Cost of Ownership, or TCO, of the applications under consideration: what will the software cost you over its lifespan? But most companies don’t understand what dollar amounts to include in the TCO analysis or where to source these figures, or, if using TCO studies produced by consulting and IT analyst firms, how the TCO amounts were calculated and how to compare TCO across applications.

The Mechanics of TCO

Not only will this book help you appreciate the mechanics of TCO, but you will also gain insight as to the importance of TCO and understand how to strip away the biases and outside influences to make a real TCO comparison between applications.
By reading this book you will:
  • Understand why you need to look at TCO and not just ROI when making your purchasing decision.
  • Discover how an application, which at first glance may seem inexpensive when compared to its competition, could end up being more costly in the long run.
  • Gain an in-depth understanding of the cost, categories to include in an accurate and complete TCO analysis.
  • Learn why ERP systems are not a significant investment, based on their TCO.
  • Find out how to recognize and avoid superficial, incomplete or incorrect TCO analyses that could negatively impact your software purchase decision.
  • Appreciate the importance and cost-effectiveness of a TCO audit.
  • Learn how SCM Focus can provide you with unbiased and well-researched TCO analyses to assist you in your software selection.
Chapters
  • Chapter 1:  Introduction
  • Chapter 2:  The Basics of TCO
  • Chapter 3:  The State of Enterprise TCO
  • Chapter 4:  ERP: The Multi-Billion Dollar TCO Analysis Failure
  • Chapter 5:  The TCO Method Used by Software Decisions
  • Chapter 6:  Using TCO for Better Decision Making

https://help.sap.com/viewer/cca91383641e40ffbe03bdc78f00f681/Cloud/en-US/e6c7616abb5710148cfcf3e75d96d596.html

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