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SAP’s S/4HANA License Schemes Are Confusing Customers

SAP’s native-cloud play through S/4HANA dangled the hopes of a simplified license structure to SAP customers. This would have been a pivot from what is arguably the most complex software licensing scheme in the software industry. Instead, SAP customers now must navigate four distinct license models, each tied to a separate deployment model (perpetual license, subscription via HANA Enterprise Cloud [HEC], S/4HANA Cloud Single Tenant, or S/4HANA Public Cloud).

Source: Enterprise Resource Planning at SoftwareReviews

S/4HANA – The Choice is Yours

The table below summarizes each of S/4HANA’s license types along with the key commercial factors associated with each license type. Future notes will drill down deeper into each deployment model and license type to identify the key considerations for each option.

Of critical import for would-be S/4HANA customers is that the deployment model has significant impacts on both the license types available as well as the ability to customize the environment to meet specific business requirements.

For example, the perpetual license is most often tethered to an on-premises deployment. The perpetual license provides maximum flexibility for the pricing model, which can be a traditional SAP named user license plus a flat fee for S/4 platform access or the newer S/4HANA user license. The price model decision will hinge on whether the client is exercising a full contract conversion or a product-only conversion to S/4. Second, perpetual license holders can opt for either the runtime or full-use HANA database. Finally, clients purchasing perpetual licenses can choose to have their S/4HANA environment deployed on-premises or hosted in a private cloud or HEC environment.

License Term

Functionality

S/4 Enterprise – Price Model

HANA (DB)

HEC, IaaS, Managed Services

Perpetual License

Perpetual

On-Premises

SAP Named User + Flat Fee

OR

Per S/4HANA User

Full Use

OR

Runtime

Optional

(fee-based for hosting or managed services)

HANA Enterprise Cloud (HEC) – Subscription

Subscription

Same as On-Premises

SAP Named User + Flat Fee

OR

Per S/4HANA User

Full Use

OR

Runtime

Customizable – included in subscription

S/4HANA Cloud – Single-Tenant Edition

Subscription – SaaS Model

Same as On-Premises

Full-User Equivalent (FUE)

*New

Runtime – included in subscription

Standard based on FUE count – included in subscription

S/4HANA – Public Cloud

Subscription – SaaS Model

Cloud (Multitenant)

Full-User Equivalent (FUE)

*New

Runtime – included in subscription

Standard based on FUE count – included in subscription

Whichever path is selected to migrate to S/4HANA, the best time to negotiate the deepest discounts with SAP is now. With less than 10% of SAP customers live on any portion of S/4HANA, coupled with the just-announced pushback of the 2025 end-of-support date for Business Suite 7, SAP is likely to offer exceptional pricing and terms.

Recommendations

  1. Plan purchases of perpetual licenses with detailed price data. Obtain granular, detailed line-item pricing from SAP, including list price vs. discount price, to calculate minimum discount levels required to meet the ERP budget constraints. Where possible for legacy customers, explore product conversion and extension policies that preserve legacy contract terms and investments.
  2. SAP HEC proposals must be unbundled. HEC comes with a single price, which makes discerning the various component pricing impossible. Force SAP to provide pricing broken down by licensing, hosting, and service segments. Evaluate each individually to better target negotiations.
  3. Carefully map users to the best license type for S/4HANA Cloud. New license types (Advanced, Core, and Self-Service) are assigned to S/4HANA Cloud users. These license types are converted via a user ratio to realize the FUE count minimums. Apply analytical rigor to assess the financial risks and leverage automated software access management solutions and processes to accurately class users.

Bottom Line

Prospective SAP S/4HANA customers must plan carefully when deciding on the license model and deployment model upon which their environment will operate. This decision will determine the overall limits around system customization, HANA database choice, and single vs. multitenant cloud. These decisions cannot be rolled back later – this is a one-way street.


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