Latest news 2 months ago

Introducing SAP cloud contracts. Manage SAP licenses smarter.

The following article gives insights into the purchasing and management of SAP cloud products, examining subscription models, auto renewal clauses and fixed lisensing quantities. It offers useful advice on how to manage and negotiate SAP contract renewals wisely and effectively.

Introduction

In this article, we will break down how SAP sells cloud products, making it easy to comprehend the steps involved when buying, renewing a contract, and making informed decisions concerning your SAP lisense management. We will cover various topics to help you understand cloud-specific terms and conditions, how discounting and tiering works and what you need to consider when managing the usage of your cloud licenses.

Cloud Terms & Conditions

SAP’s Subscription Model

SAP cloud products are licensed with a subscription model and the fees are charged on a recurring basis, either monthly or annually, until the end of the term specified in the SAP cloud agreement. The pricing of cloud products depends on a number of factors, such as the number of users, service level and any additional features included.

When you originally negotiated your contract, you sign up to a certain number of licenses. If you exceed this number, you must purchase more licenses to cover your use. This additional license purchase will co-term with your original contract, so they end at the same time. However, if you use fewer licenses than you originally purchased, you cannot reduce your license quantity during the term of the initial agreement. SAP sell a fixed number of licenses and you can only increase the volumes during the term of this initial agreement. This can also only be renegotiated at the end of your agreement, which will be stated in your contract.

For example, you have purchased 100 SAP SuccessFactors User licenses over a 5-year term. In the first year you pay the subscription price for the 100 licenses. During the second, you decide to buy 50 additional licenses. This additional purchase will be co-termed with your original contract, so that all 150 licenses terminate at the same time. In the third year, your usage decreases so that you now only need 90 of the 150 licenses. As standard, SAP cloud contracts will not allow you to reduce the number of licenses down to 90 and you must pay for the 150 licenses until the end of your 5-year term. This is based on standard terms and conditions, so be mindful of what your contract says.

Auto-Renewal

The licensing of SAP cloud products is executed through agreements that vary in terms, generally between 1 and 7 years. Unless otherwise specified in your contract, SAP cloud agreements will automatically renew by 1 additional year.

If your contract has an auto-renew clause, the current contract will renew for another year with the same licenses and terms without you having to contact SAP. However, if you decide that you need to change any part of the contract, you need to let SAP know at least 90 days before the next renewal. The notification timeframe can vary based on your specific contract. This means that if you are not aware of your renewal dates, you may end up renewing a contract that you do not need. Over time, SAP will introduce updates or changes to their pricing and licensing structures and customers should be conscious of these. It is essential that customers take the lead by understanding their options, stay up to date with incoming changes, and engage in discussions with SAP to ensure they secure the best option possible.

A prime example of the above was SAP Analytics Cloud’s decision to remove the Concurrent Session metric option, leaving only the User metric one. This means that when customers renegotiate their cloud contract at the end of the term it will be necessary to move all their licenses to a user model instead, which could end up being more expensive. If you have an auto-renew clause, then you can still retain the old license model until you renegotiate.

Renegotiating an Existing Contract

The process of renewing an SAP cloud contract may vary based on the specific cloud product(s), the agreement terms, and any updates or changes that have been made by SAP since the order form was signed. SAP may offer you various renewal options based on your specific needs. These options may include extending the current subscription under the same terms, upgrading, or updating to a different product with additional features, or adjusting the number of licenses to align with your evolving requirements. It is essential to start the renewal process well in advance to ensure there is enough time for contractual renegotiation, if required.

Customers who commit to longer-term contracts, such as multi-year agreements, may be eligible for higher discounts. By committing to an extended contract duration, customers demonstrate a higher level of commitment, which can lead to more favourable pricing. SAP is less likely to give favourable discounts in a license audit scenario.

Once you and your SAP representative have discussed the renewal options, negotiations may take place to finalize the terms of the renewal. This may involve negotiating pricing, additional services, or any other changes required. Once both parties have agreed on the terms, a new contract or addendum is prepared, outlining the details of the renewed cloud product subscription. Always carefully review the agreement to ensure all agreed-upon terms are accurately reflected.

Usage Reporting in SAP for ME

SAP have standard tooling to help you keep track of and measure the usage of your SAP public cloud products. This is called SAP for ME. It is a tool that offers personalized reporting for specific public cloud solutions. You can analyse your product and support service usage, as well as monitor the document status, in either linear or graphical form. Be conscious that not all products are available on the portal and the measured product might not exactly match the license and metric that you have purchased.

Authorizations

You need the correct authorizations to sign in to SAP for Me and view the necessary usage reporting information. An S-User ID with the authorisation “Access License Utilization for Cloud” is required to view the cloud reporting module. It is worth noting that other features in SAP for ME need different authorisations.

Navigating SAP for ME

There is a feature in SAP for ME called Customer Insights Dashboard. It gives you the ability to run reports on your cloud usage. It uses analytical capabilities to customize an overview of your product portfolio, your support entitlements, case management, system landscape, cloud availability, license usage, cloud usage and adoption, support services, consumption of SAP Enterprise Support services and more. This feature is not yet available on the demo version of SAP for ME.

You can also review the specific cloud usage area by navigating to the Consumption tab on the Finance & Legal Dashboard and selecting the “Public Cloud Consumption” card. This will display all measured SAP public cloud license usage.

Private cloud would be measured in the same way you would measure On-Premises licenses; therefore this will not be available on the SAP for ME portal as a standard report.

The Solution Brief for SAP for ME also introduces you to the key reports that you can use to monitor Cloud Availability.

Customer Insights dashboard

Commercial Considerations

Overuse of SAP Cloud Licenses

Excessive use of SAP cloud products can result in additional costs above and beyond those stipulated in the order form. SAP charges for the excessive use of a licence once the actual usage is measured. If you use more resources than have been allocated or go beyond the usage limits, you will be charged for the additional usage. Therefore, make sure you are regularly checking the usage reports that are available in the SAP for Me portal.

These overage costs can significantly impact your budget if not managed effectively. To avoid overcharges, keep a close eye on your usage and regularly review your license utilisation to ensure it matches your actual needs. Some cloud products cannot be measured by the portal, so you need to manually track them.

Mitigation of Overuse

It is highly recommended to investigate your internal usage first before buying products, as it may be possible to reduce the number of licenses in use if you are exceeding your licensed levels. There are a few common metrics where we often see optimization opportunities.  A common metric in any SAP contract is User. If you find that you are consuming more User licenses than you own, it is always worth checking whether there are any inactive users you can remove from the system. This can occur when a user leaves the organization but has not had their account removed, or if they have changed job roles and no longer require access.

By manually checking your users’ activity levels, you could also reduce your license usage. For example, you own 100 licenses but have 120 Users accessing the system. By reviewing their specific activity levels, you could find that you could reduce the number of licenses in use by 20. This means you have now avoided a license purchase.

Alternatively, there are mechanisms within some of the products that allow you to automatically remove a user if they have been inactive for a set number of days. A common time period of inactivity is 90 days. This means you can be sure that your licenses will always reflect the number of active users at the time.

Another metric that can be commonly found to have overuse is Tenants, which is the number of environments for the product (production, test, development). In this example, your contract allows you to have 2 test environments for your SAP cloud product. You have found that there are actually 4 live test environments, which is potentially causing a need to purchase additional licenses. After a discussion with your technical team, it is apparent that 1 test environment is not required. This has been turned off and now your license requirement is 3. There is still a requirement to purchase an additional license, but now you have halved the number of licenses that you need to buy.

Tiering

Many SAP cloud products are tiered, meaning that the more you buy of the product the cheaper the unit cost. This can sometimes lead to situations where it is cheaper to buy more licenses. The tiering levels vary by product and are not publicly available information, but these can have a massive impact on the overall cost. The table and graph below illustrate this. Where the graph dips, is where the new tier begins. This basic example is true of almost all tiering by SAP:

Discounting

The availability and extent of discounts in SAP cloud contracts can vary based on factors such as the customer’s location, the specific cloud product, the market conditions, and SAP’s current pricing and discount policies. SAP can offer volume-based discounts based on the number of licenses subscribed to the cloud service. The higher the spend a customer commits to, the higher the potential discount they could receive. SAP cloud products are discounted completely differently compared to their on-premises counterparts. With On-Premises products, you would negotiate a contractual discount and occasionally may have product-specific discounts. Whereas the discount for cloud products can be negotiated solely on the specific products you are buying. This means the opportunity to negotiate further is more difficult to identify if you do not have insights into discounts have already been granted and what the market rate is for your organization. It also varies by cloud product families (i.e. SuccessFactors, SAP Analytics Cloud, Ariba etc.). You may find you can negotiate an overall better deal on SuccessFactors, for example, compared to Ariba. In turn, it is difficult for customers to understand what a “good” cloud discount is because the frame of reference is obscured.

Free Trials

A free trial is available for 90 days, allowing organizations to test the cloud products before making a purchase. Free trials allow users to explore the product’s features and determine if they meet their requirements in a test environment. It is important to note that there are limitations to the resources and services provided during the trial period. Non-productive testing and evaluation of SAP BTP trial terms and conditions are also possible depending on the product. This ensures that businesses can make an informed decision before committing financially. Some of SAP’s resources and services are not available for free during the trial option so ensure you check the terms and conditions before using the trial software.

We have included a link to the SAP website where the products that are currently available have been listed: https://www.sap.com/products/try-sap.html

Conclusion

When you are considering purchasing an SAP cloud contract, it is important that you pay attention to the details. Consider taking advantage of free trials so that you understand how to renew your subscriptions and that you know that you are purchasing a fixed quantity of licenses for a certain period. By doing your research and understanding the terms and conditions you can make an informed decision and maximize your subscription service.

Always be vigilant and careful with what you buy. Ensure that you are only buying licenses that you genuinely need. ITAA can help you with:

This will help you ensure your cloud contract is as commercially effective as possible.

Additional Sources

Talk to the SAP advisory experts

Our network of subject matter experts are here to help with your specific needs. Let us know what your requirements are and we will put you in touch with an advisor to meet your demands.

    Have a question? Visit our contact us page for more options.

    Talk to us today