SAP Raises Costs, Slashes Innovation for On-Prem Software
August 9, 2023 Alex Woodie
Companies that run SAP on-prem, including all of its IBM i customers, will be left out in the cold following the German ERP giant’s latest moves, which includes a 5 percent increase in annual on-prem support costs and a pledge from the CEO that all new “innovation” only will be delivered in the cloud.
SAP, like most enterprise software vendors, has been trying to get its customers to move to cloud versions of its ERP software for some time. Moving customers to cloud subscriptions not only smooths out the revenue stream for companies like SAP compared to the sporadic nature of traditional licensing, but it simplifies the overall software development and delivery process.
The clock is ticking for customers who run SAP software on their own servers, including approximately 1,500 customers who run newer SAP Business Suite and older R/3 products on IBM Power servers running IBM i and Db2 for i, as well as thousands more who run their SAP software on AIX, Linux, and Windows operating systems and various third-party databases (Db2 for LUW, Microsoft SQL Server, Oracle) on Power and X64 servers.
As we reported last year, SAP has pledged to end mainstream support for these ECC (ERP Central Component) 6.0 for on-prem customers in 2027, with an option to buy an extended maintenance package that gets them through 2030. Unless that roadmap changes – and it hasn’t since SAP extended it two years in early 2022 – customers will be given the choice of continuing to run their software on-prem in an unsupported manner or moving to SAP’s cloud offering, based on the new S/4HANA architecture.
SAP has sought to smooth its customers cloud transitions with programs like RISE with SAP, which combines ERP software, business analytics, transformation services, and help from partners. The company recently incentivized customers to adopt its cloud by unveiling bundles that combine lower cost cloud subscriptions with RISE.
That was the carrot. Now comes the stick.
In July, SAP announced that it will increase the cost of on-prem support by 5 percent in 2024. That comes after a 3.3 percent increase for 2023. The previous decade, there were no increases, as SAP had instituted a freeze for support costs.
Also last month, CEO Christian Klein announced that on-prem customers will no longer get any new stuff. In a conference call with analysts following the announcement of the company’s second quarter results, Klein said:
“The success of RISE with SAP is clear,” he said, according to a transcript of the call provided by SeekingAlpha. “This is SAP’s signature offering, which helps customers move to the cloud and transform their business processes at the same time. It’s also very important to emphasize that SAP’s newest innovations and capabilities will only be delivered in SAP public cloud and SAP private cloud using RISE with SAP as the enabler. This is how we will deliver these innovations with speed, agility, quality, and efficiency. Our new innovations will not be available for on-premise or hosted on-premise ERP customers on hyperscalers.”
All new ERP capabilities, sustainability and carbon accounting solutions, and new AI innovations “will only be available in the cloud and delivered via RISE and GROW with SAP,” Klein continued.
GROW with SAP is an ERP bundle introduced in March that is aimed primarily at midmarket companies. The software includes SAP S/4HANA Cloud, Public Edition, the public cloud variant of the company’s software. GROW with SAP brings a preconfigured bundled that automates businesses processes across finance, sales, purchasing, manufacturing, supply chain, service, asset management, R&D and engineering, and can be used in a variety of industries.
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This industry’s moves are becoming so predictable that isn’t really fun.
Management direction and vision seems cloned between companies.
Ah, don’t forget to mention the big “restructuring” plan (=layoffs) announced by SAP, millions of investment to cut out resources.
This is the impact of the cloud, we need to investigate also the social impact.
Standardization, dev, and running systems fully under control, requires a lot less people, and allows to maximize return to please the feudal stock market.
We are indeed creating a monolithic world, where a couple of companies like landlords give you the use of a field; next year, they can double the rent due to a bad year.
I have like the feeling that we are inviting an unhealthy and still grossly unregulated system without clear long term implications, and to run major things (people are starting to seeing the social problems with social networks today, after 10 and more years…. just to say).