Drastic increase in costs for S/4 conversion and maintenance
After the abolition of Product Conversion at the end of June, the next low blow is now coming: Following a change in the crediting rules, customers must now buy 25 percent more software in order to
to receive 100 percent credit for their previous packages. The DSAG association, German-speaking representation of SAP users, is thus once again presented with a fait accompli. A clever coup: The renewed turning of the price screw comes in the middle of the summer break to minimize resistance.
The changeover to S/4 is becoming considerably more expensive. In order to receive full credit for previous investments, either 20 percent of the previous value must be paid as an additional payment or 25 percent of new software must be purchased - software that most existing customers do not even need. The S/4 licensing products that many SAP customers need in addition to the named-user licenses often come with new metrics that are less favorable than SAP ECC 6.0 and are significantly more expensive than their predecessor products.
On top of that, there is usually the 15 percent surcharge for the Hana run-time database. It is not uncommon for this to add up to millions. The follow-up costs for maintenance and depreciation also increase. Those who have so far adopted a wait-and-see approach to the S/4 migration will be punished with hefty price surcharges without any value in return.
Those who continue to delay will have to reckon with a further ten percent decline in the crediting rates each year. In 2027, when the regular support for ECC 6.0 expires, only 40 percent will be credited - in 2031, the credit value of the legacy software will be zero percent. In this case, those who are too late will not be punished by life, but by SAP. It should be known that nothing that SAP offers existing customers is eternal: Only recently, the Q2 price list 2023 eliminated the option of product conversion, i.e., switching to S/4 Hana while retaining the existing ECC user licenses. In this context, further questions arise:
How long will the special discount of 90 percent for initial procurement last in the Digital Access licensing model for indirect use? SAP is reportedly working on a new licensing model. When will it come and what does it look like? Will the license costs for the Hana runtime database remain at 15 percent of the license inventory value for a long time or will they be increased soon?
High maintenance fees
When will maintenance costs be increased again? SAP has already answered this question: Recently, a customer letter pointed out the contractual possibility of an annual adjustment of maintenance fees and announced a price adjustment of a whopping five percent for standard, enterprise and PSLE support contracts as of January 1, 2024. This "moderate" adjustment is justified by the development of the consumer price index.
After a long period of stability, SAP had already added up to 3.3 percent to maintenance last year. SAP thus earned 11.9 billion euros last year - with a gross margin of 88 percent. What margin does your company generate?
Now, SAP is adding hundreds of millions of euros in annual revenue at roughly the same cost. In contrast, the added value of SAP support and related services has "not been increasing at the same rate as the prices charged for it for years," said DSAG board member Thomas Henzler. "Products are moving to the cloud and then have to be purchased separately there." Legacy systems, on the other hand, are excluded from innovations.
Under the leadership of Christian Klein, SAP has been under pressure to significantly increase profitability for some time. After the strategic realignment in the fall of 2020, the management had held out the prospect of significantly increasing profits again, but this did not materialize. Now, operating profit is finally expected to grow at a double-digit rate in the current fiscal year.
This strategy is intended to fill SAP's coffers even more and also save Christian Klein. To this end, customers are being pushed with even more pressure to S/4 and into the cloud - where SAP continuously earns profi-table revenues. Instead of only selling application software with maintenance - and with SAP S/4, for years, also forcing customers to purchase the Hana database - value creation is being expanded in the cloud to include IT operations. Customers will become even more dependent and will no longer be able to operate without SAP in the medium term.
As an existing SAP customer, you should urgently use the following scenarios to deal more actively with the future of your SAP applications and IT operations, and draw consequences from SAP's clearly foreseeable future policy, e.g., seek and evaluate (partial) alternatives to SAP; exchange and advice within DSAG and industry associations; exchange of SAP customers among themselves; and advice from reputable and experienced SAP licensing, architecture and contract consultants.
