RISE With SAP License Chaos

The IT sector frequently makes careless references to paradigm shifts with significant implications. Revolution instead of evolution is the order of the day! Those responsible for this comprehensive approach are often more reserved and less visible. SAP presents Rise as just another ERP solution without highlighting its significant implications. Like a siren, SAP lures customers into a new ERP world with its dulcet tones; however, caution is advised.

The RISE with SAP service and rental offering is a new offering from SAP. SAP ERP has a history based on purchase contracts. The customer purchased licenses for users, engines, and maintenance. The model comprised a one-time license purchase and annual maintenance costs. From SAP's perspective, the arrangement was advantageous, as the future annual maintenance fee for each license sale could be calculated in advance. The revenue generated from maintenance contracts was clearly defined for the following years.

However, SAP customers also had the option of suspending software maintenance or transferring it to another provider. Of course, SAP did not appreciate this process, and legal disputes often arose when SAP's maintenance fee was reintroduced. A shadow economy emerged consisting of so-called used licenses. The right to use a purchased product is typically not subject to an expiration date. Nevertheless, there was a considerable discussion about second-hand licenses. Not only SAP was unhappy about this second-hand market, but Microsoft, Adobe and Oracle also sought to defend themselves against it. Ultimately, courts confirmed the legality of passing on purchased licenses under certain conditions that were deemed to be technically sound.

IT providers began to think about new license models. The alternative to purchasing a model is, of course, renting. The advent of cloud computing technology almost automatically provides a paradise of control, efficiency, and sustainable income for software providers. Cloud for rent is a classic vendor lock-in. SAP has implemented this combination of rental and cloud in several RISE contracts to the advantage of the ERP world market leader (see current SAP share price). In the vast majority of cases, a RISE contract is to the disadvantage of customers and SAP is aware of this. If you begin license negotiations on a RISE contract in good time and without time limitations, you can achieve many concessions from SAP. Unfortunately, it is likely already too late for that this year!

RISE is a service and rental agreement. Customers can still sign a contract for SAP licenses on December 31 and make their purchase. However, because RISE also has a technical component, which requires the provision of cloud, the deadline for RISE contracts was the end of November. As always in sales, there will be exceptions, but experience shows that a serious contract negotiation regarding RISE with SAP can take up to six months.

SAP does not make it easy. A RISE contract represents a significant shift in paradigm and consists of at least two parts. The initial phase is the cloud subscription (rental) payment, which is due on a fixed schedule regardless of whether the current SAP customer has also transitioned to the cloud ERP solution. The second component is a service contract, specifically the migration service to the cloud. In the initial phase, the current customer relinquishes their on-prem licenses and fully transitions to SAP (vendor lock-in), marking the commencement of the migration process (lift and shift). If the customer is assigned an experienced SAP cloud team, the transition can proceed smoothly. However, there are instances when projects are cancelled or lift-and-shift contracts are terminated, yet the cloud rental commences at the scheduled time.

There is something else that SAP customers should bear in mind when relinquishing their on-prem licenses and moving to the RISE cloud. SAP does not currently have an exit strategy. Of couse, every SAP customer may and can download their data as a CSV file at the end of the rental contract (cloud subscription) and attempt to sort it in Excel, but this is not a realistic approach. The EU has also recognized this and introduced a cloud law that obliges hosters and hyperscalers to ensure the user's business operations even after the end of the rental contract. Model contracts will be available in fall 2025. It remains to be seen whether SAP will offer a counterproposal or comply with EU legislation. The fact remains that the termination of a cloud software contract will be one of the more complex challenges for a S/4 customer.