SAP cloud contracts: Hidden pitfalls

Pay attention to the small print in contracts and general terms and conditions! We have often heard this phrase and sometimes find ourselves not paying attention to every detail. With strategic investments such as SAP software, this can be very expensive. This is exactly what a recent report by analyst firm Gartner points out. In "Avoid These Licensing and Pricing Pitfalls When Negotiating SAP Deals", Gartner addresses key challenges and risks for companies when it comes to SAP licensing and pricing.

Gartner: Rise is not transparent

As is well known, SAP sees the future of its product offering in the cloud and has been drumming up support for Rise with SAP for some time now. In particular, the Group is promoting long-term cloud contracts that are garnished with attractive options. Gartner rightly criticizes the fact that this often leads to complex licensing models and contract commitments of five years or longer, which can lack clear price breakdowns and impair long-term cost transparency. The aim is to make a holistic cloud transformation palatable to SAP customers, but this is often anchored in contractually demanding models.

Licenses: Top topic at DSAG

Choosing the right license model and dealing with SAP contracts raises questions - this was evident at the DSAG user meeting in Leipzig. In addition to the technical challenges of an S/4 migration, the main focus was on questions relating to the design of suitable contracts and licenses. There is a great need to optimize authorization-based licenses, i.e. for S/4 Cloud or Rise with SAP.

The unclear cost structure and uncertainty about exactly which services are included in the package were criticized. Customers are also asking fundamental questions about migration or the right time to switch. Many are unsure whether they should "only" switch to S/4 or directly to Rise. There is also widespread concern about becoming too dependent on SAP as the sole provider of cloud infrastructure, licenses and support. Gartner recommends insisting on a transparent pricing structure in order to retain control of costs over the entire contract term.

Another cost driver identified by Gartner is the indirect use of SAP via interfaces or third-party systems, as well as adjustments to license metrics and product SKUs (Stock Keeping Units), which can lead to unplanned budget burdens. The FUE (Full Use Equivalent) model in particular brings additional complexity, as it evaluates license requirements across different SAP user roles and rights and can lead to over-licensing. Software asset management tools and services from third-party providers provide support in terms of license management and determining license requirements. In its report, Gartner cites USU's SAM solution as one of the three most widely used tools in the industry. Gartner points out that SAP regularly increases maintenance and cloud fees, often in line with local price indices, which requires strategic budget planning. Contracts for SAP cloud services are a long-term commitment. Five-year terms are increasingly common.

Handling unusual in the industry

However, SAP's commercial offers for cloud services often include bundled prices. These prices appear to be the same over the term of the subscription, but do not include the annual fee increase of 3.3 percent that is shown on the order form. Such an approach is rather unusual in the industry and means that the total contract value is not clear.
Finally, Gartner sees the risk of over-licensing in SAP's tier-based pricing model. Companies often buy additional licenses in order to achieve discount levels, which often leads to unused licenses ("shelfware") and ties up resources inefficiently.

Conclusion: Keep an eye out when buying a license

We can confirm the findings of the report from practical experience. This year's DSAG user meeting in particular showed that many SAP customers have a great need for advice on cloud and licensing. Especially when migrating to S/4 or Rise with SAP, companies want support to overcome technical challenges and cost risks. We recommend determining the actual cost of signing long-term contracts by checking the SAP price list or individual prices, including annual increases, for SAP's cloud services. SAP users are looking for guidance and concrete solutions that not only facilitate technical migration, but also ensure license transparency and long-term flexibility.

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