The Extremely Expensive SAP Cloud

From ERP on-prem to the SAP Cloud ERP Suite

Over ten years ago at a conference in Barcelona, Gartner analysts warned against recklessly giving up SAP licenses. To date, SAP has found no real argument against this. SAP ERP licenses, as assets, are similar to insurance policies. SAP customers can freely choose between on-prem, hybrid, private, or public cloud options, knowing they will always be legally compliant and independent with their own licenses.

However, the SAP Cloud ERP Suite model is based on total dependency. The global ERP market leader wants to force its existing customers into a subscription model with no current exit strategy in order to achieve more predictable long-term sales.

SAP cloud computing as a cost factor

In recent years, the SAP community has discussed the cost of cloud computing extensively. Hyperscalers and SAP have argued that, in the vast majority of cases, cloud computing is cheaper than on-prem. However, in many cases, only direct operational costs were considered. Long-term effects, dependencies, and a lack of flexibility are rarely considered in these calculations.

An SAP cloud customer cannot brace themselves against potential cost increases since a. cloud exit strategy is still lacking. EU bureaucracy has promised improvement. An upcoming regulation will establish the right to exit the cloud and make it binding for cloud providers. However, there are still no draft contracts, and the SAP community will have to wait until fall of this year for the final formulation.

SAP CEO Christian Klein explains cloud computing

At this year's SAP Annual General Meeting, a shareholder asked CEO Klein how the contract conversion from on-prem to cloud-first was going. His answer satisfied the investors and confirmed the skeptics in the SAP community. Klein mentioned a factor of two to three, meaning the contract volume of the new cloud contracts is two to three times that of the old on-prem contracts. In other words, there are excellent prospects for the SAP share price and shareholders!

All of the licensing experts in the SAP community felt vindicated because they have always said that switching from ERP on-prem to cloud computing comes with significant additional costs. Cloud computing is simply more expensive in the medium and long term than maintaining your own data center. With his response at the Annual General Meeting, SAP CEO Christian Klein seems to confirm this view.

SAP added value or ERP added costs

The SAP Cloud ERP Suite is expensive, but that doesn't necessarily mean higher license prices. In theory, the fees per ERP workstation could be lower than on-prem, but SAP customers need more cloud-based services, apps, and engines, which makes it more expensive in the end.

ERP is not complicated, but it is complex. SAP could argue that the pure ERP costs for a user of the SAP Cloud ERP Suite are lower than the costs from decades of on-prem operation in its own data center.

However, a modern S/4 is insufficient and incomplete; therefore, the pure S/4 license costs do not reflect the whole truth. Additional costs also arise from added value. After an SAP Clean Core process, existing customers have an ERP system close to the standard. However, the current and future modifications and add-ons need a new home.

BTP (SAP Business Technology Platform) and BDC (SAP Business Data Cloud) are two platforms that can accommodate agility, individualization, and data orchestration. These platforms offer more value than ERP/ECC systems, but SAP does not provide this functionality for free. Considerable license fees can arise in BTP depending on the apps used.

SAP Cloud ERP Suite

Overall, SAP Cloud ERP Suite appears to be an expensive project due to many constraints. SAP only talks about Suite First and AI First, which is understandable from SAP's and investors' perspectives. At the SAP Annual General Meeting, Christian Klein's statements show precisely this trend towards a cloud with added value that costs two to three times as much as on-prem ERP systems. It has not yet been decided whether the additional costs represent added value for existing SAP customers, but every ERP user can expect significantly higher SAP license fees.