SAP Increases Pressure for On-Premise Customers

⇨ Evaluate SAP systems and license usag

⇨ Consider automation or decommissioning unused systems

⇨ Explore moving to the cloud

In 2022, for the first time in nearly a decade, SAP announced an increase in maintenance fees by up to 3.3% based on the local consumer price index (CPI) rate. The company said the adjustment was due to increased energy and labor costs and increasing expenses for third-party services. The increase that went into effect on January 1, 2023, impacted all customers with existing support agreements, including SAP Standard Support, SAP Enterprise Support, and SAP Support for Large Enterprises.

In a recent update, SAP has announced a further adjustment to support fees taking effect from January 1, 2024. This time the increase will be up to 5%, with the CPI rate again being the determining factor in the adjustment size. SAP cited “current market conditions which are characterized by high inflation rates” as the reason for the increase. As with the earlier adjustment, the size of the increase will depend on regional and local market conditions.

However, not all organizations with a support contract will be affected as SAP states the terms of their support contracts allow for an “annual adjustment … after the initial and first renewal terms”. But most SAP ERP customers have been running those systems for years and are well beyond the initial and the first renewal terms.

For customers  with support agreements, the update explicitly says that “the characteristics of an on-premise landscape require complex and intensive maintenance procedures, spanning multiple versions and hardware combinations.” The announcement further mentions that SAP continues to adapt to new regulations and laws, supports over 850 local ERP versions, and incorporated over 1,200 legal changes into ERP systems in 2022 alone.

While it is possible that SAP may also adjust the cost of cloud-based offerings, this announcement applies specifically to on-premise solutions. It also means that, depending on region and CPI rate, some customers will experience as much as an 8.5% increase in support fees in a two-year period. For organizations with extensive SAP environments who pay hundreds of thousands or millions of dollars in support fees, this is a considerable increase and further increases the pressure for on-premise customers to move to cloud environments.

When examined independently, this announcement might seem overdue. However, in conjunction with SAP’s recent statements around new innovations being exclusively available in the cloud and pushback from customers requesting equality between cloud and on-premise offerings, it could be interpreted as more pressure on-premise customers to move to the cloud.

What Does This Mean for SAPinsiders?

Only a small proportion of SAP’s enterprise ERP customers are running SAP S/4HANA Cloud. While many might be using cloud infrastructure, anyone with a perpetual license for their ERP system will be affected by this announcement. This means most SAP’s enterprise customers will need to start budgeting for increased expenditure in 2024. Given this situation, what can SAPinsiders do?

• Evaluate SAP systems and license usage. Start by ensuring that the support fee being paid is accurate and relevant. While one of the biggest areas of additional costs in the SAP space is shelfware, another is unused licenses, which can be discovered by using license analysis tools. Auditing license usage and ensuring that systems where maintenance is being paid are in use may be especially relevant today. It is also essential to undertake these tasks regularly to ensure SAP environments run cost-effectively.
• Consider automation or decommissioning unused systems. While it is not always easy to stop using older systems that may still store crucial data, migrating or archiving data from such systems allow them to be decommissioned and can offer significant long-term cost savings. In addition, automation technologies can reduce administrative overhead and result in savings that offsets increased maintenance costs. Organizations should explore both alternatives and other strategies that can help reduce overhead to ensure cost-effective environments.
• Explore moving to the cloud. SAP’s end goal is for all its customers to eventually run cloud-based offerings. Organizations can use this to their advantage if they have already been in discussions with SAP about moving to the cloud, or if they are ready to start that conversation. While SAP has recently been making it financially unviable to stay with on-premise solutions, they may be more willing to negotiate for cloud-based services as their account teams are being incentivized to sell those offerings.