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How significant is SAPs on-premise and Cloud licensing swap announcement?

July 30, 2013 | 199 Views |

Luke Marson
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HCM (Human Capital Management)
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This week SAP announced that it will allow customers to swap on-premise software
licenses and maintenance payments for Cloud subscriptions that assumes an expanded
investment with cloud solutions from SAP. Given the innovation and scalability
available in the Cloud, this is certainly a positive move for customers. What is
the real impact of this for customers?

From an SAP perspective, this announcement allows customers to expand their Cloud
footprint with SAP solutions while ensuring that SAP maintains the same level of
income that it does now. This is a win-win for customers, particularly for those
with shelfware licenses. An interesting conversation took place on Twitter between
Chris Paine, Jarret Pazahanick, Naomi Bloom, and myself:

My initial thought was that SAP benefits more from this as customers due to the
increase in licensing costs. After all, customers are supposed to benefit from the
fact that SaaS is cheaper than on-premise due to the economies of scale of using
software and infrastructure, among other things. However, this thought is only
based on cost versus cost and doesnt take into account that customers would spend
more but also would get more. Taking away things like innovation and long-term
costs, there is also the fact they will get additional applications that they can
implement at a much quicker pace than on-premise software and are more likely to be
used across the enterprise.

From something-for-nothing to nothing-for-something


Customers should also not forget that many of them are sitting on shelfware
licenses that they can trade for subscriptions. However, it is also important that
customers dont trade shelfware licenses for shelfware subscriptions! This is an
excellent opportunity for customers to expand their HCM and/or Talent Management
technology usage without investing significantly more costs. It is an ideal time
for customers to begin to consider using additional Talent Management processes
within their organization to enhance their competitive edge.

Hidden costs
One thing that isnt included in this deal is the implementation and integration
costs. Although subscriptions of a higher nature provide additional software
services, this software still needs to be implemented and if retaining SAP as the
core system of record integrated with SAP HCM. It is important for customers to
understand that there will be these one-off costs. I dont expect customers to have
any additional on-going costs to manage the integration as they have on-going
maintenance costs that will be gone with the transition to the Cloud.
Bottom Line
This is a good move by SAP to increase adoption of their Cloud solutions as well as
provide customers with the latest-and-greatest software. Moving to the Cloud
provides customers with enhanced innovation, usability, and scalability and more
importantly presents an opportunity to revisit existing business processes and
introduce new Talent Management processes. It also gives customers with shelfware
licenses the chance to swap them for services that will provide real value.

*Updated: Full terms can be found here [S-user required]. Interesting terms include
a minimum 5-year subscription and license audit.
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16 Comments
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Jarret Pazahanick
July 30, 2013 at 4:05 pm
Well balanced article Luke and I think net/net it is a positive development for
customers assuming there isnt any devil in the licensing details other than what
was stated.
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Luke Marson Post author


July 30, 2013 at 4:07 pm
Thanks Jarret and I agree. It seems quite simple, but I think with the existing
licensing model it could be tricky. But the move will definitely simplify licensing
for customers and this is something I probably shouldve mentioned in the blog.
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Jarret Pazahanick
August 1, 2013 at 10:48 pm
Just read this and if the article is accurate there is more devil in the details
than I would have expected

http://www.theregister.co.uk/2013/07/31/sap_licensing_online_negotiations/

For example I didnt realize customers need to be SAP HCM customers to swap
licenses for SuccessFactors for example (although that is a logical swap).
Wondering if Sven D can confirm if the article is accurate.
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Luke Marson Post author


August 7, 2013 at 1:18 pm
Thanks Jarret and some key facts here, although they dont all tally with the
Rules document I just posted (https://websmp109.sap-
ag.de/~sapidb/011000358700000776882013.pdf). Interesting to know whether a more
detailed document exists from SAP.
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Sven Ringling
July 30, 2013 at 5:39 pm
A move long expected, to be honest.
HR SaaS today is not a market, where short term profit maximisation is a strategy
anybody, with a brain would apply, unless they are close to bankruptcy. Its all
about gaining large and good quality market share and not loosing any on premise HR
customers to Workday or shudder Oracle. Harvest time will be later.
Not sure about their war chest, but I should think they would offer the same to
Taleo customers. They pulled this off nicely, when Oracle bought Peoplesoft. Could
it not work with Taleo as well?
Definitely a positive move for customers. Yep.
At least for those, who want to move some processes into the cloud now. What about
those who have moved already? Will they be included into the deal retrospectively?
They really should. Not for reasons of fairness or ethics, but for the sake of
future market penetration speed:
If early adopters feel they are ripped off, because it is SAP strategy to cream off
the early stages of a new product, before they offer more sensible terms / prices
18 months in, then customers are more likely to hold back and wait in the future.
And how much good is high development speed, if you dont get your new products
into the market? Innovation, being about creating new stuff AND putting it to good
use, would get stuck in the sales pipeline.
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Luke Marson Post author


July 31, 2013 at 8:43 am
Hi Sven,

Great points and thanks for adding your expertise to the debate.

Some early adopters already received discounts on the standard subscriptions


rates to heed adoption, so I dont think retrospectively applying this would be
fair on new customers. However, as with any new product pricing always fluctuates
during the early stages of the product lifecycle to gain market share. My Business
Studies classes are coming to some use now it seems ??

Best regards,

Luke
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Chris Paine
July 31, 2013 at 1:52 am
Nice one Luke, think you summarised the points very well. And it did need more than
a few 140 char bites. ??

One point that might be made is that customers that have shelfware licences in this
space are likely to be LSO and eRec, with companies actually using the payroll side
of the solution.

Given that (as yet) there isnt a replacement for CATS in SuccessFactors, Id
imagine that companies will just opt to enhance up to the talent side of
SuccessFactors whilst keeping core HR and pay on premise. So I dont see many
Employee Central deals being brokered due to this change. (if you have to continue
to pay an MSS/ESS licence just to do CATS entry and approval, paying again to do it
in EC is a big ask.)

As performance management objective/goal setting and comp management are not


separately licensed to core ESS/MSS I would not see these being transferred.

However, if a company had an LSO system that wasnt well loved (and quite honestly
even the recent WDA makeover of LSO still leaves a bit to be desired from a user
friendliness viewpoint), then I can see even active implementations (not just
shelfware) being put into the pot to trade up to SuccessFactors.

As I said, this is certainly a win for customers, hopefully it will be a win for
partners and SAP with more customers tempted to start on the SuccessFactors
journey.
Its certainly a hell of a lot simpler for customers than it used to be anyway
remember the days of http://www.computerworlduk.com/news/applications/3411905/sap-
uk-md-you-cant-park-unused-licences-well-not-directly/

Now Tim Noble will be able to answer much more openly, and I bet hes happy about
it.
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Luke Marson Post author


July 31, 2013 at 11:28 am
Hi Chris,

Thanks for weighing in further I knew you had more to add than Twitter allows ??

I fully expect this to be leveraged largely for Talent, but I would also believe
that there might be some core HR deals off the back of this. For that it will be
dependent on the customer landscape. There might be some customers who moved to
ECC6 and didnt ever leverage ESS/MSS or EhPs and feel this is the right path to
move to the latest functionality.

I will certainly be interested to see how this program works out and what sort of
exchanges we see.

Best regards,

Luke
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Sven Denecken
July 31, 2013 at 1:30 pm
Check here as well: http://scn.sap.com/community/cloud/blog/2013/07/29/fast-track-
to-innovation-flexible-consumption-of-sapcloud-solutions-unique-in-our-industry

Cheers @SDenecken
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Ketan Ganatra
August 1, 2013 at 2:26 pm
Headlines is certainly good news, but also need to look at footprint to determine
actual value of the offer.

Is it dollar-for-dollar swap or a Sears type gimmick ( 20 percent off today on


prices that were jacked-up 50 percent yesterday). Does it come with any strings
attached such as when you buy our consulting services? or A hundred-year
commitment required (a la mobile phone companies) ??
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Luke Marson Post author


August 7, 2013 at 1:44 am
Hi Ketan,

As far as I know there arent any gimmicky terms attached, although it must be for
like-for-like solutions (e.g. HCM for SuccessFactors BizX). You are quite right
that it seems good and the proof will be in the pudding as customers begin to
investigate further. I will be watching to see how this unfolds over the next 6 to
12 months.

Best regards,
Luke
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Luke Marson Post author


August 7, 2013 at 12:59 pm
Hi Ketan,

I have found the full rules of the swap here:

https://websmp109.sap-ag.de/~sapidb/011000358700000776882013.pdf

Best regards,

Luke
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Ketan Ganatra
August 8, 2013 at 1:10 pm
I wish they had published some numbers along with three customer examples included
in the announcement.

Also the whole announcement is categorized under Maintenance and Services


portal. Not sure if that is a hint that you have to purchase the
migration/integration services from SAP.
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Luke Marson Post author


August 8, 2013 at 1:12 pm
Its because its an exchange of your maintenance. Its nothing to do with
purchasing additional services from SAP.
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Ketan Ganatra
August 8, 2013 at 1:22 pm
The wording make you believe that there is a credit for your licensing spend also.

The customer may replace existing on-premise licenses and respective maintenance
payments
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Luke Marson Post author


August 7, 2013 at 3:00 pm
Dennis Howlett just published a very good blog analyzing the rules for the swap:

http://diginomica.com/2013/08/07/understanding-saps-cloud-extension-rules/
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