Decoding SAP S/4HANA pricing models. A primer.

SUMMARY:

Dick Hirsch unpicks the SAP S4/HANA pricing model, offering advice on how to think about this in transitions to SAP cloud offerings.

S4HANA - logoMany analysts are predicting that SAP’s new flagship product SAP S4/HANA will receive much of the attention at SAPPHIRE Now 2015. I also think that the new offering will play an important role and have been trying to catch up on my reading about it. A recent tweet from fellow SAP Mentor Tammy Powlas pointed to an official updated FAQ on the new product.  

As I read the FAQ, I found one intriguing item regarding pricing “What is the pricing model for SAP S/4HANA?”. Here is the answer from the document: 

For the on-premise version, SAP Business Suite customers need to purchase the SAP S/4HANA foundation promotion license to run the new SAP S/4HANA code line. SAP is offering the following promotion until the end of Q3/2015: 

  • Existing SAP Business Suite customers have to procure the SAP HANA runtime license for SAP Business Suite (@15% HSAV = SAP HANA Software Application Value) and will get the SAP S/4HANA foundation-promotion license at no additional cost. 
  • Existing SAP Business Suite powered by SAP HANA customers with a valid SAP HANA limited runtime license for SAP Business Suite (LREA) are eligible for the SAP S/4HANA foundation-promotion license without additional cost. 

For the cloud, the pricing model will be subscription-based and communicated at a later stage. Please contact your local sales representative for more information. [Italics are mine]

I found the answer regarding the cloud pricing model intriguing and was curious to see if I could find more material regarding this important topic. SAP’s agreements site which greets interested parties with this message: 

Welcome to the SAP Agreements site, where you can find various agreements for software and services from SAP. When referenced in specific ordering documents for the software or services, these agreements form the basis of your contractual relationship with SAP.

The site is broken down by region and topic. Let’s take a look at the cloud-related agreements  for North America and, in particular, the agreement for  SAP S4/HANA Public Cloud Edition Supplemental Terms and Conditions (English) v.4-2015.

I’ve written about these agreements in the past and, although they are full of legalese (and I’m definitely not a lawyer), they always contain interesting background information concerning SAP’s products. 

NoteIt is also critical to remember that this agreement in question contains Supplemental Terms and Conditions which complement other contracts between the customer and SAP.   

Let’s dig into the agreement for the public cloud version of S4/HANA and discuss some of its more interesting sections. 

Pricing model

The agreement provides detailed information regarding the metrics used for subscription pricing for the three different versions of the offering:

(a)    SAP S/4HANA, public cloud enterprise edition.

(i)                  Fees for SAP S/4HANA, public cloud enterprise edition are based on Named Users. Subscriptions for SAP S/4HANA, public cloud enterprise edition include a fixed amount of HANA memory based on the number of Named Users included in Customer’s subscription as stated in the table below.  

Named Users 101-200 201-500 501-1000 1001-2500   Over 2500
SAP HANA RAM 256GB 512 GB 512 GB 1 TB 2TB

 

(b)    SAP S/4 HANA, public cloud professional services edition. 

(i)                  Fees for SAP S/4HANA, public cloud professional services edition are based on Project Revenues and Expenses per year. Project Revenue and Expenses are related to the projects managed within the SAP S/4HANA, public cloud professional services edition and are defined as follows: Revenues is the sum of annual revenues received for revenue-generating external projects; Expenses is the sum of budgeted annual expenses for internal projects.  

(ii)                SAP S/4 HANA, public cloud professional services edition can be purchased in packages based upon Project Revenues and Expenses per year. Each package is subject to Named User restrictions as stated in the following table: 

Project Revenue and Expenses (in millions of €) 60-200  201-800  801-1,500  Greater than 1,500
Named Users 2,500 7,000 10,000 unlimited

 

(a)    SAP S/4HANA, public cloud marketing edition.

(b)    Fees for SAP S/4HANA, public cloud marketing edition are based the number of Contacts in Customer’s SAP S/4HANA, public cloud marketing edition system. Contacts are the number of unique records of customers, prospects, employees, business partners, and constituents within the context of the Service.  

Often, pricing for SAP solutions (especially in the OnPremise world) is calculated on the basis of the number of named users.  Pricing metrics for SAP’s cloud offerings have often been based on other factors(Customer’s corporate group’s Revenue, Number of expense reports processed per year by Customer, etc) so the use of such measures for S4 / HANA shouldn’t come as a complete surprise.  

In the agreement under examination, you won’t find any specific price information (for example, how much a customer using the SAP S/4HANA, public cloud marketing edition would pay per contact) – my assumption is that this would probably be based on negotiations that take place during the sales process.   

NoteThis agreement is for the public cloud version. I have no idea how such offers are priced / measured in the Managed Cloud (ie HANA Enterprise Cloud (HEC)) or OnPremise versions. 

What is also interesting is the reference to the number of named users regarding HANA memory inasmuch as I would expect that most deals for this version would be in the range of “Over 2500”. Yet the table has very granular “named user” counts that start low and may encroach in the company size usually supported by ByDesign and other SAP cloud offers for the SME market.

Integration

I found a curious discrepancy between FAQ and Agreement regarding integration:

FAQ

SAP S/4HANA, public cloud edition should address specific business scenarios of lines of business and industries. The first delivery in early 2015 is expected to cover key scenarios in customer engagement and commerce and professional services (10 core scenarios, plus planned integration with SuccessFactors Employee Central, Ariba Network, SAP hybris Marketing).

Agreement

Use of SAP HANA Cloud Integration is limited to integrating SAP S/4HANA, public cloud enterprise edition and SAP S/4 HANA, public cloud professional services edition with SAP SuccessFactors Employee Central for which Customer has secured a separate subscription.

Analysis

In the FAQ, integration has a wider scope and includes hybris (a recent tweet from fellow SAP Mentor Own Pettiford showed proof of the hybris integration in the trial version of S4HANA) and Ariba as well. I don’t know if these two particular integrations are based on a different technology besides HCI. It is also interesting to note that the use of Employee Central requires a separate subscription – my assumption is that this integration pattern will be the same for other existing SAP cloud offers (for example, Concur or FieldGlass). 

There are also more sections in the agreement associated with other integrations that are worth a quick look:

Adobe Document Service. SAP S/4HANA, public cloud enterprise edition and SAP S/4 HANA, public cloud professional services edition include the use of Adobe Document Service, which is a third party solution. Customer may make up to 100,000 document requests per year to the Adobe Document Service. Additional document requests may be purchased for an additional fee.

SAP Cloud Identity. The Service includes use of SAP Cloud Identity. SAP Cloud Identity may only be used for user authentication of Named Users of the Service and may not be used with any other SAP or third-party product even if technically possible.

I’m highlighting these paragraphs, because integration is often a critical element in cloud deployments and customers should be aware of the myriad associations (and their potential costs or restrictions) between S4HANA and other systems. 

Other interesting details from the agreement

Major Upgrades:   Up to 4 times per year from Saturday 12 a.m. to Monday 5 a.m. Local Time. SAP will inform Customer in due time in advance about the planned upgrade scheduling.

This section shows that SAP’s plans regarding quarterly releases are also represented in the legal document. 

The Service is comprised of several modules, each of which must be purchased separately. For purposes of this Agreement, the Service shall mean those modules for which a subscription has been purchased by Customer.  

As is evident in the agreement, SAP S4HANA is based on specific modules that are viewed as separate entities. I’m still waiting for a detailed description of which modules are present in which edition (for example, a table so that easy comparisons are possible).  What is also unclear is whether all modules are automatically available in a specific version and whether additional modules could be added (and at what cost).  

My take 

I’m sure that we will be hearing much about S4HANA in the following days.  Inasmuch as there appears to still be a certain reluctance for customers to move to the platform, more information is present for customers early in the decision-making process helps them make better educated choices.   Customers shouldn’t limit their information-gathering efforts to traditional sources (keynotes, marketing blogs, etc) but should be willing to explore more unorthodox sources (like job openings or legal agreements)  to get a broader understanding of SAP S4/HANA. 

The agreement document analysed in this blog is just for the public cloud. It would be useful to have similar agreements for SAP S4/HANA for the managed cloud. There is a broader agreement for the HEC  but a specific one for S4/HANA in this environment would allow customers to better understand the differences between the two offers.  Of special interest in such comparisons would be details about customer responsibilities vis-à-vis SAP. There is an excellent document on this topic for the HEC that I analysed last year.  It would be useful if a similar document existed for the public cloud edition.