SAP HANA Selection Even When it is the High Priced Option

What This Article Covers

  • HANA as the High Priced Option
  • Why Choose HANA?

Introduction

SAP frequently talks about how HANA can reduce TCO. Yet, there are many examples of HANA being selected when it is not the lower cost option versus databases that have better performance than HANA. HANA will also sometimes win against databases with more implementations for a particular application.

The Question of Why?

Why is HANA being selected in these cases where it is not only the highest price option, but the highest price option by a factor of quite a few multiples? So why would this be the case?

Well one reason can be the incentives of the IT decision makers. In the article To Whom Does Your IT Department Owe Its Allegiance, I question SAP shops that seem to select SAP no matter the actual outcomes. The reasons for this are often that the people in these IT shops see SAP as their primary skill, which includes managing SAP implementations. This means that these IT decision makers need to continue to oversee SAP projects in order to continue to develop their career.

Why Choose HANA?

After having analyzed HANA from many dimensions, it is extremely difficult to see the value of HANA. HANA’s design is extremely limited to analytical applications, although in the article Which is Faster HANA or Oracle 12c, it is explained that HANA does not, as proposed by SAP perform well in transaction processing. Secondly, HANA would have to have a very high TCO. This is true because HANA is so much less mature than the databases that it competes against, and even now it is difficult to find very experienced HANA skills.

This is why the two most likely reasons why HANA would be selected is that:

  • The buyer believes the exaggerations of HANA which are covered in the article When Articles Exaggerate the Benefits of HANA.
  • The IT decision maker has the incentive to continue to have SAP on their resume, versus other vendors.

Conclusion

HANA’s performance does not match what SAP proposes. It also has long term maintenance issues that other databases do not have. SAP is also recommending HANA for a number of applications for which it is ill suited, which is covered in the article Is HANA the Right Choice for the EDW? 

What all of this means is that HANA is highly likely to become an albatross on IT departments in the future. HANA is an uncompetitive database that is being purchased in scenarios even when normal objective analysis would say that it should not be.

How Much Do You Know About?

SAP HANA Quiz

This quiz will ask basic questions around SAP HANA.

Our Work on HANA

We are the most prominent research entity that tells the real story HANA and S/4HANA. Both Forrester and Gartner take money from SAP, and Forrester created a false research report on how HANA reduces TCO in return for money. Companies like IBM, Deloitte, and Accenture have mindlessly repeated all of the SAP marketing talking points on HANA and S/4HANA have encouraged their customers to only accept HANA and S/4HANA so they can get the implementation business.

  • Are you a company interested the actual performance benefit from HANA and S/4HANA?
  • Do you need pricing and accurate database sizing for HANA for costing purposes?
  • Are you interested in accessing unbiased and deep research on HANA and S/4HANA for your company?

For more information fill out the form at the end of this page.

Supporting Articles

This article is based on some my previous articles on HANA DB.

This article covers whether SAP’s relentless HANA push has paid off.

This article covers how HANA DB is marketed versus other databases.

This article covers what moving to the cloud means for HANA.

This article covers if HANA DB has a simplified data model.

This article includes what one gets from Fiori. This article goes into how Fiori has been misrepresented by SAP and its partners in the sales process to get people all bubbly about S4, and what a huge surprise so many companies will get if they rely upon Fiori.

This article covers how Gartner got Fiori so wrong. Gartner clearly did close to zero research to praise Fiori and recommend it, without having any understanding of how Fiori works.

This article questions which is faster, HANA DB or Oracle 12C.

This article questions the validity of SAP’s Run Simple marketing program.

This article discusses the exaggerated claims made in so many articles about HANA.

This article questions whether SAP will have to backtrack on limiting S4 to HANA.

This article describes how the HCP is designed for cloud washing to make SAP implementations seems more cloud-based then they are.

References

https://www.sap.com/products/hana.html

How HANA Pulls Budget from Higher Value IT Investments

Executive Summary

  • The reality of HANA does not match the sales hype from SAP.
  • IT departments are not doing enough to perform research to determine what parts of SAP’s proposals around HANA are correct.
  • HANA is a poor investment based upon false pretenses and has the effect of wasting the budget of many of the companies that implement it, pulling resources away from areas of greater need.

Introduction

I am often asked if there are certain circumstances where it would make sense to implement HANA. I was recently asked such a question as to why

“And how come you don’t write more positive information about HANA?”

And

“HANA can’t be all bad.”

Well as far as positive information, I think SAP and their surrogates have that covered. The vast majority of information published about HANA is positive. Inaccurate, but positive.

The Scientific Method

The proposal brought up by those asking for more positive coverage of HANA are missing a very important point. In fact, it is a fundamental point and the basis for all of science. And that is hypothesis must be proven, and therefore evidence must be provided. Some people will say that HANA must be good because SAP is such a large software vendor. However, that is something called an appeal to authority. This proposal or most appropriately a fallacy that asks that we accept the hypothesizes of authoritative entities without requiring evidence. SAP is no doubt a huge software vendor. The fourth largest in the world actually after Microsoft, Oracle and IBM. However, that does not make anything that it releases automatically a good product.

SAP has had many product failures. The fact that SAP is large did not save SAP Solution Manager, SAP PLM, SAP CRM and a host of other products that SAP introduced. A rational approach means evaluating the hypothesis of SAP on HANA on their merits.

The Reality of HANA

From the client perspective, I cannot think of one reason to purchase HANA. Often an entity with a financial bias to sell HANA will point to Big Data or process MRP faster, etc.. However, the particular use case is usually inaccurate, but before we even get to the use case, HANA must be a good value in its own right. That is it must be a competitive database offering. That is the first question to ask. However, HANA is not a competitive database, and I have done the research to back up that claim. I have produced by far the most research on HANA of any researcher. And of the entities that release information about HANA, I have the least financial bias.

In fact, research entities like Gartner and Forrester neither get into any technical details of HANA, but are entirely compliant to SAP and are fearful about writing anything critical of the product. They are useless as part of the HANA discussion. If I need a press release from SAP, I can go to the SAP website. I don’t need to go to Gartner or Forrester to read an SAP press release on a Gartner or Forrester letterhead.

There is not a single reason to change from Oracle or whatever else the client is using to jump to HANA. Furthermore, HANA has indirect access concerns and data lock-in that other databases do not have. HANA is exorbitant in both license cost and implementation cost. Companies that primarily put in HANA have IT departments that are remotely controlled by SAP or were tricked into purchasing the database by performance promises that it is now clear never had any basis in fact.

I cover this in the following article What is the Actual Performance of HANA?.

SAP Shops Prefer HANA

IT departments that are essentially self-reinforcing with HANA. I do not believe there are studies of the effect of HANA in companies because the IT department wants merely the implementation to be considered a success. So they can always say that this or that processed faster. If I were to audit HANA implementations and were to come up with non-complimentary information, the IT department would bar me from using either their client name and if they could, any information about my findings. For each HANA implementation, the only right answer according to IT is that the HANA implementation was a success. And of course, all the decision makers in IT deserve new titles. This is like trying to perform research in North Korea. The place where the Dear Leader is the Wise Leader, the Unique Leader, the Sun of the Communist Future, The Guiding Ray of Sun, among another 40 or other titles.

Something significant to consider is that IT departments get positive reinforcement from SAP for buying and implementing HANA, whether HANA benefits the business, or benefits it close to what an alternative investment would benefit the business.

HANA’s value proposition is not competitive with other investments a company could make. I question any IT department that has purchased HANA and do not believe it is possible to justify on its merits. And this leads to a different point.

Wasting The IT Budget on HANA

I meet with so many companies that don’t have the budget for really logical simple things. I could provide a list of things ranging from the bill of material management software to forecasting software that would have a much higher payback than a HANA purchase and implementation. In fact, at one of my client’s, they could not put in very basic improvements that I recommended and were hoping for free stuff from me because they were so budget constrained. The things they could not afford was lengthy. They could not hire or pay their planners well enough. They could not maintain their current systems. Could not provide a forecasting system, could not maintain their master data parameters for MRP.

However, for some reason, they had the money for a HANA upgrade. After all the things I listed as shortcomings, how could HANA, a luxury expenditure with such a limited upside and so uncompetitive versus the alternatives be approved for purchase and implementation?

It is a very dysfunctional system to have a company like SAP continually pulling resources out of companies that could be used for far better purposes. SAP is significantly to blame. But so are IT departments. Every year that I get older, I esteem the decision-making ability of IT departments a little bit less. These problems stem from a very poor ability to discern between biased and unbiased information sources.

Conclusion

The primary beneficiary of HANA is not the client at all. It is SAP and the consulting companies that get to bill out top dollar for implementing a database that is not competitive and for which in almost every case there are far higher investment needs.

How Much Do You Know About?

SAP HANA Quiz

This quiz will ask basic questions around SAP HANA.

HANA & S/4HANA Question Box

  • Have Questions About S/4HANA & HANA?

    It is difficult for most companies to make improvements in S/4HANA and HANA without outside advice. And it is close to impossible to get honest S/4HANA and HANA advice from large consulting companies. We offer remote unbiased multi-dimension S/4HANA and HANA support.

    This article is free, we do not answer questions for free. Filling out this form is for those that have a budget. If that describes you, just fill out the form below and we'll be in touch asap.

References

https://en.wikipedia.org/wiki/List_of_Kim_Jong-il’s_titles

Software Selection Book

 

SELECTION

Enterprise Software Selection: How to Pinpoint the Perfect Software Solution Using Multiple Information Sources

Mastering Software Selection

Software selection is a form of forecasting, just as any another purchase decision is a forecast of how successfully the purchased item will meet expectations. Forecasting is necessary because it is not feasible to implement each application under consideration before it is purchased to see how it works in the business.

The Importance of Software Selection

Software selection is the most important part of any software implementation because it is the best opportunity to match the software with the business requirements, which is the most important factor in determining the success of the project. This book explains how to get the right information from the right sources to perform software selection correctly.

What You Can Expect from the Book

Essential reading for success in your next software selection and implementation. Software selection is the most important tasks in a software implementation project, as it is your best (if not only) opportunity to make sure that the right software the software that matches the business requirements is being implemented. Choosing the software that is the best fit clears the way for a successful implementation, yet software selection is often fraught with issues, and many companies do not end up with the best software for their needs. However, the process can be greatly simplified by addressing the information sources that influence software selection.

This book is a how-to guide for improving the software selection process and is formulated around the idea that much like purchasing decisions for consumer products the end user and those with the domain expertise must be included. In addition to providing hints for refining the software selection process, this book delves into the often-overlooked topic of how consulting and IT analyst firms influence the purchasing decision and gives the reader an insider’s understanding of the enterprise software market. By reading this book you will:

  • Learn how to apply a scientific approach to the software selection process.
  • Interpret vendor-supplied information to your best advantage.
  • Understand what motivates a software vendor.
  • Learn how the institutional structure and biases of consulting firms affect the advice they give you, and understand how to interpret information from consulting companies correctly.
  • Make vendor demos work to your benefit.
  • Know the right questions to ask on topics such as integration with existing software, cloud versus on-premise vendors, and client references.
  • Differentiate what is important to know about software for improved “implement-ability” versus what the vendor thinks is important for improved “sell-ability.”
  • Better manage your software selection projects to ensure smoother implementations.

Chapters

  • Chapter 1: Introduction to Software Selection
  • Chapter 2: Understanding the Enterprise Software Market
  • Chapter 3: Software Sell-ability versus Implement-ability
  • Chapter 4: How to Use Consulting Advice on Software Selection
  • Chapter 5: How to Use the Reports of Analyst Firms Like Gartner
  • Chapter 6: How to Use Information Provided by Vendors
  • Chapter 7: How to Manage the Software Selection Process
  • Chapter 8: Conclusion
  • Appendix a: How to Use Independent Consultants for Software Selection

How to Understand Pricing of S/4HANA and HANA

Executive Summary

  • SAP refuses to certify that any other database be used with S/4 so S/4 customers are forced to purchase HANA.
  • Despite making the code of S/4HANA 93% identical to ECC, SAP attorneys have deemed S/4 the “logical successor” to ECC instead of the “legal successor.” This means SAP ECC customers paying for support contracts with free software updates are unable to upgrade from ECC to S/4 without purchasing the software.
  • SAP often markets S/4 as being a “free” application because the business suite runs on HANA and leads customers to purchase HANA.
  • HANA is sold on a per GB basis, meaning it’s priced based on the customer’s database footprint – the size of a customer’s SAP database. The price per GB declines as the size of the database increases.
  • SAP’s information for estimating database size often leads businesses to initially underestimate their GB needs, so they’re forced to purchase more GB of HANA later and go over initial budget estimates.
  • You may be able to find a discounted rate for HANA, but watch out for indirect access claims down the line. SAP may use an indirect access claim to say you’re out of compliance and charge you a higher rate for HANA.

Introduction

In this article, we will review the implications for HANA pricing and S/4HANA pricing.

What is SAP’s Integrated Strategy for HANA and S/4HANA and How it Purges Oracle?

Because of SAP’s confusing naming it is still necessary to differentiate between S/4HANA and HANA.

So HANA is SAP’s first serious foray into databases. S/4HANA is the ERP system. S/4HANA only works with HANA, breaking with the previous tradition of SAP applications being open to different database vendors.

SAP has had a few other databases that it owned through the years, like SAP DP or Max DB, but these were very lightly sold. SAP purchased Sybase several years ago. However it has not been able to sell many Sybase databases, and the Sybase acquisition has been a washout, with the Sybase product seen as quite dated. SAP doing very little to keep the Sybase database line up to date.

SAP has very strongly based its strategy around HANA, but the HANA pricing is quite unusual.

SAP has an integrated strategy regarding HANA and S/4 HANA which is related to removing the Oracle DB from accounts. Brightwork Research & Analysis receives no income from any vendor outside of competitive intelligence work. And we have no conflicts regarding Oracle or SAP and do not care if either win or lose business. But on its merits, SAP has put forward no reasonable technology reason for any of the other major database vendors to be excluded from supporting S/4HANA.

SAP’s Refusal to Certify Any DB but HANA

SAP has simply refused to certify any other database for use with S/4. SAP has made many statements regarding HANA’s “unique” performance characteristics, I have carefully evaluated each of these statements and found them to be without merit.

Secondly, SAP refuses to release transaction processing benchmarks (that due to HANA’s 100% column-oriented design, likely are not very good). Meanwhile, SAP is losing in benchmarking tests to other database vendors. However, through both its own and its many partners, SAP has a very effective sales force and willing army of compliant consulting partners. These partners effectively to prevent this information from being widely known or repeated.

Understanding SAP’s Strategy with S/4HANA and HANA Pricing

Understanding SAP’s strategy with S/4 and HANA is critical to understanding how SAP prices these products. SAP’s strategy is to use its dominant ERP system to dictate the database that is used to run this ERP system. In addition to proposed performance benefits over other databases, SAP has used the argument that as they are putting stored procedures into HANA (which is code pushdown in order to make it seem as if something novel is going on). This is, ironically, the same argument used by Oracle to prevent companies that could migrate away from Oracle to lower cost open source alternatives. 

Interestingly, there are quite a few questions as to whether stored procedures are actually a good idea or should I say, worth the trade-off and the overhead. We are currently having an application developed and want no stored procedures so we can have the flexibility of choosing the database at a later date. It depends upon the application of course, but stored procedures are an established tactic by software vendors to reduce portability. One thing that is undisputed, the more stored procedures or as SAP calls it, “code pushdown” which is used, the less flexibility the customer has in moving away from the database in the future to other options. This is why Oracle and SAP are so insistent on putting as much mode as possible into the DB. 

Customer Input Not Required

SAP never asked its customers if they were interested in the very large trade-off of losing database portability by placing stored procedures. Furthermore, there is also nothing to stop SAP from removing those stored procedures and putting them back into the application layer, which is something we predict SAP will do in the future. That is after all the development approach they followed to good effect since SAP began as a company. 

What SAP is doing, although it does not seem to realize it fully, is sacrificing S/4 adoption to build its database business. This strategy has been unsuccessful in moving many companies to S/4.

Getting Real with the S/4HANA Implementation Numbers

Currently, we estimate less than 100 S/4 implementations in some state between kicked off and live, and almost all of these are for a single module – S/4 Finance. (This article was updated as of August 2018 and the number currently is 1500 reported live S/4 implementations with the number truly live far lower than that. S/4’s live case studies are filled with companies that are not actually live as is covered in the Brightwork Study on S/4HANA Implementations)

SAP will not continue, as they have, to sacrifice S/4 adoption forever. Something else SAP has been doing is sacrificing revenues on S/4 to sell HANA. This topic gets a bit convoluted because there is a strong argument that S/4 should be free to current customers who are current on their support. Many customers are paying 22% or more on support contracts and were supposed to receive free updates for all the applications they have purchased. This certainly includes ECC.

How SAP Changed the Rules and Put Itself in the Position to Charge Existing Customers for an Upgrade

SAP changed the game, and declared that S/4 was a “logical successor” to ECC, but not a “legal successor.” 

SAP’s attorneys had to twist themselves into a pretzel to come up with the phrase that S/4HANA is the “logical successor” but not the “legal successor” to ECC. SAP covered up the deception by stating that S/4HANA was so different from ECC that it was a new product.

But an analysis by Paul Coetser or through a related party found that S/4HANA was somewhere around 93% code identical to ECC.

Why is S/4HANA (According to SAP) Not the Legal Successor to ECC?

The real reason S/4HANA is not the legal successor to ECC?

SAP wanted to charge for S/4HANA, hence giving them the ability to double bill its customers. This is just another change in the rules which violated the support agreement that states if the customer keeps up with their maintenance, they are owed all upgrades for the products you purchased.

This phrasing meant that ECC was from a support perspective sunsetted. With support extending to 2025 and S/4 was positioned as entirely new applications that existing customers would have to pay for.

All of this translates into the price for SAP increasing for customers.

Is S/4HANA a Good Value for Existing ECC Customers They Get it For Free?

How many companies that purchased ECC five years ago thought that after five years of paying more than 22% in annual support that they would also have to repurchase their ERP license, or stay on the last version of ECC?

  • Given this background, the idea that SAP is offering, as it has, promotions on S/4 for “free” is misleading because it makes little sense for current support customers to pay anything for S/4.
  • After all, customers did not ask SAP to introduce S/4. SAP made this decision based on their internal incentives which branch into an overall strategy to remove Oracle from their customers.

Nevertheless, SAP has repeatedly offered S/4 for “free.” but has refused to discount HANA (except for the runtime license, which is not a real license). Therefore, SAP can “recoup” the costs of “free” S/4, by getting customers to pay for and get onto HANA.

Getting customers on HANA is a huge win for SAP because as will be described in this paper very few companies will be able to run for very long on the amount of HANA license that they initially purchase. And this leads directly into the question of database sizing and its importance in HANA pricing, which we will get into now. 

The Importance of Database Sizing in HANA Pricing

Of primary importance in HANA pricing is that before any pricing numbers begin to be applied, database sizing must be performed. This is because HANA is sold per GB. This is quite an unusual pricing for a database.

What this means is the HANA pricing is based on the size or footprint of the SAP database. And SAP has released information that will cause customers to substantially undersize the footprint so that SAP can get their foot in the door with HANA. Customers routinely have to go back to SAP and request more GB, which blows their budget.

Without an accurate footprint estimate, HANA cannot be priced correctly. However, all the sources of information on sizing the footprint either come from SAP or come from a SAP partner. Companies that are partners with SAP lose control over the information that they provide to customers. They must not provide information that contradicts the SAP information (read our analysis of the SAP partnership agreement). This of course, includes companies that are the largest advisors in the space (your Deloittes, Accenture, etc..) to the smallest.

How do we know this?

SAP partners contact me and tell me stories of how SAP threatens to take their partnership away if they don’t follow the SAP rules. No SAP partner can provide accurate information on SAP pricing, SAP HANA pricing or any other SAP pricing for that matter.

Therefore, companies are boxed out of accessing accurate information on this topic. Brightwork Research and Analysis is one of the few entities which will publish or provide consulting on this topic. Unsurprisingly, we have no partnership with SAP, and unlike someone like Gartner or Forrester, we take no money from SAP (or any other vendor for anything else than competitive intelligence).

When a Database is Sold

In most cases when a database is sold, the database vendor sees the sizing as more of a customer determined item. Companies have database administration groups that have their own views as to how frequently and how extensively they want to perform archiving. How much they want to rely upon compression, etc.. However, because of SAP’s pricing of HANA, SAP is now front and center on the topic of the database size, and has become quite prescriptive of how they think database administration departments should be managing their databases. Furthermore, it is now clear that HANA is just a first step for SAP sales in penetrating the database layer. The first salvo was to lead with HANA. The argument being that no other database can keep up with the performance provided by HANA. 

But SAP not only intends to get the application database business from its customers which its applications reside upon but also is positioning other database products, such as those it acquired from Sybase in its accounts as well. Sybase has been unsuccessful against Oracle, but this time Sybase’s products are commingled with SAP’s sales force and positioning.

All SAP Applications Work Better with HANA?

SAP’s marketing positioning is that these databases work much better with HANA than with any other database. So it is a two-step process.

  1. The first step is convincing clients to use HANA. SAP is doing this with a combination of selling the purported performance benefits of HANA, along with blocking all other vendors from applications like S/4 so that they are the monopoly database provider for their ERP system.
  2. The second step is marketing the compatibility aspects of HANA with all other database products. That is HANA is simply the nose of the camel into the tent. There is an ancient Arabic proverb about what happens after you let the nose of a camel into the tent. At first, it may seem innocuous, but bad things follow if you don’t put a stop to it. Bedouin know you do not allow the camel’s head into the tent. If you let it in, pretty soon your tent is lying on its side, and your belongings are strewn across the desert. 

Archiving “Down” HANA’s Footprint?

The chart that SAP likes to show is with almost all data archived on to a separate database. SAP is pushing customers to use Sybase IQ to archive old data from ERP. Sybase IQ, a column based database like HANA which SAP picked up from its Sybase acquisition, which they have had a tough time leveraging (interestingly, HANA, while being column oriented like Sybase IQ is not based upon Sybase IQ, but has a different design heritage.

However, the problem with this is that this is now different databases with different skill sets that SAP is proposing that its customers acquire.

The undersizing of HANA is both obvious from the logic that SAP presents on HANA and from the real world feedback where multiple SAP customers that bought into SAP’s undersized model are now coming back to purchase more HANA license so that they can cover the database size. The degree to which HANA is undersized at the point of initial purchase is becoming obvious as come customers come back to SAP within six months to acquire more HANA GB. As I have written previously, HANA is very expensive per GB.

The Deliberate Undersizing

As a synopsis, there are four distinct areas where SAP relies upon to drive footprint reduction, and of these four areas, two are very significantly overestimated by SAP. To see how these areas are overestimated, please see the paper that has been referenced. 

Of all the areas where the footprint can be reduced, it is the indexes where most the space-saving occur. This is normally between 33% and 25% of the database. Archival can reduce the size of a footprint also, but SAP makes it sound like customers aren’t already archiving, and there is nothing in HANA that makes archival more effective than in any other database. 

Secondly, archival is not free. 

What Archival Entails

Archival means increased costs in labor to perform the archiving. Therefore what SAP is saying is that while HANA will do nothing for archival, if the company desires, they can spend more resources on archival. This will suit SAP, as SAP can make the initial purchase price lower, increasing the potential demand for HANA. Therefore, according to SAP, customers should perform more archival so that SAP can sell more HANA. However, what happens if the customer is not able to follow through on the level of archival that they initially commit to?

Well, then the database will grow, and SAP will have its hand out for more HANA license(s). And the problem with this is that while SAP is making greatly exaggerated proposals regarding footprint reduction, if they are wrong, there is nothing that the customer can do about it, except buy more HANA license. 

After the initial HANA purchase is made, and once the system begins being used for production (at which point the database will grow), then the company has narrowed its options. And of course, software vendors love narrowing the options of their customers.

That is called lock-in.

You put the customer in a position where they have to buy more from you, or they can’t operate properly.

SAP’s Un-natural Focus on Footprint Reduction

Getting back to the point about total realistic footprint reduction. In our estimate, roughly another 20% reduction from all other sources is attainable, although not without cost.

This enormous focus on footprint reduction is so important because unlike most other database vendors, SAP prices HANA per GB. No other vendor has such a focus on database size, because no other vendor that competes in this space prices their database per GB. Therefore, the maximum ordinarily attainable footprint reduction should be roughly 50%. This is the number that we have applied to our cost calculations in this paper. Some customers will reduce their footprint a bit more, some a bit less, but we believe 50% is a reasonable assumption to use for footprint compression.

HANA Pricing with Realistic Assumptions

A mid-size ERP instance is about 2-4TB depending on modules implemented, years of operations, archiving, and self-developed tables. If we assume a 50% reduction in the database footprint due to the use of HANA, this becomes about 1-2 TB. As we stated earlier, HANA is priced per GB. 1 TB is 1000 GB. So a typical mid-sized ERP instance on HANA would be between 1000 GB to 2000 GB. SAP also has a well known non-discount policy on HANA, and this makes the pricing easier.

The range of pricing for a 1000 to 2000 GB instance of HANA would be a one time cost of roughly $6.2 million. At 20% per year, this will add a support charge of $1.24 million. Then hiring HANA skills into the database administration function will have to be added to that figure. And HANA skills are still very difficult to find (This article was updated in August 2018, and this statement is still true. HANA has so many components that there are multiple HANA skill sets necessary). 

Important Facts Related to HANA Pricing

  • This is quite expensive for a database and SAP knows this.
  • However, SAP is doing everything it can to make the initial purchase price of HANA low to obscure its actual cost. Interestingly, in the only well known published study on the TCO of HANA that has been published by Forrester, the runtime license was used to price HANA. HANA’s runtime license is another bit of trickery. It is designed to get customers to be able to test HANA at a very reduced price of 8% of the cost of “full” HANA. We created our own proportional TCO calculation of HANA which you can read at A Study into SAP HANA’s TCO

Customer sometimes think that this is the actual price of HANA. SAP knows how to time software audits so that they can extract the most revenue from accounts.

  • The HANA runtime license is a bear trap designed to lull companies into thinking the price of HANA is far lower than it is.
  • And unsurprisingly, as SAP paid for the Forrester study on HANA TCO, Forrester used the runtime license to reduce the TCO of HANA. Forrester does note that it used the runtime license, but somehow turned it around so that the use of what is obviously a temporary license was considered more, not less accurate than using the standard HANA pricing.

S/4HANA Pricing

Once HANA has been priced, the next step is to price S/4.

S/4 is more straightforward to price in one respect as it is not based on a database sizing effort. The confusing aspect of S/4 is that it has routinely been offered for free, and the vast majority of S/4 “customers” did not pay anything for S/4. S/4 is a gateway application to HANA, which is the real motivation for SAP. SAP wants desperately to get into the database layer. This is not only because HANA is so expensive, but also because SAP sees HANA as a Trojan Horse to eventually take over the database layer and kick the current database vendor, or database vendors out of their customers.

  • Therefore the pricing of S/4 could be nothing or can be something depending on the promotion that is run at the time of purchase.
    Secondly, there is no policy against discounting S/4, and we have observed S/4 being quite heavily discounted. SAP has been offering S/4 at a very low price to consulting companies so they can install S/4. These consulting companies don’t care about using S/4 for their internal operations, but they want to the consulting exposure to S/4 so they can advertise this fact and get S/4 business. This is precisely what Infosys did, and it is quite unlikely that Infosys paid very much at all for S/4.

How SAP HANA is Now Being Discounted (Maybe)

One of the constants with SAP’s policies is change. In this article, we will cover SAP’s change in pricing policy regarding HANA pricing.

At One Time the Only Non-Discounted Product on SAP’s Price List

For years after HANA was first introduced it was the only product SAP offered that was not to be discounted by any account executive. However, recently, this policy was changed so that HANA could be discounted. And the discounts seem actually to be high. As high as 65% of the list price. Interestingly this was predicted by UpperEdge in an article in January 2014.

“SAP has been very aggressive in pushing and hyping the growth attributed to HANA on all of its prior earnings calls.  UpperEdge has consistently observed interest from our client base in HANA but such interest has been limited to specific use cases and pilots as opposed to broad, wide spread adoption.  In addition, now that HANA has had enough soak time in various customers for various use cases, feedback is now available regarding the benefits achieved relative to the cost.  From what we are hearing, customers like the technology but have concerns regarding the cost.  This type of feedback will likely spread within the user groups prompting SAP customers to seriously consider comparable, lower cost solutions.  Could this be enough to finally drive SAP to discount HANA? We believe it is something SAP is seriously considering.”

However, the discounting that is now occurring with HANA is not the end of the issue. HANA has more indirect access liability than any other database, because SAP brings indirect access claims against its customers, while no other software vendor (outside of an attempt by Software AG to copy SAP) does. Therefore, the price on HANA can be discounted until the customer is found to be out of compliance. And SAP can use indirect access to charge more for HANA after it is installed, and after the company can do anything about it.

Therefore, what is the actual value of the HANA discount?

How Does SAP HANA’s Value Compare?

We have performed the most and the most extensive analysis on HANA of any independent entity that publishes on HANA. And we have concluded that HANA, with or without discounting, is one of the weakest values available in the database market. It lacks the performance advantage that it says it has, as is covered in the article What is the Actual SAP HANA Performance?, is unable to compete with its major competitor in benchmarking or in real life performance as is covered in Which is Faster, HANA or Oracle 12c?, has issues when paired with S/4HANA as HANA is primarily an analytics database that is not well designed for an ERP system.

HANA Pricing and Applications

On the topic of HANA pricing, HANA is ready to use, but only for a limited number of applications. The most common of these is the BW. However, no matter what application HANA is used for, SAP’s footprint reduction numbers are not reliable guides and have a very high likelihood of causing the customer to go back and have to buy more HANA license than was originally expected.

We have proposed a much more realistic footprint reduction value, and unlike SAP, we do not have a financial bias to make the database footprint seem as small as possible. What should be remembered is that HANA is not unique database technology, and the reasonably achievable database footprint reduction are known throughout the industry. SAP’s estimations are completely discordant with other estimates from other database vendors that have the same technology as SAP uses in HANA. The major difference is that SAP is the only database vendor that charges per GB for their database.

See our The S/4HANA Implementation Study for updated details on actual S/4HANA implementations.

HANA’s Lower TCO?

The following is a quote from Hasso Plattner.

“On the other hand, net new customers, who are attracted by the technical superiority of the product and the lower cost of ownership, but they might not be members of the user groups yet.”

Lets review each of Hasso Plattner’s claims.

New Customers Are Attracted to S/4HANA

S/4HANA has sold very poorly and is primarily either given away to companies, so it ‘s hard to see what Hasso is referring to here, as S/4HANA is known to have extremely few go-lives. S/4HANA has been a great disappointment commercially. So a better explanation might be why companies are not attracted to S/4HANA.

Does S/4 HANA Have a Lower TCO than ECC?

Does SAP have independent studies that back up the lower TCO of S/4HANA? Also, how many samples does SAP have to back up this lower TCO claim? It’s interesting that I repeatedly see software vendors claim low TCO, but when I review the scant evidence they present — if they offer any, I find all types of costs left out.

That is why explaining the method of the TCO performed is so important. As of this time I have seen no TCO estimations from SAP on S/4HANA. Secondly, I see many problems with this claim. These are known higher expenses for S/4HANA.

  • More expensive hardware
  • More expensive resources
  • Far longer implementation
  • Far lower chance of going live
  • Much higher bugs in the software and associated costs with new and untested software.

SAP’s General TCO

I calculated that SAP has the highest cost of ownership in each of the software categories that are covered at TCO calculators. (all at this link). There are very simple reasons for this which range from license costs to implementation costs to maintenance costs all being higher than average.

Now, this says nothing about value, but merely about costs. So this article by Hasso is already getting off to a bad start because Hasso has claimed two fundamental virtues that I know to be untrue.

Curious about the reality of S/4HANA implementations? See our The S/4HANA Implementation Study, for real story and details on actual S/4HANA implementations.

Conclusion

The pricing templates provided on HANA are not reliable and will not result in a correct SAP HANA cost or SAP HANA price. They will result in the database being undersized. The customer will then need to go back to SAP to purchase more HANA GB licenses. However, if the customer had known the actual cost when they purchase the initial HANA licenses, it very may well have changed their initial purchase decision.

Secondly, the price per GB declines as the size of the database increases. We do not have the information on whether SAP charges an incremental cost for the new HANA licenses or if the customer starts off buying the new HANA GB at “zero.”

However, once data has been migrated and the HANA database has been brought up, there is little in the way of options to move away at that point. The logical decision will be to purchase more incremental GB licenses of HANA. This is only one of the compound features around HANA that most customers have no idea about when the sign the contract.

In our estimate, many IT directors will be hiding the actual results of HANA purchases for years to come.

Who Sanctioned Deliberate Undersizing?

It should also be recognized that this is sanctioned from the very top of SAP. One of the primary proponents of the faulty and undersized footprint estimation of the SAP database has been none other than Hasso Plattner.

  • HANA and S/4 (HANA) are tricky items to price. S/4 HANA has frequently been offered on promotion for free.
  • However, S/4 HANA is not actually fully released as a suite. SAP is adding functionality on what is called a “birthing schedule, ” but by the normal standard applied to applications, S/4 HANA Enterprise Management (EM) (that is the entire suite) is simply not released. SAP was more honest about this in the past, but it has now changed its messaging to pretend that S/4 HANA EM is released. SAP has an on-premises version called 1151 and a cloud version called 1603. 

Furthermore, notice the unusual numbering conventions that are not typical of SAP products.

HANA Pricing and Discounting and S/4HANA EM

Customers should consider HANA discounting to continue into the future. HANA was significantly overpriced, to begin with, and the reality of HANA is nowhere close to the marketing hype. However, HANA also comes with indirect access issues, and due to the lower price, is now being pitched to do things by SAP that it is not the right database type to do.

Therefore, even at a reduced price, there is still an open question regarding value and appropriateness of applications of HANA.

We have been in these systems, and they are not complete. After declaring that S/4 HANA EM is complete, in the next breath that state that every three months S/4 HANA EM will be “more complete,” which is a bit of misdirection on the topic. S/4 HANA EM is not complete, and this truth should be used by customers to argue for either a steep discount on S/4 HANA EM or for the customer to simply wait until the promotion resurfaces. There is very little reason to implement S/4 HANA currently, and it does, in fact, make the most sense to simply wait.

How Consulting Firms Coordinate with SAP to Mislead Clients

SAP consulting partners have been hiding everything covered in this article from their clients. Their objective is to cooperate with SAP to extract as much out of the account as possible. It is bizarre that SAP customers look for advice from companies like Deloitte or Infosys that is entirely driven by aggressive sales quotas. Any S/4HANA or HANA purchase and implementation will result in significant amounts of income for the consulting firms. The long-term relationship between SAP and its consulting ecosystem is that SAP proposes what is often false information, and the consulting companies go about agreeing with SAP. We analyze presentations from many SAP, and consulting firm sent to us from clients from around the world as part of our fact-checking services. The information presented by SAP consulting firms to their clients is primarily of low quality, and we think known to be false (at least to some degree) by the consulting firms submitting this to their clients.

HANA & S/4HANA Question Box

  • Have Questions About S/4HANA & HANA?

    It is difficult for most companies to make improvements in S/4HANA and HANA without outside advice. And it is close to impossible to get honest S/4HANA and HANA advice from large consulting companies. We offer remote unbiased multi-dimension S/4HANA and HANA support.

    This article is free, we do not answer questions for free. Filling out this form is for those that have a budget. If that describes you, just fill out the form below and we'll be in touch asap.

References

I cover how to interpret risk for IT projects in the following book.

The Risk Estimation Book

 

Software RiskRethinking Enterprise Software Risk: Controlling the Main Risk Factors on IT Projects

Better Managing Software Risk

The software implementation is risky business and success is not a certainty. But you can reduce risk with the strategies in this book. Undertaking software selection and implementation without approximating the project’s risk is a poor way to make decisions about either projects or software. But that’s the way many companies do business, even though 50 percent of IT implementations are deemed failures.

Finding What Works and What Doesn’t

In this book, you will review the strategies commonly used by most companies for mitigating software project risk–and learn why these plans don’t work–and then acquire practical and realistic strategies that will help you to maximize success on your software implementation.

Chapters

Chapter 1: Introduction
Chapter 2: Enterprise Software Risk Management
Chapter 3: The Basics of Enterprise Software Risk Management
Chapter 4: Understanding the Enterprise Software Market
Chapter 5: Software Sell-ability versus Implementability
Chapter 6: Selecting the Right IT Consultant
Chapter 7: How to Use the Reports of Analysts Like Gartner
Chapter 8: How to Interpret Vendor-Provided Information to Reduce Project Risk
Chapter 9: Evaluating Implementation Preparedness
Chapter 10: Using TCO for Decision Making
Chapter 11: The Software Decisions’ Risk Component Model

Risk Estimation and Calculation

Risk Estimation and Calculation

See our free project risk estimators that are available per application. The provide a method of risk analysis that is not available from other sources.

project_software_risk

https://www.sap.com/products/hana.html

*http://upperedge.com/sap/sap-announces-4q-revenue-shortfall-is-it-time-to-discount-hana/

The Secret to Not Talking About The Cost of SAP HANA

Executive Summary

  • SAP HANA costs are extremely high, but there is a blackout on this topic as so many entities are aligned with SAP.
  • The problematic side of HANA from administration and licensing.
  • The TCO of HANA turns out to be so high.

Introduction to SAP HANA Costs

I was recently interacting with a person on LinkedIn, and I brought up the topic of SAP HANA’s costs. This person responded that they did not know why I was bringing up costs!

Wow, what a comment.

A Consistent Theme to Treat SAP HANA Costs as a Verboten Topic

This has been a consistent theme that I have noticed with regards to HANA, where lots of ink is given to discussing the benefits of HANA but so little time is spent discussing its costs. It is almost as if it is a taboo subject. On the other hand, HANA is often presented as reducing TCO. So if that is true, then obviously the first place to start is to figure out what it costs to buy and operate.

SAP HANA Costs

Here is the truth.

HANA is quite expensive. It is expensive in hardware, software as well as resources which bill at the top of the market and which are difficult to find. I have heard of big consulting companies charging roughly $350 per hour for them, and that adds up fast.

HANA hardware alone is typically going to come to $1 million.

SAP has provided some insight into these costs which are not part of the SAP price list (that is not kept private). They have provided total cost of ownership numbers, or TCOs for SaaS. However, these come to:

  • $2.7 million for 1TB for HANA Cloud Platform
  • $5.9 million for HANA Enterprise four years (these are 2014 numbers).

Now Amazon Web Services (AWS) which provides transparency regarding costs. They offer up to 2 TB of RAM per instance. This means that HANA on AWS can be priced, although the data volumes are necessary to have (AWS has Business All in One, Business One, Business Objects, among others).

SAP HANA’s Misleading Pricing

Now if we move to the applications that use HANA, a Finance purchase and implementation is going to be much more than an FI/CO implementation. I have found this myself, but this is the story I have repeatedly heard from sales reps that sell HANA.

Why SAP HANA’s Pricing is So Misleading

HANA’s price is at first blush straightforward. It is priced per GB and quite expensive. But the problem is SAP proposes ridiculous reductions in the database footprint that will not turn out to be correct (around a 98.5% reduction). Thus almost every HANA purchase is based upon false assumptions. Second, the associated costs make it tough to price entirely. This is particularly the case because it is so difficult for find use cases that can cover HANA’s high costs.

The expense of HANA is a primary reason why HANA has been so limited in its market acceptance.

Details of the Costs Associated with Moving to SAP HANA

SAP often presents HANA as sort of a “slam dunk” purchase.

According to SAP, HANA has a lower TCO than any other competition database.

  • It implements faster than any other competing database (even when a database is already installed).
  • It has more innovation than any different competing database.
  • It has better performance than any other database.
  • It has better performance in every dimension than any other competing database.

Is any of this true? 

While at Brightwork we hate bursting people’s bubbles, but the truth is quite a bit more complicated than what is commonly presented by SAP and SAP’s surrogates on HANA.

In this article, we will cover the complications of using HANA from the licensing and database administration.

How SAP HANA is Problematic from the Administration Side

SAP’s “new” ERP system called S/4HANA and which is not new, only runs on HANA. However, many large corporations have set Oracle or IBM DB as corporate DB standards, and this restriction of S/4 makes it difficult for companies to streamline administrations.

This is something that is entirely left of SAP’s marketing on HANA.

How SAP HANA is Problematic from the Licensing Side

And many companies have what we called unlimited Oracle license which allows them to use any number of Oracle DB for a predetermined price. Adding HANA will not reduce their DB cost but will, in fact, increases the overall DB costs. That is HANA becomes a “net increase” in license and therefore support cost.

Brightwork Research & Analysis recently performed the first independent study into HANA’s TCO. And this issue complicates the licensing estimations of HANA versus competitive databases.

And for those that purchased Oracle DB from SAP, they will have to continue to pay the same maintenance for Oracle DB throughout even if they want to move to HANA as long as there are any SAP systems still running on Oracle DB.

This translates into double the database maintenance fees during the period of migration which can take years if there are many large SAP systems running currently. However, the average we use is 1.25 years. That is we assume that HANA can be taken live in 1.25 years from when the HANA implementation begins.

The Overall Cost Implications

Long story short, this greatly increases the costs of moving to HANA. This also explains the multiple areas of costs and how HANA uniquely uses, which must be considered to come up with a representative TCO.

The Oracle database or IBM database that the customer is using today is considered sunk cost. Therefore if the customer is to move to HANA, they are the sunk costs that they have incurred previously and rebuying a new database all over again. Something that they could simply save just staying with the Oracle and IBM databases that they already have.

SAP HANA is the Highest Overhead Database

We won’t go into this much in this article, because we cover it in detail in our research A Study into SAP HANA’s TCO, but the amount of complexity that HANA exposes customers to is substantial. The reason for that overhead is predominantly the instability of HANA. This combines with a very high cost of resources as HANA resources charge at the top of the market. This is covered in part by the quotation from SAP Nation 2.0.

“Liz Herbert, an analyst at Forrester wrote about the diversity around the HANA product alone: “clients struggle to keep up with the rapidly evolving landscape of HANA — an ever growing list of solutions that includes HANA, HANA Cloud, HANA Enterprise Cloud, S/4HANA, Simple Finance and others.””

The TCO of SAP HANA

One could see something like the following representing the cost magnitude per cost area of using HANA:

  1. Costs of Hana DB ($$$$) $0 if staying put on existing anyDB.
  2. Costs of new hardware Infrastructure ($$$)
  3. Costs of reimplementation ($$$$$)
  4. Costs of retraining ($$$)
  5. Costs of higher downtime ($$$$$$)

We have estimated the TCO of HANA vis-a-vis competing databases in the article A Study into HANA’s TCO.

Conclusion

There is no point in putting off cost considerations and not discussing HANA costs. Yet, so many authors do this. They list the benefits of HANA without listing the costs.

Brightwork Disclosure

Financial Bias Disclosure

This article and no other article on the Brightwork website is paid for by a software vendor, including Oracle and SAP. Brightwork does offer competitive intelligence work to vendors as part of its business, but no published research or articles are written with any financial consideration. As part of Brightwork’s commitment to publishing independent, unbiased research, the company’s business model is driven by consulting services; no paid media placements are accepted.

HANA & S/4HANA Question Box

  • Have Questions About S/4HANA & HANA?

    It is difficult for most companies to make improvements in S/4HANA and HANA without outside advice. And it is close to impossible to get honest S/4HANA and HANA advice from large consulting companies. We offer remote unbiased multi-dimension S/4HANA and HANA support.

    This article is free, we do not answer questions for free. Filling out this form is for those that have a budget. If that describes you, just fill out the form below and we'll be in touch asap.

References

*https://www.amazon.com/SAP-Nation-2-0-empire-disarray-ebook/dp/B013F5BKJQ

Costs are of course quite important to IT decision making. I cover TCO in depth in the following book.

TCO Book

 

TCO3

Enterprise Software TCO: Calculating and Using Total Cost of Ownership for Decision Making

Getting to the Detail of TCO

One aspect of making a software purchasing decision is to compare the Total Cost of Ownership, or TCO, of the applications under consideration: what will the software cost you over its lifespan? But most companies don’t understand what dollar amounts to include in the TCO analysis or where to source these figures, or, if using TCO studies produced by consulting and IT analyst firms, how the TCO amounts were calculated and how to compare TCO across applications.

The Mechanics of TCO

Not only will this book help you appreciate the mechanics of TCO, but you will also gain insight as to the importance of TCO and understand how to strip away the biases and outside influences to make a real TCO comparison between applications.
By reading this book you will:
  • Understand why you need to look at TCO and not just ROI when making your purchasing decision.
  • Discover how an application, which at first glance may seem inexpensive when compared to its competition, could end up being more costly in the long run.
  • Gain an in-depth understanding of the cost, categories to include in an accurate and complete TCO analysis.
  • Learn why ERP systems are not a significant investment, based on their TCO.
  • Find out how to recognize and avoid superficial, incomplete or incorrect TCO analyses that could negatively impact your software purchase decision.
  • Appreciate the importance and cost-effectiveness of a TCO audit.
  • Learn how SCM Focus can provide you with unbiased and well-researched TCO analyses to assist you in your software selection.
Chapters
  • Chapter 1:  Introduction
  • Chapter 2:  The Basics of TCO
  • Chapter 3:  The State of Enterprise TCO
  • Chapter 4:  ERP: The Multi-Billion Dollar TCO Analysis Failure
  • Chapter 5:  The TCO Method Used by Software Decisions
  • Chapter 6:  Using TCO for Better Decision Making

TCO Calculator

TCO Calculator

Brightwork Research & Analysis offers the following free TCO calculators. See by clicking the image below:

calculate_tco

http://www.oracle.com/us/corporate/license-management-services/unlimited-license-agreement-2613729.pdf