- Gartner provides specific advice on how to manage S/4HANA licenses and related topics best.
- We evaluate this advice for accuracy.
Gartner states the following about S/4HANA software licenses in their article, How to License SAP S/4HANA Software, and their article, Minimizing S/4HANA Migration Costs by Leveraging conversion.
Gartner Begins by Providing the Shelfware Figures for S/4HANA?
Gartner states the following.
As of 3Q18, SAP announced that 9,500 ECC customers have licensed S/4HANA, which represents approximately 27% of the current ECC user base.
What is the relevance of stating this number when the actual number of live S/4HANA instances is so low?
SAP itself at his time only claimed a few thousand live instances of S/4HANA. If Gartner were independent of SAP, they would INFORM their clients rather than reporting the shelfware that S/4HANA is taking up.
S/4HANA’s Relationship to ECC
This next quote is eye-crossing.
The S/4HANA migration is not a new release of SAP Business Suite — it is an independent product that requires a new license investment.
So this quote is confusing and is not accurate. S/4HANA is a new release of ECC, but it is different in some crucial ways from ECC. But the vast majority of the code is the same as ECC. We cover this in the article Why SAP S/4HANA Should be Free (to Existing ECC Customers).
Then Gartner continues.
As a result, many existing SAP customers struggle to determine how to optimize the costs of their often substantial legacy SAP ECC license portfolio when making the transition to S/4HANA and other related SAP offerings.
The SAP ECC license (it is unclear what a “license portfolio” is), but S/4HANA requires a new license. There is no ECC license to optimize.
Gartner claims that customers have the right to access SAP programs that allow customers to repurpose existing investments and optimize support spend and simplify pricing and contractual terms.
- This is only partially true. When a customer trades-in shelfware, the customer ends up being highly constrained by SAP as they mostly call the shots. Secondly, many of SAP’s ways of “optimizing” support spend ends up being converted to subscriptions, which is often for “cloud” subscriptions that are then not used or not used for some time. (what we have coined COP or “cloud on paper”)
- As for the last point, new SAP contracts are more restrictive and have more liabilities (say, for instance more indirect access) than old contracts. Therefore this part rings false. SAP always encourages customers to get onto “new paper” because each year, the contracts are worse for customers.
Gartner goes on to describe a convoluted product conversion program. However, they then say the following…
However, not all SPA products are eligible for the product conversion program. SAP has an S/4HANA product conversion grid outlining approximately 150 products that are eligible for the conversion.
And this is the issue. SAP’s conversion programs are about directing previous investments to new SAP products.
Here is an example of one such conversion. The problem? In this case, SAP Analytics Cloud has nothing to do with BusinessObjects — and it is highly unlikely that SAP Analytics Cloud is the best option for any customer. We cover this in the article How Competitive an Option is SAP Analytics Cloud?
A primary reason that SAP is so keen on conversion programs is that they want to force new products into existing customers, but without having to go through a software selection — that they could lose. Yet Gartner writes their article as if none of this background exists.
There are many problems with following such programs. First, the new product may not be ready to be implemented. SAP has many such products in its stable. Secondly, Gartner has this entire exercise optimized around minimizing licensing costs. Our TCO research, which matches other research in the area, indicates that licenses are only about 10% of the TCO of enterprise software. Therefore license optimization should never be the goal.
SAP has many ways of allowing a customer to manipulate license costs. But it is on SAP’s terms, and it means not looking at the overall TCO, which should be a primary objective to be optimized – along with the value obtained from each product — or its ROI.
The SAP Digital Transformation Navigator
We covered the SAP Digital Transformation Navigator in the article How to Best Understand the SAP Digital Transformation Navigator. While it presents to be an “automated consultant,” it is just a sales tool that direct the user to buy more SAP without asking whether the SAP application in question is the best application for that customer to purchase.
Gartner mentions C/4HANA being offered exclusively in the cloud — however, C/4HANA is still not released as a product. Therefore it would seem that Gartner should point this out to their readers.
Get SAP to Give You Their Price List?
For perpetual licensing: Obtain pricing list information and use it to quantify license needs and determine the level of discounting required to make a deal within ERP budget constraints.
This quote in response to his from a person who prefers to remain anonymous.
What does “detailed price list information” have to do with “quantify license needs” – Who would suggest the first can be used to get to the second? And good luck with the first one. SAP doesn’t give “list prices” or “price list” – I’ve never even heard that term from SAP before because id SAP used it that would suggest they have one and the client has a right to see it.
This commenter is correct.
SAP maintains that its pricing information is private and cannot be distributed. SAP partners are also not allowed to share pricing information with SAP.
Unbundling HEC Components?
Gartner then goes on to recommend unbundling any HANA Enterprise Cloud proposal into separate fees for licensing hosting and services.
However, there is no situation where HEC is desirable. Any company that uses the HEC will hand over a massive margin to SAP while some other company does all the work as we cover in the article How to Understand SAP’s Upcharge as a Service Cloud. For a review of an HEC provider, see the article Our Comparison of SAP HEC with Virtustream Versus AWS Analysis.
Gartner also states that the transition to S/4HANA “is underway,” The problem is that we have seen no evidence of this, and in fact, the majority of S/4HANA implementations that have been attempted have failed. Gartner may be referring to interest on the part of their customers, but it is important not to confuse questions with live S/4HANA instances.
The Different Licenses for S/4HANA
Gartner proposes that SAP offers four different licenses for S/4HANA.
- The Perpetual License
- The subscription on HANA Enterprise Cloud
- S/4HANA Cloud, Single Tenant
- S/4HANA Public Cloud
While this is true, Gartner spends no time drawing any distinction between S/4HANA on-premises and S/4HANA Cloud. Yet this distinction is critical. Gartner’s coverage leaves out the small scope of S/4HANA Cloud, vis a vis S/4HANA on premises. It leaves out the fact that most companies of any size cannot implement S/4HANA Cloud.
We cover the issues that SAP has in comingling the on premises version and the cloud version of S/4HANA in the article How SAP Confuses People on S/4HANA On Premises Versus S/4HANA Cloud.
Overall, in their document, Gartner is performing this analysis without considering the product implications of the decision.
Customers Have Leverage with SAP When Negotiating on S/4HANA?
Gartner proposes that customers have leverage when negotiating for S/4HANA with SAP.
However, again, Gartner leaves out that it is not easy to find live S/4HANA instances, which is five years after S/4HANA has been introduced. Therefore, naturally, if a customer should have the leverage, Gartner leaves out why this is the case. It is not unobserved by us that repeated emissions from Gartner about S/4HANA usually point back to information that would be negative for SAP if Gartner stated what was true.
License HANA as a Runtime Basis?
SAP has a way of tricking companies into thinking that HANA will be less expensive than it is. This is called the runtime license. The runtime license was instrumental in getting Forrester to dramatically underestimate the TCO of HANA as we cover in the article How Accurate Was The Forrester HANA TCO Study?
Eventually, when using HANA, the customer will convert the run time license into a regular license, and the standard pricing will then apply. It may apply without any discount (yet HANA is discounted as we cover in the article How to Understand S/4HANA and HANA Pricing). However, Gartner presents the run time edition of HANA as a real option, when it is merely a trick designed to get HANA in the door.
Sizing Risk with HEC?
Gartner points out that the sizing risk sits with the customer when HEC is being selected.
However, Gartner leaves out the fact that public clouds mean no or minimal sizing risk. At Brightwork Research & Analysis, we spin up instances on AWS all the time for testing, and then delete them. A significant point if the public cloud is that it is elastic. However, SAP does not direct customers to the public cloud because the public cloud pricing is published, and it dramatically restricts SAP’s ability to markup cloud services.
And there is no commitment. Of course, once a production system is in place, there is stickiness from the technical perspective, but neither AWS nor GCP has any term restrictions. This is the opposite situation with the HEC, which often has terms of 3 to 5 years.
We have yet to see a logical case for using the HEC when also, all of the HEC providers are mostly just cronies of SAP, and all are of lower quality than public cloud options like AWS and GCP.
Getting back to the exercise that Gartner recommends where the customer is to ask for the HEC individual costs to be unbundled, the activity is unnecessary, as HEC can be skipped altogether.
HEC Locks the Customer into One Private Hosting Provider?
Gartner does mention that there is no way to terminate an HEC contract or switch it to a different provider. However, it does not finish the thought and explains that this commitment to whatever random SAP firm is recommended is unnecessary as the public cloud awaits any customer.
The Cloud Extension Program
We cover the SAP Cloud Extension Program in detail in the article A Brightwork Warning on SAP’s Cloud Extension Program. It is a terrible value for customers as you can read in the article and INCREASES lock-in while using cloud terminology to describe something that is not cloud but is instead hosting (just as with the HEC).+
However, Gartner describes the Cloud Extension Program in neutral terms, merely mentioning it as an option, and then describing the program’s rules.
It isn’t easy to see what Gartner’s contributing is in their article on S/4HANA. Nearly everything listed in Gartner’s report is simply what SAP would like customers to know. There are a few things SAP would not tell customers, but those things that Gartner does say customers are not practical, such as asking for the price list, which SAP will not give to customers.
The advice on HEC is inaccurate, and Gartner does nothing to explain what HEC is (hint, it is not SAP, but instead is outsourced to a host who is not cloud, not multitenant, does not have flexible termination terms, etc..)
The document shows Gartner’s deep relationship with SAP, and sure things that are negative for the customer are not divulged. This is when Gartner presents the pretense of offering independent advice, but then has a more substantial financial relationship with the vendor that they are proposing to offer negotiation advise against. Gartner has a major conflict of interest in providing any negotiation advice against SAP. It is immediately apparent when analyzing the content they provide in this area, with this article that was just explained being no exception.