The Secret to Not Talking About The Cost of SAP HANA

Executive Summary

  • SAP HANA costs are incredibly high, but there is a blackout on this topic, as so many entities are aligned with SAP.
  • We honestly cover the total cost implications of HANA.

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 the 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 are 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 to 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 a 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 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 many large SAP systems are 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 dramatically 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 a 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.

The Question of Why HANA is Selected?

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 to continue to develop their careers.

Why Choose HANA?

After having analyzed HANA from many dimensions, it is tough to see the value of HANA. HANA’s design is extremely limited to analytical applications. However, 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.

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 expensive 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.

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

Some SAP Shops Prefer HANA

IT departments that are essentially self-reinforcing with HANA. I do not believe there are studies on 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.

Something significant to consider is that IT departments get positive reinforcement from SAP for buying and implementing HANA, whether HANA benefits the business, or helps it close to what an alternative investment would help 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 does not believe it is possible to justify 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 items 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 fundamental 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, could not maintain their current systems, could not provide a forecasting system and could not keep 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 an inferior ability to discern between biased and unbiased information sources.

Advice on Enjoying the Quiz

To see the full screen, just select the lower right-hand corner and expand. Trust us, expanding makes the experience a whole lot more fun.

 

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.

For those interested in specifically HANA’s pricing (along with S/4HANA’s pricing), see the article How to Understand Pricing for S/4HANA and HANA.

Financial Disclosure

Financial Bias Disclosure

Neither this article nor any other article on the Brightwork website is paid for by a software vendor, including Oracle, SAP or their competitors. As part of our commitment to publishing independent, unbiased research; no paid media placements, commissions or incentives of any nature are allowed.

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References

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

*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.