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SAP On-Premise Support Cost Increase

SAP on-premise support cost is increasing again as SAP pushes cloud adoption. This is of course controversial among customers and user groups who have invested in on-premise SAP deployments.

SAP’s announcement of the increase of on-premise support cost followed the news that new AI capabilities and other innovations for sustainability and carbon accounting would not be available in the future in on-premise deployments.

During the SAP earnings call for the second quarter of 2023 SAP CEO Christian Klein said:

“SAP’s newest innovations and capabilities will only be delivered in SAP public cloud and SAP private cloud using Rise with SAP as the enabler”.

This marks a definitive tipping point in SAP’s shift towards delivery of software and services primarily in the cloud. To be clear, AI and sustainability innovations will only be available for customers of Rise with SAP and Grow with SAP, via an add-on package.

SAP environments hosted on-premise or by a hyperscaler will not have access to these capabilities. SAP has previously said that it was not going to limit new innovations for other environments, and would support hybrid environments, despite a focus on cloud deployments.

This week IgniteSAP will discuss how these changes to support provision and innovation delivery have been received among customers and user groups, and how these changes will affect the businesses running SAP on-premise and SAP consultants.

Previous Increase of Support Cost for On-Premise

In a statement released following the 2023 2nd quarter earnings call, SAP said the cost to businesses of SAP Standard Support, SAP Enterprise Support, and SAP Product Support for Large Enterprises were all increased as of January 2023 after remaining the same for almost a decade, based on the CPI in each customer’s region.

For 2023 this increase was previously limited to 3.3%, and SAP has now announced that beginning in 2024 the cap would be increased to 5%.

Reasons Given For On-Premise Support Cost Increase

The statement also gave an explanation for the on-premise price increase, citing high inflation rates, and also pointing out that the current release strategy is supporting over 850 regional ERP versions and had made 1,200 legal changes in 2022. Highly customized SAP environments are problematic for AI and other new technologies which require access to extremely large amounts of data and storage.

“The characteristics of an on-premise landscape require complex and intensive support and maintenance procedures, spanning multiple versions and hardware combinations. This includes the seamless adaptation of new regulations and laws around topics such as supply chain due diligence, energy crisis and climate protection.”

Christian Klein also said at the Q2 2023 earnings call that it was necessary for customers to adopt cloud SAP systems to benefit from accelerated innovation:

“This is how we will deliver these innovations with speed, agility, quality, and efficiency. Our new innovations will not be available for on-premise or hosted on-premise ERP customers on hyperscalers.”

DSAG Requested Innovation For On-Premise

The German-speaking SAP user group DSAG released a statement earlier this year requesting a “binding commitment” to include innovation and enhancements to S/4HANA in on-premise deployments as well as in the cloud, but SAP has doubled down on it’s firm preference for cloud-based systems.

The user group has previously pointed out that according to it’s 2022 survey a large proportion of its members were still using legacy SAP ERP, with 32% of members surveyed at that time running on-premises deployments.

SAP has pointed out it is committed to product maintenance for S/4HANA on premise customers until 2040, and it has also responded to the need for consolidation of SAP and non-SAP data with the release of SAP Datasphere which is the successor to SAP Data Warehouse Cloud.

The DSAG board member for licenses, service, and support, Thomas Henzler has said that lack of innovation for on-premises customers represents a reduction in value for customers:

“The added value that should result for companies from SAP support and associated services hasn’t been increasing to the same extent as the prices charged for it for years. Products migrate to the cloud and then have to be purchased separately there. This reduces the original range of functions and benefits more than it increases them. On-premise customers cannot be increasingly cut off from new features and innovations while at the same time prices continue to rise.”

Controversy aside, it is important to emphasize what this increased focus on cloud deployment means for the SAP ecosystem.

Impact On Business Transformation

SAP customers looking to implement SAP S/4HANA outside of Rise with SAP or Grow with SAP should be aware that these changes may require them to rethink their transformation strategy.

If business and organizations choose to upgrade on-premise SAP systems rather than migrate their business operations to the cloud they could find themselves having to migrate to the cloud at a later date in order to leverage the same range of beneficial capabilities as their competitors.

Along with the expected 2027 SAP ECC deadline, and an already existing skills gap in ERP, these changes further increase the spike in demand for competent SAP talent to carry out these transformations.

As well as a long term business transformation strategy, organizations looking to adopt S/4HANA in any form (or any other SAP solutions) should also create a strategy for SAP talent acquisition.

This should include building a relationship with a specialized SAP talent recruitment agency to ensure that they have a workforce who are able to carry out the work once they have decided on the best course of action for their digital transformation.

Hiring managers requiring support sourcing SAP talent can speak to one of IgniteSAP’s in-house SAP specialists. Call us on +49 (0)21173714895, or submit an enquiry for someone to call you back.

SAP Consultants Should Prepare

SAP on-premise support cost increases and the limitation of AI and sustainability technologies to Rise with SAP and Grow with SAP have added another reason for businesses to adopt cloud rather than customized on-premise deployments. This has resulted in a further urgency for SAP consultants to carry out the work of S/4HANA cloud adoption, and particularly via Rise and Grow with SAP.

The market for SAP consulting services is already highly competitive and underlying long term shortages in SAP skills, and existing support deadlines for legacy SAP solutions, along with these new changes have increased the demand for SAP consultants who are competent and effective at cloud deployment.

SAP’s shift towards cloud-based software and services has opened up a new market, but at the same time legacy deployments are slowly becoming obsolete (despite ongoing support for S/4HANA up to 2040) as these systems will not have comparable access to relevant future-oriented technologies.

While SAP consultants are now operating in a demand-driven market, and highly paid, it is possible that many will be left behind the market if they do not augment their existing SAP skills with training and certification in cloud-based SAP systems, AI and sustainability solutions.

Now is the time for SAP professionals to undertake this training in order to remain up to date with rapidly changing SAP environments, and those that put themselves at the forefront of SAP consulting services will be ideally placed to benefit from the dramatic spike in demand for SAP talent, especially those that can facilitate Rise with SAP adoption.

If you are an SAP consultant wanting to stay up to date with the latest industry news, or looking for a new role in the SAP ecosystem, join our exclusive SAP community at IgniteSAP.