SAP users grapple with 50% premium for industry-standard service levels

Vendor's AI-infused pitch at Sapphire marred by backlash over support costs

News that SAP users face a 30-50 percent premium to get some cloud products – including core ERP – to industry-standard service levels threatens to overshadow the German vendor's annual conference as new pricing models, performance, and partner arrangements dominate the conversation.

At its Sapphire conference in Orlando, SAP introduced new "intelligent" applications by building AI into the SAP Business Suite, reintroduced earlier this year, with a harmonized data model across SAP finance and supply chain, for example. It also unveiled the People Intelligence package in its SAP Business Data Cloud, the cloud replacement for Datasphere, encompassing analytics, data lakes, and data warehousing.

On top of the application and data platform news, SAP said its Joule AI agent would respond to data outside SAP systems for the first time, powered by an "Action Bar" from SaaS company WalkMe.

"Today, Joule is available in every SAP application one click away, and now we are expanding it to any non-SAP application," CEO Christian Klein told the conference. "By combining Joule with WalkMe, we turn it into an omnipresent, always-on proactive and personalized AI assistant. Joule already helps you to answer a wide range of questions by connecting to SAP's structured data as well as unstructured content within your own company. But now it will be able to screen the entire web use and public information."

But observers' concerns were elsewhere, as users grapple with the mammoth problem of updating legacy SAP systems they have invested in and adapted for years. For example, Gartner found that 61 percent of worldwide ECC customers had not bought or subscribed to licenses to start their move to the latest S/4HANA ERP platform as of Q4 2024.

SAP's preferred migration path, RISE with SAP, which includes a lift and shift to the cloud and new commercial relationships with third-party system integrators and cloud providers, launched in January 2021.

Earlier this month, Gartner said the standard SLA for uptime for RISE with SAP was 99.7 percent, below the industry standard of 99.9 percent.

Speaking to The Register this week, Jan Cook, SAP software licensing expert with global analyst Gartner, said that to reach the 99.9 percent standard, users would have to pay a 30-50 percent premium on the applicable software license, having reviewed SAP's proposals and discounts.

"We see very few examples of customers buying [99.9 percent uptime SLA]," he said. "That could be because customers can't afford it, or they just don't need it the day they're signing the contract. We advise customers to think about when you actually need to provision that – you would need to provision it in advance of going live. Maybe some customers don't even know that it's available and don't know the implications of the difference between 99.7 and 99.9 and they later find out they need it when they're in production. That's arguably the worst scenario to not even consider that you need it. You then later discover that you do and you have to then upgrade, potentially having little leverage to negotiate the charge rate."

Although the 30-50 percent premium only applies to the relevant software services, it applies to S/4HANA, which is likely to be a large chunk of the bill.

Akshara Naik Lopez, senior analyst at Forrester for enterprise apps, was underwhelmed with SAP's news as customers voiced concerns about a new pricing model for Business Suite and expectations the vendor has of partners.

"New AI capabilities for newer technology: we expect all vendors to have those kind of announcements every three or six months, but when you start peeling the onion, then you get this feeling there wasn't any drastic announcement in the product line because underpinning it all is still S/4HANA for ERP, and then their various lines of business applications as well, so that's still the same," she said.

But Naik Lopez said a new pricing model for Business Suite – which introduces per user per month pricing – was confusing both customers and partners at the conference.

"The more we ask, the more confusing it gets. And even [SAP's] partners get a little bit confused. So you can only imagine how confused the customer base would be."

Meanwhile, SAP was putting more onerous terms on longstanding partners, she said. "If you think about a carrot and stick approach, they're going to show their partner some stick. They are like, 'Hey, we are going to start questioning these services partners to do the migration faster and cheaper.' Nothing – absolutely nothing – about going from ECC to S/4HANA private edition is fast or cheap."

An SAP spokesperson said: "While the majority of SAP digital transformation projects are focused on RISE with SAP with SAP S/4HANA Cloud, the ever-changing market dynamic and global economic uncertainty around the world requires all of us to be as efficient as possible. Our customers want to see accelerated value realization and are therefore challenging our partners to expedite projects. We're seeing AI starting to automate certain functions and its impact will be game-changing. We also have best practice methodologies that partners and customers utilize to make customer journeys to the cloud as smooth as possible."

Speaking from the conference, Rich Sernyak, PwC SAP practice leader for the US, said the RISE with SAP prospect was also stretching SAP in its ability to support customers as they build new environments in the cloud, echoing concerns raised by Gartner.

"In the RISE situation, SAP takes that responsibility," he told The Reg. "It's like the most complex Thanksgiving dinner you could ever have: you've got hundreds of different dishes that are all being made, and everything has to be made in a sequence to keep the timeline of a project. [SAP] is not used to working in a project environment, or in a services-type environment. It's not a muscle that they've exercised for many years. Keeping to timelines, keeping to the structure of a program I've seen to be a real challenge."

An SAP spokesperson said: "We get extraordinarily positive feedback from our customers on this critical transformation program as well as our other initiatives to ensure customers thrive in the cloud." ®