Unwary SAP private cloud users face 10% renewal hikes, warns Gartner

On-prem discounts drying up as ERP giant sends 'mixed signals' on pricing

Gartner has reported that SAP customers opting for private cloud have seen price increases of 10 percent or more on renewal proposals if they fail to negotiate a renewal price cap in the original deal.

SAP ramped up efforts to move customers to its latest software in the cloud on a subscription model nearly five years ago and has shifted its sales teams' incentives to encourage sales of SAP Cloud ERP Private subscriptions, but a recent paper from the global IT researchers shows the move has not been without commercial challenges.

Meanwhile, SAP's on-prem customers can still negotiate discounts, although this is becoming more challenging. Gartner said it expects SAP's on-premises customers to face annual support price increases for the foreseeable future as the ERP vendor tries to persuade customers to move to the cloud.

In a situation that includes discounts and commercial penalties for cloud and on-prem customers, SAP has created "mixed signals for those considering" the upgrade from legacy ERP platform ECC to the latest S/4HANA solution, either in the cloud or on-prem.

An SAP spokesperson took issue with Garner's numbers, saying that "Gartner’s statement implies an annual increase of approximately 5% in list prices for support, which is factually incorrect. SAP’s On-Premise Business Suite 7 maintenance contracts which encompass more components than just ECC 6.0 allow a provision for annual adjustments to the maintenance fee. These adjustments apply to SAP Standard Support, SAP Enterprise Support, and SAP Product Support for Large Enterprises, and are based on the respective local Consumer Price Index (CPI) or other government-published indices.

"Importantly, these adjustments are capped at a maximum of 5.0%. If the relevant index reflects a lower rate, customers benefit from the lower percentage. The increase does not represent an increase in list prices for SAP support offerings for new purchases of software. This approach aligns with industry standards and is not unique to SAP. Furthermore, the initial adjustment introduced in 2023 marked the first change in nearly a decade. SAP deliberately refrained from implementing any fee increases during the pandemic years of 2021 and 2022. The adjustment only became effective for customers in 2023—not in 2021, as has been incorrectly suggested."

We've asked Gartner for comment on SAP's statement and will update this article if we hear back.

Gartner has also given its strongest indication yet that it believes SAP will extend its support for ECC.

"By 2030, Gartner estimates that more than 40 percent of current SAP ECC6 customers will still use ECC 6 for key business areas, leading SAP to reconsider its maintenance end date and cloud migration strategy," the paper says.

SAP has long maintained that running S/4HANA in the cloud – particularly the private cloud – is the best way to get its latest technology and so-called innovation, such as its AI agent offering, Joule.

For organizations wanting to keep their ERP system on-prem but upgrade to the latest software, there are limited options, Gartner says.

"Gartner has observed a steady decline in perpetual license discounting and expects this pattern to continue as SAP drives customers toward SAP Cloud ERP Private," the paper says. "While it is still possible for customers with strong leverage to achieve competitive S/4HANA perpetual license discounting similar to levels previously seen, this will not be the case for all."

The German software giant has also become less willing to offer price protections, exchange rights, and other terms and conditions that were routinely negotiated in past perpetual license deals, Gartner notes.

"If a customer can obtain compelling discounts now but will be charged a much higher price for any future purchases, this results in S/4HANA perpetual becoming difficult to budget for, plan for, and scale," the paper adds. "In addition, SAP has introduced annual support increases for ECC 6 and S/4HANA customers since 2021, including a 5 percent increase in 2025. Gartner expects on-premises customers to face annual support price increases every year for the foreseeable future."

With SAP Cloud ERP Private customers' renewal proposals also hit with double-digit price increases, Gartner recommends customers "ensure that they negotiate flat subscription fees for the initial agreement period and renewal price caps while leverage is still high."

Earlier this year, SAP introduced a Cloud ERP Private package to replace a package offered under RISE with SAP, its lift-shift-and-transform migration plan.

At the same time, it introduced a new Full Use Equivalent (FUE) license measure, which differs from on-prem and public cloud metrics. German-speaking user group DSAG argued the changes introduced complexity and threatened to delay projects for customers trying to define the commercial strategy for upgrading and/or moving to the cloud. ®