SAP raises on-prem support costs again to drive cloud adoption

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Jul 27, 20234 mins

CIOCloud ManagementIndustry

For the second year in a row, SAP is raising on-premises support costs. This time, however, it’s cutting innovation too.

First came the carrot of lower costs in the cloud with the bundled Rise with SAP offering. Now here comes the stick.

SAP said Thursday it will raise the cost of support for users of its on-premises software for the second year in a row, just days after announcing plans to withhold future innovations in its products from on-prem customers.

“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,” CEO Christian Klein told analysts during a conference call to discuss the company’s Q2 results. “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.”

Future innovations that on-prem customers will miss out on include new ERP capabilities, sustainability and carbon accounting solutions, and all the company’s new AI innovations, Klein said.

If that alone wasn’t enough to make reluctant CIOs think about moving to the cloud, SAP has another argument too: cost.

After a decade-long price freeze, SAP increased the cost of SAP Standard Support, SAP Enterprise Support, and SAP Product Support for Large Enterprises contracts on January 1, 2023. Prices rose in line with customers’ local consumer price index (CPI), with a cap of 3.3%.

From the start of 2024, it will again increase support prices by local CPI rates—but this time, it’s raising the cap to 5%.

Bucking the trend?

SAP blamed last year’s increase on the higher costs of energy, labor, and third-party services. This time, it alluded vaguely to “current market conditions” characterized by “still-high inflation rates.”

But its decision to raise the cap on price increases raises questions because, while consumer prices continue to rise around the world, the rate of increase is actually falling in many countries.

For example, the UK’s Office of National Statistics reported annual consumer price inflation of 7.9% for June 2023, down from 9.4% a year earlier after hitting a peak of 11.1% in October 2022.

In Belgium, the Federal Planning Bureau reported average consumer price inflation was 9.59% in 2022, yet it forecasts it will fall to 3.9% for 2023.

And in the US, the Bureau of Labor Statistics reported the CPI for the 12 months to June 2023 has already fallen to 3.0%, down from 9.1% a year earlier.

Unhappy users

Thomas Henzler, board member for licenses, service, and support, at the German-speaking SAP Users Group, DSAG, is unhappy with the price increases, noting they’re particularly unfair to on-prem customers given SAP will no longer offer them new features.

While price increases for support are common in the software market, SAP is giving users enough for their money, Henzler said.

“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,” he said. “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.”

Enterprises using on-prem versions of SAP are stuck, though, given the time it takes to move to the cloud.

“Customers usually have hardly any short-term alternative and have to swallow ‘the bitter pill,’” Henzler said.

CIOs should expect more support price increases from SAP in future since in a statement about its plans entitled Adjustment of SAP Support Fees published in late July 2023, SAP described the changes as “an annual decision.”

Moving to the cloud won’t spare SAP customers all the pain, though, according to Henzler.

“The costs for operating SAP landscapes are increasingly rising,” he said, “due to the increased individual marketing of products that used to be included in the ERP core, or due to the automatic and flat annual price increases for SAP cloud solutions of 3.3%.”