Paving the road to the cloud

To facilitate customers’ transition to the cloud, SAP introduced cloud and on-premise license extension policies, allowing them to take advantage of offerings from Ariba, SuccessFactors and SAP’s extensive cloud portfolio. Eleanor Reader reports.


Many existing SAP customers with a range of on-premise software – whether it is ERP, CRM, BI or a multitude of other solutions – are interested in moving to the cloud, but the question of how to deal with their current licenses has been a vexed one.

SAP ANZ VP maintenance go-to-market, Ben Price, says they were receiving many questions from customers about the roadmap and how those with on-premise solutions could move to the cloud, with the discussion moving from a future prospect to a current planning priority.

Recognising that the interest of customers in cloud has grown considerably over the last six to eight months, particularly in terms of the cost-savings cloud solutions could offer, and the fact that different organisations will move at different paces, SAP has moved to define its position on licensing.

SAP’s initial announcement stated that, “Based on their existing investments in SAP software, customers can decide to reallocate elements of their installed on-premise solutions to the respective cloud solutions from SAP, replacing the affected on-premise license and maintenance with a cloud subscription.”

Essentially, according to Price, that means “rather than paying money for software you are not using, and paying maintenance fees, you free up that money and reinvest it into the cloud environment”.

SAP has released three new policies: cloud extension, on-premise extension, and handling of other requests.

According to Price, many APJ customers have already made the switch onto the new licences, with the cloud extension and on-premise extension very popular amongst customers, with deals closed in the second half of last year.


Customer concerns

To engage the customer and pre-empt some concerns, SAP has taken a “transparent approach” to the information surrounding the new licenses.

The SAP Service Marketplace has been SAP’s prime tool for communicating the ins and outs of its new cloud extension policies to its customers. According to Price, customers can log onto the website and read about how it applies to them, the prerequisites, and the list of cloud solutions that applies to them.

“We had to do a whole lot of work to get ready to have that transparent conversation,” says Price. “Because you don’t want to shock anybody; we aren’t trying to be private or tricky. This is all public information that we want the customer and the partner to be aware of and use to their advantage.”

One of the more prevalent concerns customers have raised has been around the roadmap.

In Price’s experience, the representatives of customers he speaks to are those involved in maintenance, often with a long ERP background. Given an existing business plan is in place, cloud can be quite a disruptive influence.

“We are talking about this new stuff that’s a little bit different and not really in their control,” says Price. “You do have to change your mindset.”

EPI-USE America principal consultant and SAP Mentor Luke Marson weighed in on the issue in an article on the SAP Community Network.

While his initial thought was that SAP benefits more from this than customers due to the increase in licensing costs, his bottom line was that it is a good move by SAP to increase adoption of its cloud solutions.

“After all, customers are supposed to benefit from the fact that SaaS is cheaper than on-premise, due to the economies of scale of using software and infrastructure, among other things. However, this thought is only based on cost versus cost and doesn’t take into account that customers would spend more but also would get more,” he stated.

Marson did warn customers about the hidden implementation and integration costs.

“It is important for customers to understand that there will be these one-off costs,” he said.

Commentator Dennis Howlett also shared his professional opinion on the rules of the cloud/extension swap, which he says at first viewing are “both reasonable and onerous”.

Howlett’s biggest problems with the changes are a result of some of the general terms, which he believes add inflexibility rather than flexibility. For example, the transaction assumes an expanded investment with cloud solutions from SAP, and the contract term for a new cloud subscription is five years.

“SAP is clearly feeling its way in cloud licensing and so while these initial terms may seem onerous, they have to be viewed in context,” Howlett says. “If you believe your landscape is sufficiently stable to warrant a five year commitment, then you should also lock in cost certainty.”


What are your thoughts on the new cloud licensing extensions? Email us at This article was first published on Inside SAP Summer 13/14.

Leave a Reply