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This week SAP announced that it will allow customers to swap on-premise software licenses and maintenance payments for Cloud subscriptions that “assumes an expanded investment with cloud solutions from SAP”. Given the innovation and scalability available in the Cloud, this is certainly a positive move for customers. What is the real impact of this for customers?

From an SAP perspective, this announcement allows customers to expand their Cloud footprint with SAP solutions while ensuring that SAP maintains the same level of income that it does now. This is a win-win for customers, particularly for those with shelfware licenses. An interesting conversation took place on Twitter between Chris Paine, Jarret Pazahanick, Naomi Bloom, and myself:

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My initial thought was that SAP benefits more from this as customers due to the increase in licensing costs. 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. Taking away things like innovation and long-term costs, there is also the fact they will get additional applications that they can implement at a much quicker pace than on-premise software and are more likely to be used across the enterprise.

From something-for-nothing to nothing-for-something

Customers should also not forget that many of them are sitting on shelfware licenses that they can trade for subscriptions. However, it is also important that customers don’t trade shelfware licenses for shelfware subscriptions! This is an excellent opportunity for customers to expand their HCM and/or Talent Management technology usage without investing significantly more costs. It is an ideal time for customers to begin to consider using additional Talent Management processes within their organization to enhance their competitive edge.

Hidden costs

One thing that isn’t included in this deal is the implementation and integration costs. Although subscriptions of a higher nature provide additional software services, this software still needs to be implemented and – if retaining SAP as the core system of record – integrated with SAP HCM. It is important for customers to understand that there will be these one-off costs. I don’t expect customers to have any additional on-going costs to manage the integration as they have on-going maintenance costs that will be gone with the transition to the Cloud.

Bottom Line

This is a good move by SAP to increase adoption of their Cloud solutions as well as provide customers with the latest-and-greatest software. Moving to the Cloud provides customers with enhanced innovation, usability, and scalability and – more importantly – presents an opportunity to revisit existing business processes and introduce new Talent Management processes. It also gives customers with shelfware licenses the chance to swap them for services that will provide real value.

*Updated: Full terms can be found here [S-user required]. Interesting terms include a minimum 5-year subscription and license audit.

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16 Comments

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  1. Jarret Pazahanick

    Well balanced article Luke and I think net/net it is a positive development for customers assuming there isnt any “devil in the licensing details” other than what was stated.

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    1. Luke Marson Post author

      Thanks Jarret and I agree. It seems quite simple, but I think with the existing licensing model it could be tricky. But the move will definitely simplify licensing for customers and this is something I probably should’ve mentioned in the blog.

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  2. Sven Ringling

    A move long expected, to be honest.

    HR SaaS today is not a market, where short term profit maximisation is a strategy anybody, with a brain would apply, unless they are close to bankruptcy. It’s all about gaining large and good quality market share and not loosing any on premise HR customers to Workday or – shudder – Oracle. Harvest time will be later.

    Not sure about their war chest, but I should think they would offer the same to Taleo customers. They pulled this off nicely, when Oracle bought Peoplesoft. Could it not work with Taleo as well?

    Definitely a positive move for customers. Yep.

    At least for those, who want to move some processes into the cloud now. What about those who have moved already? Will they be included into the deal retrospectively?

    They really should. Not for reasons of fairness or ethics, but for the sake of future market penetration speed:

    If early adopters feel they are ripped off, because it is SAP strategy to cream off the early stages of a new product, before they offer more sensible terms / prices 18 months in, then customers are more likely to hold back and wait in the future. And how much good is high development speed, if you don’t get your new products into the market? Innovation, being about creating new stuff AND putting it to good use, would get stuck in the sales pipeline.

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    1. Luke Marson Post author

      Hi Sven,

      Great points and thanks for adding your expertise to the debate.

      Some early adopters already received discounts on the “standard” subscriptions rates to heed adoption, so I don’t think retrospectively applying this would be fair on new customers. However, as with any new product pricing always fluctuates during the early stages of the product lifecycle to gain market share. My Business Studies classes are coming to some use now it seems 😉

      Best regards,

      Luke

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  3. Chris Paine

    Nice one Luke, think you summarised the points very well. And it did need more than a few 140 char bites. 🙂

    One point that might be made is that customers that have shelfware licences in this space are likely to be LSO and eRec, with companies actually using the payroll side of the solution.

    Given that (as yet) there isn’t a replacement for CATS in SuccessFactors, I’d imagine that companies will just opt to enhance up to the talent side of SuccessFactors whilst keeping core HR and pay on premise. So I don’t see many Employee Central deals being brokered due to this change. (if you have to continue to pay an MSS/ESS licence just to do CATS entry and approval, paying again to do it in EC is a big ask.)

    As performance management – objective/goal setting and comp management are not separately licensed to core ESS/MSS I would not see these being transferred.

    However, if a company had an LSO system that wasn’t well loved (and quite honestly even the recent WDA makeover of LSO still leaves a bit to be desired from a user friendliness viewpoint), then I can see even active implementations (not just shelfware) being put into the pot to trade up to SuccessFactors.

    As I said, this is certainly a win for customers, hopefully it will be a win for partners and SAP with more customers tempted to start on the SuccessFactors journey.

    It’s certainly a hell of a lot simpler for customers than it used to be anyway – remember the days of http://www.computerworlduk.com/news/applications/3411905/sap-uk-md-you-cant-park-unused-licences-well-not-directly/

    Now Tim Noble will be able to answer much more openly, and I bet he’s happy about it.

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    1. Luke Marson Post author

      Hi Chris,

      Thanks for weighing in further – I knew you had more to add than Twitter allows 😉

      I fully expect this to be leveraged largely for Talent, but I would also believe that there might be some core HR deals off the back of this. For that it will be dependent on the customer landscape. There might be some customers who moved to ECC6 and didn’t ever leverage ESS/MSS or EhP’s and feel this is the right path to move to the latest functionality.

      I will certainly be interested to see how this program works out and what sort of exchanges we see.

      Best regards,

      Luke

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  4. Ketan Ganatra

    Headlines is certainly good news, but also need to look at footprint to determine actual value of the offer.

    Is it dollar-for-dollar swap or a Sears type gimmick ( 20 percent off today on prices that were jacked-up 50 percent yesterday). Does it come with any strings attached – such as ‘when you buy our consulting services’? or ‘A hundred-year commitment required’ (a la mobile phone companies) 🙂

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    1. Luke Marson Post author

      Hi Ketan,

      As far as I know there aren’t any gimmicky terms attached, although it must be for like-for-like solutions (e.g. HCM for SuccessFactors BizX). You are quite right that it seems good and the proof will be in the pudding as customers begin to investigate further. I will be watching to see how this unfolds over the next 6 to 12 months.

      Best regards,

      Luke

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      1. Ketan Ganatra

        I wish they had published some numbers along with three customer examples included in the announcement.

        Also – the whole announcement is categorized under ‘Maintenance and Services’ portal. Not sure if that is a hint that you have to purchase the migration/integration services from SAP.

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        1. Luke Marson Post author

          It’s because it’s an exchange of your maintenance. It’s nothing to do with purchasing additional services from SAP.

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          1. Ketan Ganatra

            The wording make you believe that there is a credit for your licensing spend also.

            “The customer may replace existing on-premise licenses and respective maintenance

            payments…”

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