“Software As A Service” in SAP S/4 HANA Public Cloud
In this blog post, we intend to cover an overview of ‘Software as a Service’ in SAP S/4 HANA Public Cloud, which enables Digital Asset Providers to sell Subscription software and monetize the revenue.
Please expect the following in this blog post:
- Industry trend
- Value Proposition
- Functional Overview of each solution
- Simple Use Case
Shift in Today’s time
Today, while customers desire to have predictable costs that grow with the value they receive, vendors aspire to have predictable revenue streams that grow with opportunity. While customers want great value with money, vendors look for revenues that scale with delivered customer value. On one side, if Quick ‘Time-to-value’ is the customer’s expectation, delighted customers paying on time is the vendors’ expectation on the other side. One model which satisfies all these expectations of both customers and vendors is the Subscription Economy.
Due to the success of businesses like Netflix and Spotify, increased companies are turning to subscription business models to generate revenue. Needless to say, subscriptions are becoming an integral part of our daily lives, changing the way we purchase and consume products. Not just consumer goods, this change in consumer behavior is slowly moving to everything an end-user buys for personal and professional lives. Hence, enterprises have started jumping into this hot market to build software and services required to support the delivery of offerings based on outcomes/usage rather than a one-time sale of a single “thing.” That gave birth to a globally acknowledged concept called “Everything as a Service.” Be assured that this will be a learning journey for both companies and customers and more importantly, will enable recurring revenue for the companies
Value Proposition of SAP “Software as a Service” for Software Providers
SAP has always been at the forefront of providing enterprise-grade software solutions, accommodating the changing customer needs and expectations. From a comprehensive R/3 to “Software as a Service”, SAP has been embracing the wants of the time. After SaaS (Software as a Service) unbundling, where SAP helped companies to free from the need to install it, run it, maintain it, and upgrade it, SAP is venturing into putting things back together with a difference that this consuming would be as-a-service, rather than functionality-rich applications. It is a huge opportunity for SAP to integrate the best solutions and provide anything that customers need as a service.
SAP is geared up to enable Digital Asset Providers to sell Subscription software and monetize the revenue. We provide an End-to-End Offer-to-Cash Process for Software Providers, which covers master data for software, services, and business partners, solution order and subscription order capturing, software entitlement tracking, billing, and revenue recognition in an integrated solution. We cater to both pure SaaS and Embedded software solutions.
- Net New: Mid-Market; High Growth
- Existing SAP Customers: ME, LE and up – Digital Units (Two-Tier), ProServ XaaS, Media
- B2B focus
The Key Benefits of Software As A Service:
- Higher Margins: Software companies are increasingly adopting the as-a-service approach and transaction-based business models to capture higher margins. The software-as-a-service focuses on key functions, improving total customer lifetime value through reduced churn and increased upselling and cross-selling.
- Ease of Use for end-users: Process simplifies customer purchases and renewals.
- Increased efficiency and effectiveness in a maturing business
Differentiating Cloud Solutions in this E2E Scenario
- SAP Solution Order Management:
Solution Order supports business transformation from selling products to higher-margin solutions. It has a business scope to include consumption-based business by integrating with SAP Subscription Billing. It is enabled to offer/bundle distinct product sales/physical items, services, maintenance contracts, subscriptions, and projects in a single order and invoice. In a nutshell, Solution Order allows ‘one-stop shop’ solutions that address complex end-customer problems.
- SAP Subscription Billing:
The shift from traditional one-time fixed price sales to consumption-based business by integrating with SAP Subscription Billing. This provides a range of aftersales and value-adding subscriptions for services and software-based offerings, with recurring and usage-based billing Subscription Billing Items in Solution Orders It drives success through outcome-based customer experience.
SAP Subscription Billing core capabilities include:
- Model subscription-based (digital) products
- Manage the order for subscription components and Control subscriptions throughout their lifecycle
- Generate subscription billing data in various formats: one time, recurring and consumption charges
With SAP Subscription Billing, customers can now transform from selling equipment to paying per subscription of the equipment and the associated services. This would enable customers with different value monetization methods such as leasing with recurrent subscription, usage-based subscription-like pay per machine hours, or outcome-based subscription on no. of units produced or throughput of the machine, etc.
- SAP Entitlement Management:
In Subscription business models where physical products, digital assets, and other services are bundled together, the ownership of entitlements of each item, usage data, and 360degree view of customers becomes business imperative. SAP Entitlement Management manages any right of usage, authorization, access, or permission that is given to a customer. These “rights of usage” are called entitlements and can be software specific, such as licenses, downloads, updates, free trial periods, etc., and can also relate to maintenance and support services, training, as well as warranties for physical hardware.
Here Customers can automate the entitlement management process, providing “right to use” based on contracts and dynamic authorization management.
Below is a use case to elucidate:
The demo shows the process of selling digital assets from the perspective of a customer and brings light to the automated backend processes supported by SAP solutions, which allows companies to run a flexible and highly automated software business.
Key customer requirements highlighted:
- Orchestration of various order elements
- Tracking of related entitlements for an offering (define entitlement offering with multiple rights, automated creation, fulfillment orchestration)
- Flexible pricing plans and subscription modeling – example: seat-based pricing or volume-based (with pre-payment)
- Dynamic handling of changes during subscription lifecycle
- Automated finance incl. revenue recognition consolidated billing, and invoicing
- Profitability analysis of the offering
Scenario A: Subscription Business Model
The company say ‘Xeta’ requires a new software say ‘CAD Tool Box’. After the vendor selection and trial period of 2 months, the Xeta decides to subscribe to CAD ToolBox Pro from the chosen vendor. Sales Rep can bundle Software, Deployment/installation, IT support, and some add-ons and creates a Solution Order by entering software material of two types: ‘Software Installation Service’ billed once with an initial set up charge of $99 and Subscription Billing Item called ‘CAD Tool Box’ with a recurring fee of $599 per month in a S/4HANA public cloud system.
The software comes with different pricing models: A subscription model with a fixed fee per user with a tiered pricing and different payment durations as well as a Flexible pay-as-you-go offering with a 24h access possibility per token consumption with monthly billing.
Furthermore, the vendor offers flexible support plans such as:
Plan 1: 8×5 support
Plan 2: 24×7 support
Plan 3: Managed Success Plan
Initial Software Purchase by Customer – Purchase and Automatic creation of backend objects
- Customer: Mr. Paul Stimson from Xeta (Purchaser Digital services) selects the respective offering on a commerce portal.
- What happens in the backend automatically?
- Creation of solution order, showing two related times for software access and support plan (emphasis flexibility of various elements and orchestration of execution)
- Automatically a subscription is created that has a respective pricing plan assigned – focus on Subscription
- Entitlements are created:Emphasis on offering – with software access comes a trial for the training platform
- Customer: Paul Stimson sees his subscriptions and entitlements in the commerce portal
Month-end financial activities
- Software Subscription – automatically based on usage monthly subscription is calculated and revenue recognition did (QUARTERLY BILLING)
- Support – automatically monthly billing is done based on usage and revenue is recognized immediately
Scenario B – Perpetual Software license Sales
Contract period: 3 years, 2 years extended maintenance and support
- Sales employee creates a Sales Order in S/4HANA Public Cloud by entering a perpetual sales item with a fixed price “List Price” and saves the Sales order.
- The saved sales order will result in the creation of multiple entitlements that are managed in the linked entitlement management system.
- One entitlement represents the use of a software license, and another entitlement represents temporary trial access to a training environment and other information.
If you want to transition seamlessly from traditional one-time fixed price sales to consumption-based business Models, XaaS for Digital Asset Providers is your go-to solution. Hope you benefit with this first blog post series. In the following blog post series, we will provide deep-dive sessions for different use cases and detailed pricing models in subscription business. Stay tuned !
Many thanks to Romit Lakra and Srinivasa Raghavachar for valuable inputs 🙂
Solution Order https://blogs.sap.com/2021/06/02/solution-order-management-in-sap-s-4-hana-cloud-2105/
Service Management: Service in SAP S/4HANA Cloud 2102
SAP Subscription Billing:https://blogs.sap.com/2021/10/08/sap-subscription-billing-integration-with-sap-s-4hana-cloud-beginners-guide/
SAP Entitlement Management: https://blogs.sap.com/2018/07/02/from-product-sales-to-entitlements-sap-launches-entitlement-management-in-the-cloud/