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SAP’s S/4HANA License Models – The Perpetual License Path

SAP customers seeking to move to S/4HANA must navigate four distinct license models, each tied to a separate deployment model (perpetual license, subscription via HEC, S/4HANA Cloud Single-Tenant, or S/4 HANAPublic Cloud). This note explores the license characteristics and commercial options available when choosing to procure perpetual licenses for S/4HANA.

Source: SAP S/4HANA at SoftwareReviews Accessed on February 11, 2020

S/4HANA – License Options Overview

The table below depicts the summary view of each of S/4HANA's license types along with the critical commercial factors associated with each license type.

Of critical import for would-be S/4HANA customers is that the deployment model has significant impacts on both the license types available and the ability to customize the environment to meet specific business requirements.

The S/4HANA Perpetual License Model

When choices are available, the preferred license model is the tried and true perpetual license. This license generally provides maximum flexibility for deployment options and is also the most cost-efficient over time as compared to subscription models.

This premise holds true and then some when considering the purchase of S/4HANA licenses. The combination of a long-term horizon for an ERP system paired with the significant conversion credits and support extension policies offered by SAP makes acquiring these licenses quite palatable compared to some of the alternative license models.

Key characteristics for S/4HANA perpetual licenses include:

• Full S/4HANA functionality included
• License rights in perpetuity
• Named User or S/4 User license fee
• Annual support fee a percentage of the net license fee
• Option to deploy perpetual licenses on-premises or hosted via SAP or third-party private cloud

Perpetual License Considerations:

• End-user preference for a perpetual license/support model
• Allows separation between the software license and the deployment model (e.g. hosting decision)
• Maximize SAP incentives such as the Product Conversion or Contract Conversion programs

SAP S/4 HANA Perpetual License Types and Options

Product Conversion Option

SAP customers choosing to take a phased approach to the adoption of S/4HANA will often enter into a Product Conversion agreement with SAP. Under the Product Conversion program, SAP provides credit for existing licenses that are applied towards the overall license cost of S/4HANA.

• One-time, flat fee for the Enterprise Management license often referred to as core S/4HANA ERP functionality
• Grandfathered access to use existing SAP Named User licenses to operate within the S/4HANA environment

SAP S/4HANA Product Conversion Criteria

Contract Conversion Option

SAP customers that are migrating their complete ERP environment over to S/4HANA will generally benefit from the Contract Conversion program coupled with SAP’s perpetual license support extension programs.

License by S/4HANA User Type

• Professional Use
• Functional Use
• Productivity Use

Each license type referenced above has its unique price point and specific use rights (see SAP Software Use Rights). The Professional Use license is an all-encompassing license providing full S/4HANA access to the Core Enterprise Management functionality.

SAP S/4HANA Contract Conversion Criteria

S/4HANA LoB & Industry Add-ons

S/4HANA Line of Business (LoB) and add-on modules are priced by the engine and are a value-based license metric. Examples of LoB/Add-in modules include S4 Cash Management, S4 Advanced Variant Configurator, S4 Digital Access, and Global Trade Services. Value-based metrics are driven off dynamic values such as revenue or enterprise employee counts.

HANA Database Management System (DBMS)

Clients can read our previous note on the HANA DBMS here. The key decision point for S/4HANA adopters is which DBMS option is required for their ERP use case. Customers can license the HANA runtime edition DB or the full-use HANA Enterprise DBMS. Runtime is less expensive and licensed as a percentage of the SAP HANA Software Application Value (HSAV), usually at 15%. Full-use Enterprise HANA is licensed in increments of 64 GB blocks of memory.

The critical difference in HANA DBMS versions is the use rights allocated to runtime vs. full use. The runtime database contains severe restrictions on usage. For example, data extraction from the runtime DBMS occurring via the application or database layer is prohibited for use outside of the core SAP applications set. Many SAP customers are finding out that their use of the HANA runtime DBMS falls outside the allowed usage parameters and are now facing massive true-up bills from SAP to migrate to HANA Enterprise or Standard DBMS.

A future note will take a deeper dive into the various HANA database SKUs and their associated costs and benefits.

Recommendations

• Take caution to ensure that your S/4HANA license purchase does not result in over licensing. SAP customers exercising the Product Conversion program may find they have double licensed via their SAP Named User Licenses, as these legacy licenses sometimes include both Use rights and Functionality rights.
• Demand transparency in your S/4HANA proposals. Most SAP product SKUs contain a list price that is tiered. The list price goes down as volume rises. Demand the full list price detail and discount price by line item for your tier plus each tier above and below the current volume tier.
• Negotiate a HANA DBMS exchange right. Most new customers will elect the less expensive HANA runtime DBMS, only to find out later they require the full-use Enterprise version of HANA. This exchange right will preserve the value expended on the runtime version when upgrading to the much more expensive Enterprise Edition.

Bottom Line

The S/4HANA perpetual license offers a great deal of flexibility with options for diversity in deployment environments, HANA database choices, and multiple conversion opportunities to preserve legacy investments. There are pitfalls as each decision forces the customer further down a specific S/4 HANA migration path, so long-term planning is a must.

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