Differences Between SAP ERP and SAP S/4HANA Licensing
- Pricing Model: SAP ERP uses perpetual licenses; S/4HANA offers subscription-based options.
- Cloud vs. On-Premise: SAP ERP is mostly on-premise, and S/4HANA supports the cloud.
- Add-On Costs: SAP ERP requires separate fees for add-ons; S/4HANA includes some integrations.
- User-Based Licensing: S/4HANA provides more granular licensing options.
- Updates: SAP ERP updates need manual handling; S/4HANA often includes them.
Differences Between SAP ERP and SAP S/4HANA Licensing
When navigating the world of SAP software, one of the most crucial considerations for organizations is understanding the licensing model. With SAP ERP (often called ECC) and SAP S/4HANA, SAP has two distinct offerings, each with its unique approach to licensing.
This article aims to demystify the differences between SAP ERP and SAP S/4HANA licensing, making it easy for decision-makers and IT professionals to choose the best option for their business needs.
1. Overview of SAP ERP and SAP S/4HANA
Before diving into the differences in licensing, it’s essential to have a basic understanding of SAP ERP and SAP S/4HANA.
- SAP ERP (ECC): SAP ERP Central Component (ECC) is the earlier version of SAP’s enterprise resource planning software. It has been used for years to manage core business processes such as finance, logistics, and human resources. SAP ERP is an on-premises system that relies on legacy databases.
- SAP S/4HANA: SAP S/4HANA is the next-generation ERP suite built to leverage the capabilities of the SAP HANA in-memory database. Unlike ECC, S/4HANA can be deployed
- on-premises and in the cloud, offering increased flexibility and advanced features.
2. Licensing Models for SAP ERP
SAP ERP licensing is generally based on a combination of user types and module utilization. Below are the main characteristics:
- Named User Licenses: SAP ERP uses a “named user” licensing model, which means that each user accessing the system requires a license. There are different types of named user licenses depending on the level of access required:
- Professional User: Full access to all functionalities.
- Limited Professional User: Limited access to functionalities within specific modules.
- Employee User: Basic access, typically for users with limited interaction, such as timekeeping.
- Package Licenses: In addition to user licenses, organizations must acquire licenses for the modules they plan to use, such as Financial Accounting, Human Capital Management, or Sales and distribution.
- Customization Costs: SAP ERP licensing often requires customization, which can lead to additional costs, especially for larger enterprises that require tailored solutions.
- Perpetual Licensing: Traditional SAP ERP is typically licensed on a perpetual basis, meaning a one-time purchase with annual maintenance fees.
3. Licensing Models for SAP S/4HANA
SAP S/4HANA has a different licensing model to accommodate its modern features and deployment options.
Here are the key aspects:
- Subscription-Based Licensing: Unlike traditional SAP ERP, SAP S/4HANA can be licensed through subscription models, particularly for cloud deployments. This offers predictable operational expenses (OpEx) instead of a one-time capital expenditure (CapEx).
- Modular-Based Licensing: S/4HANA introduces a more modular licensing approach, where organizations can choose specific functionalities to license. Companies can adopt a “pay-as-you-grow” strategy, adding features as needed.
- Digital Access Licensing: A key difference in S/4HANA is the concept of “Digital Access.” Instead of licensing individual users, this model licenses data consumption by external systems, devices, or bots that interact with S/4HANA.
- Deployment Flexibility: With S/4HANA, companies can choose between on-premises, cloud, or hybrid deployment. Licensing options differ depending on the deployment choice:
- Cloud: Subscription-based pricing is more common here, with options like SAP S/4HANA Cloud Essentials or Extended Edition.
- On-Premises: This is more similar to traditional licensing, where you buy licenses with an upfront fee and ongoing maintenance costs.
- Engine Licensing: S/4HANA uses “engine licensing” for specialized functions like Cash Management or Treasury. Companies only need to license engines for specific requirements, offering greater flexibility.
4. Comparing User-Based Licensing
SAP ERP (ECC):
- User-based licensing is essential, with costs dependent on the type and number of users accessing the system.
- Users need licenses based on their roles. For example, a sales representative might have a limited license, while a manager has a professional license with greater access.
SAP S/4HANA:
- Offers user-based licensing but with a simplified approach. A key differentiator is the FUE (Full User Equivalent) model, where multiple types of users are grouped into equivalencies for easier license management.
- With S/4HANA Cloud, licensing is more adaptable, allowing the organization to adjust licenses as users and requirements change over time.
Example: In a company with 50 employees needing SAP access, SAP ERP might require licenses for different roles (Professional, Limited Professional, and Employee). In contrast, SAP S/4HANA uses FUEs, making it easier to determine licensing needs without micromanaging different user types.
5. Digital Access vs Indirect Access
One of the notable differences between SAP ERP and SAP S/4HANA is how indirect access is licensed.
- SAP ERP (Indirect Access): In SAP ERP, indirect access occurs when third-party applications or systems access SAP data. Traditionally, companies must license each user or application indirectly accessing the SAP system. This model has often led to complications and unexpected audit fees, sometimes termed the “indirect access trap.”
- SAP S/4HANA (Digital Access): SAP S/4HANA provides a new option for handling indirect access through Digital Access licensing. Instead of licensing individual users or applications, digital access is based on the type and volume of documents created or accessed. This change simplifies the process, helping organizations understand the cost implications of using external applications more clearly.
Example: If an external e-commerce platform accesses customer data from SAP, ERP may require licenses for all platform users, whereas S/4HANA would charge based on the number of documents accessed (e.g., sales orders).
6. Cloud vs On-Premises Licensing
The deployment model greatly impacts licensing for both SAP ERP and SAP S/4HANA.
- SAP ERP: SAP ERP is primarily an on-premises solution, and the licensing is structured accordingly, with upfront costs for perpetual licenses and annual maintenance fees.
- SAP S/4HANA: S/4HANA offers multiple deployment options with corresponding licensing models:
- On-Premises: Perpetual licensing, similar to traditional ERP, where companies buy licenses outright and pay maintenance fees.
- Cloud: Subscription-based pricing, which includes updates, hosting, and support. The cloud edition allows organizations to leverage SAP’s infrastructure, reducing the burden on internal IT resources.
- Hybrid: This combination of on-premises and cloud capabilities allows organizations to transition to the cloud with flexibility while maintaining control over sensitive data.
Benefits of Cloud Licensing:
- Lower Upfront Cost: Subscription models mean a lower initial investment than on-premises systems.
- Automatic Updates: Cloud licensing often includes software upgrades, ensuring the system stays current without incurring extra costs.
7. License Conversion and Migration
Understanding license conversion is crucial for organizations considering a move from SAP ERP to SAP S/4HANA.
- Conversion Credits: SAP offers conversion credits to organizations transitioning from ECC to S/4HANA. These credits can help mitigate the costs associated with upgrading.
- SAP Product Conversion Program: Companies can convert existing licenses to equivalent S/4HANA licenses. However, this process is not always straightforward and depends on factors such as the modules used and the new functionalities required in S/4HANA.
- Contract Revisions: Migrating to S/4HANA may require changes to existing contracts, and organizations must work closely with SAP to negotiate the best terms.
Example: If a business uses SAP ECC with Financial Accounting and Human Resources licenses, these licenses can be converted to their S/4HANA counterparts. However, there could be additional charges for the enhanced capabilities offered by S/4HANA.
8. Challenges in Understanding Licensing
Understanding SAP licensing, whether for ERP or S/4HANA, comes with its challenges:
- Complex Pricing Models: The variety of user licenses, engine licenses, and digital access can be overwhelming, especially in large organizations.
- Audit Risks: Licensing audits are a significant risk in SAP environments. SAP ERP’s indirect access model often leads to hidden fees due to third-party integrations.
- Customization Costs: Tailoring an ERP system to an organization’s unique requirements can have licensing implications, adding to the complexity.
9. Key Considerations for Choosing Between SAP ERP and SAP S/4HANA
When deciding which licensing model suits your business best, consider the following:
- Deployment Flexibility: If cloud deployment is essential, SAP S/4HANA is a clear choice, offering subscription-based pricing and lower upfront costs.
- Cost Structure: Businesses with stable needs may prefer SAP ERP’s perpetual licensing model, while those anticipating change may benefit from S/4HANA’s flexible subscription model.
- Indirect/Digital Access: Organizations that depend on integrations with other systems should consider S/4HANA’s digital access licensing to avoid unexpected costs.
- Future Scalability: S/4HANA provides a more modular approach, enabling businesses to add features over time, which is ideal for growth-oriented organizations.
FAQ: Differences Between SAP ERP and SAP S/4HANA Licensing
How do the licensing models differ between SAP ERP and S/4HANA?
SAP ERP primarily offers a perpetual, on-premises license, while S/4HANA provides cloud, on-premises, and subscription-based licensing options.
Is there a cloud licensing option for SAP ERP?
SAP ERP is typically licensed as an on-premises product, lacking the subscription-based cloud licensing that S/4HANA offers.
Do both SAP ERP and S/4HANA include the HANA database license?
No, SAP ERP requires a separate HANA database license, whereas S/4HANA includes it within its licensing.
Does SAP S/4HANA offer modular licensing?
Yes, S/4HANA supports modular, user-based pricing, allowing businesses to pay for their needs.
What are the key licensing benefits of SAP S/4HANA over SAP ERP?
SAP S/4HANA licensing includes more deployment options, simplified pricing models, and integrated database licenses, giving businesses more flexibility.
How does subscription pricing work for SAP S/4HANA?
S/4HANA subscription pricing allows businesses to pay on an ongoing basis, making it easier to adjust to changes in scale or usage.
Can I switch from SAP ERP to SAP S/4HANA licensing?
Yes, SAP offers programs for transitioning from ERP to S/4HANA, often involving the conversion of existing licenses.
Is SAP ERP more expensive than SAP S/4HANA?
Costs depend on factors like deployment type and company size, but S/4HANA’s flexible options can make it more cost-effective in many scenarios.
What deployment options does S/4HANA licensing cover?
SAP S/4HANA offers on-premises, private cloud, and public cloud deployment options, whereas SAP ERP focuses mainly on on-premises.
Are user types different between SAP ERP and S/4HANA licensing?
Yes, SAP S/4HANA licensing uses role-based, named-user types, which can vary from traditional ERP user types.
Is licensing more simplified for SAP S/4HANA?
Yes, SAP S/4HANA has simplified licensing to help organizations align their requirements with product capabilities.
How does indirect access licensing work in SAP S/4HANA?
Indirect access in S/4HANA follows a new model that includes document-based licensing, which differs from traditional ERP methods.
Can SAP S/4HANA licenses be purchased directly through the cloud?
Unlike SAP ERP, businesses can purchase SAP S/4HANA through cloud marketplaces or SAP’s subscription models.
Do SAP ERP and S/4HANA have different upgrade paths?
Yes, SAP S/4HANA’s licensing includes more frequent updates, typically aligned with cloud subscription services, unlike the longer cycles of SAP ERP.
Are there support differences between SAP ERP and S/4HANA licensing?
S/4HANA cloud licensing typically includes regular updates and maintenance, whereas SAP ERP follows more traditional support contracts.
