On-Premise SAP License Models

On-Premise SAP License Models

• SAP Named User License: Charges per user with different access roles.
• SAP Package License: Based on usage metrics like transactions or orders.
• SAP HANA Runtime License: Specific to HANA applications, charged by usage.
• SAP Database License: Covers database usage, typically by data volume.

On-Premise SAP License Models: Key Features & Considerations

SAP (Systems, Applications, and Products) is a leading enterprise resource planning (ERP) software provider offering various solutions for businesses worldwide.

Companies implementing SAP must choose a licensing model that best suits their business needs.

Understanding SAP’s licensing structure is essential to ensuring the correct investment in software, maximizing ROI, and maintaining compliance.

This article explores the different types of on-premise SAP license models, key features, and considerations businesses should know.

Overview of SAP On-Premise Solutions

Before diving into SAP license models, it’s essential to understand an on-premise SAP solution.

On-premise means the software is hosted on the company’s own servers and managed by the internal IT team, as opposed to cloud-hosted solutions, where SAP handles the infrastructure.

SAP’s on-premise solutions are widely used by large enterprises that require full control over their systems and data. Businesses favor on-premise deployments when they need:

• Customization and Flexibility: On-premise solutions allow companies to tailor SAP software to their unique business processes.
• Data Control and Security: Companies maintain complete control over their data, which is crucial for industries with stringent data security and compliance requirements.

Key On-Premise SAP Products

Some of the most popular on-premise SAP products include:

• SAP ERP (Enterprise Resource Planning): Core modules include finance, human resources, supply chain, and manufacturing.
• SAP Business Suite: Includes SAP ERP, SAP CRM (Customer Relationship Management), SAP SCM (Supply Chain Management), and SAP PLM (Product Lifecycle Management).
• SAP S/4HANA: The next-generation ERP solution for high-performance transactions and analytics using the SAP HANA in-memory database.

Types of On-Premise SAP License Models

SAP offers various licensing models based on criteria, such as user roles, resource usage, and package-based solutions. The choice of a licensing model affects cost, compliance, and scalability.

The three primary types of SAP on-premise licenses are perpetual, subscription, and user-based.

1. Perpetual License Model

Perpetual licensing is one of the most common models for on-premise SAP systems. It involves a one-time software purchase granting the company the right to use it indefinitely.

Key Features:

• Upfront Cost: The customer pays a significant upfront fee, covering both the software and the right to use it indefinitely.
• Ongoing Maintenance Fees: While the license is perpetual, businesses typically pay an annual maintenance fee (around 15–22% of the license cost) for updates, support, and new features.

Pros:

• Ownership: The company owns the software and can continue using it as long as they like.
• Long-Term Savings: Over time, especially in long-term projects, the cost of perpetual licenses may be lower than subscription models.

Cons:

• High Initial Cost: The upfront investment can be a barrier, especially for small and medium-sized enterprises (SMEs).
• Maintenance Costs: Annual maintenance fees can add up, especially if the system is used for many years.

Example: A large manufacturing company may choose a perpetual license for SAP ERP because it foresees using the software for decades without changing its core processes. Over time, the cost of ownership becomes more economical.

2. Subscription License Model

Subscription-based licensing is another option for on-premise solutions, though it is more common for cloud deployments. In this model, companies pay a recurring fee—usually monthly or annually—to use the SAP software.

Key Features:

• Recurring Payments: The subscription cost is spread throughout usage, reducing the upfront burden.
• Flexibility: Businesses can adjust their subscription based on the number of users or features needed.

Pros:

• Lower Upfront Costs: Ideal for companies that may not have the capital for a large initial outlay.
• Scalability: Companies can easily scale the subscription up or down based on their needs.

Cons:

• Higher Long-Term Costs: Over many years, subscription costs can exceed the upfront cost of a perpetual license.
• Dependency on SAP: Companies may face pricing changes over time, affecting budgeting.

Example: A startup or mid-sized business may choose a subscription model for SAP S/4HANA to reduce initial capital expenditure and align costs with their operational budget.

3. User-Based License Model

SAP’s user-based licensing is structured based on the number of users who will access the system. SAP defines multiple categories of users, and the license fee varies according to the role and level of access each user requires.

User Types:

1. Professional User: Full access to all SAP modules, including transactional and configuration tasks.
2. Limited Professional User: Access to fewer modules or tasks. Often used by departments like HR or sales.
3. Employee User: Restricted to specific activities like time entry or expense reporting.

Key Features:

• Scalable Pricing: Costs are directly related to the users’ number and access levels.
• Granular Control: Different types of users can be assigned specific roles, ensuring cost efficiency.

Pros:

• Cost-Efficient for Large Enterprises: User-based pricing allows companies to pay only for the users who need access.
• Flexibility: Companies can easily add or remove users based on their current staffing levels.

Cons:

• Complexity: Managing the licensing of various user roles can become complex and difficult to audit.
• Compliance Risks: Over-licensing or under-licensing specific roles may lead to compliance issues.

Example: A multinational retail company may use SAP’s user-based licensing for different roles, assigning professional licenses to finance managers while providing employee-level licenses to store staff for timekeeping and payroll.

License Measurement and Compliance

One of the most critical aspects of SAP licensing is compliance. SAP regularly audits customers to ensure they adhere to the terms of their license agreements.

This process can become challenging due to SAP’s Indirect Access policies and the complexity of user-based models.

1. Indirect Access

Indirect access refers to users or third-party applications accessing SAP data without directly logging into the system. For instance, if a CRM or e-commerce platform pulls data from SAP, it may be considered indirect access, and SAP can charge additional licensing fees.

Common scenarios of indirect access:

• Third-party applications retrieving SAP data for reporting purposes.
• Employees using non-SAP applications to access SAP-stored data.

Key Considerations:

• Understand the Contract: Ensure that your SAP contract specifies the licensing terms for indirect access.
• Monitor Usage: Implement tools or processes to track data access and usage, especially if third-party apps are involved.

Example: A company using a third-party business intelligence tool to analyze SAP ERP data might need to purchase additional licenses to cover indirect access.

2. SAP License Audits

SAP conducts periodic license audits to ensure companies comply with their agreements. These audits assess how licenses are being used and may incur additional charges if discrepancies are found.

Audit Preparation Tips:

• Maintain Records: Keep detailed records of user roles, system access, and any third-party integrations involving indirect access.
• Review Contracts Regularly: As your company grows and changes, make sure your SAP licensing remains aligned with your usage.
• Use SAM Tools: Software Asset Management (SAM) tools help track license usage and compliance.

Example: A large financial institution may undergo an SAP audit and discover that its integration with a CRM system constitutes indirect access, leading to additional licensing costs.

Key Considerations When Choosing a License Model

When selecting the right SAP license model, several factors need to be evaluated:

1. Business Size and Scope

• Small Businesses: They may prefer subscription-based models for reduced upfront costs.
• Large Enterprises: Perpetual or user-based licensing can be more cost-effective over time.

2. Industry Requirements

• Manufacturing: Requires comprehensive SAP modules, so professional licenses are typically necessary.
• Retail: You may need multiple limited licenses for sales associates and employees.

3. Long-Term Plans

• Growth Projections: Anticipate future needs and choose scalable licensing models to accommodate growth without becoming cost-prohibitive.
• Mergers & Acquisitions: Ensure that your SAP licensing is flexible enough to adjust to organizational change

Consideration of Hybrid Models

An increasingly popular business option is adopting a hybrid model, combining on-premise solutions with cloud functionalities.

This allows for greater flexibility, enabling companies to use on-premise SAP for core, sensitive operations while leveraging cloud-based services for less critical applications.

Key Benefits of Hybrid Models:

• Cost Efficiency: Certain non-core processes can be run in the cloud, reducing the need for extensive on-premise infrastructure investments.
• Flexibility and Scalability: Hybrid models enable businesses to scale up operations quickly by adding cloud services as needed without overhauling their entire on-premise infrastructure.

The Future of SAP On-Premise Licensing

As the business world shifts toward cloud-based solutions, the future of SAP’s on-premise licensing model is evolving. However, on-premise solutions remain relevant for businesses with stringent customization, security, or regulatory needs.

Trends Shaping On-Premise Licensing:

• Cloud Integration: Hybrid models combining on-premise and cloud solutions are becoming more common. Companies may use on-premise SAP for core functionalities while integrating with SAP’s cloud services for non-essential functions.
• RISE with SAP: SAP’s push toward cloud adoption through initiatives like RISE with SAP may reduce traditional on-premise licensing in favor of flexible subscription-based models.
• S/4HANA On-Premise: SAP has committed to supporting S/4HANA in both cloud and on-premise forms, meaning businesses can still benefit from SAP’s next-generation ERP while retaining full control over their IT environments.

On-Premise SAP License Models FAQs

What is an SAP on-premise license?
An SAP on-premise license is a traditional license where customers purchase a license to use SAP software on their infrastructure. This allows organizations to manage and maintain the software in-house.

How is SAP on-premise licensing structured?
SAP on-premise licenses are typically structured based on user types, specific software modules, and additional components. Different user roles, such as Professional, Limited, or Developer, come with varying access rights and associated costs.

Do on-premise licenses involve subscription fees?
No, on-premise licenses usually involve a one-time purchase cost, although customers need to pay annual maintenance and support fees, which cover updates, patches, and basic support.

What is the difference between perpetual and term-based licenses?
A perpetual license allows the customer to use the SAP software indefinitely. On the other hand, a term-based license allows access for a fixed period and typically has lower upfront costs but needs to be renewed after the term ends.

Are there specific user types in SAP on-premise licensing?
Yes, SAP on-premise licensing includes multiple user types: Professional, Limited, Employee, and Developer. These user types determine the level of access and functionality the user has within the SAP environment.

How do I know which license type is right for my organization?
Choosing the right SAP on-premise license type depends on your organization’s size, specific software needs, and user requirements. It is often helpful to conduct an internal assessment of how SAP will be used and consult with an SAP Licensing expert.

Can on-premise licenses be upgraded or expanded over time?
Yes, SAP on-premise licenses are flexible. You can purchase additional licenses or upgrade existing ones as your company grows or your software needs evolve. This ensures that your SAP environment can scale along with your business.

What is included in SAP’s support and maintenance fees?
Support and maintenance fees typically include software updates, patches, and access to SAP’s support services. These fees are usually charged annually and help ensure your SAP system remains up-to-date with the latest improvements and fixes.

Do on-premise licenses require additional hardware investments?
Yes, since on-premise solutions are hosted on your organization’s infrastructure, you often need to invest in appropriate hardware, such as servers and storage. You also need to consider the costs of maintaining this hardware over time.

How are SAP modules licensed under the on-premise model?
Each SAP module (such as SAP S/4HANA Finance or SAP Human Capital Management) can be licensed separately, allowing organizations to tailor their solution to their specific business needs. You only pay for the modules you use, though additional modules can be added later.

Is it possible to transfer on-premise SAP licenses to the cloud?
SAP offers conversion options for customers transitioning from on-premise licenses to cloud-based solutions. However, this typically involves a migration process and possible adjustments in licensing terms.

What are the long-term costs associated with SAP on-premise licenses?
In addition to the initial license purchase, long-term costs include annual support and maintenance fees, infrastructure costs for hosting, and ongoing IT staff costs to maintain the system. These should be considered when evaluating the total cost of ownership.

What happens if I don’t renew my SAP support and maintenance contract?
If you choose not to renew your support and maintenance contract, you can continue using the SAP software, but you will no longer receive updates, patches, or access to SAP’s technical support. This may result in security risks or system inefficiencies over time.

How does SAP enforce compliance with on-premise license terms?
SAP conducts periodic audits to ensure that customers comply with their licensing agreements. These audits check for unlicensed usage, such as accessing additional users or modules beyond what has been purchased.

Can I customize SAP software under the on-premise license model?
Yes, one of the advantages of on-premise SAP licensing is the ability to customize the software to meet your organization’s specific needs. However, extensive customizations may increase complexity and require additional maintenance resources.