10 Things IT Sourcing Should Know About SAP ERP Private Cloud
SAP ERP Private Cloud – often delivered via RISE with SAP – is an all-in-one subscription bundling SAP software, cloud infrastructure, and support under one contract.
It promises simplified operations and faster transformation, but it also brings new considerations in licensing, cost transparency, contracts, and vendor lock-in.
This advisory highlights ten key insights for IT sourcing leaders on navigating SAP ERP Private Cloud deals, with practical recommendations to avoid common pitfalls and maximize value.
1. All-in-One Subscription Bundle (Single Contract)
Insight:
SAP ERP Private Cloud consolidates your software, infrastructure, and support into a single subscription. This simplifies vendor management (one provider), but also hides cost breakdowns and limits your ability to seek alternative hosting or support options.
Recommendation: Demand clarity on what’s included and how usage is measured. Be aware that you’re trading some control for simplicity – ensure you’re comfortable relying on SAP as your single provider.
2. Cloud-Only Deployment (No On-Prem Option)
Insight:
The private cloud edition runs exclusively in SAP’s managed cloud – it cannot be deployed on your servers. You relinquish direct infrastructure control; SAP handles operations, updates, and support.
Recommendation:
Confirm SAP’s cloud meets your needs (performance, compliance, data location) since you’ll be fully dependent on it. Prepare your IT team to adapt to SAP’s cloud processes and constraints, as some autonomy will be lost.
3. Public vs. Private Cloud – Know the Difference
Insight:
SAP offers a multi-tenant Public Cloud (standardized SaaS, limited customization, frequent updates) and a single-tenant Private Cloud (dedicated system, more customization, flexible upgrade timing).
Private Cloud lets you keep customizations and integration flexibility (with a higher price tag). The Public Cloud suits companies that can use SAP’s out-of-the-box processes for a lower cost of entry.
Recommendation:
Be clear on which edition fits your business. If you have complex or unique requirements, consider opting for the Private Cloud, despite the premium. If you can largely adopt standard SAP processes, consider whether the cheaper Public Cloud could meet your needs.
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4. New Licensing Model (Subscription & FUEs)
Insight:
Moving to SAP’s private cloud means switching to a subscription-based licensing model. Instead of owning perpetual licenses, you pay annually for each additional user.
SAP often uses Full User Equivalents (FUEs) to aggregate different user types into a single metric for pricing purposes. Also, remember that indirect use (external systems creating SAP transactions) still requires licensing, unless it is negotiated into the deal.
Recommendation:
Right-size your user counts and understand SAP’s metrics. Avoid overestimating users (which can inflate costs), and ensure that “digital access” for any third-party interfaces is addressed in your contract to prevent unexpected fees.
5. Impact on Existing SAP Licenses
Insight:
When moving to SAP ERP Private Cloud, your existing on-premise SAP licenses for the migrated systems are typically put on hold or retired.
You must stop using those licenses and paying for their maintenance (no dual use). You may receive some credit, but essentially, you relinquish your perpetual license rights in favor of the subscription.
Recommendation:
Clarify in writing what happens to your current licenses.
Negotiate any credits for past investments and see if there’s a reinstatement option (often there isn’t).
Ensure leadership understands that this is largely a one-way move – once you’re in the cloud, reverting to on-premises would require new licenses and a significant effort.
6. Multi-Year Commitment and Renewal Risk
Insight: SAP Private Cloud contracts usually lock you into a multi-year term (3–5 years is common). There’s no easy way out mid-term – you’re committed to pay for the full period.
At the end of the term, you’ll have to renew to continue service, potentially at higher rates. Some contracts also include built-in annual price escalations.
Recommendation:
Negotiate the contract length and renewal terms upfront to ensure a smooth transition. Try to cap annual cost increases and set a ceiling on renewal pricing (e.g,. no more than a certain percentage hike). Plan your budget for the entire duration and factor in those potential increases.
7. Hidden Costs and Sizing Surprises
Insight:
The subscription fee has resource limits. It typically includes a certain number of systems (production and a couple of non-prod), a fixed amount of storage, and a defined capacity for users/transactions.
If you require more – such as an extra sandbox, additional data storage, or higher performance – these will incur extra costs. Additional SAP services (like extra SAP BTP usage or network transactions beyond a small included amount) also incur fees.
Recommendation: Scrutinize the proposal to ensure compliance with all resource limits.
Ask what happens if you need additional environments, more users, or if your data exceeds the initial allotment.
Negotiate pricing now for any anticipated expansions, so you’re not blindsided by high charges later.
Table: Potential “Hidden” Cost Areas in SAP ERP Private Cloud
| Cost Area | What to Watch For (and Mitigation) |
|---|---|
| Extra systems | Base deal might include 1 production and a couple of non-prod systems. Any additional sandbox or QA system will cost more. Mitigation: Determine all environments you’ll need and get them included or priced upfront. |
| Data storage | Only a fixed storage volume is included (e.g. 1 TB). If your data grows beyond that, overage fees apply per GB. Mitigation: If large growth is expected, negotiate a bigger storage quota or fixed overage rates now. |
| Performance | The environment is sized for a certain workload. If you need more CPU/memory for peak loads or user increases, SAP will charge for extra capacity. Mitigation: Clarify how scaling up works and lock in pricing for additional users or hardware resources now. |
8. Vendor Lock-In – Plan Your “Exit” Strategy
Insight: Adopting SAP’s private cloud increases your dependency on SAP.
Once you migrate, switching to another solution (or back to on-premises) would be a complex and costly project – effectively locking you in. SAP knows that once you’ve invested in their cloud, you’re likely to stay, which can reduce your leverage later.
Recommendation: Negotiate with an exit plan in mind. Ensure your contract allows you to retrieve your data easily, and consider including a clause for transition assistance in case you need to leave in the future.
If possible, opt for a shorter initial term or phased approach to maintain flexibility. Even if you plan to stay long-term, having an “escape hatch” clause gives you leverage and peace of mind.
9. Responsibility Split – SAP’s Role vs. Yours
Insight: In SAP ERP Private Cloud, SAP handles the technical infrastructure (system setup, patching, uptime, backups), while your IT team still does configuration, data migration, custom development, and user support. SAP runs the platform, but doesn’t run your business.
Recommendation: Delineate responsibilities. Review SAP’s service scope or RACI matrix to understand who is responsible for what.
Make sure you have plans and staff for the tasks on your side (user support, testing, ongoing improvements), because those remain your responsibility even in the cloud.
10. Negotiation Tactics and Pitfalls
Insight: Everything in a SAP Private Cloud deal is negotiable. Don’t accept the first offer – it often favors SAP.
Common pitfalls include overcommitting to too many users (known as “shelfware”) or overlooking terms such as renewal increases or indirect use charges. The good news is that SAP is eager to sign cloud contracts, so you have leverage if you come prepared.
Recommendation: Treat this like a major outsourcing negotiation. Come with clear requirements and benchmarks, and push for better pricing and terms.
For example, negotiate for needed extras (additional systems, favorable SLA terms, price protections) and get all commitments in writing. Involve procurement or independent experts to help spot any hidden “gotchas” before you sign.
Recommendations (Practical Tips)
- Insist on detailed terms: Require contract clarity (services, limits, SLAs, future cost clauses) – no gray areas.
- Benchmark the deal: Compare SAP’s proposal to your on-premises costs and those of other providers to negotiate fair pricing.
- Leverage your investments: Use your existing SAP spend as leverage – ask for credits for unused maintenance and ensure you’re not double-paying during transition.
- Budget for migration: Allocate a budget and resources for the S/4HANA migration project – the subscription does not cover these implementation costs.
- Secure flexibility: Build in flexibility – e.g., rights to adjust user counts at renewal or add services at fixed rates – to protect against changing business needs.
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Checklist: 5 Actions to Take
- Evaluate fit: Assess whether SAP ERP Private Cloud aligns with your business and IT strategy, and identify which systems would be migrated.
- Audit current usage: Document your current SAP licenses, user counts, and integrations. Use this baseline to size the new subscription and plan how to handle legacy licenses.
- Request a detailed proposal: Obtain a detailed proposal from SAP (system sizing, included resources, SLAs, all fees). Treat it like an RFP response and scrutinize every detail.
- Define negotiation priorities: Clearly define your must-have terms (such as pricing, SLAs, flexibility, and support) before beginning negotiations. Leverage alternatives (on-prem or other vendors) to strengthen your position and push for better terms.
- Plan the migration: Prepare your implementation plan and team well in advance. Coordinate with SAP on any migration tools or services, and ensure that timelines and responsibilities are clear to facilitate a smooth go-live.
FAQs
Q: How is SAP ERP Private Cloud different from running SAP on-premises?
A: SAP hosts and manages your SAP system in their cloud for a subscription fee (instead of you running it on-premises). They are responsible for the infrastructure and technical management.
Q: What is included in an SAP Private Cloud subscription, and what isn’t?
A: It includes the S/4HANA software, the cloud infrastructure to run it (with basic backup and disaster recovery), and SAP’s standard support services. It does not include your S/4HANA implementation project or any ongoing application support beyond SAP’s standard offerings.
Q: Can we customize our SAP system in the Private Cloud?
A: Yes – in the private cloud (single-tenant), you get your own SAP instance to configure and customize, almost like on-prem (unlike the highly standardized Public Cloud edition).
Q: How flexible is the contract if our needs change (e.g., user count)?
A: Not very flexible – you’re locked in for the term. You can add users or capacity (for an additional cost), but cannot scale down until the next renewal.
Q: What happens after the contract term if we don’t want to renew?
A: If you don’t renew, your SAP access ends at contract expiration, and you must migrate off SAP’s cloud. In practice, most companies renew because switching away is a complex process.
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