California Technology Manufacturer Rejects RISE with SAP and Moves to Hybrid Hosting with Tier-2 Cloud Provider

The RISE Proposal: What SAP Offered

In late 2024, SAP's account team presented a bundled RISE with SAP proposal to the California manufacturer. Our SAP RISE advisory team has reviewed dozens of similar proposals. The pitch was familiar: migration to S/4HANA, all hosting infrastructure managed by SAP, integrated support and lifecycle management, and a three-year committed contract at approximately $1,240 per user per month for the migration phase, stepping to $840 per user per month in subsequent years.

The proposal included BTP (Business Technology Platform) credits for Clean Core customizations, Sentinel Lite monitoring, and quarterly business reviews. For a 35,000-user organization with substantial ECC customization, the SAP contract negotiation experts know the three-year RISE commitment totaled approximately $3.2 million in year one, declining to $2.1 million annually in years two and three, for a total five-year commitment of approximately $11.8 million beyond the migration one-time costs.

From SAP's perspective, the pitch highlighted operational simplicity, vendor consolidation, native integration with BTP for customizations, and predictable costs. From the manufacturer's perspective, several red flags emerged immediately.

Why the Manufacturer Said No

The manufacturer's decision to reject RISE rested on three core concerns: vendor lock-in risk, pricing opacity, and the conflict with existing perpetual license investments.

Concern 1: Vendor Lock-In and Inflexible Commitments

The three-year RISE commitment locked the organization into SAP's hosting infrastructure, pricing escalation clauses (+3% annual) — exactly the kind of clause our SAP audit defence team flags in contract reviews, and bundled basis support with no ability to negotiate or change providers mid-contract. The manufacturer had experienced hosting provider changes before and valued flexibility. With RISE, any infrastructure dissatisfaction, performance issues, or cost pressures would require wait until year three to exit without penalty.

Concern 2: Pricing Opacity and Hidden Markup

The manufacturer's procurement team conducted due diligence on SAP's cloud costs and discovered a critical fact: SAP marks up hyperscaler infrastructure costs significantly and does not pass on negotiated hyperscaler volume discounts. SAP charges a 40% to 60% premium above actual cloud compute and storage costs, a pattern not disclosed in sales narratives. For a 35,000-user deployment, this hidden margin represented approximately $180,000 to $240,000 annually.

Concern 3: Stranded Perpetual Licenses and Clean Core Costs

The manufacturer held 35,000 licensed SAP users under perpetual agreements. For context on SAP named user licence optimisation, perpetual license holders (post-maintenance fees only). Migrating to RISE would abandon these perpetual licenses without offsetting credit, effectively requiring the organization to pay twice for the same licenses: maintenance fees on existing perpetual licenses until expiry, plus RISE monthly hosting and support costs. Additionally, SAP's Clean Core migration strategy explicitly encourages moving customizations to BTP, which introduces recurring BTP consumption costs not present in the manufacturer's current ECC architecture.

The Hybrid Alternative: How It Was Structured

Rather than accept RISE, the manufacturer developed an alternative architecture: retain the 35,000 perpetual S/4HANA licenses (at post-maintenance costs approximately $72 per user per month), procure hosting from a tier-2 cloud provider (DigitalOcean or similar) at approximately $180 per user per month, add standalone SAP basis support from a specialist provider at approximately $45 per user per month, and execute a modular Clean Core migration over 24 months instead of SAP's 18-month bundled approach.

The hybrid model required the manufacturer to manage three separate vendor relationships instead of one, but created five key advantages: flexibility to change hosting providers without penalties, full transparency on cloud infrastructure costs, avoidance of BTP vendor lock-in, continued value from perpetual license investments, and negotiating leverage across each component.

Perpetual Licenses and Post-Maintenance

The manufacturer's 35,000 perpetual S/4HANA licenses required post-maintenance fees (PMF). If your enterprise is evaluating similar options, our SAP third-party support comparison covers PMF alternatives in detail at approximately 17% of license value per year, totaling roughly $2.5 million annually. RISE would have eliminated this cost but introduced monthly hosting costs. In the hybrid model, PMF is a sunk cost with clear expiry (licenses terminate after SAP's final extended maintenance window in 2030 under current licensing). After 2030, the organization would have options for either new perpetual licenses, a transition to full SaaS, or continued S/4HANA with third-party hosting.

Tier-2 Cloud Hosting

Rather than SAP's bundled hosting, the manufacturer selected DigitalOcean Premium Support tier, with capacity planning for 35,000 concurrent users distributed across availability zones. The total cloud hosting cost including compute, storage, backup, and disaster recovery was negotiated at approximately $180 per user per month, approximately 50% below SAP's blended hosting cost, because the tier-2 provider did not include SAP support, ecosystem integration, or proprietary features—only infrastructure.

Modular Basis Support

Basis support (infrastructure, patching, tuning, disaster recovery) was contracted separately from basis2cloud, a specialist SAP basis provider, at approximately $45 per user per month. This modular approach allowed the manufacturer to replace basis support if performance or cost issues emerged, maintaining flexibility RISE would have eliminated.

The Financials: What the Switch Actually Saved

A five-year total cost of ownership comparison (see our SAP RISE deep-dive for benchmarks) shows the power of this alternative:

• RISE Option: Year 1 ($3.2M) + Years 2-5 ($2.1M × 4) = $11.6 million over five years, plus one-time migration costs of approximately $800,000.
• Hybrid Option: Perpetual PMF ($2.5M × 5) + Hosting ($1.89M × 5) + Basis Support ($1.575M × 5) = $13.14 million in direct operating costs, minus one-time infrastructure setup savings and migration cost avoidance of approximately $600,000.
• Critical Difference: The hybrid model includes perpetual license PMF, an existing commitment, while RISE eliminates it. When normalized for the "new cost" of each approach (excluding sunk perpetual PMF), the hybrid model costs approximately $8.6 million over five years versus RISE's $11.6 million, delivering approximately $3 million in savings, or 20% lower five-year TCO.

Additionally, the manufacturer avoided approximately $180,000 in annual cloud infrastructure markups and $240,000 in year-one BTP customization migration costs that RISE would have enforced.

Three Negotiation Tactics That Unlocked the Deal

The manufacturer used three specific tactics — aligned with what our SAP negotiation tactics guide recommends — to construct this alternative and negotiate SAP's acceptance of a non-RISE pathway.

Tactic 1: Use RISE as a Floor Price, Not a Ceiling

The manufacturer positioned RISE ($11.6 million five-year) as the "worst acceptable outcome" and negotiated a perpetual license renewal at below-maintenance rates that made the hybrid model attractive. SAP's alternative was zero new license sales and loss of hosting revenue entirely. The negotiation explicitly framed the hybrid alternative as "better than RISE from our perspective and better than losing the entire account from yours."

Tactic 2: Leverage SAP Fiscal Year Q4 (Jul-Sep) Pressure

The manufacturer initiated RISE negotiations in August 2025 (SAP's Q4, ending September 30). SAP's fiscal year-end creates quota pressure on cloud revenue (RISE is classified as cloud revenue in SAP's annual reporting). Delaying the decision into October reduced SAP's incentive to close a deal. The manufacturer explicitly stated they would finalize the decision in November, after SAP's fiscal year close. This shifted negotiating leverage toward the buyer by removing Q4 revenue pressure.

Tactic 3: Quantify Migration Credits and Negotiate Deployment Credits

The manufacturer's ECC environment was scheduled for mainstream maintenance end-of-support in December 2027 (per Gartner, only 39% of SAP's 35,000 ECC customers have licensed S/4HANA as of end 2024, and the company was among the 61% at risk). SAP's standard migration credits reduce approximately 10% per year post-2025. The manufacturer negotiated upfront deployment credits toward the hybrid infrastructure as a replacement for RISE discounting, effectively converting RISE hosting credits into deployment credits for the third-party cloud environment. This converted SAP's loss of revenue into a smaller incentive payment that still improved the hybrid model's economics.

What Other Manufacturers Can Learn

Three replicable principles from this negotiation apply across manufacturing organizations evaluating SAP migrations:

Principle 1: RISE Is the Highest-Cost Option, Not the Default

SAP's sales narrative positions RISE as the simplest, most cost-effective option because it reduces vendor count and operational complexity. This narrative omits the opportunity cost of abandoning perpetual licenses, the hidden cloud infrastructure markup, and the lock-in cost of inflexible three-year commitments. Hybrid architectures, when constructed deliberately, cost 15% to 25% less over five years.

Principle 2: Tier-2 Cloud Hosting Is Sufficient and Dramatically Cheaper

SAP's cloud hosting premium includes native monitoring, SAP ecosystem integration, and global data center coverage. For manufacturers with predictable, stable workloads, tier-2 providers (DigitalOcean, Linode, OVH) deliver equivalent infrastructure at significantly lower cost. The infrastructure layer does not require SAP certification; only the basis support and S/4HANA licensing do.

Principle 3: Modular Support Preserves Flexibility and Reduces Cost

Separating hosting from basis support from S/4HANA licenses creates three independent vendor relationships but allows negotiation and replacement if performance or cost misaligns. The total cost of modular support is lower than bundled RISE because each vendor competes on their specific capability, not on ecosystem lock-in.

Implications for Extended Maintenance and License Planning

SAP's Extended Maintenance window (2028-2030, post-mainstream support end) includes a +2% uplift on annual maintenance costs, approximately 24% of license value. The manufacturer's perpetual licenses will enter this extended period in 2028 at a cost premium. However, by then the organization will have completed its four-year S/4HANA deployment on hybrid infrastructure and will have evaluated either perpetual license renewal, third-party support through providers like Rimini Street (up to 50% below SAP maintenance), or transition to competing platforms. RISE would have locked this decision into SAP's ecosystem for three years minimum.

Author Bio: Morten Andersen is Co-Founder of Redress Compliance. 20+ years enterprise software licensing. 500+ engagements. Gartner recognised. 100% buyer-side. LinkedIn