SAP License Compliance: Best Practices for Cloud and Hybrid Environments
Executive Summary:
Enterprises increasingly operate a hybrid SAP landscape – combining traditional on-premise SAP ERP with cloud offerings like SAP SuccessFactors, Ariba, Concur, etc.
This article provides CIOs and IT Asset Managers with best practices to maintain SAP license compliance across hybrid environments.
It covers how on-prem and cloud licensing differ, strategies for managing user access and entitlements, and avoiding common compliance pitfalls when integrating cloud applications with on-prem SAP.
The goal is to help organizations stay compliant and cost-efficient while leveraging on-prem and cloud SAP solutions.
Read SAP License Compliance: Best Practices for Indirect and Digital Access.
On-Premise vs Cloud SAP Licensing Basics
In a hybrid scenario, it’s crucial to understand that on-premise SAP and cloud SAP have different licensing models. On-premise SAP typically uses perpetual licenses (e.g., a certain number of SAP Named User and engine licenses) plus annual support fees.
Compliance is measured by usage versus purchased entitlements, often via audits. In contrast, SAP’s cloud products (like SuccessFactors or SAP S/4HANA Cloud) use subscription licenses—usually a recurring fee per user or per usage metric, which gives the right to access the service.
Compliance in the cloud means using the service within the contracted quantities and terms. For example, you might have a subscription for 500 SuccessFactors Employee Central users; staying compliant means not exceeding 500 active named users in that system (or paying for the overage).
Unlike on-prem, where you might be caught under-licensed in an audit, cloud overuse often manifests as oversubscription charges or is limited by the system.
Key Point: On-prem compliance issues typically result in a one-time true-up cost, whereas cloud non-compliance often results in ongoing higher subscription fees or service access issues. Both need vigilant management.
Read SAP License Compliance: Best Practices for SAP Engines and Package Licenses.
Common Compliance Challenges in Hybrid Landscapes
Running both on-prem and cloud SAP together introduces unique challenges:
- Duplicate Licensing: The same employee might sometimes use both on-prem SAP and a cloud application. Each environment might require its own license for that user (one in the on-prem system and one in the cloud service). Companies must carefully track such users to avoid paying for unused overlap or missing a license. For instance, if you moved your HR to SuccessFactors but still run SAP HCM on-prem for legacy data, ensure you’re not maintaining licenses for users who exclusively use the cloud now (those could perhaps be retired or reduced).
- Integration and Indirect Use: Cloud apps often integrate with on-prem SAP. For example, SAP Ariba (cloud procurement) might push purchase orders into your on-prem SAP ERP. This creates an indirect access scenario from the cloud to on-prem. To remain compliant, you must ensure such data exchange is licensed appropriately on the on-prem side (digital access or a specific interface user license). Similarly, suppose on-prem SAP sends data to a cloud app. In that case, that cloud app’s usage must align with its subscription (e.g., if a third-party user updates data via the cloud app into SAP, do they need a cloud license?). Managing these cross-environment interactions is key to compliance.
- Multiple Contracts and Metrics: Each SAP cloud service has its own contract and metrics (users, transactions, spend volume, etc.), separate from on-prem agreements. Keeping track of renewal dates, user counts, and metric definitions can be complex. A lack of centralized oversight can lead to unintentional overuse. For example, you might exceed your SAP Concur travel expense report count if more employees travel than anticipated, incurring overage fees. If this isn’t communicated to the SAM team, it could go unnoticed until a hefty bill arrives.
User Access Management Across Cloud and On-Prem
One of the most effective compliance controls in a hybrid environment is robust user access management spanning both cloud and on-prem systems:
- Centralized User Provisioning: Wherever possible, use a centralized identity management process. When new employees join, a workflow assigns them the correct on-prem SAP license type and cloud subscriptions if needed. Conversely, when someone leaves or no longer needs access, promptly remove them from both on-prem and cloud systems. This prevents license waste (e.g., a departed employee’s SuccessFactors account sitting active, consuming a paid subscription).
- Role-Based Access: Design roles such that they correspond to licensing needs. For example, if only certain roles in your company need an Ariba account, limit the assignments for those roles. This way, you don’t accidentally give hundreds of users access to a cloud service that you only have licenses for 50. For on-prem, continue aligning roles to the right license type; for cloud, align roles to subscription levels (for instance, some cloud services have tiered user types or packages).
- Periodic Reconciliation: Regularly reconcile user lists between HR records, your on-prem SAP, and SAP cloud admin consoles. If you find more active accounts in a cloud app than you have licenses for, take action immediately (turn down by deactivating unused accounts or purchasing additional licenses). Similarly, ensure the number of active named users in your on-prem environment doesn’t silently grow beyond what you own, especially in a hybrid scenario. Sometimes, cloud users get created with an on-prem account via integration (e.g., an SF user provisioning might create an SAP user ID). Watch for that and disable or license accordingly.
Monitoring Cloud Service Usage
SAP cloud services often have usage metrics beyond just user count, and these are important for compliance:
- Transaction and Object Limits: Some cloud products impose limits on business transactions. For example, SAP SuccessFactors might be licensed based on the number of employees or transactions per month in certain modules, SAP Ariba might have limits based on spend volume or the number of documents (RFQs, POs) processed, and SAP Analytics Cloud could have capacity limits. Monitoring these usage statistics via the cloud product’s admin/reports is essential. Best Practice: Set up administrative alerts if available – for instance, get notified if you reach 80% of your licensed capacity in a period. This gives time to react (optimize usage or talk to SAP about increasing the subscription) before you hit the limit.
- True-Up and True-Down Opportunities: Unlike on-prem, many SAP cloud agreements allow adjustments at renewal. Keep track of actual usage versus what you’re paying for. If you have 1000 licenses for Concur but only 800 active users, you might reduce the number on your next renewal to save cost (true-down). Conversely, if you consistently need more than you purchased (e.g., more Ariba suppliers or more SF modules usage), plan a budget to true-up at renewal to stay compliant long-term. Cloud providers (including SAP) generally won’t automatically reduce your count (you’ll pay for the contracted amount even if underused) and will charge extra if you exceed, so optimizing at renewal time is up to you.
- Cloud Analytics: Leverage any usage analytics SAP provides for their cloud apps. Some have dashboards showing active users, storage used, transactions processed, etc. Reviewing these monthly or quarterly as part of your SAM reporting ensures you know trends. For example, if your SAP Cloud Platform (BTP) consumption is 90% of quota, you can proactively purchase more capacity or throttle usage. The key is no surprises.
Aligning Contracts and Renewals
In hybrid setups, having multiple contracts (perhaps different end dates for various cloud services, plus your on-prem maintenance renewal) is common. To simplify compliance management:
- Co-Terminate Agreements: Where feasible, negotiate to co-term your SAP cloud contracts so they renew on the same date. Suppose all your cloud subscriptions (SuccessFactors, Ariba, etc.) renew together, perhaps aligning with the on-prem support renewal cycle. In that case, conducting an annual comprehensive license review and true-up/true-down exercise is easier. You can evaluate your entire SAP investment holistically rather than piecemeal throughout the year.
- Unified Licensing Discussions: Engage SAP (or your reseller) in discussions that cover your full SAP footprint. This can sometimes open opportunities for better deals or adjustments. For example, if you’re underutilizing one product but need more of another, SAP might allow reallocating some value or provide discounts to right-size. They are also pushing RISE (bundled subscription for S/4HANA + cloud services); even if you don’t go that route, being informed helps negotiate.
- Contract Clarity: Ensure each contract clearly defines how usage is measured and what happens if you exceed. For cloud, know the overage policy (is it auto-charge, or do you negotiate after a threshold?). For on-prem, ensure you know the audit rights and true-up terms. In a hybrid license discussion, clarify any interplay – e.g., if you move some users to S/4HANA Cloud, can you park or terminate equivalent on-prem licenses? Having these terms sorted in contracts prevents compliance headaches and wasted spend.
Handling License Compliance During Transitions
Many companies are transitioning, for example, from SAP ECC on-prem to S/4HANA Cloud or shifting certain modules to cloud equivalents.
During these transitions:
- Avoid Dual Licensing Pitfalls: During migration, the old and new systems might be active (for testing or phased go-live). SAP often provides temporary license allowances for such scenarios (like extra test licenses or conversion credits), but you must ensure they’re in place. If you’re running parallel systems without proper licensing, an audit could flag it. Always inform SAP or secure contractual “bridge” licenses for migration periods.
- Shelfware Management: If you decommission an on-prem system in favor of cloud, decide what to do with the now-unused on-prem licenses. They might become “shelfware” – still owned but not used. Options include negotiating with SAP to credit some of those values towards your new cloud spend (SAP sometimes offers conversion programs) or terminating maintenance on truly shelfware licenses to save costs (if you don’t need the right to upgrade them anymore). Conversely, if you spin up a new cloud service, avoid over-provisioning from day one – start with what you need, and you can usually add users quickly. Unused subscriptions are wasted budget and can complicate compliance tracking.
- Third-Party Support Consideration: A strategy some use on the on-prem side is moving unused or less critical SAP systems to third-party support (like Rimini Street), which frees you from SAP’s audit/compliance on those systems. However, you can’t upgrade them and must isolate them from systems under SAP support. This is a complex decision, but can be part of a compliance strategy if you have a lot of shelfware licenses you still need to run but don’t want to pay full maintenance or face audits on.
Recommendations
- Implement Central Oversight: Establish a central SAM function or team responsible for tracking on-prem and cloud SAP usage. This team should have admin access (or reporting access) to cloud portals and coordinate with IT on on-prem usage.
- Regular Cross-System Audits: Conduct a unified audit at least annually that covers user counts and usage in every SAP system (ECC, S/4, SuccessFactors, Ariba, etc.). This holistic view helps catch any overuse early.
- Use Identity Management: Leverage an identity management tool or process to ensure that when a user is deactivated in HR, their accounts in all SAP systems (cloud and on-prem) are promptly deactivated. This prevents license leakage from forgotten accounts.
- Monitor Cloud Overage Alerts: Configure alerts in each SAP cloud service to approach limits (user count, transactions, storage). Treat these alerts seriously and take action (clean up or purchase more) before it becomes a compliance issue.
- Optimize at Renewals: Don’t just rubber-stamp renewal counts. Analyze past usage: Reduce your subscription numbers if you consistently have unused licenses; increase or negotiate tier discounts if you exceed and need more.
- Align Renewal Dates: Where possible, negotiate common renewal dates or co-term agreements so you can review everything together. This simplifies license management and strengthens your negotiating position (bigger deal discussions).
- Training for Admins: Ensure that system administrators of each SAP cloud product know the licensing model and compliance implications. For instance, your SuccessFactors admin should know how licenses are counted and be vigilant about inactivating users who don’t need access.
- Document Integration Licensing: Document how each integration between cloud and on-prem is licensed (e.g., “Ariba to SAP PO integration covered under Digital Access with X documents/year licensed”). This helps demonstrate compliance and avoids confusion if staff changes or an audit inquiry arises.
- Plan Migrations Wisely: When moving functionality to the cloud, plan the licensing crossover. If possible, leverage SAP conversion programs or at least schedule go-lives near renewal dates so you can adjust licenses promptly and avoid paying double.
- Engage with SAP Proactively: Maintain an open dialogue about your hybrid usage with your SAP account team. In some cases, SAP might offer advice or programs to optimize licensing (for example, promotional bundles or advising which licenses can be terminated). Proactive communication can signal SAP that you are on top of compliance, potentially reducing the likelihood of aggressive audits.
FAQ
Do SAP cloud products get “audited” like on-prem software?
SAP cloud products don’t get audited in the traditional sense because SAP can typically measure your usage from their side. However, they will review usage at renewal time and expect you to purchase more if you’ve exceeded your contracted amounts. It’s effectively a self-audit – if you use more, you pay more. So, while you won’t get an official audit letter for cloud services, compliance is enforced through the subscription model and contract terms.
What happens if I exceed my SAP cloud subscription (e.g., more users than licensed)?
Usually, SAP will charge you immediately for overuse (if defined in the contract) or at the next true-up/renewal. Some cloud services might prevent additional users from being added beyond your limit, but many operate on the trust that you’ll pay for the peak usage. Exceeding contracted metrics could also risk breach of contract if not addressed. Always read your cloud contract: many have clauses that any usage above the entitlement must be reported and will be billed. It’s best to proactively adjust your subscription when you see usage trending high.
Can I transfer unused on-prem licenses to cloud services?
Not directly on a 1-to-1 basis. On-prem and cloud licenses are different animals. However, SAP has offered conversion programs (like the “RISE with SAP” program or specific cloud transition programs) where you can surrender some on-prem license value to get credits for cloud subscriptions. This usually must be negotiated at SAP’s discretion. Absent such a program, you can reduce on-prem license maintenance (to save cost on shelfware) and separately subscribe to cloud services, but you’d still be paying for cloud services. Talk to your SAP rep about current conversion offerings if you plan a major move to the cloud.
How do I keep track of multiple SAP contracts?
Maintain a contract and license register – a central spreadsheet or tool listing each SAP agreement, what it covers (product, metric, quantities), start and end dates, and any special terms. Include your on-prem license entitlements and each cloud subscription. This helps you see the big picture. Many organizations also use Software Asset Management tools with contract management modules to remind them of renewals and store entitlements. Regularly updating this register and reviewing it quarterly is a good practice.
If I use an SAP cloud product, do I still need on-prem licenses for those users?
It depends on what the user is doing. If a user only uses the cloud product and does not use your on-prem SAP system, you might not need an on-prem license for them. However, if that cloud product integrates with on-prem and causes transactions in the on-prem system under that user’s context, you could need some license coverage on-prem (either a named user or Digital Access). Example: Your sales team only logs into SAP Sales Cloud (cloud CRM). If that CRM writes orders into on-prem SAP ECC, those orders are indirect access into ECC – you’d need to license that (often via Digital Access documents). The user might not need an ECC login, but the activity is happening in ECC. Always analyze the interaction to determine if on-prem licenses besides the cloud license are required.
How can I avoid paying for the same user twice in hybrid scenarios?
Unfortunately, SAP doesn’t have a unified license that covers an individual’s on-prem and cloud usage. You generally do pay separately. But you can optimize by not over-provisioning. For instance, if an employee moves to using SuccessFactors for HR, do they still need an SAP HR on-prem user? If not, remove them from on-prem to free that license. Also, ensure that you remove them from all systems when someone leaves. While you can’t avoid having two licenses for two systems, you can avoid having unnecessary licenses on one side that aren’t used.
Are SAP cloud subscriptions named-user-based or concurrent?
Almost all SAP cloud subscriptions are named user (individual-specific users) or employee-based (for HR, the number of employees in the system). They are not concurrent. If you have 100 employees using a cloud service, you need 100 licenses (even if not all use it simultaneously). Some cloud products have modular licensing (e.g., SuccessFactors modules might be licensed per employee record, Ariba might be licensed per supplier, or transaction volume). However, one license cannot be shared by multiple individuals concurrently. The accounts are typically 1:1. Remember this when planning your license needs.
What if a user has multiple cloud accounts (e.g., uses SuccessFactors and Ariba)?
They count separately for each product. Your SuccessFactors subscription covers them for SF, and your Ariba subscription covers them for Ariba. No single SAP cloud license spans products (aside from bundled offerings like RISE, which is more about bundling S/4HANA with some cloud services). You should track usage per product. From a compliance perspective, treat each cloud product as its own silo for counting licenses, even if the same person is in multiple systems. It’s similar to an employee using two on-prem SAP systems needing licensing (like ERP and BW).
How do integrations between SAP cloud and on-prem affect licensing?
Integrations can create indirect usage scenarios. For example, suppose your cloud procurement system (SAP Ariba) automatically creates purchase orders in your on-prem SAP ERP. In that case, those PO documents in ERP might require a license (digital access documents, for instance). On the flip side, if you’re on-prem system feeds data to the cloud app, ensure you aren’t violating any terms on the cloud side (most cloud terms are straightforward about named users, so usually it’s the on-prem side you worry about). Essentially, data flowing from one to the other can trigger usage in the target system that needs to be licensed. Always evaluate both ends of an integration: who/what generates transactions, and are those transactions counted under a license entitlement? Many companies create a technical or system user for integrations; you must ensure that the user is appropriately licensed in each environment (or exempt by policy, though SAP rarely exempts interface accounts except via digital access in the on-prem sense).
Is compliance easier with RISE with SAP (which bundles cloud and infrastructure)?
RISE with SAP converts many things into one subscription, including infrastructure and an S/4HANA cloud license that covers many components. It can simplify things because you deal with one contract, and SAP takes on some responsibility (like infrastructure audits). However, you must still manage user counts (FUEs in RISE) and any additional cloud services you add. It also doesn’t remove the need to manage indirect usage from non-SAP systems. Some complexities disappear (no more separate HANA DB license audits, for example, since it’s part of the subscription), but others remain. In short, RISE changes the nature of compliance rather than eliminating it – you’ll focus on subscription limits and service levels instead of classic audit metrics.
Read about our SAP License Management Services.
