Why SAP’s licensing strategy is changing and how to stay in control of your costs

A Fundamental Change in SAP’s Business Model

SAP is no longer just an ERP software vendor selling perpetual licenses with annual maintenance. Over the past few years—and accelerated in 2025—it has shifted to a cloud-first, subscription-based licensing model. The flagship example is RISE with SAP, which bundled software, infrastructure, and support into one monthly or annual subscription.

This shift reflects broader market trends:

·       Predictable revenue for SAP (recurring OpEx rather than one-off CapEx).

·       Faster innovation delivery via cloud updates.

·       Pressure from hyperscalers and SaaS competitors who already offer flexible, pay-as-you-go options.

Perpetual Licenses: Still Here, But Losing Favour

Perpetual licenses for on-premise S/4HANA are still available, especially for industries with strict data residency or latency requirements. But SAP’s commercial incentives (discounting, support timelines, and roadmap focus) all point customers toward Cloud ERP. Over time, those who remain on perpetual models may find:

·       Higher maintenance fees.

·       Slower delivery of new features.

·       Fewer support resources for legacy deployments.

OpEx vs CapEx: Financial and Operational Trade-Offs

Strategic Questions to Ask Before You Move

1.     Total Cost of Ownership (TCO):
Model 5-year and 10-year TCO scenarios for both cloud and on-premise. Don’t just compare license fees. Factor in infrastructure, support, upgrade costs, and staff time.

2.     Control vs Agility:
How much control do you need over your environment? Heavily customised ECC instances may need significant re-engineering for the cloud.

3.    Integration Dependencies:
Does your architecture rely on non-SAP systems that could trigger indirect access charges or need custom integrations in the cloud?

4.    Negotiation Leverage:
SAP often sets artificial deadlines, but don’t be rushed. Early planning and benchmarking with advisors give you bargaining power.

Negotiation Tips

• Bundle Intelligently: You don’t have to accept SAP’s first cloud package as-is. Strip out modules you won’t use and benchmark third-party hosting costs.
• Phase Your Migration: Committing to a hybrid approach (some workloads in cloud, some on-prem) can smooth costs and reduce risk.
• Use Market Benchmarks: Compare your proposal against peer deals. SAP’s pricing flexibility is greater than they’ll admit.
• Lock In Predictability: Push for price caps or stepped increases on subscription renewals to avoid sticker shock.

Livingstone Perspective

Moving to subscription models can boost agility and cost efficiency, but only if you migrate on your terms. Too many organisations rush under SAP’s timelines and over-commit to expensive packages. By combining SAM insights, CMDB context, and enriched data, you can:

·       Identify which licenses and modules you need.

·       Avoid paying for shelfware or duplicate functionality.

·       Build a business case that includes operational impact, not just license cost.

Key Takeaways

·       SAP’s shift to cloud subscriptions is accelerating. Perpetual licenses will increasingly become a niche choice.

·       Run long-term TCO analyses before making commitments.

·       Don’t accept SAP’s urgency at face value. Negotiation space exists.

·       Use independent data and benchmarks to secure favourable terms.

·       Approach Cloud or S/4HANA migrations as a strategic transformation, not just a licensing change.

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Author

Lucy Shillito, Senior Consultant at Livingstone Technology