SAP - Usage-Based Business Models

Many cloud services are usage-based and that is right and good: If AWS revises its unbeatably low storage prices in the distant future, a switch to Google and Microsoft is in all likelihood possible - not easy, perhaps not cheap, but possible.

Those who take precautions with cloud technology from storage provider NetApp can move cloud storage between Amazon, Microsoft and Google almost at will. A usage-based business model makes a lot of sense here. It is almost mandatory.

Until death do you part

But those who develop and run their SAP Leonardo apps on the SAP Cloud Platform have no alternatives: once you start with SAP's cloud computing, you stay there for life.

"Divorce in Italian" is the only solution - until death do you part! Here, a usage-based business model is literally fatal - or a real money-saver for SAP CEO Bill McDermott.

Once started with IoT, machine learning, blockchain and other Leonardo capabilities on SAP Cloud Platform, you are at the mercy of SAP's licensing dictates. Experienced existing customers know this dilemma from the past:

The changing licensing terms and metrics of an SAP NetWeaver ultimately turned a once nearly free platform into one of the most expensive and profitable products for SAP.

You only have to take a look at SAP's price lists over the past ten years to see that the SAP Cloud Platform's usage-based business model will also work out to the disadvantage of existing customers.

Usage-based means being dependent on an arbitrarily set SAP metric. What appears to be free today may cost a million euros tomorrow.

New engine prices, changed usage models, new features, extended dependencies between modules and apps provide SAP with every opportunity for obvious and hidden price increases.

What does the existing customer want to do if his ERP modifications and add-ons were developed almost entirely on the SAP Cloud Platform and are now operated exclusively there?

Unlike on-premise, users have to follow every step of the cloud service provider. Follow the specifications and prices. Only when it comes to generally standardized tasks and generic data is a switch possible.

Just as Abap modifications and add-ons from the Z namespace cannot be transferred to another ERP system, SAP Cloud Platform apps cannot be transported without SAP's intervention and permission.

Naturally, SAP is working on a multi-cloud concept with Amazon, Microsoft and Google, but the functional and licensing dependency will remain, even if the Leonardo app runs in the MS Azure cloud. SAP will continue to keep its hand out.

It's the old game:

Make the barrier to entry as low and innocuous as possible; introduce the existing SAP customer to the platform - NetWeaver, SolMan, Hana Cloud, etc.; gradually adapt the metrics of the licensing model; and ultimately triple the contribution margin and SAP stock price.

SAP CEO McDermott is probably one of the best salesmen in the world. He knows how to get the most out of existing customers.