Migrating SAP systems to the latest version, S/4HANA, is a decision that most SAP users have already made. While SAP has convinced many customers of the technological advantages, the decision often hinges on avoiding additional maintenance costs starting in 2027. The standard maintenance for SAP ECC products will end in late 2027, after which maintenance will only be available through the expensive Extended Support.

Alongside the technical migration, it is equally important to address the transition of licenses. For SAP, S/4HANA products are entirely new items and need to be licensed anew. Existing customers have often invested millions in acquiring SAP licenses and have paid regular maintenance fees to SAP over the years. To ensure these investments are not lost, SAP offers various models to transfer old licenses to the new environment.

This blog post explores the current options and provides concrete tips on what to consider when converting licenses.

Why S/4HANA?

S/4HANA is SAP’s latest ERP suite, based on the in-memory database technology of SAP HANA. It offers numerous advantages such as real-time analytics, simplified data models, and a user-friendly interface. For companies, switching to S/4HANA not only modernizes IT infrastructure but also significantly increases efficiency and competitiveness.

Converting licenses also offers the opportunity to return unused licenses (“shelfware”) and “clean up” the accumulated contract history. A new S/4HANA contract provides a chance for more transparency, and if well negotiated, ambiguities in SAP’s price and conditions lists can be resolved.

License Conversion Options

Converting existing SAP licenses to S/4HANA can be done in several ways:

1. Product Conversion: Existing SAP customers can directly convert their current ERP licenses to S/4HANA. Existing ECC licenses can continue to be used within the S/4HANA environment, and all old contracts and special agreements remain in effect. This method protects existing investments and allows companies to immediately benefit from new functionalities.
   However, the option for Product Conversion is only available to customers who have already licensed the product “S/4HANA Enterprise Management for ERP customers.” Since summer 2023, this product can no longer be purchased, making Product Conversion no longer possible.
2. Contract Conversion: Companies purchase new S/4HANA licenses, and all old contracts with SAP are prematurely terminated. The purchase price for the new licenses can be partially offset by the value of the old licenses. Initially, 90% of the new investment could be covered through this offset, but this percentage has since dropped to 70% and will continue to decline. The earlier the contract conversion is carried out, the less additional money needs to be spent.
3. SAP S/4HANA Cloud: SAP has a strong interest in linking the transition to S/4HANA with a switch to the S/4HANA Cloud. The maintenance and development effort for SAP is significantly lower in the cloud. Cloud contracts are always subscription-based, providing SAP with a continuous revenue stream. Additionally, SAP can renegotiate terms at each contract renewal. For this reason, SAP tries to make this migration path as attractive as possible. I have previously published an article on the risks of cloud licensing in the E3 magazine. Click here to read the article.