Rimini Street’s Scott Hays on Cloud Migration Challenges Facing SAP Customers

Hey guys, thanks to the Throw. We're here with Scott Hayes, who's director of Product Marketing for RI Street, and we're talking about SAP and how to regain control over your own migration strategy. 'cause well, everybody's got a plan, except they never, always consulted the folks who were affected by send plan.

Hey Scott, welcome to show. Hey, thanks Mike. Thanks for having me.

Not everybody is necessarily, uh, well versed in all things SAP. So paint the picture for us here. What's going on in terms of these migrations?

And like a lot of SaaS providers these days, now everybody wants you to be on a certain, uh, version and update, but there's a long history of running SAP in on-premise environments. So what are we trying to accomplish here and, and where's the tension in the system? Uh, there's so much to cover here, Mike, and I'm sure we'll branch off in this, uh, uh, in this time to, to hit some of these other things.

But let me, lemme just set the basics here. You know, SAP uh, software is run by some of the largest, most complex, most successful companies in the world. Um, and, uh, the, the software that they run, um, is mission critical to their business.

They're running their shop floors, they're running their orders and invoices and, and, and their customer experiences. Uh, their partner experiences, their distribution channels, their, their shipping and supply chain. And, uh, these are things that are the lifeblood of, you know, generating revenue and controlling costs in these companies.

So, um, the, the, the, the SAP is really the heart of that, um, in terms of, of record keeping and reporting, uh, and the, you know, the daily activities that are going on in organizations. So that's kind of the foundation. And, uh, SAP has had many different, uh, products over the years, decades now.

Um, and the predominant one in the market now actually running in production, um, is, uh, there are two really. There's one called ECC, um, and, uh, that's been running a little bit longer than S four hana, which was released in 2015. But here at this interview that's, uh, coming up on its, uh, 10 year anniversary for S four hana.

And, uh, SAP leadership, um, has certainly been paying a lot of attention to what drives, um, stock prices, uh, and what drives positive investor sentiment. And that is converting any stream of revenue it can to the a RR line, the annual recurring revenue line, uh, in their, um, uh, reporting. And so they're wanting to, as many other SaaS providers have done, convert their clients, many of whom, especially ECC, but also thousands or tens of thousands of S four HANA clients to convert them from having perpetual licenses, Hey, I can run this product into perpetuity, to subscription licenses.

Where if, uh, you know, you decide that you wanna do something a little bit different, you're gonna have to talk to SAP about how you want to do it differently. So they're patching packaging up in that subscription license, the right to use the software, the support for that software, some infrastructure services for that software, and the cloud compute power upon which that software is executing. Um, and so they would love to move tens of thousands of ECC clients from a perpetual license to a subscription license.

And that's where it's really been a challenge for SAP clients is, do I want to give that up and do I want to go through the headache, the risk, the cost, the disruption of migrating or replatforming my software, something that's working highly customized to something that, uh, is under SAP's subscription agreements and on their, um, you know, managed cloud services, right? So if I wanna hold onto my perpetual license, do I have a choice of the matter? And what am I trading off to stay there?

'cause, uh, that seems to be the point of control. Fair point. So, um, you can hold onto your perpetual licenses, hence the word perpetuity.

Um, and I think the question that the, that the practitioners are asking is, does the value and the viability of what I'm running last longer in my business than what SAP would by practice, uh, recommend that I, you know, continue running this software? So, um, SAP's done a couple of things to try to convince clients to move from that perpetual license to a subscription. They, one have said that they're going to stop providing mainstream maintenance for ECC software, um, in 2025 for some of the enhancement packs and in 2027 for some of the other enhancement packs.

Um, and so that's kind of the stick is, Hey, we're gonna stop providing, um, maintenance for these. The carrot is, but if you get over to our subscription and onto our cloud, then we have lots of innovation waiting for you. So, um, they've used that strategy and yet, and yet many IT leaders have said, you know what, it's not, it's not making economical sense.

They have done the math and looked at the cost of replatforming a very complex, typically highly customized product that's working and saying, just because you're gonna stop supporting it, I'm not sure that the cost and risk and disruption of moving to this new model is good for us, number one. Number two, I can't get the board to sign off on the tens of millions of dollars that might cost for us to do that. And number three, then I end up in a position where this core mission critical software is now part of a bundled agreement with SAP that might be hard to unravel or exit from down the road.

We call it vendor lock-in. So that's really the point is, can I really afford, or do I even want to move that direction for innovation when what we see in the market is that innovation isn't necessarily coming from mostly the leading, uh, ERP software providers themselves, at least as I understand it, just about everybody who invested in SAP for, uh, an on-premise environment or something, or whether they hosted it somewhere else on their own, but it's self-managed, has customized that extensively over the years. Mm-hmm.

Yeah. Um, those customizations are, have a lot of value to them. And SAP is, I understand, is trying to say to folks, well, you may have customized that four or five years ago, but we've added that capability now into the core mainstream platform, but it's not quite the same thing.

It's, it's still always gonna be some sort of general purpose version of something versus something that is highly tuned to my, uh, business. So is that kind of part of where this tension is? That's part of it.

I mean, there is no one size fits all software, but SAP and other, um, you know, ERP providers have created highly configurable and customizable software, and they have sold on that premise saying, Hey, look, you know, you can really make it do what you needed to do, and here are the tools by the way, that you should use to do that. And so, yes, you're right, Mike. Um, SAP clients have highly customized, and so now what they're facing is SAP saying, we'd really like you to be on what we call what SAP calls a clean core environment, um, where it runs standard business processes.

And that if you wanna do something different, then we are going to request, recommend, or maybe require that you do that outside of the core of the software. And they have new tools for doing that. They have a new platform called the Business Technology Platform, A BTP, upon which these customizations need to run.

Now that means that somebody who's going to migrate, um, they get to choose from two options. One's called a Brownfield option, where you take all your customizations with you, but you have to run in a private environment, basically a single tenant environment in in SAP's world. Um, and you may not then get the opportunity to take advantage of some of the things that they would be offering to all of their clients in a more common multi-tenant environment.

Number two, if you have to really analyze your customizations, then you need to say, Hey, look, should we retire this one? Should we rewrite that one? Should we refactor this one?

Should we re-platform this one? And you go through all of that effort to say, could I really live on clean core and what would I need to refactor redeploy outside of core running on BTP? And the last gotcha there is, while you are allowed to customize your SAP environment for many, many, many years and run those customizations on whatever environment you're running, if you rewrite those and run those on BTP, which is in agreement with their clean core concepts, BTP as a platform has basically a, a, a, um, a toll associated with it.

So now you have to basically pay each time you fire those customizations and run them because they're running on this BTP platform, what used to run for free ish in your own environment. It also seems to me that they've got a new carrot and they're calling it AI agents or juul Yeah. Who's not.

And, and they're kind of trying to say to folks that, you know, if you're on the clean core, you'll be able to take advantage of all those AI agent capability that may not be as easily extended to the on-premise edition that you may have had or highly customized. But, um, is there another way to skin the AI agent CAT and still have my on-premise environment? Yeah, we think there's lots of ways to do that, and I don't, while I believe that, uh, a lot of these vendors are coming out with some nice agents and AI capabilities, they, um, typically focus just on their portion of the environment now.

And that's the way SAP started was delivering AI for SAP. But we, uh, at Ramini Street, we're very vendor agnostic, technology agnostic, and we believe that AI is really an enterprise wide play. And you ought to be picking, choosing your ai, uh, technology providers thinking about the entire enterprise, and not just your ERP, but also the ancillary applications that are outside of the ERP that are actually running your business and to create, uh, agents, uh, and, and, and AI capabilities and workflows and modern user experiences that tie that together across the enterprise rather than just buying AI that's applied to SAP.

So to your point, it does seem like whether it's SAP or others for that matter, they seem to be trying to use support as a leverage to keep people on a certain path. Um, whether I agree or don't agree with that may be secondary, but it does seem that this is a, a, a a thing that they're trying to lock you in around, and it's tied back to those support contracts. So is there some way to do this so that I don't give up that control to the vendor because I'm not so dependent upon them for support?

Well, exactly, and that's why, and that's why Romania Street exists. Um, we started by upending the vendor support model and providing third party support and doing it for longer than typically a vendor would. So we believe that, uh, um, a property and, uh, a software portfolio of this ilk can last and run much longer than typically the vendors would, uh, provide support for.

And that could have been just, Hey, we're gonna send you a new update every couple of years and we expect you to upgrade to it because we're only gonna support, you know, the latest release in one or two back. Um, and yet the thing was working just fine and being highly customized, the effort of doing an upgrade, even to the next release from the same vendor, um, could be very, very expensive. So Rami's model said, no, you don't have to upgrade.

It's working just fine. And what you really need is support for longer than the vendor was willing to invest in that support. Well, our model says we are absolutely willing to invest in that support.

In fact, recently, Mike, we announced that we will support, uh, SAP products ECC, and S four hana, whatever version you're on through 2040. Okay. Now, that's a long time from now, right?

And I think what's happening in the market is that if you were to look at where the innovation is coming in terms of things like AI and gen, AI and workflow and, and robotics, uh, I'm not, I'm, I, I feel very strongly that this idea of a, a expansive ERP property from a single vendor is going to erode, and that the future of ERP is more likely to be, you know, a set of structured databases and some very strong business logic that's really accessed and impacted. Um, and, and the business rules run by agents and AI and the people that are, you know, involved in those processes that span, uh, many applications and databases inside of an organization. So investing and replatforming now in what's very much an old traditional model of what EERP is to me, I think locks you in and locks you out of new technologies and new vendors that you really need to be paying attention to in just the next few years.

So our model that says, Hey, we'll support whatever you we're running until 2040, gives you plenty of time to wait and see, don't go jumping into something just because it's 25, 20 25, or 2027, but let it play out. See what's important for your organization, see how you want to tie things together and what vendors might be bringing value to your company. And then, you know, start to deploy, um, uh, whatever that architecture is gonna be.

But starting right now, you could be innovating, you could be using AI with one of our partners like ServiceNow, applied to, as you said, your existing on-prem or cloud-based ERP solution. Why wait two years to do a replatforming when you could be innovating right now? Alright folks, well you heard it here.

If the rationale for doing something includes the phrase we have to, maybe you might wanna take a second look at that. Hey Scott, thanks for being on the show. All right, thank you.

All right. And back to you guys in the studio.