2 ANALYZE 3 OPTIMIZE 1 MEASURE

SAP Managed Cloud as a Service (MCaaS) The impact of MCaaS on the Total Cost of Ownership (TCO) of running SAP

VMS AG July 2013

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Content

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KEY FINDINGS Executive Summary

IN DEPTH ANALYSIS MCaaS Savings Explained in Detail

METHODOLOGY Evaluation Parameters, Approach & Assumptions

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Overview: SAPs Managed Cloud as a Service Subscription delivery of traditional SAP solutions

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SAPs Managed Cloud as a Service enables subscription delivery of traditional SAP solutions on a partners private hosted cloud, including application management services.

MCaaS partner creates:

Subscription solutions hosted on partners private cloud

Customized offering, tailored to individual customer needs

Application migration, implementation, management & support services

Strategic: Increased flexibility and agility in responsiveness to business changes and changing requirements

Financial: Faster time to value and an overall 30% lower TCO over 5 years, plus conversion of CAPEX into OPEX that delivers an optimized cash flow

Operational: Better utilization of information systems with increased focus on high value IT initiatives, instead of lower value system maintenance

SAP provides:

Term license for SAP solutions for use within packaged software services

Support for partner and end-customers solution deployments

The customer enjoys a fully outsourced solution with the following key benefits:

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Summary of TCO Savings & Impact Areas MCaaS enables savings of 30% over a 5-year TCO lifecycle

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Primary drivers for the TCO reduction are the combined result of key MCaaS components:

Economies of scale from Cloud-based infrastructure

Scalability increase/decrease system usage on demand without wasted or underutilized systems for backup, dev, and QA

Flexibility business process changes can quickly be reflected in IT infrastructure

Speed Fast deployment and provisioning speeds time to value and lowers wait time, improving productivity

Lower costs from application management services

Pooled Resources Expertise is spread across multiple customers, thereby making it cheaper on a per customer basis than if customers staffed dedicated SAP resources

Automation / Standardization Combines automated processes for provisioning, management and monitoring with virtualization across customers, along with standardized packages for implementation, upgrades, and patches

Hardware/Software Investment

Implementation

Hardware/Software Ongoing Cost

Operations

Continuous Improvement Projects

Upgrade Projects

SAP TCO Stack elements from bottom to top in chronological order of the TCO lifecycle

12%

10%

11%

32%

18%

17%

0% 7%

20%

22%

11%

10%

30%

MCaaS Savings

On-Premise MCaaS

Based on VMS TCO benchmarking data for over 2,900 SAP customer deployments, see savings detail section and methodology appendix for additional details

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Timing of MCaaS Financial Impacts Cost Impact Timing & Cash Flow Optimization with MCaaS

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Based on VMS TCO benchmarking data for over 2,900 SAP customer deployments, see savings detail section and methodology appendix for additional details

The 30% savings in TCO accumulates over the course of 5 years, as shown in the chart on the right.

Since MCaaS extends the benefit of infrastructure hosting to software licenses as well, the upfront capital costs are nearly eliminated

When compared to traditional on-premise deployment options, MCaaS cost savings are mostly front-loaded, with 51% of the savings realized in the first year, and the remaining savings realized over the remaining years

On top of the overall 30% TCO reduction, a more even distribution of payments with MCaaS helps to optimize overall cash flow

On-premise deployments require more up-front cash outlay (31% of total) while MCaaS has a more evenly distributed cash flow impact of (approximately 20% per year)

The impact from MCaaS on cash flow optimization is also greater than on-premise since the large initial outlays associated with on-premise deployments are less discounted from a time-value of money perspective, and are therefore more expensive, dollar for dollar

49% 60% 65%

68% 70%

0%

20%

40%

60%

80%

100%

Year 1 Year 2 Year 3 Year 4 Year 5

MCaaS Expenses as a % of On-Premise Over 5 Years

Comparative Distribution of Cash Flows Over 5 Years

Year 1 Year 2 Year 3 Year 4 Year 5

On-Premise MCaaS

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Content

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KEY FINDINGS Executive Summary

IN DEPTH ANALYSIS MCaaS Savings Explained in Detail

METHODOLOGY Evaluation Parameters, Approach & Assumptions

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High Level Overview of Key Benefit Areas 30% Cost Reduction along with optimization of Cash Flow

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SAP TCO model MCaaS triggered

savings

Level 1 Weight*

Hardware/Software Investment 12% 99%

Implementation 10% 34%

Hardware/Software Ongoing Cost 11% -72%

Operations 32% 29%

Continuous Improvement Projects 18% 37%

Upgrade Projects 17% 39%

Consolidated (Overall savings) 30%

* Weight = Share of cost for operation On-Premise

The MCaaS TCO impacts are greatest in the following areas:

Upfront hardware & software investment is almost completely eliminated, going from 12% of TCO down to 0.1%. MCaaS extends OpEx subscription for hardware inherent in outsourced infrastructure hosting by adding in OpEx subscription pricing for SAP software as well.

In contrast, ongoing cost for hardware and software (where the license payments have been moved to as operation cost) increases from an 11% to a 20% share. This is below 100% increase (72% cost increase) due to better allocation and provisioning of hardware and licenses.

Implementation as well as later continuous improvement projects and upgrades benefit from the cloud operation model with savings in the range of 37-39%.

In both private and public, the cloud operation model provides flexibility and speed in resource provisioning which is needed to enable application implementation or change processes.

Whether its the initial technical implementation, a test system needed to check out an application change, fast replication of test data, or additional machines needed during an upgrade process, in all these cases, the rapid deployment of resources speeds up project execution, enables early testing, and saves costs in FTE time waiting for systems to be available.

Spending in Operations (especially application management and support) is reduced by 29%. Not only does the cloud computing model provide resources faster, it makes provisioning easier via automation of IT processes. Virtualization is a large part of this saving effect as well as centralized management resources and talent pooling. The key to success are automation and software defined landscape management.

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Detailed Savings in SAP MCaaS Deployments

SAP TCO model Level 1 SAP TCO Model Level 2 MCaaS savings MCaaS Effects Explained

Hardware/Software Investment

Technical Infrastructure 95% Small amount of infrastructure and deployment still needed, but the largest part of a typical on-premise deployment investment is eliminated.

System Software 100% No upfront investment needed for applications, only for some infrastructure and implementation.

Application Software 100%

Implementation

Technical Setup & Process Design

90% Technical implementation of hardware and software is virtually eliminated as cloud deployment uses pre-defined infrastructure and pre-installed software.

Organizational Change 0% No effect, organizational change management is still needed.

Business Setup 0% No effect, business process design is also still needed.

Project Management 20%

More flexibility when additional resources are needed, and lower project overhead (technical implementation, etc.), can help projects stay on-time and on-budget and reduce effort needed.

Having one provider that knows the customers business and offers long term consulting rates which are better than the market.

Testing 35% Provisioning of test systems and test data is easier to accomplish with additional resources and on-demand infrastructure that scales up and down as needed.

Training 35% Training systems are cheaper to provide. Refreshes can be done easier, faster, more often in the cloud operating model.

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Initial investments & implementation costs savings

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Based on VMS TCO benchmarking data for over 2,900 SAP customer deployments, see methodology appendix for additional details

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Detailed Savings in SAP MCaaS Deployments

SAP TCO model Level 1 SAP TCO Model Level 2 MCaaS savings MCaaS Effects Explained

Hardware/Software Ongoing Cost

Technical Infrastructure 35% Changes in the infrastructure are much easier to provide. Increases and decreases in infrastructure needs can be managed more effectively; over-provisioning of resources to meet max capacity vs. low utilization of overall capacity during times of normal demand is no longer an issue.

System Software -123% System software (database) and application software ongoing costs increase since there are continuous payments made in a subscription model. These increases in ongoing costs can largely offset the upfront investment savings but the positive cash flow implications are an added benefit. Application Software -95%

Operations

System Operations 53% The huge impact on operations is caused by the efficiency of the cloud computing operations model. Virtualized environments, automated processes, and centralized resources enable high level of costs savings.

Talent pooling and SAP expertise availability enable more customers to be supported by less FTEs, resulting in a net savings across customer implementations.

Application Operations 22%

Continuous Improvement Projects

Continuous Business Improvement

34% When MCaaS is used, you are able to quickly add another resource that you need. The simple expansion and scaling of SAP instances, in the case of higher demand due to an increasing number of users or new functions, is based on the ability to expand the capacity of cloud infrastructure.

The provisioning and management of SAP training and test systems can be simplified and accelerated using cloning and recovery functions. Also, the lead time for setting up new SAP systems decreases.

Consolidation of services from one service provider will enable larger volumes of consulting utilization and therefore the ability to negotiate lower overall consulting rates.

Continuous Technical Improvement

90%

Rollouts 40%

Upgrade Projects Application Upgrade 36%

System Upgrade 55%

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Ongoing investments, operations, and upgrade projects costs savings

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Based on VMS TCO benchmarking data for over 2,900 SAP customer deployments, see methodology appendix for additional details

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Content

P. 10

KEY FINDINGS Executive Summary

IN DEPTH ANALYSIS MCaaS Savings Explained in Detail

METHODOLOGY Evaluation Parameters, Approach & Assumptions

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Customer Profile For The TCO Comparison A manufacturing company choosing between on-premise and MCaaS

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Key facts about the TCO comparison:

The basis for the comparison is the a manufacturing company with about $1.5B in revenue, based in the United States with a production plant in Asia and sales offices round the world.

The SAP software to be licensed includes core ERP, BW and CRM.

The user community is about 1,500 named users, split into the different license categories as shown in the chart to the right.

All systems are run in the usual 3-stage-model with development, quality assurance and production for each application (ERP, BW, CRM).

The comparison focuses on the TCO for a traditional in-house operations model (on-premise) vs. the MCaaS approach:

On-premise: Data center (Wintel or Unix, DB Oracle) on premise, IT and application management in-house

MCaaS: Data center, IT and applications operations out of a managed private cloud, technology and application all SAP (including HANA or Sybase database)

SLAs as described on the right apply for both scenarios, on-premise or MCaaS, in the same way

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SLA for Production Systems

Incident & Problem Management

Application Support Office times USA

System Support 7*24h

Availability 99,50%

RTO (recovery time objective) 8h

RPO (recovery point objective) 4h

Dialog response time ERP 90% < 1 second

SAP Landscape

Named users (total) 1,500

SAP Licenses: Professional / limited prof. / ESS

800 / 200 / 500

Storage used 18 TB

SAPS 80,000

System Landscape

SAP Systems (all in 3 stage mode, DEV QA PROD)

ERP Fully used (not HR), 1,000 users, 600 active users per day

BW Reporting via Bex and HTTP, 500 users, 100 active per day

CRM Globally used, 300 users, 200 active per day

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SAP TCO Model Overview The SAP TCO model covers the whole SAP lifecycle

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Important components of the SAP TCO model:

The basis of this study is the SAP TCO model. This model covers the total cost of the entire lifecycle of SAP software. The study covers CAPEX (investment cost) as well as OPEX (operational cost) elements.

Hardware/Software Investment covers all costs to set up a technical environment to run SAP on.

Implementation covers the initial application customization and setup.

Hardware/Software Ongoing Cost covers all HW/SW related cost, which occur continuously over time. In the MCaaS model this is the continuous payments for licenses. In the case of on-premise, the maintenance payments for HW and SW.

Operations covers the usual day-to-day work to keep things running. It includes job management, system surveillance, etc.

Continuous Improvement Projects cover all kind of changes, triggered by changing needs of users or the business.

Upgrade Projects cover all SAP triggered changes by new software releases but also similar activities by database vendors, OS vendors, etc.

This study does not include end user operations, WAN or workplace-PC related cost.

The study is based on an installation lifecycle calculation of 5 years.

The model is detailed hierarchically by a total of 3 levels (on the right only levels 1 and 2 are shown), each enabling a more detailed view on the subject.

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Methodology & Assumptions

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WHATS IN WHATS OUT

The SAP TCO model includes all elements necessary to run SAP in the enterprise but excludes end user equipment and WAN network elements to reach them.

The study also excludes initial business process (re)design efforts when implementing SAP for the first time. Those efforts are largely driven by the status and demand of an enterprise but not by the hardware, software or infrastructure used. However the cost for actually making the setup of system and applications is covered.

Using cloud or outsourcing will effect the management structure. New roles for governance and a demand management are needed. On the other hand the need for management of internal employees and all the HR administration will decrease. So VMS considers this as cost neutral.

There is an additional savings potential triggered by HANA when migrating the BW functionality back into ERP. In order to provide a fair comparison, the study considers BW to be implemented and used for both scenarios.

SAP maintenance is assumed as the standard 22% for SAP Enterprise Support.

The comparison works for SAP landscapes which are around the size of the profile on slide 11 (up to 2 times more users or one third of the users), but not for SAP landscapes which are much bigger. SAPS or storage can grow or shrink by even a factor of 3.5.

SAVINGS AS PERCENTAGES

VMS shows savings as precise percentages (e.g. 22% savings on implementing SAP) rather than as a range (15%-30%).

The VMS TCO model enables calculation of the typical savings for the specific defined profile, which is diluted by showing ranges. Of course, a new SAP customer might end up with slightly different percentages, since the real world implementation will not exactly match the prototyped profile.

THE COMPARISON BASE

MCaaS is compared against the typical scenario of systems in use today: various Linux, Windows-based and Unix implementations. Most of them are already using virtualization like AIX or VMware.

Data for the comparison base comes from the VMS Benchmarkbase. The Benchmarkbase holds real life usage, quality and cost data of more than 2,900 SAP environments. It includes a broad variety of industries and geographies. It generally reflects the current dissemination of SAPs products in use.

The comparison group does not include any on-premise mainframe-based installations. From a CAPEX point of view this would lead to tremendous savings when switching from mainframe to cloud. This is a reasonable step but rather rare. Therefore, the focus of this study is on mainstream effects, not on special or uncommon scenarios.

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