SAP Solutions, also known as Software as a Service (SaaS), in the public cloud involves providing access to SAP's software applications, platforms, and products to users over the internet. These solutions include SAP S/4HANA, SAP SuccessFactors, SAP Ariba, SAP Fieldglass, and SAP Hybris, to name a few.
What is the SAP Subscription Business Model?
The SAP Subscription Business model refers to the pricing strategy where customers pay a recurring fee to access SAP's suite of software services. This fee usually is paid on an annual or monthly basis.
The subscription model gives customers the right to use the software, which is typically hosted in the cloud, for the duration of their subscription. This is an alternative to the customer purchasing a license and owning a copy of the software, a practice which is traditionally deployed on-premises. The subscription model includes upgrades and updates, and ensures users always have access to the most current version of the software.
One of the main advantages of the subscription model is its scalability. As business needs change, customers can quickly and easily adjust their level of services. They can add more users, ramp up with more advanced tools, or scale back when necessary.
SAP offers a wide range of cloud solutions available on a subscription basis including SAP S/4HANA Cloud (for ERP), SAP SuccessFactors (for human resources), SAP Customer Experience LIVE (for customer experience), SAP Ariba (for procurement), and many more.
This model aligns with SAP’s general strategic direction in recent years to shift towards becoming a cloud-centered company delivering Software as a Service (SaaS).
Trends in Solution Business
Several key trends are shaping the SAP Solution Business. It is largely driven by the increased need for digital transformation and the need for businesses to optimize their operations intelligently. Let's take a look at some of these trends:
- Cloud Migration: The shift to cloud-based solutions from traditional on-premise systems has been significant over recent years. SAP's solutions like SAP S/4HANA Cloud and SAP Cloud Platform are gaining popularity as they offer more flexibility and scalability, allowing businesses to adapt to changing demands quickly.
- Intelligent ERP: SAP S/4HANA, the next-generation ERP system, integrates artificial intelligence and machine learning to help businesses become more efficient and automated with predictive analytics that aid in informed decision-making.
- Experience Management: SAP's acquisition of Qualtrics highlights SAP's focus on Experience Management (XM). By combining operation data (O-data) with experience data (X-data), businesses can understand why things are happening and how to adapt, thereby improving the overall business experience.
- Integration of IoT: The integration of Internet of Things (IoT) with SAP solutions provides real-time insights and analytics, aiding in predictive maintenance, supply chain optimization, and real-time inventory management.
- Improved Customer Experience: SAP C/4HANA suite (now renamed as SAP Customer Experience Solutions) has made its mission to revolutionize Customer Relationship Management (CRM) by merging customer data, machine learning, and microservices to power real-time customer engagements across sales, customer service, marketing, and more.
- Focus on Sustainability: SAP recently launched the SAP Sustainability Footprint Management solution that enables companies to track sustainability throughout the product lifecycle. This highlights the trend towards more sustainable and responsible business practices.
- Emphasis on Data Privacy: SAP continues to enhance its solutions to help customers comply with data privacy and protection regulations, with tools to manage, govern, and protect data as businesses digitally transform.
These trends are continually shifting as business needs and technology development evolve. It is vital for businesses to partner with SAP and its solutions to stay competitive in a rapidly changing digital landscape.
The following video discusses how companies sold products and services before solution business and then explores how products are now sold as a service.
Video Recap
- Previously, companies sold products and services as separate transactions.
- Industries evolved to combine the sale of a product with a service.
- Today, industries utilize a solution business approach, selling combinations of products, services, projects, and subscriptions.
- Customers now receive end-to-end solutions where a product is also a service, such as a monthly printer subscription that includes hardware, installation, and a set amount of printed pages.
- The trend of selling solution bundles is increasing across various industries.
Solution Business Model - Use Cases
Businesses that offer solution business models vary across industries, ranging from products, services, projects, pay-per use models, usage tariffs, subscriptions, and more.
Take the company Print2You as an example. They offer a service called Printing as a Service. This offering includes a sale of printer hardware which is bundled with on-top services and a subscription for paper and ink.
Customers can renew their subscription after a certain period. This model allows you to leverage your customer relationships to create a steady stream of income.
Transform, Extend, and Optimize - From One-Dimensional Offers to Holistic Solutions
Before the days of solution selling business, a product was sold without addressing the specific needs of the customer. It was a one-time sale without any follow-through or customer re-engagement.
Today, businesses use a sales approach that focuses on a customer’s needs and pain points through custom solutions that combine products, services, and subscriptions. We call this approach "solution business".
The transformation of the business model from individual product sales (Product Business) to selling combined solutions (Solution Business) makes it possible to increase both customer loyalty as well as the flexibility of creating new offers.
Selling subscriptions increases business transactions. Combining products, services, and subscriptions into solutions increases the ability to quickly customize offerings.
Why does the business world use solution business models?
Solution business models are designed to address and fulfill a combination of needs for their customers, providing a comprehensive package that addresses multiple challenges in one go. Here is how they work to better meet the needs of customers:
- Holistic Approach: Solution businesses look at the customer's needs and problems holistically rather than in segments. They provide comprehensive solutions that address multiple interconnected problems, which stand-alone products or services might not be able to do.
- Tailor-Made Solutions: These businesses work closely with customers to understand their unique needs and tailor their solutions accordingly. This means that the solution is specifically designed to address the client's problems, making it far more effective than a generic product.
- Convenience: A solution business model offers a one-stop solution to customers. This means customers can save time and effort in dealing with multiple vendors or service providers, managing multiple contracts, and so on. The convenience factor greatly enhances the customer experience.
- Cost-Effective: By bundling various products and services together, solution businesses can often provide more cost-effective offerings. Bundling can lead to reduced prices for customers as compared to purchasing each product or service separately.
- Enhances Business Relations: These types of business models allow providers to become strategic partners with their clients, as they are intricately involved in solving the clients' problems. This can lead to longer-term, more secure business relationships and higher customer satisfaction levels.
- Continuous Support and Services: Solution businesses don’t just sell a product and stop at that point. The relationship continues post-sale with services like training, maintenance, troubleshooting, upgrading, and the addition of new features, thus providing customers with continuous support.
With this, the solution business models can better meet customer requirements compared to selling single, standalone products or services. This is specifically done through their focus on understanding and addressing the customer's unique, often complex needs in a holistic and tailored way.
Let's look on the following business use cases to get a better understand of solution and subscription business.
Business Use Case #1
Our first business use case example for solution and subscription business is Soft&HardMix, a manufacturer of computer and consumer electronics.
This high-tech company offers a subscription-based payment model. Soft&HardMix sells personal computers and consumer electronics hardware. They also provide installation and maintenance services and software licenses.
Soft&HardMix offers contracts that combine products, including hardware components, services, and licensed software.
This is our first example of a subscription-based payment model.
Business Use Case #2
Our second business use case example for solution and subscription business is Solar2you. They are a provider of solar infrastructure as a service to customers and companies.
This solar energy company provides the following:
Services that include planning of solar installations, storage of electricity, solar panels approval, and solar panel installation.
Ordering and delivery of related solar panel and electricity storage hardware.
Subscription contract closure for 20-year monthly recurring fees for solar installation.
Calculation of introduced electricity volumes.
Error handling and regular maintenance of solar systems.
Business Use Case #3
The third business use case example for solution and subscription business is PowerPump. PowerPump is a manufacturing company that supports customers with technical equipment, including compressors and pumps for production processes in the automotive and production industry.
This manufacturing company provides the following:
Customer-configured machines produced for assembly lines.
Custom produced machines that are installed in a manufacturing location.
Machines sold as a service, including installation and service maintenance.
Business customers pay for the usage of the machines used in the production process with a pay-per-use model.
Business Use Case #4
The fourth business use case example for solution and subscription business is Cool&Warm2you. They are a company that offers cooling systems as a service.
Cool&Warm2you combines a selection of suitable air conditioning and heating system components. They then install these components as a service according to the customer’s needs.
A subscription contracts monthly payments. The customer pays extra usage-dependent fees for use beyond the contracted threshold.
Business Use Case #5
The fifth business use case example for solution and subscription business is Print2You, a company that offers printing as a service: Sale of printer / hardware bundled with on-top services and subscriptions for ink and paper.
Two hardware types (Standard and Premium) are available and there are two price models (Pay-As-You-Go and Professional).
The monthly fee depends on the selected hardware and included usage price model.
With the Pay-As-You-Go price model, the customer pays a monthly fee of 210 USD. They pay 2 cent per single page printed in black/white and 18 cent per single page printed in color.
With the Professional price model, the customer pays a monthly fee of 460 USD. This fee includes 1,000 free black/white prints and 200 free color prints.
For each print, the customer pays 2 cents per single black/white page and 18 cents per single color page from the free contingent.
In addition, customers get a discount based on the total revenue paid on printed pages.
0-200 USD revenue color pages: no discount
201-400 USD revenue color pages: 5% discount
﹥400 USD revenue color pages: 7% discount
0-1000 USD revenue black/white pages: no discount
1001-2000 USD revenue black/white pages: 5% discount
﹥2000 USD revenue black/white pages: 7% discount
Throughout this course, we will follow this example.