SAP S/4HANA Target Architectures & Licensing Models: What You Need to Know

Introduction

Selecting your future-state SAP ERP solution is one of the most complex and confusing aspects of your preparation phase (aka Phase Zero). Between rebranding, evolving product names, and overlapping ‘cloud’ offerings, many organisations struggle to navigate the options. 

In simple terms, you need to answer two fundamental questions: 

1. Licensing – Will you adopt subscription-based Opex or retain perpetual Capex licensing? 
2. Hosting – Will you run on on-premise infrastructure (including hyperscalers or third-party hosting) or in SAP's Cloud? 

This page breaks down the available options and how to make the right choice for your business. 

SAP S/4HANA Packages & Offerings 

First, the basics. SAP S/4HANA is the next-generation ERP suite designed to simplify processes and drive innovation. It comes in a multitude of different versions, ranging from on-premise to true cloud – SaaS offerings, and pretty much everything in-between. Generally, we talk about 4 different versions:

1. SAP Cloud ERP, Private Edition

(Previously SAP S/4HANA Cloud Private Edition – delivered via RISE with SAP) 

Designed for customers seeking the power of cloud, but still wanting a layer of control, including flexibility over customisations – potentially because of differentiating processes/customisations, or where there are specific security considerations (to name just a few reasons)...  

• Hosting Options: SAP-managed (single-tenant), Hyperscaler-backed (e.g. Azure, AWS) 

• Licensing: Subscription (Opex) 

• Implementation: Greenfield, Brownfield, or Selective Data Transition (Hybrid) 
• Future Upgrades: Customer-led, on a flexible timeline (within support boundaries) 
  
  

2. SAP Cloud ERP, Tailored Edition 

(Formerly S/4HANA Cloud Private Tailored Option).  

The classic ‘on-premise’ experience deployed in your own Data Centre or chosen Hyperscaler, fully customer-managed. This will most likely be the go-to model for customers with large, complex solutions. 

• Hosting Options: Customer-chosen (on-premise or hyperscaler) 

• Licensing: Perpetual (Capex)  

• Implementation: Greenfield, Brownfield, or Selective Data Transition (Hybrid) 

• Future Upgrades: Fully customer-managed 
  
  

3. SAP Cloud ERP, Public Edition 

(Formerly S/4HANA Cloud Public Edition – GROW with SAP).  

True SaaS approach. Fixed scope, rapid deployment, regular innovations. Not suitable for customers with extensive customisations, security constraints those or who want an additional level of control over their ERP landscape. Ideal for net-new SAP customers or subsidiaries seeking fast innovation and standardisation. 

• Hosting: SAP-managed public cloud (multi-tenant) 

• Licensing: SaaS Subscription  

• Implementation: Greenfield only 

• Upgrades: SAP-managed, mandatory regular updates 
  
  

4. SAP Cloud ERP, Private Edition – Transition Option

A new, time-limited option to support customers with complex solutions that would otherwise be unable to complete their migration before 2030. Provides cloud-hosted SAP ECC on HANA with maintenance continuity and services to bridge the gap to SAP S/4HANA. 

• Hosting: SAP-managed (from 2031–2033) 
• Licensing: SaaS Subscription
   

Options Compared  

Licensing Models: Subscription vs Perpetual

It is no secret that SAP is heavily incentivising subscription models to increase recurring revenue, but there are some basic considerations to point out: 

Subscription (Opex) 

• Predictable recurring cost. 

• Typically includes infrastructure & services. 

• Lower upfront spend but long-term dependency and vendor lock-in. 

• Less negotiation leverage at renewal. 
  
  

Perpetual (Capex) 

• Higher upfront cost, lower ongoing support costs. 

• Greater control of infrastructure and upgrades. 
• Harder to negotiate as SAP’s strategy is “cloud-first".
  
  

Negotiation Considerations 

When defining your future architecture and licensing: 

• Don’t default to SaaS deals without testing if they fit - they are positioned aggressively by SAP, but not always right for every organisation 
• Run competitive benchmarks - hyperscaler-hosted perpetual models may provide cost advantage. 
• Watch for hidden costs - SAP BTP credits, AI Units, and mandatory bundles can add 20–30% to subscription value 
• Plan early - 9–18 months before renewal start your negotiations with SAP
   

Conclusion

Your choice of target architecture and licensing approach is as much a commercial negotiation as a strategic technical decision. 

• SAP Cloud ERP - Private Cloud: best for modernisation at scale. 

• SAP Cloud ERP - Tailored Edition: best for control-conscious enterprises. 

• SAP Cloud Public: best for net new SAP customers wanting speed of implementation and SaaS adoption. 

• SAP Cloud ERP - Transition Option: Should only be seen as a safety net for complex landscapes. 

Make sure you get the right advice and address early in your Phase Zero activities.