SAP

SAP indirect access: Prepare for the impact on third-party applications

SAP is acting in an anti-competitive manner and could be in breach of the US Sherman Act, according to a Duke University School of Law professor

Transforming a business digitally often relies on building a digital customer experience on top of a core business system.

The core system – a system of record, such as an enterprise resource planning (ERP) system – holds accounts, billing and customer data.

Generally, this system helps to streamline back-office business processes, but industry experts believe its true value can only be realised when it is linked to customer-facing applications to create new, digitally enabled customer experiences.

SAP regards access to its application programming interfaces (APIs), which are needed to connect a new front-end system to the core ERP, as indirect access.

The Diageo ruling in February highlighted SAP’s stance on indirect access. The high court ruled that by connecting its Salesforce system to SAP, Diageo was using the core ERP in an unlicensed way.

Diageo bought Salesforce.com software to create more streamlined, web-based access to its SAP-created ERP data through a system called Connect. This indirect access was deemed in breach of Diageo’s original SAP licence.

In the high court, Mrs Justice O’Farrell stated: “In my judgement, the interactions identified between the Connect customer and mySAP ERP constitute use of, or access to, the mySAP ERP software.”

In a blog post written at the time of the ruling, Forrester principal analyst Duncan Jones agreed that using the API did constitute a form of usage, which should be licensed. However, he said: “Being right here does not mean that SAP is right everywhere else it makes indirect access claims. It gives salespeople too much latitude to interpret contracts how they want to.”

Following the Diageo ruling, during the company’s annual Sapphire developers’ conference in May, SAP CEO Bill McDermott (pictured above) clarified the company’s position on indirect licensing.

Static read access in third-party systems is your data, and so SAP will not charge for that,” he said. But the company will charge for access to “procure to pay” and “order to cash” scenarios based on the volume of orders.

Read more about SAP indirect access

Experts believe SAP is unlikely to pursue unlicensed claims by running software audits if a business chooses to buy more SAP products rather than use third-party alternatives.

In a legal memorandum assessing SAP’s conduct, Barak Richman, professor of law and business administration at Duke University School of Law, claimed that tying its core ERP to an add-on product was in breach of the Sherman Act.

“First, SAP may be engaged in illegally tying its ERP software and services with its accessory product, Hybris,” said Richman.

He also said SAP’s demand for third-party licence fees may constitute an illegal refusal to deal with other third-party accessory software providers, given that it encouraged this market to build up and add value to its ERP.

In the memorandum, Richman discussed recent cases in which SAP had gone after customers that had tried to extend their core SAP ERP system. Citing the cases of Diageo and InBev, he said: “SAP has begun to demand onerous licensing fees from SAP users who allow unlicensed third parties to access SAP ERP information.”

Commenting on the Diageo case, Richman said: “The ruling has threatened all SAP customers who use ERP accessories that enable indirect access with enormous legal liability. SAP has told its clients that using Hybris instead of non-SAP accessory products would not require the purchase of additional user licences and would avoid costly liability.

Many clients have responded by buying SAP’s Hybris instead of products similar to the Salesforce one that Diageo purchased. SAP has demanded third-party licensing fees from parties that use ancillary software provided by competitors, but not from users of its own SAP Hybris product.

“In short, SAP’s conduct limits consumer choice, gives SAP an anti-competitive advantage in the ERP accessory market, and undermines a currently competitive and dynamic marketplace for ERP accessories,” Richman added.

Unbudgeted compliance fees

Since the Diageo ruling, analyst Gartner has seen a 29% increase in the number of its clients asking about SAP indirect access licensing. The challenge for CIOs is that SAP ERP is a core business system, a so-called system of record, on which new business initiatives can then be built.

According to Gartner, the court case makes it clear that SAP believes it is appropriate to monetise indirect use of its software. The judgement only increases the risk that SAP will approach its customers for large, unbudgeted compliance fees to achieve that objective, Gartner warned.

The court case makes it clear that SAP believes it is appropriate to monetise indirect use of its software

In its report Customers must resolve SAP indirect access risk when investing in SAP functionality, Gartner said: “Digital business, application rationalisation, ‘cloud-first’ programmes, API economy initiatives, mobile applications and the emergence of artificial intelligence (AI) and the internet of things (IoT) are creating myriad opportunities for vendors to capture additional licence fees by extending licence requirements to users of integrated third-party applications.”

In the report, analyst Bill Ryan noted that SAP had largely decoupled large chunks of its business suite, such as providing SuccessFactors for HR and Ariba for procurement and sourcing. In theory, these cloud-based offerings are not directly tied to the core ERP, so an IT department may decide to use a third-party alternative.

But Ryan warned: “Indirect access could create financial penalties if business users decide they want to connect alternative solutions to those offered by SAP.”

Hidden costs

What this means for CIOs looking to reduce their SAP footprint is that choosing third-party products could see their organisation ending up paying both an SAP licence fee for indirect access to the ERP system and a third-party licence fee. These hidden costs are difficult to identify, predict and budget for, said Ryan.

Given McDermott’s indirect licence changes, it would seem SAP is allowing its customers to access their data from the SAP system as long as no SAP APIs are used to do so.

The Americas’ SAP Users Group (ASUG) and the Denmark-based IT Asset Management Organisation (ITAMorg) ran a survey based on a sample of SAP users affected by indirect licensing changes.

While “order to cash” and “procure to pay” are explicitly covered by SAP’s new model for indirect access, business users have concerns about SAP indirect access when using other business processes and collaborating with third parties, the survey found.

“SAP is going to have its hands full when trying to bring clarity and specificity to this topic,” Sam Bayer, CEO of Corevist, which makes an alternative to SAP’s Hybris e-commerce suite, wrote in a blog about indirect access.

“The current status is that SAP indirect access fees have to be negotiated. As distasteful as that prospect is for all of SAP’s clients, it is today’s fact of life. The good news is that there is evidence that SAP is offering ‘discounts’ on these fees, with most clients receiving discounts of between 81% and 90%.”

Bayer suggested that CIOs should be prepared to reduce SAP’s influence in their organisations. “At the very least, I think every SAP client should have a conversation with the folks at Rimini Street and explore the possibilities,” he said. “There is a lot of money to be saved here that can be applied to better use in your IT organisation. If SAP isn’t going to be a strategic partner to your business, as difficult as it may be to admit, you may need to prepare yourself for a divorce.”

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