SAP bids to modernise indirect licensing with new pricing model

SAP has announced a new pricing model for indirect licensing scenarios that has been welcomed by user groups, who are still pressing for reassurance that they won’t pay more

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SAP has announced a new way to price the indirect licensing of its software – which has received a qualified welcome from the SAP User Group Executive Network (SUGEN).

The supplier said in statement that the new approach “differentiates between direct/human and indirect/digital access, while clarifying the rules of engagement for licensing, usage and compliance”.

The topic has been a matter of sensitivity in the market, especially since the SAP v Diageo case was adjudicated in the High Court in London in February 2017, with the judge finding for SAP and against Diageo. Diageo was found to be liable for licensing fees in respect of its use of mySAP enterprise resource planning (ERP) software on a Salesforce platform.

Since then, the case has been settled. SAP has said in an official statement: “SAP and Diageo have agreed to settle the ongoing litigation. While this settlement remains confidential, both SAP and Diageo are satisfied with its terms and feel it represents fairly the interests of both parties. Neither company will be making any further public statement on this matter.”

The new pricing model, constructed in dialogue with SUGEN and other user groups, is, said the supplier, “document based”, not user based. It seems to build on the announcement made by chief executive Bill McDermott at the supplier’s users and partners conference, Sapphire, in 2017. He said then: “The ‘procure to pay’ and ‘order to cash’ scenarios will now be based on orders, which is a measurable business outcome for any business. Static read access in third-party systems is your data, and so SAP will not charge for that.”

Today’s statement said: “Historically, for most use cases, customers primarily had the option to pay for the SAP ERP application based on the number of users. As more systems began to access SAP software systems, this created a challenge for customers, who asked for an alternative pricing approach.”

The company said the new model “pertains to the digital core – SAP S/4 Hana and SAP S/4 HanaCloud – as well as the SAP ERP application”.

SUGEN’s response

SUGEN, at the same time as SAP’s announcement, said it welcomed the “new licensing model for indirect access”, but added: “SAP must reassure existing customers that they won’t pay more if their usage and business scope doesn’t change.”

The user groups’ organisation said it had been talking to SAP about the concerns of customers in relation to indirect licensing, and had held discussions and workshops to find solutions to these concerns. Key areas of focus have been predictability, transparency, consistency and fairness.

“As a result, SAP has today announced a new model for its digital-access licensing policies commonly known as ‘indirect access’,” it said. “The model is intended to make it easier and more transparent for customers to use and pay for SAP software licences. This new model will operate alongside the existing named users and SAP engines which are still necessary for the direct access scenarios.”

SUGEN chairman, and chair of the Francophone user group, USF, Gianmaria Perancin said: “Customers who believed they were compliant have rightly been concerned after the high-profile legal action SAP took against Diageo and InBev. SAP is moving in the right direction to make it easier to do business with it.

“However, expecting customers to talk to and trust account managers in an environment where SAP has admitted to having lost customer trust is asking a lot. If SAP publicly provided reassurances that customers won’t be asked to pay more for use cases and implementations that were undertaken in good faith, this would go a long way to encourage customers to engage with SAP proactively.”

Philip Adams, SUGEN core leadership team member and former chairman of UKISUG [UK & Ireland SAP User Group], added: “Without these reassurances, customers will find themselves in a state of paralysis, unable to move forward as they do not yet know what the new licensing model will mean for them. Over the coming months, we will be surveying customer organisations to see if their licensing positions are clearer, and what this means for their future plans and investments with SAP.”

Adams also said, in an interview with Computer Weekly: "at SUGEN, we have worked hard and constructively with SAP on this model, but it is their model. We said they had to address indirect access, not that they had to develop a new model, as an answer. The problem statement was ours, but the outcome to deal with it is theirs, in consultation with us, but theirs".

Read more about SAP indirect licensing

SUGEN’s licensing charter team and SAP have also been working on auditing and sales policies, the users’ organisation said.

“As a result, SAP has introduced new organisational and governance changes that strictly separate licence sales departments and procedures from auditing departments and procedures,” it said. “This means that sales will no longer be permitted to approve or cancel licensing audits and it will prevent audits from being used as a sales negotiation tool. SUGEN welcomes and supports these changes.”

Rob van der Marck, SUGEN licensing charter lead, said: “This model promises to clarify the rules for licensing indirect usage and bring a new level of transparency and simplicity to SAP licensing.

“For customers looking to adopt new technology from SAP, predictability and transparency is key. Both the SUGEN team and SAP should be proud of the work they have done on the new model to hopefully deliver greater licensing transparency in the future.”

However, SUGEN also noted: “There has been little progress in providing reassurances to existing longstanding customers on the neutral financial impact of the new licensing model, and to those who have until recently believed they were adequately licensed in relation to existing interfaces with third-party systems.”

Perancin added: “Time will tell how existing customers react to the new licensing model. They have the choice to stick with their existing model or move to the new one. SAP will be rolling out measurement and auditing tools over the course of 2018, meaning it will be in Q1 2019 that customers will be able to assess any potential cost impact.

“With this in mind, we urge SAP to publicly reiterate the promise it made to SUGEN in November 2017 when it said customers would be able to adopt the new model without incurring further costs if the business value/scope of their usage of SAP stays the same. This would go a long way to reassuring customers and rebuilding trust.”

‘Good faith’ non-compliance

SUGEN also said: “Although connecting third-party systems to SAP has resulted in licensing issues that were not imagined when many customers made their initial agreements with SAP, it should be noted that the company has been aware of the challenges regarding indirect licensing for a least six years. In some cases, customers have in good faith connected SAP to third-party systems believing they were compliant.”

It said the factors behind such “good faith”, accidental non-compliance were:

  • SAP personnel being aware of a third-party system connecting to SAP and not raising a potential licensing problem.
  • SAP providing assistance for projects that involved connecting to third-party systems and not raising licensing implications.
  • The lack of any licence type on the SAP price list for third-party system connectivity.
  • Audits having been carried out by SAP that did not highlight a problem.

SAP confirmed it had begun to roll out the new licensing, sales and audit policies in April 2018.

Adaire Fox-Martin, member of the executive board of SAP, global customer operations, said that from the supplier’s side: “SAP has been built on a legacy of trust, empathy and transparency with our customers. As the industry and customer requirements change, our legacy does not.

“Therefore, after thoroughly reviewing our processes and practices around indirect access – and based on extensive feedback from all stakeholders – we are rolling out a new and modern engagement model with our sales personnel that delivers industry-leading clarity.

“We are set on building lifelong relationships with our customers and we will continue to relentlessly innovate to ensure best business outcomes for each one of them.”

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