SAP and customers still in cockpit of debate about indirect licensing

SAP and the UK & Ireland SAP user group have been thrashing out the topic of indirect licensing in 2017. Is there an amicable settlement in sight?

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The recent UK and Ireland SAP User Group conference in Birmingham brought to the fore this year’s controversy about indirect licensing, given prominence in February when a High Court judge found for SAP and against Diageo in a licensing case.

A pre-conference survey of user group members found 58% with concerns about complying with SAP’s licensing policies in respect of third-party applications and access by end-users. Some 73% found the supplier’s licensing and pricing models to be overly complicated. And 64% said they were delaying plans to take advantage of internet of things (IoT)] technology – which would include SAP’s Leonardo suite – because of concerns about getting into trouble with indirect licensing.

Paul Cooper, chair of the user group, referred in his keynote to SAP CEO Bill McDermott’s comments about the supplier’s commitment to being empathic towards customers, made at Sapphire in 2016 and 2017. He said SAP sales staff need to heed those words and, in a briefing with Computer Weekly, confirmed that members have felt some heat from account managers keen to “monetise indirect [licensing]”.

“Because Bill linked his comments [about empathy] to indirect, it was appropriate for us to revisit that and remind people that this is a behaviour he wants to see mirrored in his teams,” said Cooper.

“If you are a sales guy working for SAP, I imagine it is a pretty tough job, so how are they going to square that circle around monetising indirect with empathy?”

Cooper also said the survey had borne out the contention that concerns about indirect licensing were slowing down projects using “the IoT and Leonardo piece”.

For SAP, said Cooper, the Diageo court case involved “a big number”. He added: “We will never know how much the settlement was at the end of the day, so the difficulty for SAP is that big number [around £58m] is what people will associate with it.”

In a briefing shortly before the user group conference, Darren Roos, president, ERP cloud at SAP, told Computer Weekly: “We want our customers to be happy and continue to engage with us. Just have the conversation.”

He said SAP was not “trying to prove a point” with the Diageo case, and that the software firm had no choice but to defend its intellectual property.

“In the past, CIOs were consumed with a facilities management challenge,” said Roos. “They are now focused much more on the business, and on business outcomes. Licensing has become a new distraction for some CIOs who come from a generation where they were still working with a facilities management approach. But I simply don’t believe licensing is an issue. SAP’s licensing is infinitely flexible. And so they can get bent around the axle.”

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Hala Zeine, chief business development officer for SAP globally, has been leading a pricing modernisation programme at the supplier, which turns on a shift from user-based pricing to business outcome metrics pricing. At Sapphire 2017, these new models were announced as “order to cash”, “procure to pay” and “static [data] read access”. In Birmingham, Zeine said SAP believes these to cover 80% of indirect licence use cases, and said it is working on the rest.

Asked how the supplier plans to put to rest user concerns about indirect licensing, she said: “There is angst around the concept of licensing and we put it to rest by building trust by being reliable, consistent, transparent and predictable. You don’t trust people who surprise you.”

Zeine said the business value to be derived from S/4 Hana [the supplier’s full ERP suite in its in-memory database, Hana], the switch to the cloud, integration and the EU General Data Protection Regulation (GDPR) were also priorities for customers, she found. “I’d struggle to put it [licensing] as the top one,” she added.

Zeine said in a statement: “The issue of how best to manage indirect access is one we’re working on across our business and why we’ve committed to modernising our pricing approach. The conversation around the topic is particularly prominent in the UK today and, as the UKISUG survey shows, indirect access is top of mind.  

“I personally work directly with many user groups across Europe and beyond and their feedback on the issue is fundamental to the way we frame and resolve these issues. This is something we’re focused on at a country-by-country level as well as from a global perspective.”

Disconnect in perception

Mike Slater, appointed UK and Ireland managing director at SAP this year, in his keynote at the conference mentioned a disconnect between how customer-centric the supplier wants to be and how it is being perceived. In an interview, he said: “You can’t argue with how people feel. Clearly there is a mismatch with what the senior leadership [at SAP] desires and what [some] customers feel on the ground. There are customers who feel genuinely great about their relationship with SAP and often that comes down to how good the account team is.”

Ray Wang, principal analyst, founder and chairman at Constellation Research and one of the keynote speakers at the user group conference, baulked at any suggestion that indirect licensing was a parochial concern in the UK.

“Incorrect,” he said. “This is a global concern. It is just that the UK user group has been the most independent about raising the concerns of its members.”

Wang also said he does not believe the Diageo case sets a precedent. “We are seeing concessions in contract negotiations,” he added.

Whatever the detail of the SAP versus Diageo case – which SAP won – it has been a catalyst this year for the thorny issue of indirect licensing. Users are looking to their own SAP estates and wondering if they, too, are incorrectly licensed, or will be if they attempt to implement more cutting-edge systems, involving the IoT or a variety of cloud applications. SAP and its users will want to lay this ghost to rest in 2018.

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