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Snow Software's Paulini on nuances of SAP indirect access

In this Q&A, Joachim Paulini discusses what the Diageo and InBev indirect access cases mean for SAP users and how understanding their licensing can save them from a similar fate.

Tremors of unease rippled through SAP's customer base in May when a court in the U.K. ruled that the software giant was entitled to $70 million from Diageo plc in licensing fees for indirect access to SAP systems.

Indirect access is essentially nonlicensed users getting access to data in SAP systems through third-party systems. It has become an increasingly important issue as next-generation technologies, like the internet of things, open up SAP data in ways that go beyond traditional licensing models.

In this Q&A, Joachim Paulini, SAP solutions technical architect at Snow Software, discusses the issues surrounding indirect access to SAP data and what SAP users need to think about as they consider their SAP license agreements. Snow Software is a Stockholm-based firm that provides software asset management services to help companies analyze software licenses and usage.

What was your response when SAP CEO Bill McDermott addressed the indirect licensing issue at Sapphire Now in May? Was it surprising or inevitable given the recent court cases?

Joachim Paulini: I think that Bill McDermott's announcement was only the icing on the cake ... because, at the end of last year, when the court order in the U.K. against Diageo went public, it really created a storm in the SAP world. Every customer said from that moment, 'maybe I have a problem, as well.'

Joachim Paulini Joachim Paulini

The problem with Diageo [is] that they have a customer portal which they developed that [works] through Salesforce. People can log in to Salesforce and place orders to Diageo; the former process was with a data call center, and now they replaced the call center with that web UI through Salesforce. But now, SAP wants to have a user license for every user of that web UI.

So SAP was saying, 'if you use this web portal, you are really using SAP.'

Paulini: Yes, although, you don't use the user interface from SAP, you are using the software; so that's the indirect usage.

In [Diageo's] former scenario, it was only the user call agents who used the SAP UI, but now, it's thousands of people, so you can imagine that every SAP user costs several thousand dollars. So you can imagine the unhappy surprise that Diageo encountered.

So there wasn't an issue until they started using that web front end; it was just internal use before that.

Paulini: Exactly. And a few weeks later, there was another case where InBev, the brewery company, published in official filings that they were at risk for about $600 million because they have licensing issues with SAP. We know from sources that it's also indirect usage, and it also probably involves Salesforce, as well.

Then, in May, Bill McDermott made the announcement that they want to show empathy, and that they are aware that there are customers that are afraid of this situation. He announced their new policy that they want to make it easier and clearer for customers, so they have this new policy for indirect usage, which they think covers a majority of the scenarios. I'm not really sure if this is the case, but that's what they say.

What does that entail?

Paulini: What they want to do is charge for indirect usage for the number of orders which go through two indirect usage scenarios that they have identified -- order to cash and procure to pay. It's basically purchasing and sales and distribution scenarios, and they want to have a certain amount of money for each order which goes through in this indirect way.

So you're not paying for using the system, but for the order you make through the system.

Paulini: Right, but this is only valid on the indirect scenario. Of course, for the direct scenario, they still want to have user licenses.

If you look at the numbers, it's not really clear if this is cheaper for the customers because, just some months ago, SAP increased the prices for these scenarios. So, for the procure-to-pay scenario, they increased the prices quite massively. But it's not really clear yet, at the moment, what SAP will do [with] the software orders -- what they will charge and how that will all turn out.

At the moment, what we say to the customers is, 'look at your numbers, look at your scenarios and really be aware of what you are using from SAP and what your indirect usage is.' It may be better for you to pay for the users. Maybe it will be cheaper that way in the long run.

But all this depends on the contract that you have -- whether it's an old or new contract. This is a very complex situation, as you can imagine, so you can only solve them on a case-by-case basis. There's no general recommendation that you can give.

So SAP customers need to understand what their usage is and if there's any indirect usage.

Paulini: Yes. With Snow Software, we come in and look at the SAP contract, and then we analyze the usage with our software. We can uncover different aspects like indirect usage -- if there is indirect usage, when and what for, and so on.

You need to invest some time for usage analysis, and then you need to look at the IT landscape. We can do a lot of this in the software, we can see the connections, the data flowing in and out, and we can see what SAP is seeing in their software audit, as well.

Our main advantage is that we can really get to the usage information, which is not normally accessible without any software tool that gives you that information. The information is already there, it's just hidden in the SAP system, and for the normal customer, it's not possible to get it in the form that they need.

What happens once you have a better idea of your indirect access?

Paulini: After that, usually, together with the customer, we'll come up with a recommendation of what's best to do and how to defend themselves against SAP. However, SAP is not going in deep after this stuff in every case.

Our experience is that, if the customer purchases stuff regularly from SAP, and they have a good relationship with SAP -- maybe even they have bought new solutions, like SAP HANA -- SAP is happy, and they don't dig that deep. But if the customer is not purchasing that much, maybe not purchasing anything for a certain amount of time, then SAP may start to go deep because they want to analyze what's going on, why don't they purchase any more software, is there something tricky going on, are they trying to cheat us?

So by not buying anything for a while, you might send up a red flag to SAP?

Paulini: Yes. A lot of customers may be afraid to even speak with SAP because they're afraid they might come after them, and they are afraid to speak publically about SAP. Some are willing to speak, but it's not easy.

Next Steps

Software vendors need to provide more transparency around software costs and better service-level agreements

Businesses need to take software licensing risks into account or risk serious consequences

Here are three ways to lower your SAP licensing fees

This was last published in August 2017

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