News Stay informed about the latest enterprise technology news and product updates.

Recycling SAP licenses can mean big savings for the well-prepared

SAP shops can save money by software license recycling, but it’s not easy due to legal and accounting challenges, according to Gartner analyst Victoria Barber.

Effective recycling of SAP licenses can lead to significant savings, but companies must navigate a number of legal and accounting challenges around the use of those licenses, according to Gartner analyst Victoria Barber.  SAP license agreements must also be tracked with the help of software asset management (SAM) tools and processes, she added.

Software license recycling is when a company  recovers  used or unused licenses and redeploys them to avoid purchasing new licenses from the vendor.

“Quite often people buy licenses for big projects, and then end up not needing them all. If you’re aware that you have those licenses, then there may be a point in the future where those can be effectively leveraged by another project, or by a different group of end users,” Barber said. 

Negotiating greater flexibility in being able to recycle licenses may cost more money up front, but can be worth it in the long haul, Barber said.

“The world we’re in now, the way we use our IT [resources] is very different from how it used to be. People used to look at signing contracts that reduced the costs by being quite restrictive, something limited to a specific site, not just country or continent,” Barber said.

Nowadays, companies require a greater degree of flexibility in how those licenses are used and by whom, Barber noted.

Restrictive legal language in SAP licenses

In her report, Six Challenges of Software License Recycling, Barber notes that many companies agree to restrictive contract language in the negotiating stage, not considering or not caring about the potential need to reuse licenses later on.

For more on SAP licensing

Customers looking for alternative SAP pricing models

Learn how to end SAP licensing horror stories

Read why one customer wants better contract language from SAP

Learn about selling and buying unused SAP licenses

“Terms that restrict software usage to a particular geographic region, legal entity, platform or business system can reduce costs, but also reduce the long-term value of the software to the business,” the report states. 

While these are types of restrictions companies place on the way licenses are used [internally], SAP also imposes the same kinds of legal restrictions on their customers when it comes to licenses, she said.  SAP divides its licenses into different classes, including professional and limited professional.

Some vendor agreements allow for the limited reassignment of licenses, but require the company to notify the vendor. In some cases, contract language may stipulate that the reassignment be permanent. In some cases, the company may be able to renegotiate new license terms for a fee, which may be cheaper than buying a new license.

Barber recommends making sure that any restrictions are assessed and recorded within SAM applications before adding them to the recycling process.

“When you get a requisition in that says somebody needs a new license for this product, you can look at the ones that you have available and say, what country is the user in, and can it be used in that country, or can that license be used in that part of the country?” she said.

Legal ownership and entities

Although licenses may be limited to a division, location or part of an organization’s legal operations, there are often exceptions that allow a license to be recycled, including mergers, acquisitions and divestments, but they may also require a vendor’s consent.

It may also be possible to negotiate the transfer of licenses to a service provider doing work for a company as a part of an outsourcing environment, but use of that license may be restricted to the company having the work done, according to Gartner.

Financial ownership

If a company is able to recycle unused licenses, disagreements may occur as to who gets the SAP license cost savings.

“Of course, the organization as whole will benefit regardless, but those in charge of software asset management, procurement and business managers may all want rewards for playing their part,” the report states.

If the cost of the software asset has been fully depreciated, the new user might object to paying anything for licenses, according to Barber. If the purchase of new licenses has already been budgeted for, procurement managers may want the savings.

The department that gets credit for the savings may depend on a number of variables, but those savings can’t be recognized without high-quality SAM data and managed processes. 

“It’s not procurement that gets the credit,” Barber said.

Making sure the SAP license savings are real

In many cases, the savings from recycling software licenses may not be what they seem.  

Real savings must take into account outstanding depreciation, administration or maintenance and support costs for maintaining the shelfware. “Business budget holders or IT procurement typically claim over-optimistic savings,” the report states.

To help remedy this, companies should account for all costs related to license recycling and offset them against the cost of new software to provide a more accurate account of cost savings.

Do you even need it?

It only makes sense to recycle a license if a company still has a need for it. Before trying to recycle a license, a company needs to assess if the functionality is still needed, the version is still compatible with the rest of the architecture, it doesn’t suffer from security flaws and if it’s been replaced by a newer product. If that’s the case, it may be better just to retire the licenses and flag them to prevent them from being reused. In some cases, SAP may allow for licenses to be exchanged for alternative products.

To help inform those decisions, Gartner recommends that enterprise architects and other stakeholders review the software catalog regularly.

Subscription SAP licensing models

Reusing term and subscription licenses typically yields smaller savings compared with on-premises software, but companies should still reassign licenses whenever possible. Companies should check their licensing agreements to determine what’s required to reuse those licenses. 

Dig Deeper on SAP case studies

Start the conversation

Send me notifications when other members comment.

Please create a username to comment.