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SAP indirect access debate tackled in new licensing model

SAP wants to resolve the indirect-access issue with a new, document-based licensing model. Analysts think customers will be happy, but SAP needs to build trust.

Move over user-based licensing. There's a new model in town.

SAP unveiled a new licensing model on April 10 that's intended to address customer concerns about their SAP indirect access activities. The long-simmering SAP indirect access dispute came to prominence last year when a U.K. court ruled the vendor was entitled to $70 million from Diageo in licensing fees for indirect access to SAP systems.

The main conflict is whether SAP should charge its customers whenever third parties access information in an SAP application.

SAP indirect access 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 the new SAP indirect access licensing model, usage is calculated by the number of documents created in the system (see sidebar), rather than the number of users, which is the traditional model. The approach to indirect access licensing was developed in collaboration with SAP user groups, including Americas' SAP Users' Group and the German-speaking SAP Users' Group.

New licensing model promising, but pricing crucial

Duncan Jones, vice president and principal analyst at ForresterDuncan Jones

Customers should find a lot to applaud in the new licensing model, according to Duncan Jones, vice president and principal analyst at Forrester Research. This includes ending revenue-creation activities that pose as compliance audits and creating an independent appeals process outside of the sales channel for customers who think they've been treated unfairly. Some SAP salespeople used questionable practices, like threatening compliance audits to move customers into purchasing SaaS applications, so the separation of license audits from the sales organization should be a positive step.

"SAP's leaders have finally realized that this was a misselling scandal more than it was a licensing problem and have acted accordingly," Jones said. "To paraphrase Winston Churchill, per-document licensing is the worst form of software pricing, apart from all the others. User licensing penalizes vendors for helping customers automate. Hardware-based licensing rewards them for writing poorly performing code. And revenue-based licensing is overly simplistic, and customers react emotionally to it because it feels like a tax."

However, Jones said a major area of concern is the potential impact on open markets for SaaS applications that could potentially integrate with SAP systems.

"I don't think it is in the interests of SAP's customers if SAP charges so much for the per-document license that it becomes prohibitively expensive to buy competitors to SAP's add-on products," Jones said. "That's why the price point is so crucial. I don't know what price they will set, but I suspect they will overvalue their own software's contribution to customer value when it is driven by an add-on like Corevist or Coupa."

In order to preserve a fair open market, customers will need a commitment from SAP to discount the new license in exactly the same way as they discount everything else they sell, Jones said.

New SAP model: Only pay for what you use

The new SAP indirect access licensing model addresses the way organizations access ERP systems now and into the future, according to Sonya Swann, SAP's global vice president and head of pricing and commercialization.

"In the past, we monetized ERP based on the number of users accessing the system, and we didn't really care whether they accessed the system directly or indirectly," Swann said. "At the time, the majority of ERP users were employees or business partners of our customers who were logging into the system directly."

"Today, the technology landscape has changed significantly, and SAP ERP is accessed by multiple different parties -- not only employees and business partners, but also consumers and, increasingly, devices, sensors, automated and intelligent systems. So, the complexity and the number of places where ERP is accessed [have] increased dramatically."

Under the new model, SAP will differentiate between human users who access the system and access that comes through third parties -- SaaS applications, for example -- IoT and bots or other automated systems.

The new model is based on the number of documents transacted in the system, and documents will only be charged when they are created and not when they are updated in the system, Swann said.

"We no longer care about the number of users; we only care about what's happening in the system. And customers only pay when the system is working for them, like if a sales order or service order is being processed," she said. "But if a device just performs an update -- for example, an application measures temperature and updates a field in a table somewhere every second or minute -- there's no charge for that."

The new SAP indirect access licensing model is available now. New customers can use it right away, while existing customers have the option to either stay on their current user-based model or move to the new model, according to Swann.

SAP also announced there will be a clear line separating license sales from audit and compliance departments. SAP conducts license audits to ensure only permitted individuals use the software, but audit practices have been unclear at times, according to the vendor.

"In the auditing domain, there will be much more transparency about the scope of audits and the findings," Swann said. "There will be one global audit team that sits apart from sales, and only that team will be able to nominate customers for audits -- sales will not be able to push 'audit' to do something."

New model is an improvement, but SAP needs to build trust

SAP should be commended for engaging in difficult discussions with global user groups to understand the customer perspectives on SAP indirect access licensing issues and build trust, according to Jon Reed, co-founder of Diginomica.

"These new announcements are a milestone for SAP and a big improvement, even though the document model may be confusing to some and will require education and refinement," Reed said. "The separation of auditing and sales is welcome, but will have to be proven out. SAP will have to show they will take action against 'bad actors' here, such as account reps who don't get with the new program."

SAP's leaders have finally realized that this was a misselling scandal more than it was a licensing problem and have acted accordingly.
Duncan Jonesvice president and principal analyst at Forrester

The new auditing measures are a step in the right direction, as well, Reed said. SAP, along with other software companies, would like to provide customers with self-measurement tools they can use to perform their own audits, stay in compliance and understand their pricing options are for new data-intensive projects. SAP is promising to deliver some of these tools, but not until 2019.

"SAP cannot rest on its laurels here. Trust must be earned, and it's going to take a lot of work to get beyond this and into fruitful digital partnerships," Reed said. "This also depends on the customer. Some are confident in their contracts and their SAP relationships; others will like the new model, but have questions, while others will hesitate, as they may worry that initiating a forward conversation might result in back payment fee." 

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