SAP wants its customers to migrate from ECC to Hana and its cloud offering and is also putting forward a new, “ambiguous” document licensing scheme
Many businesses appear to be taking their time migrating from SAP ECC to the S/4 Hana ERP (enterprise resource planning) platform. At the same time, SAP has introduced a document licensing metric that provides a way for organisations to connect third-part applications to SAP software – but the definition of a SAP document is unclear and requires clarification from SAP account teams.
SAP has aggressive targets to move its customers over to the new S/4 Hana system, which means IT leaders are likely to find their SAP account manager offering great deals on SAP’s enterprise cloud and Hana product families. However, as Computer Weekly has reported previously, there are some IT departments that are happy with their ERP – and some are not keen to migrate over to a cloud platform.
The company has publicly stated that businesses will be supported on its ECC ERP platform until 2025. The migration path for ECC customers is from this older platform to its in-memory offering, S/4 Hana. It is also pushing the Hana Enterprise Cloud, which SAP has ambitious plans to grow by 35% in 2020.
In a transcript of the company’s first-quarter 2019 earnings call, posted on the Seeking Alpha financial blogging site, SAP CEO Bill McDermott said: “S/4 Hana adoption grew to more than 10,900 customers, up 30% year on year.”
But progress to the new ERP platform has been slow. A recent study from third-party support company Rimini Street reported that nearly 80% of SAP licensees plan to continue to run their customised, mature SAP systems to at least, or beyond, SAP’s planned 2025 end of ECC6 mainstream maintenance date.
Rimini Street reported that about two-thirds of the IT leaders it surveyed said they currently had “no plans to migrate” or were “undecided” about moving to S/4 Hana in the next 18 months. The main reasons they gave for not moving to S/4 Hana were a lack of resources, no business justification and a preference to maximise investment in current applications.
The Rimini Street survey, of 148 professionals in IT finance and procurement professionals (C-suite to management levels), estimated the average cost of moving to S/4 Hana at $34m.
Rimini Street CEO Seth Ravin said: “With SAP’s expensive, time-consuming and resource-intensive forced migration to its S/4 Hana product, SAP 4.x and ECC licensees have two choices – stay on SAP’s vendor-dictated roadmap and continue to invest in undesired, forced upgrades, or choose a business-driven roadmap designed specifically around their business objectives.”
Document licensing ambiguity
While SAP clearly wants people to migrate to its cloud platforms, it has also introduced a new type of licensing, recognising the need for businesses to connect SAP to other business applications indirectly. The company’s Digital Access Adoption Program is intended to clarify (and reduce costs for) its indirect access licensing.
However, Robin Fry, a solicitor and legal director of Cerno Professional Services, which specialises in audit defence and strategic licence optimisation, believes the wording SAP uses is unclear, which could open up businesses to the risk of being hit with a software audit and being found to be under-licensed.
“It is not what SAP says or intends or does that is relevant – it is only what the SAP licensing document states,” said Fry. “If there is ambiguity, then, as in the Diageo case, a business that thinks it is fully licensed but has a different interpretation imposed on it by SAP, can come unstuck.”
In 2019, the High Court ruled that Diageo’s use of third-party access to SAP software was outside the terms of its contract with the ERP provider, and ordered it to pay SAP £54m in licence fees.
Following a number of cases involving indirect access from third-party systems to the SAP system, SAP eventually updated its licensing with a new digital access licence in 2018. This effectively counted licences based on document creation, as in when a new SAP document is written to the SAP system.
In theory, reading documents is covered by document-based licensing, but as Fry warned in a recent Computer Weekly article, the definition of what actually constitutes a document is ambiguous. “The SAP terms state that consumers or constituents do not require named user licences, but this is then countermanded by an ‘unless otherwise set forth herein’,” he said.
“One would expect the document licensing metric to clarify the licensing exposure in a business-to-consumer-based organisation. But there are a number of types of document not covered by the document licence metric and are therefore not licensable on this basis.”
Fry recommended that organisations address these discrepancies by getting clarification in writing from their SAP account manager as to what is covered by document licensing within their organisation.
However, it is highly likely that the SAP account team will want to cover more than licensing. In the company’s first-quarter 2019 earnings call, SAP CFO Luca Mucic said: “We started the year with strong growth and better-than-expected improvement in cloud gross margins and operating margins. Bill [McDermott] and I have highlighted the tremendous progress already made on the migration to a highly standardised, cost-effective converged platform on Hana.
“We therefore confidently introduced higher margin ambitions – both a new 75% cloud gross margin target by 2023 and an average of one percentage point of operating margin improvement over the next five years, totaling 500 basis points through 2023.”
The move to the cloud is core to SAP’s growth plans, so any conversation with an SAP account manager about document licensing may well be influenced by any decision to buy additional Hana or cloud services from SAP.