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SAP ERP Licensing for the Digital Age – can you afford not to opt in?

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Over the past 2 years, the Diageo and AB InBev lawsuits put SAP and its license agreements and compliance auditing practices in the spotlight as never before. The cases drove a lot of discussion in the ITAM and SAP user communities, both about what was seen as exploitation by SAP of ambiguity in its license terms, but also pointing out that the current Indirect Access terms were not fit for purpose in the new digital landscape where everything from customers to IoT devices to bots could be indirectly accessing a corporation’s SAP systems.

To SAP’s credit it seems to have listened to its customers, beginning at Sapphire Now in May 2017 with Bill McDermott referencing the market’s anxiety around Indirect Access and acknowledging the tension between protecting IP and accommodating new ways of doing business, and the announcement of a new “outcomes-based” pricing model for order-to-cash and procure-to-pay Indirect Access. Developments culminated in April this year with the simultaneous  release of documentation providing clarity about the intent and interpretation of the existing license terms in respect of Indirect Access, and the announcement of a new opt in license model which is intended to comprehensively align SAP’s licensing for Indirect Access with the reality of new digital use cases.

There is a lot to digest in these documents and interested parties will want to read them in detail. SAP customers will have decisions to make about the business case for opting in to the new licensing model, and if they do move, they will face some new challenges in implementing ITAM processes and controls. Here are my reflections on some of the key things arising from these developments from an ITAM perspective:

– Many customers will currently have architectures involving Indirect Access which are not licensed correctly under SAP’s legacy Indirect Access license model. SAP is surely calculating that the new license model provides a route for such customers to become compliant for Indirect Access without the relationship and reputational pain which resulted from its attempts to enforce the current model (viz Diageo). To further incentivise customers to take up the option, SAP has stated that if customers proactively resolve historic non-compliance relating to Indirect Access, SAP will not seek back maintenance. This would clearly be a significant benefit for customers who find themselves in this position. However even without back maintenance, such customers will find that opting for the new model will not be cost-neutral since they will effectively be buying licenses for usage that they have not paid for historically (albeit on a different metric).

– Where there is a carrot there is usually also a stick. For customers who don’t move to the new model, the existing terms and conditions for Indirect Access continue to apply. By clearly explaining which Indirect Access use cases need licenses, SAP has removed any excuses for customers who are caught by an audit and hadn’t corrected any legacy non-compliance on Indirect Access.

– Customers will therefore need to undertake detailed analysis to properly assess the business case for opting in. The analysis will involve assessing not only the license cost of current Indirect Access under both the legacy and new licensing models, but also how new digital services in their roadmap are likely to drive the indirect processing of different kinds of documents within SAP, at what volumes and how those map to the new SAP license definitions. Going forward, ITAM professionals at SAP customers who do opt in, will need more than ever to work to ensure they have visibility of the digital strategy and that they are engaged at an appropriate point in the development of new digital services which will integrate with the SAP core.

– They will also need to introduce tools and processes to monitor actual consumption of licenses based on document volumes as defined by the contract. SAP has promised new tools to enable customers to manage compliance, but we all know that the reality of automated tooling is that it has to be configured to report correctly within the specific characteristics of the customer environment. Effort is likely to be required from the customer’s ITAM team to fully understand the end to end business process involved in each new service and the resulting system transactions and documents to ensure that the SAP monitoring tools are correctly set up to measure and report attributes which correspond to the contractual definitions.

– Finally the changes have no effect on how direct access users are licensed. The classification of SAP direct user populations is often poorly understood and controlled by SAP customers. This is of course both a risk and an opportunity since poorly controlled environments often result in over-payment and therefore there is scope for optimisation. SAP is offering a couple of different opt in routes to the new model, “License Exchange” and “Contract Conversion”. Both routes enable customers to get credit for existing investments in user licenses which can be used for new document licenses. This would appear to have created a unique window of opportunity for optimisation since user licenses which have been paid for but which are not actually needed could potentially be identified and traded in for credits.

SAP claims it is “shaking up the industry and raising the bar on software licensing practices”. It has certainly made a bold and innovative move to address a major pain point for itself and for its customers by redefining its license model for today’s and tomorrow’s technology trends and by working closely with user groups to reach mutually acceptable solutions to licensing concerns. But at the same time, underneath its positioning of the drivers of these changes being empathy, predictability and transparency, SAP is making a hard business calculation that it can solve the intractable issue of getting license fees for Indirect Access from an installed base which has not previously paid for it. For ITAM professionals, changes like this always create interesting new challenges and I am looking forward to seeing how this plays out at clients and in the market generally.