Moving Forward with Indirect Access

Queue the Press.
Queue the Analysts.
Queue the SAP User Group Executives.

The moment we’ve all been waiting for since SAPPHIRE 2017.  

On April 10, 2018 we received the long awaited results of SAP’s “Project Trust”.  The definition of a new licensing approach for SAP’s ERP…aka Digital Core…in the post inBev / Diageo litigious world and in the dawn of the age of the Internet of Things.

SAP’s announcement was clearly a well staged event since within minutes of SAP releasing the news on their website, a torrent of (what could only have been pre-written) articles immediately followed.  By noon EST on April 10th, my inbox exploded.

Let’s start with links to some of the original SAP source material about their new pricing model.

Indirect Access: SAP Unveils First-of-Its-Kind Pricing Model is SAP’s bold attempt to turn lemons into lemonade…as SAP does best!   This is the SAP presentation by Hala Zeine and Christian Klein entitled “ERP licensing for the Digital Age” that explains it all.  You can download a pdf of the new pricing model here. Of course, if you prefer to watch explainer videos on youtube, SAP has one of those too.

For the record, here are the TOP TEN highlights of SAP’s “clearer and more transparent” licensing terms:

1. Eliminates the need to count users.
2. New licensing model is based on “outcomes”…aka SAP business documents (9 different types) that are created (Sales Document Line Item, Invoice Document Line Item, Purchase Document Line Item etc.).
3. No charge for Read, Update and Delete via Digital Access.
4. Interchangeable document capacity, which means the total number of documents licensed applies to any of the documents created, regardless of type.
5. No charge for subsequent document types created as a result of the automatic processing of the original document.
6. A formula that can be used to count total number of documents produced with a weighting factor to adjust for value of those documents and the frequency of their use.
7. Volume discounts available :-).
8. One of three migration paths for existing clients – Do nothing, Exchange Licenses, Convert to S/4Hana contract.
9. New governance and audit changes to the sales and audit practices inspired by documented abuses by the SAP sales organization.  Separating Sales from Audit and providing Sales “guardrails” against abuse.
10. Simplified license self-measurement and self-monitoring. SAP will develop, and provide, tools to their clients in order to help them understand their license usage.

I’ll weigh in with my view shortly, but first, here are some of the industry’s reactions:

SAP Indirect Access new policies aid transparency, users remain uncertain As usual, Diginomica’s Den Howlett hits the nail on the head with this analysis…and I couldn’t agree more.  If you’re only going to read one analysis of SAP’s announcement, this should be the one (except for mine at the end of this section).

The Journey to Clarity on SAP Licensing:  ASUG’s Perspective – Geoff Scott’s (CEO of ASUG) tempered, and astute, assessment that the announcement was progress in the right direction but needed to withstand the test of time and client interaction.

SUGEN welcomes new licensing model, but SAP must reassure existing customers they won’t pay more – SUGEN is the uber SAP User’s Group. The governing body of all SAP User Groups.  They correctly underscore that the manner in which SAP handles their existing clients and their contracts will be critical to getting past all of the drama.

New optional licensing model created – DSAG’s so German headline.  Just the facts.

SAP revises pricing for core business planning software – Terse reporting from Reuters Canada.  

SAP revises pricing after crackdown on big customers backfires – Reuter’s Eric Auchard with a London byline, and a more critical headline, takes a more thorough and historical view of the announcement.

Following legal disputes, SAP updates pricing for indirect software use – CIODive continues the theme that SAP needs to rebuild the trust of their clients.

First of its Kind: New SAP Pricing Model is Based on Digital Access – Engineering.com seems to have won the “thoroughness” of regurgitating the SAP press release.

Are you SAP-py now?!  ERP giant overhauls pricing model following indirect access drama – The UK’s Register documents the features of the new plan but underscores that there is still great skepticism in the market of whether it will work or not.

So, my take?

It’s a step in the right empathetic, and trust rebuilding, direction. Unfortunately, I think we’ve got a long way to go before SAP can declare victory and SAP Clients can feel safe coming out of their bunkers.

Here are the top six reasons why I think so:

1. Show me the money.  A new licensing model doesn’t solve the problem if the end result is going to be an exorbitant fee.  I’ve already seen the results of pricing negotiations with last year’s “value based” pricing model that SAP offered.  Initial licensing costs took your breath away and then after an embattled negotiation process, SAP settled for 10% of the original proposal.  If this model doesn’t produce a “rational” price for Indirect Access, and a less polarizing negotiation process, then “plus ça change”.
2. The devil is in the details.  Agilists use the term “minimum viable product” (MVP) to describe spending the least amount of energy to building and launching a product in order to get market feedback. SAP’s latest “Outcomes based pricing model” is just that.  It’s an MVP. Just enough definition to elicit feedback from the market but not enough definition to answer all of the “nuanced” questions that will arise when you attempt to put it into production. For instance, here is what I believe is a legal loophole in the current version of the licensing terms.  What if a licensed SAP Professional User creates a month’s worth of Sales Order documents in the Digital Core?  And what if an IoT equipped printer (see the youtube video referenced above) first searches for one of those unused Sales Orders and then updates it with the appropriate information to replenish it’s ink cartridges?  Will that Indirect Access require licensing? According to the current documentation, the answer is no. But somehow that just doesn’t “feel right”. The current documentation specifies that there are no charges for “reads, updates and deletes”. Is that a loophole?  How many other questions like this are there? What’s the process by which they will be adjudicated? How quickly will the next iteration on the licensing model happen? How will these newer versions be rolled out to the market? It’s not going to be easy evolving a licensing MVP into a mature and robust solution that works for SAP’s 40,000 worldwide Digital Core clients.  
3. SAP is still facing immense growth pressures. Many observers believe that the SAP ecosystem has arrived to this weaponized Indirect Access place because of SAP’s immense pressures to evolve their business model from on-premise to Cloud.  According to this Forbes article, only 20% of SAP’s clients have to date migrated to the S/4Hana platform.  SAP is predicted to continue to grow their cloud revenues by 17% per year moving forward.  Unless SAP can accelerate delivering a real business case for making the transition to the cloud, they may have to resort to some of the age old “bullying” tactics that the market has rebelled against.
4. Trust isn’t rebuilt with an event.  SAP is underestimating the extent of the pain and the broken trust that their greed has caused in the market. This announcement is a great first step.  But it’s only an announcement and talk is cheap. The trust will be rebuilt one fairly negotiated contract at a time. The faster SAP can shepherd clients through these negotiations the better.  SAP’s User Groups should take a leading role here in monitoring and publicizing the process…both good and bad.
5. Sales and Audit still draw paychecks from SAP.  It’s great that SAP has taken the Auditing responsibility away from the Sales organization. It’s also great that SAP has inserted guardrails in place in order to keep the honest Salespeople honest.  However, it remains to be seen how this works in practice when #3 above…revenue growth pressures…come banging on the door. Again, the market needs transparency. SAP did a great job confronting a really bad grafting situation in South Africa with the Gupta case. If they continue to be as outfront and transparent with Indirect Access, all will be good…eventually.
6. It’s still illegal.  SAP is attempting to normalize the fact that it’s OK to charge for Indirect Access when accessing the Digital Core via third party applications.  It’s actually not OK. In fact, it’s illegal and the US/EU antitrust statutes call it “tying”. Duke’s Professor Barak Richman called this out in the now infamous Duke Memorandum that I blogged about last August.  Just because you keep repeating that something is true doesn’t make it so.  SAP needs to treat all of their acquired Cloud products just like any other third party product when they are accessing the Digital Core.  They too need to be licensed for Indirect Access.

So, all in all, it’s hopefully a new day in the world of SAP Indirect Access.  It’s great to see that SAP’s continued frustration over losing the trust of their clients continues to inspire them to find a win-win solution to the problem. I give them all the credit in the world for recognizing that suing and bullying their own clients isn’t a sustainable growth strategy. Their Outcome based licensing model is indeed innovative, albeit only an MVP at this stage of the game. It does have great potential and I hope and pray that they continue to do the right thing!

As usual, if you have any comments or experiences that you’d like to share with me, I’d love to hear from you.

Onward!

Sam