SAP indirect usage: Is SAP changing the nature of its relationship with customers?

Software giant SAP seems to have taken the love/ hate relationship with its customers to new heights. In February, a UK court ruled in its favour against one of the world’s largest drinks companies, Diageo, in which it claimed £54 million in unpaid fees for Indirect Usage of SAP systems by third-party applications.

More recently, AB Inbev announced that SAP is pursuing an arbitration process for up to $600 million in license and damages costs from direct and indirect usage. Last spring Bill McDermott, CEO of SAP, acknowledged customer anxiety around Indirect Access and announced that it would tackle certain pricing scenarios in attempt to clarify the situation. However, confusion still reigns. So why is SAP doing this and what might it mean for the future of SAP’s customer base?

Audit is the last resort?
In the past, aggressively auditing the customer base has often been the last throw of the dice for a software vendor in its final death throes. But this isn’t the case for SAP. Instead, perhaps it is a reaction to the slower-than-desired take-up of new technologies like S/4 HANA.

We’ve seen several instances where SAP has used S/4 HANA as a solution to fix customer licensing issues. It’s a commonly adopted tactic that many large vendors adopt to push their strategically important products. But the recent court cases feel somewhat different; almost as if SAP is trying to suggest to customers that using competitive third-party solutions (perhaps using Salesforce instead of SAP CRM) comes with a penalty that makes sticking with SAP across multiple applications a more financially attractive proposition.

SAP = indispensable?
Most of SAP’s larger users are long-term customers that have increased their investment in SAP systems year on year. Basically, their businesses are built on SAP. Rip and replace is simply not a viable option. And SAP must know this. Replacing an organization’s SAP systems with a different ERP system would be like uprooting the said organization’s offices and warehouses all at once. Therefore, it can play hardball (with a sprinkling of empathy).

A step towards a clearer future?
Earlier this year SAP’s CEO, Bill McDermott, acknowledged customer anxiety and announced its first pricing scenarios to tackle indirect usage, linking it to SAP’s “empathy” towards its customers. For these new models, value is to be measured on outcomes. However, this is not a clear-cut fix: organizations must look carefully at their own circumstances to verify if these new proposals represent a reasonable licensing measure for the purposes of their business; modelling these scenarios without an automated solution will be particularly challenging and uncertainty still lingers around other indirect usage scenarios not covered by these initial proposals.

“Anxiety” reaches further up the chain
The problem for SAP is that exposing customer organizations, no matter how large, to the risk of an extra (and unbudgeted) $600 million for software licenses is kind of a big deal. The sort that gets the attention of not only the CFO and the CEO, but mostly likely the board.

While CFOs and CEOs of a large enterprise would agree that SAP is mission critical to their operations it’s very doubtful that they would agree that this should be “whatever the cost”. The heart of the problem may be, however, that the true scale of the overall SAP licensing cost is still an unknown.

Because SAP adoption has typically expanded over many years, as organizations have grown and merged, there is often no single owner of all SAP investments. This is especially true in multinational enterprises. The resulting lack of centralized clarity of spend has sometimes meant that the SAP spend has, in effect, been beyond scrutiny. CFOs have been forced to accept that SAP bills just get bigger each year as the organization increases its reliance on the software. And the opportunity to optimize or seek to reduce spend is too complex and political to bother with.

Time to take control
We believe SAP customers must take a more active role in demanding more detailed information from the SAP teams to understand the current licensing situation and map the entire SAP system architecture to uncover indirect usage risks and potential future causes for concern.

A simple “it’s all in hand, trust us” from the SAP teams will not be sufficient. Snow Optimizer for SAP® Software can help. It reports on communications to and from external third party systems to identify the originating user in the third-party system, highlighting the users who are indirectly querying SAP and through which system. The solution reconciles third-party users against named users within the SAP system. It also enables customers to measure other licensing metrics such as orders, providing clarity around the proposed new pricing scenarios. Through this functionality, Snow Optimizer for SAP Software provides comprehensive data about Indirect Usage which enables the organization to significantly reduce financial exposure and to highlight risk in the future.

If your organization uses third-party applications, or employs Business Analytics platforms to access data held in the SAP environment, you have a major SAP indirect access risk that needs to be addressed. Learn more on SAP indirect usage during Snow’s speaking slot at IT & Software Asset Management conference Belgium