Anheuser-Busch Companies confirmed via its F-20 SEC filing that SAP America, Inc., has commenced an arbitration in New York against Anheuser-Busch Companies pursuant to the Commercial Arbitration Rules of the American Arbitration Association.
According to the filing, “The statement of claim asserts… Anheuser-Busch Companies employees used SAP systems and data—directly and indirectly—without appropriate licenses… The statement of claim seeks…damages potentially in excess of USD 600 million.”
As many have now come to understand, over the past several years SAP’s approach to “indirect access” has severely strained customer relationships in confidential settings and most recently escalated into public view via action SAP has chosen to take against Anheuser-Busch and Diageo.
Executives we advise on this issue start with asking a very simple question…why?
A Historical Context
To understand why SAP has chosen to erode its reputation and customer good will, I would start by reflecting on prior technological inflection points and enterprise software pricing practices.
- In the early 90’s enterprise software primarily ran on mainframe systems such as the IBM System 38 and AS/400. The software industry priced software primarily on the processing capability of the hardware.
- The introduction of client server technology expanded the customer’s ability to leverage enterprise software. As a result, the software industry responded with hybrid processor-based and concurrent user pricing models.
- As user adoption exploded and processing power increased, the software industry phased out processor and concurrent user-based pricing in favor of named user and metric-based pricing.
These inflection points were typically accompanied by new product introductions and a complementary rollout of revised pricing practices, that for the most part, although debatable, were measurable and predictable to the customer.
Unfortunately, this is no longer the case in the eyes of many SAP customers challenged with indirect access claims by SAP.
What’s Driving This Inflection
The fact is that SAP’s software pricing model has been outpaced by software innovation and adoption, primarily attributed to:
- Consumer Engagement: End consumers are directly engaging in business processes traditionally served by company call centers resulting in a shift of workload and value to the consumer.
- Integrated Workflow: Integration of business processes among multiple technology platforms are blurring the lines of demarcation of software use and value.
- Internet of Things: The rapid introduction and integration of devices with enterprise application software are extending the analytical capabilities and responsiveness of organizations.
- Automation of Functions: An inevitable automation of functions previously performed by employees or business partners will be replaced by automated technology.
This expansion can be viewed as a significant SAP revenue opportunity or threat, depending on one’s point of view. Regardless, the digitization of businesses signifies an inflection that ensures this issue is not going away.
SAP’s Choice – Covert vs. Overt
SAP clearly saw this coming and made a choice: Undertake an effort to rollout a public and transparent set of new pricing practices to address market realities, or address this issue on a customer by customer basis…SAP chose the latter.
As a result, over the past several years, we have witnessed SAP employ a series of tactics that have been further informed by recent events.
- Audit Lever: Empowerment of the Strategic Initiatives Group to conduct software audits beyond the traditional User- and Metric-based audit.
- Competitive Lever: Positioning costs of SAP indirect access user fees that may result from the selection of a competitor.
- Commercial Lever: Positioning of accelerated product commitments and coupled with resolution of audit findings as a compromise solution.
- Termination Lever: Issuance of a notice of termination resulting from a customer’s refusal to agree to the concept of indirect access.
- Arbitration Lever: As noted by the recent Anheuser-Busch disclosure, evoking its rights under a typical SLA to invoke an arbitration.
- Court Lever: As evidence by SAP’s action against Diageo, when compelled SAP has demonstrated its willingness to leverage the court system.
SAP has clearly demonstrated an organizational commitment to pursue the concept of indirect access. In addition, SAP has shown the capacity to deal with this issue at scale. Their commitment is further evidenced by the recent appointment of Franck Cohen, former President of SAP EMEA, to the position of Chief Commercial Officer, who will most likely be responsible for the enforcement of SAP pricing and commercial practices globally.
Unfortunately, there is no indirect access price book or definitive set of guidelines for completely eliminating indirect use compliance risk. However, companies that fully appreciate the significance of this issue and also understand SAP’s determination to enforce indirect use are actively taking the following proactive steps:
- Assessing the strength of their SAP relationship.
- Conducting a mark-to-market assessment of their SAP agreements to understand gaps.
- Evaluating their license entitlements vs. actual use to determine optimization opportunities.
- Conducting a deep dive on all existing and potential future non-SAP interfaces to assess the magnitude of indirect use compliance risk.
- Taking the output of steps 1-4 above and integrating potential future demand in order to develop a sophisticated playbook for driving a predictable and favorable outcome with SAP.
Do not hesitate to contact Carole Jacques or call 617-412-4313 if you would like to understand how UpperEdge has been successfully shepherding SAP clients through these 5 key steps.