SAP recently announced the completion of an over year-long journey of collaboration with user groups, customers, industry analysts and other stakeholders, to develop a first of its kind outcome-based pricing model for Indirect Access. Since the announcement on April 10th, I’ve reviewed SAP’s proposed Indirect Access pricing, associated guidelines, and application of the pricing in specific customer situations.
Although the public announcement provided clarity, SAP’s “Indirect Access Pricing for the Digital Age” reflects a posture it has consistently taken with customers on an individual case-by-case basis for years. In fact, its pricing guidelines provide points of emphasis on use scenarios more expansive than we have seen the company position and enforce in the past.
Why Has SAP Moved to Document-based Pricing?
Putting aside the issue of value and debating SAP’s right to charge for Indirect Access, it is appropriate to ask why it settled on document-based pricing.
- Prior Precedent: SAP already had a similar pricing mechanism in place. In the past, SAP’s approach to addressing Indirect Access for e-commerce scenarios was to position one of two options:
(1) Purchase Hybris, or
(2) Purchase Sales and Service Order transactions
During SAPPHIRE 2017, SAP essentially leveraged the Sales and Service Order Processing engine construct to formalize Indirect Access pricing for Sales and Service Orders. The catch? SAP materially increased the unit cost pricing for Indirect Access in comparison to the traditional Sales and Service Order Processing Engine.
- Measuring Use: SAP’s conceptual posture on Indirect Access could not be operationalized and enforced in all cases. For example, SAP Audit would position a finding related to certain business partner access, however, it could not legitimately position user-based pricing given an inability of the customer to measure users. As a result, SAP conceded on certain Indirect Access use scenarios and focused on definable Indirect Access use cases during commercial negotiations. The problem for SAP? Inconsistent business practices and lost revenue.
- Indirect Use at Scale: SAP’s existing pricing construct was not positioned to scale in a manner that would address future Indirect Use scenarios. Based on our review of the nine document-based definitions (what is actually going to be measured), the new document-based pricing construct will enable SAP to not only address previously unaccounted for use, it will also accommodate use in a much broader context (e.g., use of AI and blockchain technology), which will certainly present additional cost to SAP customers.
Reading Between the Lines
Based on SAP’s pricing guidelines for existing ERP customers, there are notable call-outs to be aware of — In particular, for those customers that believe they have solved for Indirect Access by licensing additional users associated with interfacing CRM (e.g., Salesforce) or order-based licenses associated with an interfacing e-commerce platform. SAP is clearly positioning these use cases with an intention to enforce them moving forward.
- Use by Devices: SAP’s guidance clearly indicates use occurs when humans or any device or systems indirectly use the SAP ERP system via another licensed SAP application. When viewed in the context of the position SAP has taken on the subject, this is not a surprise, however in practice, SAP has not historically made this type of use a point of emphasis. The issue for customers will be defining the use cases and incremental cost moving forward.
- More than One Intermediate System: SAP’s guidance indicates users accessing SAP through one or more intermediary system must be licensed. In our experience, SAP has previously focused its attention on use related to systems directly interfacing with SAP, such as Microsoft and Salesforce, rather than systems and users twice removed from SAP. We view this positioning intent is to address the use of next-generation technology in collaboration with SAP.
- Employee Read-only Users: SAP’s guidance indicates that customer employees viewing a report in a non-SAP system where such data was retrieved from SAP BW must be licensed. In our experience, SAP has not prioritized indirect read-only user access in comparison to other Indirect Use scenarios during commercial negotiations. Interestingly, it has indicated that existing customers that convert existing agreements to a complete document-based licensing model will obtain read-only users for free. Look for SAP to position this benefit as part of the incentive to move to the new model on an all-in basis.
But My Company is Covered, Right?
Many SAP customers have already been through an Indirect Access audit. Some may consider this SAP announcement with a false sense of security believing they addressed the issue. Many will reflect on their experience and have no desire to open this issue up again. Customers that understand the sophistication of SAP will immediately assess two items in the context of SAP’s recent announcement:
(1) The license grant associated with the use rights negotiated in connection with Indirect Access. These customers understand that use rights not outlined in the license grant, are, by default, excluded. SAP and the technology industry have a material advantage in this regard. If it is not explicitly in, then it is out, and therefore a licensable event.
(2) Customers that have addressed Indirect Access in the context of a formal audit, if advised appropriately, negotiated a release against future liability. SAP is very adept in the way they negotiate releases. They also had the benefit of knowing the future pricing strategy in the context of negotiating prior releases.
Based on the nature of the license grant and release, additional Indirect Access exposure may certainly exist.
I would encourage SAP customers to view these recent announcements in a more strategic context as it has taken years for the company to get to this point. During this time, SAP has afforded itself the opportunity to:
(1) Position the concept of Indirect Access within its installed base on a customer-by-customer basis (smart move not to take on the entire customer base at once),
(2) Learn from customer interactions to refine its position and posture,
(3) Drive incremental on-premise software license revenue during the process,
(4) Take these learnings to a public setting via Diageo to create a legal precedent, and lastly
(5) Obtain support via certain constituencies to complete the process of legitimizing the new pricing methodology.
We are witnessing the final stage of a well-thought-out strategy and process of positioning pricing for the digital age. Expect SAP to position this pricing as the new norm. Also, expect SAP to believe the conceptual debate of whether it has a right to charge for Indirect Access is over. It is up to each SAP customer to determine if SAP got from point A to point B in an appropriate fashion.
One question remains for all – is the pricing itself reasonable and affordable?
Let the negotiations begin… with empathy of course.
Additional posts from this series:
- How to Make the Most of Your 2018 SAP SAPPHIRE Experience
- The CPO’s Guide to SAP Ariba and Concur Updates
- Will SAP Bring the Steak of Just the Sizzle to SAPPHIRE?
- SAP SuccessFactors: Tips for Budgeting, Negotiating, & Renewing