UpperEdge’s Mock Interview with SAP on Indirect Use

Considering that Indirect Access has been such a hot topic with SAP customers, we have decided to explore the topic and its implications a bit further in a mock interview with SAP.  Below is a transcript of our mock discussion.

UpperEdge – We routinely receive inquiries from our clients asking if there is a distinction between direct use and indirect use of the SAP Software in SAP’s agreements.  Phrased another way, does SAP specifically define direct and indirect use in its license agreements?  Can you comment?

SAP – SAP looks at the value that usage of our solutions offers to our customers. We feel it is reasonable and appropriate to charge a fee to customers in exchange for that value. Therefore, SAP does not distinguish between direct and indirect use but defines use in general.  We define “use” as to activate the processing capabilities of the SAP Software, load, execute, access, employ the SAP Software, or display information resulting from such capabilities. In this sense, customers are only paying fees derived from their usage of the SAP Software, which is where value is derived.

UpperEdge – So SAP’s agreements do not distinguish between direct and indirect use and have never provided specific definitions or scenarios for these terms?

SAP – That is correct.

UpperEdge – Would you agree that, historically speaking, the software industry’s license models have been based on the concept of charging fees for each individual direct access point to the software, whether that is user based or device based?

SAP – I cannot speak for the entire history of the software industry, but I would say that these historical license models are value-based models that chose to charge fees per user or device. These licensing models have inefficiencies in their ability to charge fees in relation to the value received. We believe we have developed a value-based licensing model that does a much better job of fairly allocating fees in relation to the value derived by our customers.

UpperEdge – So, let’s look at customers that choose SAP as their ERP platform and then interface third-party applications as part of their overall IT landscape.  Would users of those third party applications need to be licensed as SAP Named Users if the third party application somehow taps into the SAP Software or uses information that has been processed by the SAP Software, even if these users never access the SAP Software directly?

SAP – That is correct, assuming these users are activating the processing capabilities of the SAP Software through these interfaced third-party applications.

UpperEdge – Can you see how this scenario might be viewed unfavorably by customers in light of the historical licensing models that charged fees based on a device or user that directly accessed the software?  Can you see how customers might be confused and frustrated that SAP’s “use” definition does not specifically define or call out these types of fee scenarios that differ from the historical licensing models?

SAP – SAP has been straightforward and consistent in its licensing policies and practices, which are clearly defined in our agreements. Our customers have highly skilled negotiators and counsel that review our license agreements in detail and we answer all questions related to potential license scenarios with our customers prior to contract execution.

UpperEdge – Well that may be true, but we routinely hear from customers that feel blindsided by audits that reveal indirect access scenarios where users are leveraging a third party application interfaced with SAP Software and being faced with un-forecasted and unbudgeted multi-million dollar license and maintenance fees. They claim SAP did not raise these issues during prior audits over the course of years, in some cases well over a decade, until they fully integrated their IT landscape with the SAP Software.

SAP – If those customers consulted their SAP license agreements they would have made themselves aware of their license fee obligations. SAP cannot be held responsible for customers who either fail to understand or choose to ignore their license fee obligations.

UpperEdge – That is a fair point. Customers do have a duty to understand their license fee obligations and pay accordingly. But customers are claiming that in a number of cases SAP has misled them by changing the definition of “use” and altering the enforcements of audits over time, in addition to employing a license model that substantially deviates from the historical industry standard.

SAP – No comment.

UpperEdge – Well how about we talk about the potential user population. Under a fully integrated IT landscape, and with SAP as the ERP backbone of the business, it seems like there are scenarios where almost all employees of an organization would have to be licensed as SAP Named Users.

SAP – If the entire employee population of a customer’s organization is accessing, whether directly or indirectly, or benefitting from the processing capabilities of the SAP Software, and deriving value from the SAP Software, then we feel it is reasonable that Named User license fees are charged for all employees based on their level of access to the SAP Software.

UpperEdge – What if some of these employees are only pulling their own data from the SAP Software into third-party applications. Does this data transfer invoke the processing capabilities of the SAP Software, even though customers own their business data?

SAP – If this data has been created or modified by the processing capabilities of the SAP Software, then yes, since the value of that data has been derived from the SAP Software.

UpperEdge – Customers have long used batch processing and non-real time data transfers.  Would Named User license fees apply in these types of scenarios?

SAP – Yes, as long as the processing capabilities of the SAP Software are utilized.

UpperEdge – So, any access to a customer’s own data, as long as it has been processed or somehow accessed the processing capabilities of the SAP Software, is subject to a Named User license?

SAP – Correct. This would also apply to devices, in lieu of a person, that interface and utilize the processing capabilities of the SAP Software.

UpperEdge – So, as systems become more interfaced and connected to one another, and if those systems are connected to the SAP Software as the ERP platform, all of these interfaced endpoints are subject to Named User license fees?

SAP – Correct, as this is consistent with SAP’s value based licensing model.

UpperEdge – Let’s talk about business third parties for a moment. As we become a more integrated society, businesses expect to collaborate with each other more seamlessly. This is one of the promised benefits of integrated business applications. So do customers need to pay Named User license fees for third-party business partners that require access to a customer’s application landscape and, by extension, SAP Software?

SAP – Absolutely, these scenarios you describe are allowing customers to derive additional value from the SAP Software.

UpperEdge – But unlike say, a Microsoft license, a SAP Named User license is only applicable to a specific customer’s SAP Software instance.  In other words, if I am an account representative serving 20 customer accounts that use SAP Software as their ERP platform, and I am accessing their SAP Software system to process supply orders from my company, then each one of my accounts needs to purchase a Named User license for me.  In essence, 20 SAP Named User licenses could be assigned to one individual and paid for by 20 different organizations.

SAP – That is correct, as in this scenario each of the 20 organizations would be deriving value from your ability to access and process supply orders through their SAP Software system. This is at the heart of a value-based licensing model.

UpperEdge – So when SAP looks at quantifying its potential Named User license base, it includes all direct SAP Software users within an organization, all indirect users within an organization that may access third-party applications that either interface with SAP Software or utilize data derived from SAP Software, as well as all third party business partners that collaborate with those organization and either directly or indirectly access that organization’s SAP Software?

SAP – I would characterize our potential SAP Named User license base as wherever value is being derived from a user or device that is accessing the processing capabilities of the SAP Software for a particular organization. This is consistent with our value-based license model.

UpperEdge – Do you have any final advice for your customers moving forward?

SAP – Sure. As customers integrate their IT landscape, we expect them to be proactive and prepared to pay Named User license fees for any access points that utilize and derive value from the processing capabilities of the SAP Software.

UpperEdge – This approach does not seem to recognize the different levels of value that may be attributed to different indirect access scenarios.  It appears to be more of a “one size fits all approach”.

SAP – SAP has over 100,000 customers and we cannot be expected to differentiate the levels of value that apply in every indirect access scenario.  In some cases, there may be more nominal value and in others far greater.  This has been consistent with our approach and licensing model all along. We recommend customers utilize our experienced team of account executives that are available to help customers understand and work through various licensing scenarios and answer any questions they may have.

UpperEdge – How is SAP tracking to its 2015 goal of having 1 Billion users of the SAP Software?

SAP – Quite nicely.

–We hope you have enjoyed our tongue and cheek interview with SAP.  Indirect access and its potential long-term implications on the SAP customer base is a very serious issue that has far-reaching implications.  UpperEdge has been at the forefront of bringing awareness to this issue.  Below are links to some of our prior posts on SAP Indirect Access. If you would like to discuss how to mitigate your organization’s exposure to Indirect Access or other SAP licensing issues, please contact us for a confidential consultation at jlazarto@upperedge.com.

Related Posts: 

SAP Indirect Access Claims on the Rise

SAP and Indirect Access: Is SAP Taking Advantage of their Customers