How SAP’s digital access licence influences your ERP strategy

By:  Cliff Saran

Computer Weekly’s Buyer’s Guide to Cloud ERP

Its strategy is to position what SAP now calls the “digital core” as the primary system of record, as businesses look to derive value beyond the process automation built into the core enterprise resource planning (ERP), taking advantage of the internet of things (IoT) and emerging technology trends – such as customer experience and robotic process automation.

SAP has identified document types that represent system-generated records of what it describes as “commonly valued business outcomes”.

These are: sales, counted at line item level; invoice, counted at line item level; purchase, counted at line item level; service and maintenance manufacturing; quality management; time-management material, counted at line item level; and financial.

Its new digital access license counts only initial document creation. For instance, a sales document created by indirect/digital access is automatically processed in the digital core, resulting in the creation of invoice, material or financial documents. SAP would charge only for the sales documents initially created and not for the subsequent documents.

Joachim Paulini, SAP chief developer at ‎Snow Software, says SAP’s decision is a logical extension of its previously announced intentions to revamp indirect access.

“There are nine document object types, which makes it simpler for the customer to count, but I would not recommend going for the digital licence,” he says. “It depends on the customer’s specific usage model.”

Paulini says customers will have to compare digital access with the outcomes generated in their existing licensing model, such as looking at what external systems are connected to SAP and how many users are connected and the kind of usage.

Risk of duplicating licensing

Companies may find they have duplicate licensing, warns Flexera’s Europe senior vice-president Vincent Smyth. By way of an example of the duplicate user scenario, he says: “If there are any Oracle Hyperion users who indirectly access SAP data and also have SAP user accounts, then the licenses assigned to those SAP user accounts also cover users’ indirect access license requirements.”

Itam Review licensing analyst Rich Gibbons adds: “It may be that over-licensing will become the new danger with SAP indirect access. Without a deep understanding of which documents are being created in which scenarios, it may become easy to overpay for indirect access under this new model.”

One potential issue Gibbons identifies is how businesses correctly count the SAP documents.

A note on back maintenance

While SAP has said customers who proactively engage with the company in good faith will not be pursued for back maintenance on underlicensing of SAP software associated with indirect access, the SAP User Group Executive Network says: “Customers need reassurance that if they believed they were correctly licensed, due to factors such as discussions or communication with SAP or ambiguous contract clauses, they will not face new licence costs”

Gibbons at Itam Review says customers will need a guarantee not only to protect against back-maintenance charges, but also to ensure the new licensing model is not more expensive compared with their existing licensing, even if the older model was ambiguous in terms of its definition of indirect access.

“SAP is clear that it’s only the initial document creation that incurs a charge, so a timesheet record being created will be a charge – but if it then creates a financial document in the SAP system too, that secondary document will not have a cost associated,” he says.

For Gibbons, the issue for many organisations is to assess how easy they can track the origin of all the documents in their system, to determine which ones were triggered by internal or external systems and to ascertain whether the documents are original or derivatives of other documents.

Much needed change to SAP licensing

Commenting on the changes, Forrester principal analyst Duncan Jones says: “Users didn’t feel they were getting a sensible answer from SAP in the past with indirect access. SAP is recognising there has been problems in sales execution, which it needs to fix.”

He adds that SAP is now putting a big emphasis on fixing the licence compliance process, which will potentially result in the formation of an independent appeals process.

“The new model simplifies things by charging the same for each document created in SAP via integration with a non-SAP application,” says Jones. “It doesn’t matter whether the trigger is a human being, a batch process, a bot or an IoT device, nor how the integration works – the SAP process, value and cost remains the same in each case.”

Transaction volumes will determine licence value

The SAP digital licence is being positioned as outcome-based. Jones feels this is not strictly correct. “Outcome-based pricing is when you base the fee on how much you increase sales, or reduce inventory,” he says.

Instead, SAP’s measure is based on the volume of documents it processes. “Processing a document isn’t the outcome,” explains Jones.

He warns that businesses will need to decide how to assess the impact of document volumes on their overall licence fee.

Speaking of his experience during his time at software company QAD, Jones says: “At QAD some customers had high transaction volumes, and had to pay more. The more you automate the higher volumes that can be processed, and so there is more value being added by the software.”

The issue for SAP is to to find a way to treat existing customers fairly. “We are working with one customer which may have to pay €20m more,” says Jones.

The problem is that businesses will incur the charge if an SAP document is created as part of a business process, irrespective of whether the rest of the business process was run on external systems or on SAP.

VoQuz IT Solutions US executive director Sebastian Schoofs says: “We have a customer with a web shop. Everything is handled outside of SAP. Only the end of the process to update inventory and update accounting [involves] an SAP sales document.” As such the creation of this document will incur an SAP digital access licence fee.

Licence clarity with audit clout

Snow Software’s Paulini believes among the more significant changes SAP has made to its software licensing is the creation of an audit team. He says: “SAP’s audit team is separated from the sales team. This is significant because the sales team can no longer trigger an audit.”

On the one hand, this may be be seen as beneficial for customers who do not want to be coerced by SAP sales to buy software they may not need. But now SAP has bolstered its audit capability.

“SAP has increased the number of people in audit such that it now runs as an independent entity,” says Paulini.

Potentially this could lead to an increasing number of audits being run in the future. “Bonuses will no longer be based on sales,” adds Paulini. “The amount of money made in audits will be linked to revenue.” This could make license audits much more thorough.

According to Paulini, in the past businesses may have avoided extra indirect access fees by making a committment to S/4Hana, the company’s next-generation, in-memory ERP platform. “It was common that if you signed a Hana contract, SAP didn’t look at indirect usage,” he says. “But this is not the case any more. The audit team won’t care if you do or don’t intend to purchase Hana.”

A step towards 2025 planning

While expert Computer Weekly has spoken to agree that SAP’s new digital access licence definitely brings clarity to the vagaries of indirect access, businesses wishing to switch over to the new scheme will still need to negotiate with SAP to ensure they do not end up paying more for the same amount of access.

Forrester’s Jones says: “If you pay £1m for a licence and you have electronic document interchange transactions, user transactions, along with other third-party transactions, now SAP may say you have 100 users or 10,000 documents. There will have to be a negotiation, and it will hinge on the same arguments over whether you’re compliant or not, and if your current integrations represent human use of SAP or machine use.”

Read more about SAP indirect access

For Jones what remains unresolved is the anti-competitive element of SAP’s licensing, particularly in how it relates to integration with its own products, where transactions are sent from one SAP product to the core ERP.

He says: “Including the price of Hybris or Ariba, integration could be seen as a sensible simplification – but it may also be anti-competitive if the price of using an alternative third-party product is excessive, as I fear it will be.”

For instance, a customer could find when assessing Hybris against a rival e-commerce platform such as CloudCraze that SAP gives away the Hybris integration as part of a £1m SAP ERP contract, such that no additional fees are charged for SAP documents created via Hybris.

But if it charges an additional £1m for sales order documents initiated through CloudCraze, Jones argues that SAP could be seen as acting in an anti-competitive way. However, he adds: “If SAP charges 20% more for the CloudCraze option then that’s not so bad.”

According to SAP, existing SAP ERP on-premise customers may choose to do nothing and keep current contract terms in place, or choose to take advantage of the new digital access pricing. Now that there is some clarity on indirect access, businesses will need to spend time assessing which of SAP’s options best fits in with their long-term plans.

SAP has said it is committed to provide mainstream maintenance for SAP Business Suite up until the end of 2025. After this time, businesses will need to be running S/4Hana as their core ERP system.

How companies adopt SAP’s new digital access licence will very much depend on their ERP strategy beyond 2025. With the likely disruption of migrating to the new ERP platform, SAP digital access does give organisations a metric to use when assessing how their ERP strategy will evolve, and the extent to which SAP will be part of this strategy.