SAP indirect access licensing as viewed from the UK and Irish trenches

SUMMARY:

SAP, customers, partners and the SAP User Groups want to see a resolution to the indirect access issue. There isn’t one in sight but there are steps that can be taken to move it along.

UKISUG Connect
Hala Zeine and Ray Wang take to the whiteboard

Regular readers know that I attended UK & Ireland SAP User Group Connect 2017 this week. I expected SAP indirect access licensing to be top of mind. I didn’t expect it to be pretty much the only topic of conversation between myself, SAP executives, customers, and partners.

My usual reporting method is to drop self-contained stories into the media as an event unfolds. On this occasion, I decided to take a different approach because I felt it was essential to not only gather information from as broad an audience as possible but then also synthesize that down to two central themes. The first is the state of play as viewed by all involved; the second is to suggest action items.

The state of play

SAP’s position

The first thing to understand is that SAP acknowledges the topic IS a problem to be solved.

SAP is coming at this problem from a variety of angles, led by Hala Zeine who reports to SAP executive board member Bernd Leukert who has global responsibility for development and delivery of products across SAP’s product portfolio. This is an odd pairing because licensing is a revenue topic I would have expected to see under CFO Luca Mucic and/or CEO Bill McDermott’s remit.

On the main stage during the opening day keynote and in a setup which had Ms. Zeine on one side of a whiteboard and analyst Ray Wang on the other doing a quasi Q&A, Ms. Zeine reiterated what has been said before. As far as SAP is concerned, much of this topic has been covered off in three scenarios:(1) order-to-cash, (2) procure-to-pay, and (3) indirect static read. Where a charge arises, SAP is working on this as a consumption-based model rather than per user. SAP claims these three scenarios represent 80% of cases.

Where there is a potential indirect access issue, SAP and the various user groups have developed two primary ways in which customers can start to determine their position. One is through an anonymized process that will lead to a generic answer. The second is where the customer discusses direct with SAP.

There are two crucial things to understand.

  1. While SAP will tell customers to work with their Account Executives, (AEs) SAP’s default position is to rely upon the contracts that apply to customers on a case by case basis. Wherever possible, any IA discussion will ignore any surrounding correspondence, AFTER the contract date. In short, this means that if your AE has said there is no problem in email or other correspondence but a customer remains concerned or is subject to audit, then all bets are off. I believe this approach has arisen out of the manner in which the Diageo case was determined by the judge in the case in which his ruling in favor of SAP fell on a very narrow interpretation of the contract.
  2. SAP will only start to collect related maintenance fees for those ‘new’ IA related licenses from the time that the situation is rectified and not for earlier years.

Customers

It is abundantly clear from conversations with customers and representatives of both the local UK&Ireland UG and SUGEN, the ‘uber,’ international user group, that this is not a local difficulty but a global issue. However, locally, there is plenty of misunderstanding and lack of understanding about the issues involved among customers. UKISUG stats from a recent survey say that a scant 22% of those surveyed are aware of SAP’s latest position and policies.

It is equally clear that customers are very reluctant to engage directly with SAP. When I asked UG heads whether this is an indication of the erosion of trust between SAP and customers, the answer was a firm ‘yes.’

UK and Ireland customers have significant commercial concerns and almost never go on the record or discuss in detail what has happened either with peers or with user group representatives. I am led to understand that the well-known Diageo case has been settled, but no-one knows a) whether this is the case or b) on what terms. SAP refused to discuss this.

Paul Cooper, chairman of UKISUG, told me that he sees companies drift away from SAP and alongside the proposed ECC end of life for fixed maintenance for on-premise systems coming in 2025, he fully expects customers to make decisions about whether to continue with SAP in ‘steady state’ or move on. My sense is those decisions will have been made by 2020 at the latest because any project to move away requires a large investment in time and materials.

During the conference, I heard some ferocious criticism of SAP that went well beyond the critique I was offered by one analyst. I communicated what I was told to both Ms. Zeine and the user group leadership. Unsurprisingly, Ms. Zeine grimaced. The UG representatives didn’t bat an eye.

Of more significant concern, the UGs are seeing glacial progress although there is some thought that the IA topic will come under greater scrutiny after the financial year-end. That jibes with Ms. Zeine saying that SAP will have a solution in place ‘soon,’ although she would not commit to a timeline.

Attempting to get one’s arms around the scale and extent of the problem is now proving both difficult and frustrating. As I have said before and as was confirmed this week, customers have all manner of contract arrangements, some clear, some vague and any permutation you can think of in-between.

I was surprised to learn that the User Group people I spoke with have not sought a legal opinion based upon what is known in the Diageo case. Any such advice would necessarily be specific to the UK & Ireland but would provide both User Groups and customers a firmer steer on what to do.

Partners

Development partners see themselves in a bind. When they are asked to build new functionality which involves third-party systems integration, the first question on their mind is whether this will trigger an IA charge. The definitions are still not precise in their minds, and the conclusion is that this is starting to stifle innovation at customer sites. That’s a severe problem because it means customers can find themselves unable to progress business model transformation. That’s a particular problem for IoT projects where customers are bound to process data as part of a technology landscape that is now extended to other systems. What partners and User Groups see today is reflected in other surveys.

Summary

It’s a hot mess and everyone, whether that is SAP, customers, partners or User Group people want it to go away. The issue comes in finding a solution.

Action items

During my conversation with Ms. Zeine, she said that to make progress at SAP’s end, there needs to be ‘changes in behavior.’ It was not clear to me how that might happen.

On the journey back to my base, I looked up the 2016 accounts for SAP UK. Among the business topics was the following:

SAP indirect access
Extract from SAP UK accounts

I said to Ms. Zeine that if SAP wants to deliver on Bill McDermott’s message of ‘customer empathy’ then it has to move away from an AE reward model that focuses solely on contract value as reflected in the stated KPIs noted above.

In my view, SAP has to take on board the learnings from cloud operators, who have known for years that they have to earn a customer’s business continually. In the case of Workday, (as an example,) that has meant two things:

  1. A radical simplification of the contracts it executes with customers.
  2. Use metrics that reward customer satisfaction.

I also said that while the 80% figure might sound great from SAP’s standpoint, customers don’t know how that number is calculated or what it represents. In discussing order-to-cash as an example, Ms. Zeine talked about a case where a customer augmented their wholesale warehouse operation with a retail service. In that case, it is clear there will be fresh licensing topics to understand. But then we come to pricing and here is where life gets complicated very quickly.

The wholesale and retail models are different and with different value propositions attached to them. SAP says the current metric is the number of orders flowing through the system. I, along with the User Group representatives argue that the ‘number’ metric is misleading and needs to be meaningfully priced against both the complexity of the overall systems under discussion and the order value attached to those orders.

This gives an indication how awkward SAP’s model can turn out.

I have little doubt that Ms. Zeine is sincere in her wish that customers have no surprises and predictable cost models. But I didn’t see enough evidence of an urgency to convince me that a definitive answer that leaves everyone happy is in sight. The risk and this is very real, is that lack of action on SAP’s part will drive customers away. The fact partners told me that exhibition footfall at the event was much lower than in previous years should be a good clue.

I was shocked. I have never heard customers so angry at a vendor as I did at this event. On the one hand, they’d like to learn what’s new that they can think about for the future. To that extent, the Leonardo sessions were well attended with a good variety of questions. Partners tell me they received exciting questions about potential future projects that are of a higher quality than in previous years.

On the other hand, customers are highly suspicious of SAP and its motives. SAP needs to understand that getting UK and Ireland customers to move forward, many of which have legacy systems, is not a done deal. If SAP ignores this mood, then that business will dry up. The local SAP UK & Ireland MD, Mike Slater heard that message loud and clear but I wasn’t sure his four pillars of driving a customer-centric business were expressed in the right order. (See below)

SAP
Mike Slater SAP UK & I MD – 4 Pillars of Customer Centricity

While I appreciate customers’ reticence to discuss specifics, even with their User Group representatives, they should understand that the User Groups are well organized to work on this challenge, and they will go to SAP with data to support customer concerns. But that can’t happen as efficiently as the UGs would like if customers will not provide the data needed to support their cases.

Customers should not think that the contract is THE only thing that matters. SAP will negotiate. If SAP and Diageo case settled outside of the appeal process, that does not represent a precedent upon which any party can comfortably rely. SAP has a small army of lawyers backed by a large revenue recognition department who likely think that is the case. Who do you have on your team?

User Group members should push the leadership to seek an opinion on the Diageo decision, even if that means raising an additional levy from members for the purpose. That kind of advice helps to clarify, although not entirely settle the position of members in similar circumstances. More to the point, it sends SAP a vital message that the User Groups will not sit tight and hope to grind out a resolution.

Be aware there is a growing body of freely available content on this topic and experts who are available outside of the User Group organizations.

For its part, I’d like to see SAP put a firm date on when this issue is resolved rather than the piecemeal dribbling of answers that shift the goalposts an inch at a time. Customers don’t have the time nor the patience to tolerate that pace.

Rather than hang back on projects where SAP is a good fit, customers should use the opportunity to get in front of the potential for an IA problem by working with your CFO and CEO to both assess the position and prepare for the hard grind of negotiation. The best deals are always struck that way, along with the bonus of knowing that your project has strong leadership backing.

The last word goes to Hala Zeine:

I believe we’re all acting rationally and we all don’t want to have a surprise, which is why I believe it’s about predictability and it’s about giving the customer the transparency we all want so there is no surprise.

Image credit - via the author and slides via UKISUG

Disclosure - SAP is a premier partner at the time of writing. UKISUG covered most of the author's T&E for attending the event.

    1. Jarret Pazahanick says:

      Another great article Dennis as there is the exact same anger in the US but ASUG continues to rather “work behind the scenes” and as we can tell from the above it is not really pushing SAP to move any quicker as 6 months has already passed since Sapphire and SAP has been “talking” about simplifying licensing for years.

      Just a thought, as ASUG has said it believes most customers are properly licensed so wouldn’t an easy fix be for SAP just to state that we will not under any circumstance come for back licensing prior to 2017 and while I understand they may lose a little revenue but customers taking advantage the goodwill would be huge, it would be very clear to customer and easy to understand and combine that a clearly licensing strategy going forward. I have proposed this idea to SAP and we all know that trying to dive into every scenario will take years and never be understood + if there is 20% not addressed the chance for another PR disaster is huge. To me if SAP REALLY wants to fix this issue the above is a easy blueprint to do so. If not they will continue to lose more business then they realize as a lot of customer don’t trust SAP right and trust is a key currency on the journey to buying new software and moving the the cloud.

    2. SAP feels more behind, because other business application technology stacks long since solved this issue (or stopped growing). As I recall about 10 years ago our CEO and Steve Ballmer had *robust dialog* over IA issues. Shai Agassi speaking at the Churchill Club 10+ year ago predicted new licensing was required for SAP to transition (reaching ‘a better place’ often needs new DNA).

    3. says:

      SAP B1 doesn’t have an IA issue. That’s because they know they are competing for market share. SAP ERP is choking on IA issues because it’s become the monopoly’s nourishment of choice Underdogs Innovate and compete. Monopolies extort.

      Using IA as a weapon is not only morally wrong it’s illegal.

      Another great but maddening writeup Den.

      Tic toc.

      Sam

    4. Dennis, I guess I will always be contrarian. I am not as pessimistic about SAP – see http://bit.ly/2niXnyq but they do need to quit making so many unforced errors

    5. SAP Criminal Minds…
      The end is near.

      “You have a choice to make. You can stand up and do what you know to be right. Or you can suffer the consequences of your previous actions. Make no mistake, you are on the losing side. The choice is yours.”

    Leave a Reply

    Your email address will not be published. Required fields are marked *