Beyond Sapphire Now - DSAG on how SAP licensing must evolve

At Sapphire Now 2018, SAP made a decision to emphasize their forward vision and avoid the contentious issue of licensing - with the exception of the co-located ASUG Annual Conference, which held an in-depth licensing pre-conference session for customers.

I didn't know how SAP's user groups would respond to that decision. SAP's determination to win back customer trust is dependent on a fair licensing model customers understand and support.

How would customers receive the next-gen topics on the Sapphire Now stage? After all, the data-intensive scenarios of the SAP Leonardo era will expand the SAP data footprint - a step customers will not find appealing unless so-called "indirect access" costs are clearly defined.

To get a gut check on customer reaction, diginomica met with leaders from key SAP user groups involved in the licensing discussions that culminated in SAP's announcement of a new document-based pricing model option in April of 2018 (see my analysis of that).

As it turns out, the user groups were ok with SAP shifting the conference focus to their future plans - with the all-important caveat that the licensing work is far from finished.

I've already written about SUGEN's reaction to SAP's intelligent enterprise vision and how licensing fits in. I released a podcast with Geoff Scott, CEO of ASUG on customer reactions, though we intentionally avoided licensing on that short podcast. I also got an in-depth update on licensing from DSAG, the German Speaking User Group that is always vocal on these issues.

DSAG in Orlando - how we got here

In Orlando, I met with Andreas Oczko, deputy chairman of DSAG, and board member responsible for Operations/Service & Support. That means Oczko is the DSAG board member specifically charged with tracking SAP licensing, a fun job indeed. We began our chat by retracing the steps in the last year, including how DSAG, ASUG and SUGEN got heavily involved in the licensing discussions with SAP in the fall of 2017.

For Oczko, the DSAG German Annual Congress in September 2017 was a milestone:

At that event, we presented our licensing requirements on stage. We had a preliminary discussion with SAP's Bernd Leukert. At this event, Leukert gave us a promise up front from our presentation, that there will be a solution for indirect access for the end of 2017.

That relationship with Leukert carried weight:

We took him seriously, because we know him very well. We knew that once he said it, he meant it.

Fast forward six months. Now DSAG's leadership is evaluating the document pricing news and what it means for customers. Oczko is quick to emphasize this isn't just a new pricing model; it's an overall change in how licensing is handled at SAP, including the formal separation of auditing and sales:

It was a very open discussion. We really worked closely together, and especially for the volunteer user groups, it was hard work. But at the end of the day, I think it was the end of February, we came out with the very first results. I think that's important really to understand indirect usage. It's really a package and the package is, firstly, SAP reorganized sales.

Definitions of indirect access were clarified:

For licensing, we organized the compliance. We really enlarged the definitions on indirect usage significantly. The writing of master data into SAP from a third party system is free of charge. That's only one example - we sharpened the definitions, and I think it's very important.

Putting document pricing to the real world test

But now that Sapphire Now is over, the hard work of validating the new document pricing model begins in earnest:

We still have a long list of issues which are under discussion. After Sapphire Now, in the next month, we'll get the first results on the document-based solution.

So far, DSAG supports the document-based model:

It's a really innovative solution because it's oriented really on the issue of indirect usage, and that's really a positive thing... The [key] document types are defined.

However, the pricing of these documents needs real-world testing. SAP's goal is that the move to document pricing will be price-neutral, but will that prove out? DSAG is watching:

I know SAP promised price neutrality, but that means overall customers... If I pay much more, I won't be happy, even if it is neutral on other customers.

The first round of testing won't be conclusive, since it is limited to S/4HANA 1805 (PDF link):

There will be a first measurement on 1805, and you can imagine there's really no customer which has only 1805 systems.

That means the dialogue with user groups is still crucial:

Therefore we agreed with SAP that we would have some examinations with DSAG and ASUG to check with the customers to see if the pricing makes sense. We don't know, at the moment, when you have a process, for example, order-to-cash, what does it mean to the documents? How many documents are generated under which circumstances? So that's really an open field where we have to give get a grip on. Then we will see if the pricing is reasonable or is it not reasonable.

Different industries will have thorny pricing questions, an issue my colleague Den Howlett has been pressing. Oczko agrees:

You can look at specific industries, for example in retail, you can imagine we have a lot of orders. It's only a small amount of money per order, but you are paying by document now - how will that pricing work? And there are other examples.

Reacting to C/4HANA and "the intelligent enterprise"

I asked Oczko for his reaction to the intelligent enterprise and C/4HANA (CRM) keynote themes. He likes that the "intelligent enterprise" is part of the core S/4HANA offering:

For good reason, it won't be a new price list item or a new product, because at the end of the day, there is something that is really important, which is to have a real integration... At the moment, SAP is offering good technology, good products, but the customers are not sure, or do not have the knowledge really to make it work in their existing environment. I expect that especially intelligent enterprise, or intelligent ERP, can really help a lot. We can really make a step forward into digital transformation.

On the C/4HANA side, Oczko brought it back to licensing:

C/4HANA is a challenge for licensing because at the moment customers have on-premise licenses, they have 360 licenses. The question came up, "What about the old licenses?" What's about even Hybris licensing when customers have to keep some parts of this new C/4 world on premise? I think SAP has agreed to find a solution, and we will push them for that.

My take - pricing as a competitive edge?

By the end of July, DSAG is expecting an OSS Note from SAP that will allow a first look at how document pricing will work on SAP ERP systems. We talked about the complexities of applying notes and support patches across complex landscapes, another hurdle for SAP to overcome here. Providing licensing monitoring tools to customer is another unfinished job, and not an easy one given the amount of products in play.

DSAG will also be tracking the separation of auditing from sales and how that plays out with SAP account executives. Oczko points out that document-based pricing isn't true consumption-based pricing, given that customers will buy bundles of documents with a baseline cost.

One thing that's been key for SAP here is the caliber of the leadership involved in these negotiations. Even though an important player for SAP, Hala Zeine, is moving on from these duties, the overall confidence from user groups in the SAP contacts they are working with has been crucial.

My biggest concern here is whether SAP will take the foot off the pedal of resolving these issues and seeing the plan through. I get the sense sometimes that SAP feels they are a bit singled out on this issue, given they are hardly the only vendors that have auditing complaints from customers. I believe that's the wrong attitude.

This winning approach would be an iron resolve to become an industry leader in how large-scale enterprise projects are priced. The document pricing model then becomes a bridge to further pricing innovation that is, to be sure, incredibly hard work, but is also inseparable from any transformation that so-called intelligent/cloud enterprises should deliver. Add real-time license monitoring. When that becomes state of the art, there should be no more audits. You always know where you stand.

I'm not yet confident that SAP buys into how they can turn this into a true market edge. Either way, there is much work ahead. I'll give the last word to Oczko:

We found a very innovative model, but we have to work on it. I compare it to climbing a mountain. At the moment you're at the bottom of the mountain. You are a good team. We want to reach the goal, but at the moment you don't know really the task. You don't know if you're the same opinion to go left or to go right, but we're willing to do so - and we understand each other very well.