SAP licensing - more clarity or clear as mud?

Profile picture for user gonzodaddy By Den Howlett August 22, 2013
Summary:
SAP appeared to offer good news for customers wishing to reduce maintenance costs through a pro-rating of unused licenses. But all is not quite what it seems. The circumstances are not defined in the public domain and conflicting comments from SAP downplay the net effect.

SAP license
Yesterday, Stuart Lauchlan playfully baited me to provide some analysis on the latest shift in SAP licensing models. First up and like some relationships, 'it's complicated.' Anyone familiar with SAP pricing will know that it is a minefield. Heck, there are books on the topic that try hard but don't get to the bottom of what often feels like wading through shifting sands. OK - so what's going on? The background is important here.

Looking back to look forward

First up, the announcement Lauchlan was referring to actually came out of the German User Group (DSAG) and appears to have been co-opted by the SAP UK&Ireland User Group. The language in both press releases is very similar. Second, the way the DSAG PR was framed suggested to me that this only applied to Germany, Switzerland and Austria. There is precedent for this that goes back to 2008 when SAP's earlier maintenance price hike was in the news. However, Derek Du Preez in ComputerWorld reporting suggests this is world wide. Third, I am surprised that ASUGNews, the mouthpiece for the American SAP User Group is silent on this topic so far. They're usually quick off the mark but I can't find anything on this topic. So - from what we have seen so far, this could be a negotiated settlement on a region by region basis that will ultimately end up as a price book addendum. Regardless, the different SUGs have not always done the best job in parking their respective agendas and working together as global representatives. Moving on...

Price book shell game?

The DSAG announcement was opaque to say the least:

Under certain, limited conditions, it will now also be possible to partially terminate licenses and their maintenance fees without the corresponding purchase of new SAP applications. A primary condition of this will be a reevaluation of the remaining maintenance base for the non-terminated licenses.

That's about as clear as mud to me but it is in line with recent announcements and the detail on cloud license transfer which on the one hand look good but end up taking away with the other. SAP is a master at this tactic. DuPreez explains that according to Jens Bernotat, SAP’s VP of Strategy & Business Development Maintenance Go-To-Market:

...users will be able to terminate any licenses from the ‘classic SAP maintenance offering’, which includes enterprise support, standard support, product support for large enterprises, and so on...

...There are hundreds of current and legacy price list items, so there may be a special case that I’m not aware of at the moment. Business One is out of scope, and for third party products we are subject to the contracts we have with the third party provider.

So here we have the first set of complications and a tacit admission that SAP itself is not sure what will and will not be in scope for any particular customer. That needs remedying.

Is there value here?

The good news is that regardless of the way a customer has licensed, SAP will effectively pro-rate any reduction. The bad news is that SAP is going back to what would have been the price list discount at the time of licensing in order to recalculate any discount applied to the license - and therefore the maintenance. Bernotat admits:

"There will be situations where customers pay less, but we have a very complex licensing legacy and it is very difficult, if not impossible, to predict what will happen. Come to us and we will evaluate this with you...But you can probably take it as a general rule that the better your initial discounts have been, the more likely it is that you have a very good deal already and your economic attractiveness may be limited.”

OK - so now we are getting to it. In short, DSAG wants to push this agenda in the public domain but in reality, the impact might be limited to non-existent.

My take

Coincidentally, I have recently been dragged into a discussion on ABAP developer licenses. For those not familiar, developer licensing has been an on and off going voluntary advocacy of mine for six years. Without getting into any of that detail it's a mess where it is nigh on impossible to find the one throat to choke. Customer licensing is rarely much better and is once again attracting a fresh layer of complexity. Add in the fact SAP has become much keener on license audits and it is hardly surprising that I am also fielding inquiries on third party maintenance (3PM) alternatives by SAP SIs.

Checks in the field tell me that rather than being a net good, the SAP licensing legacy is not only making the maintenance overlords lives a living hell, but also that customers are becoming irritated that none of the announcements provide clear lines of sight with priced examples.

The message is clear: while customers always welcome initiatives that provide more bang for the buck, they also want a much simpler pricing landscape. It is worrying to see customers becoming annoyed to the point where I am receiving inquiries about 3PM from what I also see as SAP only shops. SAP won't want to see that become a trend, especially in light of the fact that SAP's on premise business is looking over a fiscal cliff of its own.

My advice

I've been told that certain licensing issues are not fixable. I call BS on that even though Bernotat is clearly signalling difficulty that won't get solved by a quick visit by field sales and support. When there were problems with developer licenses for HANA and mobile, senior executives quickly forced through the necessary changes. Everyone ended up smiling. That tells me that nothing is impossible. In short, the specter of legacy cannot be held up as the excuse that things are too complicated. Everyone knows it and wants to move on. The question is how?

A recalculation based upon an old discount structure doesn't make sense and adds unnecessary complexity. SAP has lost an opportunity to wow its customers by saying unequivocally: 'Yep, get those licenses parked, yep just strike 'em off the maintenance price.' Yes, that has a hit on the top and bottom line and something I can see some people scoffing at as Howlett being his mad self. But that's OK. Here's why.

That kind of discussion would allow SAP to easily open up new conversations about fresh functionality in an atmosphere where the customer sees it has gained some value. That's a 180 degree shift from the current give in one hand and take in another atmosphere that has become a recurring feature of many deals. Here's why it works.

I recently visited a restaurant where the food was great and very well presented but the service was appalling and they got the bill wrong. They blamed me for the bill being wrong. How dumb is that? Will I go back? Yes - when hell freezes over OR when management realizes that service matters just as much and especially so when there's a restaurant I can go to right around the corner that wants to give me the full service experience.

UPDATE: ASUGNews quotes Bernotat as saying: 

In any case, no recalculation of maintenance basis would ever lead to an overall higher payment than before—SAP would cap this, Bernotat says.

WTF? That runs counter to what he has said before. Clarity or clear as mud?  You decide...

Disclosure: SAP is a diginomica partner at the time of writing