2018 SAP Licensing explained uneasily


Among many of the questions we address from customers that want to open SAP environments to the rest of their IT environments, we came to the hot-topic around how this would be licensed. 

S/4HANA adoption could be related to speed, performance, real-time transactions and reports, but there are still many questions to be answered as why -apparently- the scope of S4/HANA looks smaller compared to SAP ECC (most of the functionality in S4/HANA is delivered through external SAP SaaS where ECC was a complete ERP) and when the customer will receive a complete idea of the cost for their SAP licenses. Download 5 Steps to optimize your SAP on AWS costs


Evolution of SAP Licensing

Bearing in mind the sometimes vague information that SAP provides, we have stablished a timeline approach to address the topic around SAP licenses.


1. SAP licensing up to 2016

SAP classic approach -in terms of licensing the product- has been around for more than 40 years, and always allowed customers ways to extend the use of their digital core by giving access to business partners and consumers via third-party applications or automated systems.

SAP licensing was designed for when our customer’s employees were expected to log directly into the SAP ERP to use it, identifying and licensing every individual using the software.

Now this is challenged by an increasing number of interactions between environments and the disruption of IoT devices or bots. It has been called “indirect access”, a no-issue back in the day but a real concern since SAP decided to take action, and customers were lost in the ocean, as Phil Wainewright, co-founder at Diginomica, quotes:

“With each additional new SAP product or enhancement, a new licensing contract gets added to the original, so that over a span of a couple dozen years, a typical SAP customer ends up with a drawer-full of separate contracts, with no easy way to establish the licensing impact of adding a user here or upgrading some functionality there — let alone track the impact of multiple changes.”

This matter led to a plea against beverage companies such as Diageo and InBev, that brought understandable anxiety in customers around the topic. Customers required from SAP predictability over their license commitments, transparency on their use, and consistency of sales and audit practices.


EDI – The question

Most large-scale organizations make extensive use of EDI documents and have done so for decades. It is stable, and even though it may seem prehistoric by internet standards, it works and it is widely adopted. EDI paradigm is one of the challenged topics by the indirect access, among others, from our experience, and it is clear that SAP is targeting Amazon as a company that is quietly transitioning from e-commerce and infrastructure giant to one that provides enterprise-grade software. 


 2. The 2017 workaround

In May, during SAPPhire, SAP's CEO Mr Dermott addresses the issue and brought a new pricing model for the Procure-to-Pay and Order-to-Cash scenarios in ERP -ECC or SAP S/4HANA- that will be based on orders, but SAP indicated that static read and access will not be charged, meaning "the data inside a customer's SAP system will not be charged to view outside of SAP." 

SAP releases a blog called modern pricing modern times, which is now outdated. The confusion was still in early stage, as SAP's proposal to measure indirect usage based on orders brought no indication what value could be attributed to these license measures. The document did not address every indirect access scenarios, such as IoT devices, bots, or intelligent systems, that part was out of the scope.

Customers saw uncertainty, especially as SAP was announcing SAP Leonardo and other IoT initiatives, that will lead to data being fed into and out of SAP. As a result, SAP user groups such as ASUG, DSAG and SUPG started intense discussions with SAP to address this topic during last part of the year in 2017.


3. 2018 - the first attempt

On April 2018, SAP releases three documents that we believe any SAP customer needs to read:

  1. Indirect Access Guide for SAP Installed Base Customers
  2. SAP ERP Pricing for the Digital Age Addressing Indirect/Digital Access
  3. SAP Global License Audit and Compliance Update

In addition to that, the following two blogposts are interesting too:

In summary, SAP has developed an outcome-based pricing model that differentiates between direct human access and indirect digital access. It is designed to provide customers the business certainty and predictability on their license commitment. Both documents showed that the solution 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.

For licensing, SAP organized the compliance. They really enlarged the definitions on indirect usage significantly. The writing of master data into SAP from a third party system is free of charge, just to name an example. 

The predictability of this new model begins with nine document types that represent system records of the most valued business outcomes from the ERP system. Use of the ERP system through indirect digital access will be licensed based on the initial creation of these documents, and the document license value is based on the total number of documents created. Documents includes several examples.  

SAP only counts and charges for the creation of documents by the ERP system triggered by indirect digital access, therefore eliminating the need for a separate Indirect Static Read policy for ERP. Direct human access to the digital core continues to be licensed based on users. No change there.

All new SAP S/4HANA customers will have the ability to license the new indirect digital access model from the beginning. Existing SAP ERP on-premise customers can choose the path that’s right for them. SAP also indicates they separate between License Sales from Audit and Compliance teams, becoming independent one from another. This is an important movement as although we don’t think we are at the end of the journey.

The split between audit and sales is very important because audit can no longer be used as leverage in negotiations. Anything arising in audit is not counted into the financial target of the sales people. They are trying to restore the trust SAP may has lost, so now they will have to focus on the real innovation that SAP is capable to bring to the market. 

There is a superb analysis of those two documents by Jon Reed blog: "SAP addresses the questions on its licensing and auditing news - an influencer event analysis" and "SAP Indirect Access new policies aid transparency, users remain uncertain" by Den Howlett both from Diginomica, in April 2018.

June 2018, during SAPPhire, it was hosted a pre-conference with in-depth discussion around licensing with SAP user groups such as ASUG or DSAG. During the conference SAP tries to define what is meant by "document type", which is a good step forward, but uncertain remains as SAP promises price neutrality, though this is vague in the real world, where one customer might be benefiting from this approach while other might be negatively affected. Imagine only a retail customer where a large number of orders are created in SAP vs a high-tech company that does not create many of the “9 addressed documents”, for instance. 

Also, the tests for this approach would be limited for release S4HANA 1805, and there is no customer with only S4HANA 1805 in their landscape, in order for a customer to test if this licensing is beneficial or not, there are many documents created in an order-to-cash scenario that need to be considered. 

On July 2018, SAP releases a document called "Licensing SAP Software – A Guide for Buyers", providing an overview of SAP licensing models with a special chapter that addresses the indirect access. The document quotes:

"The new pricing approach differentiates between direct human access (pricing continues to be user based) and indirect digital access (pricing is based on the number of transactions, called documents, processed within the digital core)"


4. SAP licensing in 2019 and moving forward

There are still some unanswered questions, specially if around supporting end-to-end options across SAP software is the right thing to do, but SAP will not to charge for data access to Ariba and Hybris from the SAP ERP.

If SAP is also starting to charge for IA licensing into these solutions, we believe customers would be unhappy about being “double charged” for that access. Not to mention the vast amount of SAP partners that interact with SAP products and give important value-add solutions. SAP is encouraged to create real-time license monitoring, taking away the need to do auditing, that creates complaints amongst their customers. 

We would suggest an approach to your local user group to understand the new licensing model and do the required maths if the new model is a good choice for your company or customer. SAP will be providing customers with tools to track their own licensing use, including a dashboard currently called “Entitlement-to-Consumption,” which is still in development. 

2019 will be a year with more releases from SAP in terms of licensing, focusing to services. Software as a Service, Platform as a Service, Infrastructure as a Service. All about services, as many companies are doing nowadays, a big trend under way, as businesses shift from owning assets to consuming services. Nobody’s going to own any assets. It’s all going to be comprised of an aggregation of a whole set of services. Every business will become a services business.


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